NOTE 10. STOCKHOLDERS’ EQUITY

(a) Stock options and stock award activity

The following table illustrates the common stock options granted for the years ended December 31, 2015 and 2014:

No. of

Exercise

price at

Vesting

Assumptions used in Black-Scholes

Title

Grant date

options

price

grant date

terms

option pricing model

Management, Directors and

Employees

January – December 2015

1,762,000

$0.69-$2.20

$1.25-$2.20

0 to 3.0 years

Volatility

84.33% -96.49%

Risk free interest rate

0.23%-2.17%

Expected term, in years

6.00-10.00

Dividend yield

0.00%

Consultants

May 2015

160,000

$1.98-$2.01

$1.89-$2.01

1.0 years

Volatility

91.55%

Risk free interest rate

0.23% -0.27%

Expected term, in years

6.00

Dividend yield

0.00%

Title

Grant date

No. of
options

Exercise
price

Share
price at
grant date

Vesting
terms

Assumptions used in Black-Scholes
option pricing model

Management,Directors and

Employees

February - August 2014

1,603,630

$2.38 - $3.58

Over 1.0-3.0 years

Volatility

87.53%-89.00%

Risk free interest rate

2.65%-2.82%

Expected term, in years

Dividend yield

0.00%

Consultants

February - September 2014

1,050,000

$2.38-$4.00

Over 1.0-3.0 years

Volatility

84.33%-87.21%

Risk free interest rate

2.17%-2.68%

Remaining expected term, in years

9.09-10.00

Dividend yield

0.00%

The following table illustrates the stock awards granted for the years ended December 31, 2015 and 2014:

		No. of		Share
		stock		price at		Vesting
Title	Grant date	awards		grant date		terms
Employees	January - December 2015		14,000		$2.47	Immediately
Consultants	January – December 2015		744,469		$1.16-$2.00	Immediately to 1 Year
Consultants	January-December 2014		2,357,588		$1.70-$4.82	Over 0.0-3.0 years

The following table summarizes information about stock awards and stock option activity for the year ended December 31, 2015:

	Options
			Weighted				Weighted		Aggregate
			Average				Average		Intrinsic
	Number		Exercise		Exercise Price		Grant Date		Value
	of Options		Price		Range		Fair Value		(000)s

Outstanding at January 1, 2014		3,192,849	$	3.81		$0.04 - $5,648.40	$	1.67	$	4,940
Granted		2,653,630	$	2.98		$2.38 - $4.00	$	2.36	$	-
Exercised		(20,012)	$	0.99		$0.99	$	1.47	$	38
Forfeited		(372,724)	$	3.92		$0.99 - $4.00	$	2.95	$	-
Expired		(106,889)	$	88.73		$0.04 - $5,648.40	$	-	$	-
Outstanding at January 1, 2015		5,346,854	$	1.70		$0.04 - $4.00	$	1.95	$	3,266
Granted		1,922,000		1.64		$0.69-$2.20	$	1.24		-
Exercised		(635,350)	$	0.50		$0.04-$0.71	$	-		194
Forfeited/Expired		(1,644,516)	$	4.92		$2.38-$4.00	$	-		-
Outstanding at December 31, 2015		4,988,988	$	1.56		$0.04-$4.00	$	1.97		527
Exercisable at December 31, 2015		3,733,767	$	1.34		$0.04-$4.00	$	1.66	$	526

	Stock awards
	Number of		Weighted
	Stock		Average
	Awards		Fair Value
Unvested at January 1, 2014		-	$	-
Granted		2,357,588		3.27
Vested		(2,196,886)		3.21
Forfeited		-		-
Expired		-		-
Unvested at December 31, 2014		160,702		4.06
Granted		650,135		1.69
Vested		(758,469)		1.73
Forfeited		(52,368)		-
Expired		-		-
Unvested at December 31, 2015		-	$	-

Stock-based compensation expense for the years ended December 31, 2015 and 2014 was $2.8 million and $6.5 million, respectively, which has not been tax-effected due to the recording of a full valuation allowance against net deferred tax assets.

(b) Warrants

The following table summarizes information about warrants outstanding at December 31, 2015 and 2014:

	Weighted
			Average		Exercise
	Number of		Exercise		Price
	Warrants		Price		Range
Warrants outstanding and exercisable January 1, 2014		2,005,684	$	16.23		$1.85-$124.20
Issued in connection with March 2014 Financing (1)		3,361,904	$	4.68		$4.25-$5.10
Adjustment to amount of warrants issued in connection with March 2014 Financing (2)		1,468,832	$	3.53		$3.39-$4.07
Warrants issued for amendment of Preferred C Stock (3)		427,179	$	3.00	$	3.00
Issuance to lead investors (4)		134,004	$	5.04	$	5.04
Warrants issued in connection with private placements (5)		412,000	$	4.44		$3.75-$5.00
Warrants issued to March 2014 Financing placement agent (6)		295,366	$	3.28		$3.00-$3.50
Issued in connection with November 2014 Financing (7)		1,078,725	$	3.75	$	3.75
Exercised (8)		(77,280)	$	3.00	$	3.00
Expired		(180,029)	$	94.04		$3.00-$124.20
Warrants outstanding and exercisable at December 31, 2014		8,926,385	$	5.06		$1.85-$65.60

