Note 10 - Stockholders' Equity

3 Months Ended

Mar. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Note 10—Stockholders’ Equity

(a) Stock Option Plans

a. Immune Ltd 2011 Share Ownership and Option Plan

On May 5, 2011, Immune Ltd.’s board of directors adopted and its stockholders approved the Immune Pharmaceuticals Ltd. 2011 Share Ownership and Option Plan (the “Immune Ltd. Plan”), authorizing Immune Ltd. to grant ordinary shares to eligible employees, directors, and consultants in the form of share options and other types of share purchase rights. The amount, terms, and exercisability provisions of grants are determined by the board of directors. 4,500,000 ordinary shares were reserved for issuance under the Immune Ltd. Plan, of which 4,036,576 were granted, net of cancellations, and exercises as of the Merger date.

The fair value of share based awards granted to a non-employee are marked-to-market on each valuation date until vested using the Black Scholes pricing model. The following table summarizes the stock-based compensation expense from the date of Inception to March 31, 2014:

	Shares			Range of Exercise Price				Weighted Average Exercise Price
Options outstanding at December 31, 2011		—		$		—		$	—
Granted		3,890,534			0.03	—	2.00		0.33
Forfeited		(115,000	)		0.44	—	0.61		0.57
Options outstanding at December 31, 2012		3,775,534			0.03	—	2.00		0.32
Granted		790,000			0.61	—	1.80		1.15
Forfeited		(528,958	)		0.03	—	0.61		0.33
Transferred to Immune 2013 Plan		(4,036,576	)	$	0.03	—	2.00		0.37
Options outstanding at December 31, 2013 and March 31, 2014		—						$	—

All of the issued and outstanding options to purchase ordinary shares of Immune Ltd. were exchanged for options to purchase 2,495,951 (effected for the Merger ratio) shares of the Company’s common stock and assumed by the Company in connection with the Merger. The Immune Ltd. Plan has been terminated and no further options will be issued.

b.  Immune Option Plans

The 2005 Equity Incentive Plan (the “2005 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 corporations’ employees and consultants. The terms such as vesting period are determined by the board of directors. A total of 13,000,000 shares of the Company’s common stock are reserved for issuance pursuant to the 2005 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 2005 Plan have a maximum maturity of 10 years.

In September 2013, the Company created the 2013 Immune Pharmaceuticals Inc. Stock Ownership and Option Plan (the “2013 Plan”) and assumed within the 2013 Plan the outstanding options to purchase 2,495,951 shares of the Company’s common stock at a weighted average exercise price of $0.60 per share expiring in the years 2022 and 2023 that had been originally issued through the Immune Ltd Plan. No additional shares will be issued from the 2013 Plan. The Company intends to use the 2005 Plan for its future issuances of incentive stock compensation.

(b) Stock options and stock award activity

The following table illustrates the common stock options granted for the three month period ended March 31, 2014:

Title	Grant date	No. of options	Exercise price			Share price at grant date			Vesting terms (years)			Assumptions used in Black-Scholes option pricing model
Management, Directors and Employees	February 2014	1,075,000		$2.38			$2.38		Over 1.0	-	3.0	Volatility		89%
												Risk free interest rate		2.82%
												Expected term, in years		10.00
												Dividend yield		0.00%
Consultants	February-March 2014	155,000	$2.38	-	$4.00	$2.38	-	$4.00		Over 1.0		Volatility		89%
												Risk free interest rate	2.82%	-	3.01%
												Remaining expected term, in years		10.00
												Dividend yield		0.00%

The following table illustrates the stock awards for the three month period ended March 31, 2014:

Title	Grant date	No. of stock awards	Share price at grant date			Vesting terms (years)
Consultants	January-March 2014	715,955	$1.70	-	$4.82	Over 0	-	3

The following table summarizes information about stock awards and stock option activity for the three month period ended March 31, 2014:

	Stock awards					Options
	No. of stock awards			Weighted average grant date fair value		No. of options			Weighted average exercise price		Exercise price range			Weighted average grant date fair value		Aggregate Intrinsic Value
Outstanding at January 1, 2014		—			—		3,192,849		$	3.81	$0.04	—	$4,153.00	$	1.67	$	12,042
Granted		715,955		$	2.33		1,230,000		$	2.53	$2.38	—	$4.67	$	2.15	$	2,818
Exercised		(415,955	)	$	2.64		—			—		—			—		—
Forfeited		—			—		—			—		—			—		—
Expired					—		(276	)	$	5,648		$5,648.40			—	$	—
Outstanding at March 31, 2014		300,000		$	2.25		4,422,573		$	3.10	$0.04	-	$4,153.00	$	1.81	$	14,860
Exercisable at March 31, 2014		—			—		2,917,809		$	3.51	$0.04	-	$5,648.40	$	1.64	$	14,507

The Company recognized total share-based compensation expense of $1,864, $624 and $9,681 in the periods ended March 31, 2014 and March 31, 2013 and from Inception through March 31, 2014, respectively. The total remaining unrecognized compensation cost related to the non-vested stock options, restricted stock and restricted stock units amounted to $9,594 as of March 31, 2014, which will be amortized over the weighted-average remaining requisite service period of 1.60 years. The stock-based compensation expense has not been tax-effected due to the recording of a full valuation allowance against net deferred tax assets.

(c) 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 the 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.

The number of shares to be purchased at each balance sheet date is estimated based on the current amount of employee withholdings and the remaining purchase dates within the offering period. The fair value of share options expected to vest is estimated using the Black-Sholes option-pricing model. There were no shares issued under the ESPP during the three months ended March 31, 2014 and 2013, so no expense was recorded. A total of 998,043 shares are available for issuance under the ESPP as of March 31, 2014.

(d) Warrants

The following table summarizes information about warrants outstanding at March 31, 2014:

	Number of Warrants			Weighted Average Exercise Price		Exercise price range
Warrants outstanding at January 1, 2014		2,005,684		$	16.23	$1.10	-	$124.20
Issued in connection with March 2014 financing (1)		3,361,904		$	4.68	$4.25	-	$5.10
Issuance to lead investors (2)		134,004		$	5.04		$5.04
Expired		(11,574	)	$	135.00		$135.00
Warrants outstanding at March 31, 2014		5,490,018		$	8.84	$1.10	-	$124.20

(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. For further discussion refer to Notes 3 and 9.

(2) 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 additional 134,004 warrants, at an exercise price of $5.04. The total fair value of $274 was determined using the Black-Sholes 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.