Series B Convertible Preferred Stock

On January 7, 2011, the Company issued 2,525,677 Series B Shares related to the Asphelia Asset Purchase. The terms, rights, preference and privileges of the Company's Series B Shares are as follows:

Voting Rights

Holder of Series B Shares vote together with the Common Stock on all matters, on an as-converted to Common Stock basis, and not as a separate class or series (except as otherwise may be required by applicable law). There is no cumulative voting.

Liquidation

In the case of a liquidation event, including a sale, merger or winding up of the Company, the holders of Series B Shares shall be entitled to receive $8.39 per share (representing 150% of the original issuance price), out of the proceeds of such liquidation, in preference to the holders of Common Stock.

Conversion

Each Series B Share will be voluntarily convertible into one share of Common Stock at the election of the holder. Additionally, each Series B Share will automatically convert into one share of Common Stock upon the effective date of a registration statement covering the resale of the underlying Common Stock.

Dividends

Dividends are payable when and if declared by the Board of Directors. There are no cumulative accruing dividend rights.

Fully Paid and Nonassessable

All of the Company's outstanding Series B Shares are fully paid and nonassessable.

Special Dividend Declaration

The Company's Board of Directors declared a dividend for an aggregate of 2,178,917 shares of Common Stock to the holders of Series A Convertible Preferred Stock ("Series A Shares") in satisfaction of a special dividend that would have been due to the Series A Shares (the "Special Dividend") on April 26, 2012. In connection with such issuance, the Company (i) eliminated the provision for the Special Dividend due on April 26, 2012 and (ii) amended the event which will trigger an automatic conversion of Series A Shares and Series B Shares into shares of Common Stock to be the effective date of a registration statement covering the resale of the underlying Common Stock. The Special Dividend was declared and paid in May 2011. The fair value of the Common Stock was $5.9 million and recorded as a liability and a reduction of additional paid-in capital.

Series C Convertible Preferred Stock

On June 30, 2011, the Company completed an offering of 4,612,624 shares of Series C Convertible Preferred Stock (the "Series C Shares") at $5.59 per share resulting in net proceeds to the Company of approximately $22.9 million. The terms, rights, preference and privileges of the Company's Series C Shares are as follows:

Voting Rights

Holder of Series C Shares vote together with the Common Stock on all matters, on an as-converted to Common Stock basis, and not as a separate class or series (except as otherwise may be required by applicable law). There is no cumulative voting.

Liquidation

In the case of a liquidation event, including a sale, merger or winding up of the Company, the holders of Series C Shares shall be entitled to receive $8.39 per share (representing 150% of the original issuance price), out of the proceeds of such liquidation, in preference to the holders of Common Stock.

Conversion

Each Series C Share will be voluntarily convertible into one share of Common Stock at the election of the holder. Additionally, each Series C Share will automatically convert into one share of Common Stock upon the effective date of a registration statement covering the resale of the underlying Common Stock.

Dividends

Dividends are payable when and if declared by the Board of Directors. There are no cumulative accruing dividend rights.

Fully Paid and Nonassessable

All of the Company's outstanding Series C Shares are fully-paid and nonassessable.

Warrants for Common Stock

Non-Employee Warrants

In February 2011, the Company issued fully- vested warrants to purchase 50,000 shares of Common Stock at an exercise price of $1.37 per share as compensation for consulting services provided by non-employees. The warrant expires on the fifth anniversary of its issuance date. The initial fair value of the warrant was calculated using a Black-Scholes option pricing model with the following assumptions: five year contractual term; 93.2% volatility; 0% dividend rate; and a risk-free interest rate of 2.65%. The fair value of the warrants was determined to be $69,000 and was recorded as additional paid-in capital in the consolidated balance sheets and as a component of research and development expense in the consolidated statements of operations.

In March 2011, the Company issued a warrant to purchase 60,000 shares of Common Stock at an exercise price of $1.37 per share as compensation for consulting services provided by a non-employee. The warrant expires on the tenth anniversary of its issuance date and vest over six months. The initial fair value of the warrant was calculated using a Black-Scholes option pricing model with the following assumptions: ten year contractual term; 95.4% volatility; 0% dividend rate; and a risk-free interest rate of 3.58%. The fair value of the warrants was determined to be $98,000 and was recorded as additional paid-in capital in the consolidated balance sheets and as a component of research and development expense in the consolidated statements of operations. This warrant was marked to market at each reporting date until it is fully vested.

In the three months ended September 30, 2011, the Company issued warrants to purchase 75,000 shares of Common Stock at exercise prices ranging from $2.95 to $7.38 per share as compensation for services provided by consultants. The warrants expire on the third or fifth anniversaries of their issuance dates and vest at various times over two years. The initial fair values of the warrants were calculated using a Black-Scholes option pricing model with the following assumptions over their contractual terms of three or five years: 90.1% to 96.3% volatility; 0% dividend rate; and risk-free interest rates of 0.4% to 0.9%. The fair value of the warrants was determined to be $150,000 and is being recorded as additional paid-in capital in the consolidated balance sheets and as a component of general and administrative expense in the consolidated statements of operations. These warrants will be marked to market at each reporting date until fully vested.

Warrants to Purchase Series C Shares

In connection with the Company's Series C Share offering, the Company (i) paid to National Securities Corporation ("NSC"), a related party, as consideration for its services as the placement agent, a fee equal to 10% of the gross proceeds of the issuance, or $2.6 million, and (ii) issued warrants to NSC to purchase an aggregate of 461,263 shares of the Company's Series C Shares at an exercise price of $5.59 per share. The warrants are fully vested and exercisable for five years commencing May 31, 2011.

The fair value of the warrants was $1.3 million as measured on the date of issuance and was recorded as a reduction in the carrying value of the Series C Shares and a warrant liability. The warrants are marked-to-market each reporting period, which resulted in $115,000 decrease in the warrant liability at September 30, 2011 from the balance at June 30, 2011. The estimated fair value of $1,170,000 at September 30, 2011 was determined using an option pricing model assuming 90.9% volatility, a 1.76% risk-free rate of interest, a term of five years and an estimated fair value of the Company's Series C Shares of $5.59 per share.

Stock-based Compensation

Stock-based Compensation Plans

As of September 30, 2011, the Company has one active equity compensation plan, the Coronado Biosciences, Inc. 2007 Stock Incentive Plan (the "Plan"), for employees, non-employees and outside directors.

Compensation Expense The following table summarizes the stock-based compensation expense from awards, including stock option and restricted Common Stock awards to employees and non-employees and warrants to non-employees for the nine months ended September 30, 2011 and 2010, and from the period June 28, 2006 (Date of Inception) to date:

The following table summarizes stock option activity as of September 30, 2011:

As of September 30, 2011, the Company had unrecognized stock-based compensation expense related to unvested stock options granted to employees of $2.5 million, which is expected to be recognized over the remaining weighted-average vesting period of 2.4 years.