Warrants issued to consultants (9)		160,000	$	1.98	$	1.98
Warrants issued to Hercules as part of July 2015 debt financing (10)		214,853	$	1.70	$	1.70
Warrants issued to July 2015 debt financings placement agent (10)		350,000	$	1.78	$	1.78
Warrants issued to placement agents in connection with Series D financing (11)		778,000	$	2.50	$	2.50
Warrants issued in conjunction with Series C Exchange (12)		431,457	$	3.00	$	3.00
Expired		(168,557)	$	-		-
Warrants outstanding at December 31, 2015		10,692,138	$	3.93		$1.66-$65.60
Warrants exercisable at December 31, 2015		8,917,828	$	4.23		$1.66-$65.60

(1)

As part of the units given to participants in the March 2014 Financing, the Company granted its investors with (i) a five-year warrant to purchase 50% or 100% (as per the agreement made with each investor) of the shares of common stock issuable for conversion of Preferred C stock shares, at an exercise price equal to the lower of $4.25 and 125% of the conversion price of the Preferred C Stock then in effect, and a five-year warrant to purchase 50% or 100% (as per the agreement made with each investor) of a share of common stock at an exercise price equal to the lower of $5.10 and 150% of the conversion price of the Preferred C Stock then in effect.

(2)

On April 25, 2014, the Company filed a Registration Statement on Form S-1 to register the resale of the shares of common stock underlying the Preferred C Stock, the shares of common stock underlying the March 2014 Warrants and certain shares of common stock that may be issuable as payment for dividends on the Preferred C Stock, which registration statement was declared effective by the SEC. Subsequently, and in accordance with the terms of the Preferred C Stock, such registration triggered a reduction of the conversion price of the Preferred C Stock from $3.40 to $2.71 and the exercise price of the warrants was reduced from $4.75 to $3.39 and from $5.10 to $4.07, as applicable. In addition, according to the warrant agreements, the number of warrants was increased, so that an additional 427,983 March 2014 Warrants at an exercise price of $3.39 and 427,983 at an exercise price of $4.07 were issued. Furthermore, on August 13, 2014, pursuant to an Amendment Agreement, the exercise prices of the March 2014 Warrants were reduced from $3.39 to $3.00 and from $4.07 to $3.50, and the number of warrants was increased from 2,108,938 to 2,381,342 and from 2,108,938 to 2,449,380, respectively. See Note 15.

(3)

On June 23, 2014, in connection with the amendment of its Certificate of Designations, the Company issued the June Warrants to purchase up to an aggregate of 427,179 shares of the Company’s Common Stock to the original purchasers of the Preferred C Stock. See Note 15.

(4)

On February 24, 2014, the Company’s Board of Directors approved an amendment to 2012 and 2013 warrant grants to investors of pre-Merger Immune Ltd. Such investors were originally granted with the option to purchase 20% instead of 50% of the shares of Immune Ltd. Therefore, as a remedy, the Company issued an additional 134,004 warrants, at an exercise price of $5.04. The total fair value of $0.3 million was determined using the Black-Scholes option-pricing model, with an expected term of 1.95-4.48 years, volatility of 90%, risk-free interest rate of 0.27%-1.43%. Because the issuance reflects a correction to previous grant, these warrants were accounted for within equity, following the accounting for the original transaction. The impact on current, as well as on any prior financial period was determined not to be material.

(5)

On August 13, 2014, the Company entered into an investment agreement with one of its investors. Pursuant to the agreement, the Company received a total of $2 million upon closing. As consideration, the Company issued the investor 500,000 shares of its common stock, at $4.00 per share, and granted the investor 250,000 warrants, at an exercise price of $5.00 with a term of five years. The fair value of the issued warrants is $0.6 million, which was determined using the Black-Scholes option pricing model, using the following assumptions: stock price of $4.11, expected term of 5.0 years, volatility of 83.44%, risk-free interest rate of 1.72%.

In September 2014, the Company entered into an agreement with one of its investors. According to the agreement, in consideration for $0.4 million, received by the Company in April 2014, it issued the investor 96,000 shares of its common stock and 162,000 warrants at an exercise price of $4.00 and term of five years. The fair value of the issued warrants is $0.4 million, which was determined using the Black-Scholes option pricing model, using the following assumptions: stock price of $3.92, expected term of 5.0 years, volatility of 83.44%, risk-free interest rate of 1.72%.

