Stockholders' Equity

3 Months Ended

Mar. 31, 2014

Equity [Abstract]

Stockholders' Equity

9. Stockholders’ Equity:

Stock-based compensation:

During the three months ended March 31, 2014, a total of 109,685 options to purchase Common Stock with an aggregate fair market value of approximately $0.6 million were granted to Company employees. The options granted have a term of 10 years from the grant date and vest ratably over a three year period. The fair value of each option is amortized as compensation expense evenly through the vesting period. The fair value of each option award is estimated on the grant date using the Black-Scholes valuation model that uses assumptions for expected volatility, expected dividends, expected term, and the risk-free interest rate. Expected volatilities are based on implied volatilities from historical volatility of the Common Stock, and other factors estimated over the expected term of the options. The expected term of options granted is derived using the “simplified method” which computes expected term as the average of the sum of the vesting term plus contract term. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected term. The weighted average for key assumptions used in determining the fair value of options granted during the three months ended March 31, 2014 follows:

Expected price volatility	76.23-78.05%
Risk-free interest rate	1.58%
Weighted average expected life in years	6 years
Dividend yield	—

Option activity during the three months ended March 31, 2014 was as follows:

	Number of Shares			Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
Outstanding at January 1, 2014		4,192,927		$	3.82
Granted in 2014:
Officers and Directors		—			—
Others		109,685			7.63
Exercised		(826,236	)		3.10
Forfeitures		—			—
Outstanding at March 31, 2014		3,476,376		$	4.12	$	15,034,087

Options outstanding at March 31, 2014 are as follows:

Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Aggregate Intrinsic Value
$1.00 – 5.00		2,429,532		5.64	$	3.13
$5.01 – 10.00		1,046,844		4.37	$	6.42
		3,476,376					$	15,034,087

Options exercisable at March 31, 2014 are as follows:

Range of Exercise Prices	Number Exercisable		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Aggregate Intrinsic Value
$1.00 – 5.00		2,051,682		5.08	$	3.01
$5.01 – 10.00		881,500		3.36	$	6.33
		2,933,182					$	12,998,927

The weighted average grant date fair value of options granted during the three months ended March 31, 2014 was $5.13. There were no options granted during the three months ended March 31, 2014 whose exercise price was lower than the estimated market price of the stock at the grant date. A summary of the status of the Company’s non-vested stock options as of January 1, 2014, and changes during the three months ended March 31, 2014 is summarized as follows:

Nonvested Shares	Shares			Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Nonvested at January 1, 2014		614,468
Granted		109,685
Vested		(180,959	)
Forfeited		—
Nonvested at March 31, 2014		543,194		$	3.29	$	2,035,160

As of March 31, 2014, there was approximately $14.6 million of unrecognized compensation cost related to non-vested share-based compensation awards, including options and restricted stock units (“RSUs”) granted. These costs will be expensed through 2017.

Warrants:

The Company has granted warrants to purchase shares of Common Stock. Warrants may be granted to affiliates in connection with certain agreements. Warrants outstanding at March 31, 2014, all of which are exercisable are as follows:

Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Aggregate Intrinsic Value
$0.01 – 5.00		1,663,114		1.23	$	3.56	$	8,121,117

During the three months ended March 31, 2014, a total of 515,000 shares of Common Stock underlying warrants were exercised for proceeds to the Company of $2.6 million. Also during the three months ended March 31, 2014, there were 178,678 shares of Common Stock underlying a warrant exercised on a cashless basis, which resulted in a net exercise of 97,549 shares to the warrant holder.

Common Stock

In November 2013, the Company filed a shelf registration statement which registered up to $75 million of the Company’s securities for potential future issuance, and such registration statement was declared effective on December 18, 2013. Concurrently with the filing of such registration statement, the Company established an “at-the-market” offering program utilizing the universal shelf registration for up to $15 million of Common Stock. Cantor Fitzgerald & Co. is the placement agent for such offering program. In January 2014, the Company sold 658,489 shares of Common Stock under such offering program for approximate net proceeds of $3.9 million.

On February 7, 2014, the Company entered into a definitive Securities Purchase Agreement with certain institutional investors relating to a registered direct offering by the Company of 7,500,000 shares of the Company’s Common Stock, par value $.001 per share. The shares were sold at a price of $8.00 per share, yielding net offering proceeds of $58.2 million. The offering price per share was determined based on an approximately 3.1% discount to the closing price of the Common Stock on February 7, 2014.

During the three months ended March 31, 2014, Company employees, directors and affiliates exercised approximately 0.8 million stock options, with net proceeds to the Company of approximately $2.6 million.

Preferred Stock

The Company has authorized five million “blank check” shares of $.001 par value convertible preferred stock. At March 31, 2014, 2,709,300 shares of Series A Preferred were outstanding.

Restricted Stock Units:

During the three months ended March 31, 2014, a total of 997,500 restricted stock units (“RSUs”) were granted to members of the Company’s senior management, with a fair market value of approximately $8.8 million. The fair value of restricted units is determined using quoted market prices of the Common Stock and the number of shares expected to vest. These RSUs were issued under the Company’s 2011 Equity Incentive Plan, as amended, and vest in equal installments over three years.

Also during the three months ended March 31, 2014, a total of 359,446 RSUs that were previously granted to members of the Company’s senior management vested. Such vested RSUs had a fair market value of approximately $3.2 million. The fair value of restricted units is determined using quoted market prices of the Common Stock and the number of shares expected to vest. These RSUs were issued under the Company’s 2011 Equity Incentive Plan, as amended.

Performance Long Term Incentive Plan

In December 2012, the Company’s Board of Directors approved the BDSI Performance Long Term Incentive Plan (“LTIP”). The LTIP is designed as an incentive for the Company’s senior management to generate revenue for the Company.

The LTIP consists of RSUs (which are referred to in this context as Performance RSUs) which are rights to acquire shares of Common Stock. All Performance RSUs granted under the LTIP will be granted under the Company’s 2011 Equity Incentive Plan (as the same may be amended, supplemented or superseded from time to time) as “Performance Compensation Awards” under such plan. The participants in the LTIP are either named executive officers or senior officers of the Company.

The term of the LTIP began with the Company’s fiscal year ended December 31, 2012 and lasts through the fiscal year ended December 31, 2019. The total number of Performance RSUs covered by the LTIP is 1,078,000, of which 978,000 were awarded in 2012 (with 100,000 Performance RSUs being reserved for future hires). The Performance RSUs under the LTIP did not vest upon granting, but instead are subject to potential vesting each year over the 8 year term of the LTIP depending on the achievement of revenue by the Company, as reported in our Annual Report on Form 10-K. During the three months ended March 31, 2014, a total of 4,447 RSUs vested, subject to performance criteria.