Note 1 – Description of Business

Organization and Description of Business

Immune Pharmaceuticals Inc., together with its subsidiaries (“Immune”, “we”, “us”, “our” or the “Company”) is a clinical stage biopharmaceutical company specializing in the development and commercialization of targeted therapeutics, including monoclonal antibodies (“mAbs”), nano-therapeutics and antibody drug conjugates, for the treatment of inflammatory diseases and cancer. The Company favors a personalized approach to treatment, with the development and use of product candidates with companion diagnostics. The Company’s core pipeline includes: bertilimumab, a clinical-stage first-in-class fully human antibody, targeting eotaxin-1, which has been shown to be involved in a number of in clinical development for ulcerative colitis and bullous pemphigold, topical nano-formulated cyclosporine A for the treatment of atopic dermatitis (eczema) and psoriasis and NanomAbs® a technology platform that allows the targeted delivery of chemotherapeutics into cancer cells, the lead candidate is an HER2 Targeted nanomAb developed in partnership with STC Biologics toward an IND. The Company continues to review opportunities relating to the Company’s non-core assets with a focus on AmiKet^TM.

Recent Developments

On August 13, 2015, the Company signed an amendment to the New York, NY lease agreement with Alexandria Real Estate for offices and for lab space for an additional 1,674 square feet commencing on September 1, 2015 and ending in 2020. The total base rent for offices and lab space is $30 per month, subject to annual rent escalations.

On July 29, 2015, the Company announced that it has secured financings of up to $21.5 million through two financing agreements. The first, with Hercules Technology Growth Capital, Inc. (NYSE: HTGC) ("Hercules"), for a term loan of up to $9.5 million. The second agreement, with mutual fund Discover Growth Fund (“Discover”), for the sale to Discover of newly created Series D Redeemable Convertible Preferred Stock (“Series D Preferred Stock”) for up to $12.0 million in gross proceeds to the Company. Immune received $13.5 million in gross proceeds: $9.0 million from Discover and $4.5 million from Hercules, following the execution of the two agreements. Immune expects to receive an additional $3.0 million from Discover upon an effective “resale” registration statement pertaining to the Series D Preferred Stock and stockholders approval in accordance with the NASDAQ rules as of July 28, 2015. Immune also has the option to draw down additional capital under the term loan with Hercules of up to $5.0 million prior to June 15, 2016, subject to certain clinical milestones and other conditions (see Note 13).

In July 2015, the Company entered into Securities Exchange Agreements (the “Exchange Agreements”) with certain holders (the “Holders”) of all of their shares of Series C 8% Convertible Preferred Stock, par value $0.0001 per share (“Series C Preferred Stock”), pursuant to which the Company agreed to issue the Holders an aggregate of 2,593,433 shares of its common stock, $0.0001 par value (the “Common Stock”) and five-year warrants to purchase an aggregate of up to 431,711 shares of Common Stock, at an exercise price of $3.00 per share and exercisable commencing six months following the date of issuance, in exchange for the Holders’ aggregate of 2,442 shares of Series C Preferred Stock, originally issued by the Company on March 14, 2014, including any accrued but unpaid dividends payable thereon (the “Exchange”), pro rata to such Holder’s Preferred Stock ownership. The terms of the Exchange were determined by arms-length negotiations between the parties.

On July 7, 2015, the Company entered into an amendment (the “Amendment”) to that certain license agreement (the “License Agreement”), dated as of December 18, 2003, by and between the Company and Endo Pharmaceuticals Inc. (“Endo”). Pursuant to the Amendment, effective as of July 7, 2015, the License Agreement was terminated and the Company transferred to Endo the right in and to certain patents related to the use of topical lidocaine in acute and chronic back pain and the Company was granted a royalty-free, non-exclusive, transferable license to such patents. In addition, in the event Endo obtains regulatory approval for either acute or chronic lower back pain indication for its product, Lidoderm®, or any other lidocaine based product, Endo shall pay the Company certain milestone payments and royalties as set forth in the License Agreement. Pursuant to the Amendment, the Company has re-gained full exclusive rights to develop, commercialize and license LidoPain®, a high-dose lidocaine patch for the treatment of acute pain. LidoPain® is currently in Phase II clinical trial development.