(6)

Prior to its March 2014 Financing, the Company entered into an agreement with its placement agent, according to which it was obligated to pay the agent 7% in cash and 7% in warrants of the total amount sold in the March 2014 Financing, as placement agent compensation. The warrants were to bear the same terms and conditions as the March 2014 Warrants. Although the cash fees were paid, the warrants due to the placement agent were inadvertently neither issued nor accounted for. The overall impact in prior periods, of such issuance, was: (i) an additional expense of $0.3 million, $0.1 million and $0.2 million in the statement of operations, in the three month periods ended March 31, 2014, June 30, 2014 and the six month period ended June 30, 2014, respectively; (ii) a total of $0.3 million and $0.3 million decrease in stockholders’ equity as of March 31, 2014 and June 30, 2014; (iii) a total of $0.4 million and $0.3 million increase in a long term derivative liability as of March 31, 2014 and June 30, 2014; The impact is deemed to be not material to the periods and therefore was recorded during the three month period ended September 30, 2014.

As of December 31, 2014, the Company accounted for the placement agent warrants, at a total fair value of $0.5 million, which was determined using the Black-Scholes option pricing model, with an expected term of 2.25 years, volatility of 74.4%, risk free interest rate of 0.71%. These warrants were accounted for following the accounting method used for the original transaction.

(7)

In connection with the November 2014 Offering (see Note 15), the Company issued warrants to purchase 1,078,725 shares of common stock exercisable immediately for a period of three years with a total exercise price of $3.75 per share. The fair value of the issued warrants is $1.4 million, which was determined using the Black-Scholes option pricing model, using the following assumptions: stock price of $2.75, expected term of 3.0 years, volatility of 84.66%, risk-free rate of 0.94%.

(8)

In September 2014, the Company’s Board of Directors agreed to extend the expiration date of 235,333 warrants, originally issued in connection with a financing transaction, at an exercise price of between $3.36 and $4.20, and original expiration dates of between September 2014 and February 2015, until December 31, 2015. As a result, the Company recorded an incremental value of $0.2 million, as a deemed dividend. Such value was determined using the Black-Scholes option-pricing model, with an expected term of 1.32 years, volatility of 75%, risk-free interest rate of 1.50%. Furthermore, the Company entered into agreements with certain warrant holders, according to which, a total of 162,288 warrants at an exercise prices ranging from $4.20 to $5.04 and remaining term of between one and four years, were exchanged for 162,288 warrants at an exercise price of $3.00 and expiration on October 30, 2014. As of December 31, 2014, a total of 77,280 were exercised and the remaining warrants expired. The modification did not have an impact on the Company’s consolidated financial statements, since the fair value of the new warrants was less than the fair value of the existing warrants prior to the modification.

	(9)	In June 2015, the Company issued 160,000 shares to a consultant for services performed, at an exercise price of $1.98 per share, exercisable commencing six months from the date of issuance and ending five years following the issuance date.
	(10)	In connection with the Loan Agreement with Hercules, the Company issued to Hercules a five-year warrant to purchase an aggregate of 214,853 shares of its common stock at an exercise price of $1.70 per share, subject to certain adjustments, including, if lower, the effective price of any financing occurring six months after the issuance date. The placement agent for the Loan Agreement received $0.3 million upon the closing of the Hercules Loan and warrants to purchase an aggregate of 350,000 shares of common stock, at an exercise price of $1.78 per share, exercisable commencing six months following the issuance date and ending five years following the issuance date.
	(11)	Upon closing of the $9.0 million Discover financing, the co-placement agents received an aggregate of $0.6 million upon closing and each received warrants to purchase an aggregate of 275,000 shares of the Company’s common stock, for a total of 550,000 shares of common stock, at an exercise price of $2.50 per share, exercisable commencing six months following the issuance date and ending five years following the issuance date. Upon closing of the additional $3.0 million Discover financing, the co-placement agents received an aggregate of $0.2 million in cash and each received warrants to purchase an aggregate of 114,000 shares of the Company’s common stock, for a total of 228,000 shares of common stock, at an exercise price of $2.50 per share, exercisable six months following the issuance date and ending five years following the issuance date.
	(12)	In July 2015, in connection with the Exchange Agreement with Holders of all of the shares of Series C Preferred Stock, the Company agreed to issue the Holders an aggregate of 2,238,282 shares of its common stock and five-year warrants to purchase an aggregate of up to 431,457 shares of the Company’s common stock, at an exercise price of $3.00 per share and exercisable commencing six months following the date of issuance. See Note 10(d).

(c) Performance Based Options

On May 6, 2015, the Company’s Board of Directors, pursuant to the recommendation of the Compensation Committee of the Board of Directors of the Company (“Compensation Committee”), granted an option to purchase up to 250,000 shares of the Company’s common stock to Dr. Daniel G. Teper, the Company’s Chief Executive Officer, as performance-based compensation. The performance-based options were granted at an exercise price of $1.87 per share and will vest upon the Company’s achievement of certain operational, financing and partnership objectives that were determined by the Compensation Committee.

In connection with the granting of the performance-based options to Dr. Teper, the Company recorded a charge to stock compensation expense of $0.2 million for the year ended December 31, 2015 because the Company determined that the achievement of the performance options vesting criteria was deemed to be probable. The Company is amortizing the expense over the expected term of the performance options (see Note 16).

(d) Series C Preferred Stock

In July 2015, the Company entered into Securities Exchange Agreements (“Exchange Agreement”) with certain holders (“Holders”) of all of their shares of Series C 8% Convertible Preferred Stock (“Series C Preferred Stock”), pursuant to which the Company agreed to issue the Holders an aggregate of 2,238,282 shares of its common stock and five-year warrants to purchase an aggregate of up to 431,457 shares of the Company’s common stock, at an exercise price of $3.00 per share and exercisable commencing six months following the date of issuance. In exchange, the Holders’ agreed to exchange an aggregate of 2,286 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 each Holder’s Preferred Stock ownership. As of December 31, 2015, 0 shares of the Company’s Series C Preferred Stock remained outstanding. The Exchange Agreement was considered to be an inducement in accordance with ASC 470 and as a result, the Company recorded the excess of (i) the fair value of all securities and other consideration transferred by the Company to the Series C Preferred Stock holders and (ii) the fair value of securities issuable pursuant to the original conversion terms are added to the Company’s net loss to arrive at loss available to common stockholders in the calculation of loss per share. Prior to the Exchange Agreement, the Company issued 389,281 shares of its common stock in exchange for the conversion of 546 shares of Series C Preferred Stock. For the year ended December 31, 2015, the Company charged to additional paid-in capital approximately $1.6 million in deemed dividend related to the Series C Preferred Stock. See Note 15.

(e) 10b5-1 Plan

On September 1, 2015, Dr. Daniel G. Teper, the Company’s Chief Executive Officer, purchased 7,569 shares of the Company’s common stock at $1.29 per share. On September 15, 2015, Dr. Teper, established a stock trading plan (the “10b5-1 Plan”) with respect to purchases in the open market of up to an aggregate of $0.3 million worth of the Company’s common stock in accordance with Rule 10b5-1 under the Securities and Exchange Act of 1934, as amended (the “Act”) and other applicable federal securities laws and regulations adopted by the Securities and Exchange Commission (the “SEC”). Through March 2016, Dr. Teper had purchased $0.3 million worth of the Company’s common stock in purchases under the 10b5-1 Plan. On September 14, 2015, the Chairman of the Company’s Board of Directors purchased 50,000 shares of the Company’s common stock at $1.47 per share and on December 7, 2015 purchased an additional 240,623 shares of the Company’s common stock at a price of $0.79.

(f) Equity Incentive Plan

The Company’s 2005 Equity Incentive Plan, as amended and restated, expired in September 2015. On December 9, 2015, the 2015 Equity Incentive Plan (“2015 Plan) was approved at the Company’s 2015 Annual Meeting of Stockholders. The 2015 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code to the Company’s employees and its parent and subsidiary corporations’ employees, and for the grant of non-statutory stock options, restricted stock, restricted stock units, performance-based awards and cash awards to its employees, directors and consultants and its parent and subsidiary company’s employees and consultants. The Company’s Board of Directors determines the terms of the 2015 Plan such as vesting period. A total of 5,000,000 shares of the Company’s common stock is reserved for issuance pursuant to the 2015 Plan. No optionee may be granted an option to purchase more than 1,500,000 shares in any fiscal year. Options issued pursuant to the 2015 Plan have a maximum maturity of 10 years. The 2015 Plan will expire on November 12, 2025. On December 24, 2015, the Company filed a Registration Statement on Form S-8 (Registration No. 333-208754), which registered the 5,000,000 common shares that may be issued or sold under the plan.

(g) Employee Stock Purchase Plan

The Employee Stock Purchase Plan (the “ESPP”) is implemented by offerings of rights to all eligible employees from time to time. Unless otherwise determined by the Company’s Board of Directors, common stock is purchased for accounts of employees participating in the ESPP at a price per share equal to the lower of (i) 85% of the fair market value of a share of the Company's common stock on the first day of offering or (ii) 85% of the fair market value of a share of the Company's common stock on the last trading day of the purchase period. Each offering period will have six-month duration. There were no shares issued under the ESPP during the year ended December 31, 2015, and no expense has been recorded. A total of 998,043 shares are available for issuance under the ESPP as of December 31, 2015.