On June 25, 2015, the Company entered into a definitive research and license agreement (the “License”) with Yissum. Under the License, the Company has obtained an exclusive, worldwide license from Yissum, with certain sublicensing rights, to make commercial use of certain of Yissum’s patents and know-how in connection with a topical nano-formulated delivery of AmiKet for the development, manufacturing, marketing, distribution and commercialization of products based on the technology. In consideration for the License, the Company shall pay Yissum the following payments throughout the term of the License:

An annual maintenance fee of $30 commencing on June 25, 2020, which maintenance fee shall increase by 30% each year, up to a maximum annual maintenance fee of $0.1 million and may be credited against royalties or milestone payments payable in the same calendar year.

Royalties on net sales of products (as such term is defined in the License) by the Company in the amount of up to 3%, subject to certain possible reductions in certain jurisdictions.

Milestones payments of up to approximately $4.5 million upon the achievement of certain regulatory, clinical development and commercialization milestone.

In addition, the Company shall reimburse Yissum within 60 days for all of Yissum’s past, documented expenses and costs, if any, relating to the registration and maintenance of the licensed patents. The Company has also certain indemnification obligations under the License and it is obligated to procure and maintain certain comprehensive general liability insurance policies. As of June 30, 2015, Yissum had not incurred any expenses subject to reimbursement by the Company.

Furthermore, the Company will sponsor a research program to be determined by the parties, which program will be conducted by, or under the supervision of Prof. Simon Benita. The Company will pay Yissum an annual research fee of $0.4 million, plus VAT and any applicable taxes, commencing on October 1, 2015 (or such other time as mutually agreed between the parties). The results of the research, including any patents or patent applications shall automatically be licensed to the Company.

On June 10, 2015, the Company entered into a binding memorandum of understanding (the “MOU”) with Yissum Research Development Company of The Hebrew University of Jerusalem, Ltd. (“Yissum”) regarding certain of Yissum’s patents developed by Prof. Simon Benita in connection with nanoparticles for topical delivery of active agents for cyclosporine A. Oral cyclosporine A was approved by the U.S. Food and Drug Administration for the treatment of psoriasis and by the European Medicines Agency for psoriasis and atopic dermatitis. Topical cyclosporine A may be used, subject to regulatory approval, as an alternative to the oral formulation and other topical drugs and it will expand our dermatology development portfolio. Pursuant to the MOU, the Company will enter into a definitive license agreement (the “License”) with BNS, Ltd., a company to be established by Yissum and Prof. Benita (“BNS”), within six months of the date of the MOU (subject to an extension), for the commercial development and marketing of the technology worldwide. In addition, the Company will sponsor Yissum’s further research and development of the technology for cyclosporine A.

In consideration for the License to be executed between the parties, the Company will be obligated to pay Yissum the following payments:

An annual maintenance fee of $30 commencing five years following the execution of the License, which maintenance fee shall increase at a rate of 30% each year, up to a maximum of $0.1 million, and may be credited against royalties or milestone payments payable in the same calendar year.

Royalties on net sales of products by the Company in the amount of up to 5%, subject to certain possible reductions.

License fees of $0.5 million, payable in four quarterly installments, commencing upon the execution of the License.

Up to approximately $4.5 million upon the achievement of certain regulatory, clinical development and commercialization milestones.

In addition, the Company will sponsor the further research of the technology to be conducted by Yissum, with a minimum payment of $0.3 million for the first year, which amount shall be reviewed and approved by the parties on an annual basis. Furthermore, in consideration for Yissum not offering the technology to any third party for a period of six-months after the execution of the MOU, the Company has agreed to issue BNS, upon the execution of the License, 250,000 shares of the Company’s common stock and provide BNS certain piggy- back registration rights with respect to those shares.

On May 4, 2015, we announced the entry into a strategic partnership with STC Biologics to accelerate the development of NanomAbs, a new generation of Antibody Nanoparticle Conjugates allowing the targeted delivery of chemo-therapeutics. The collaboration is focused on the development of an HER2 targeted nanomAb toward an IND and clinical trials.

On April 14, 2015, the revolving line of credit was amended to remove Melini Capital Corp’s (“Melini”) right to terminate the revolving line of credit subsequent to the November 2014 capital raise and instead provide Melini the right to terminate the line on the earlier of (i) one year from the amendment date, or (ii) the completion of a capital raise in excess of $5.0 million (see Notes 6 and 12). The revolving line of credit was further amended upon the completion of the July 29, 2015 financings in which the Company completed a capital raise greater than $5.0 million. On August 7, 2015, Melini agreed to extend the revolving line of credit until September 30, 2015 and extend the revolving line of credit thereafter on a quarterly basis upon Melini’s consent.