1. Organization and Description of Business

Coronado Biosciences, Inc. (the “Company”), incorporated in Delaware on June 28, 2006 (date of inception), is a biopharmaceutical company involved in the development of novel immunotherapy agents for the treatment of autoimmune diseases and cancer. As of December 31, 2013, the Company has two wholly owned subsidiaries Innmune Limited and TSO Development Corporation, Inc.

Development-Stage Risks and Liquidity

The Company is a development-stage enterprise. Activities to date include development of key compounds, establishing pre-commercial relationships, hiring qualified personnel and raising capital to fund operations. The Company continues to report as a development stage enterprise since planned principal operations have not yet commenced. Since inception, no revenue has been recognized.

On October 14, 2013 the Company reported that the TRUST-I study, its phase 2 randomized, double-blind, placebo-controlled, U.S. multi-centered study to evaluate the safety and efficacy of TSO in Crohn’s Disease (“CD”), did not meet its primary endpoint of improving response, nor the key secondary endpoint of remission. In the overall patient population, response rate of patients on TSO did not separate from that of placebo.

In November 2013, Dr. Falk Pharma GmbH (Falk), its development partner informed the Company that an independent data monitoring committee (IDMC) had conducted a second interim analysis of data from approximately 240 patients who have completed 12 weeks of treatment in Falk’s Phase 2 clinical trial in Europe evaluating TSO in CD. The committee recommended that the trial be stopped due to lack of efficacy and noted no safety concerns. Falk adopted the committee’s recommendations and discontinued the study. The Falk trial, also known as the TRUST-II study, was a double-blind, randomized, placebo-controlled, multi-center Phase 2 study to evaluate the efficacy and safety of three different dosages of oral TSO in patients with active CD.

The Company has incurred recurring losses and experienced negative operating cash flows since inception and has an accumulated deficit of $121.3 million as of December 31, 2013. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales from its product candidates. To date, the Company’s operations have been funded primarily by issuing equity and debt securities. During 2010, the Company issued 4,357,885 shares of Series A Convertible Preferred Stock (“Series A Shares”) resulting in net proceeds to the Company of $19.4 million (see Note 11). All existing debt securities were either repaid or converted into Series A Shares as of December 31, 2010. During 2011, the Company completed an offering of 4,612,624 shares of Series C Convertible Preferred Stock (“Series C Shares”) resulting in net proceeds to the Company of approximately $22.9 million (see Note 11). On November 15, 2011, the Company’s Resale Registration Statement on Form S-1 was declared effective resulting in the conversion of 4,357,885 Series A Shares, 2,525,677 shares of Series B Convertible Preferred Stock (“Series B Shares”) and 4,612,624 Series C Shares to Common stock. In June 2012, the Company completed a public offering of 5,750,000 shares of Common stock resulting in net proceeds of $26.4 million (See Note 11) and in August 2012, the Company received net proceeds of $14.7 million from a $15 million term loan with Hercules Technology Growth Capital (see Note 10). In October 2012, the Company entered into an At Market Issuance Sales Agreement (the “ATM”) with MLV & Co. LLC (“MLV”) pursuant to which the Company may issue and sell shares of Common stock having an aggregate offering price of up to $30.0 million. In 2012, the Company issued 3,361 shares of Common stock resulting in net proceeds of $19,000. During 2013, the Company issued 10,558,422 shares of Common stock pursuant to the Sales Agreement and received net proceeds of $89.4 million (see Note 11). In February 2014, the Company repaid the Hercules Loan Agreement in full and entered into a new Promissory Note with Israel Discount Bank of New York in the amount of $15.0 million (see Note 17).

The Company expects to incur substantial expenditures in the foreseeable future for the research, development and potential commercialization of its current and potentially new product candidates. The Company is continuing to evaluate the data from the TRUST-I trial and other current data on TSO and is awaiting the Clinical Study Report (“CSR”) in connection with the TRUST-II trial to determine the future development plan for TSO. Until it has completed that process and made a determination regarding the future development for TSO, the Company does not expect its current level of expenditures to increase. However, the Company believes that cash on hand is sufficient to sustain operations for at least for the next 12 months. The Company would require additional financing to fully develop and obtain regulatory approvals for its product candidates, fund operating losses, establish manufacturing, and, if deemed appropriate, sales and marketing capabilities. The Company expects that it would need to seek funds through public or private equity or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing. Adequate additional funding may not be available to the Company on acceptable terms or at all. The Company’s failure to raise capital as and when needed would have a negative impact on its financial condition and its ability to pursue its business strategies. If adequate funds are not available to the Company, the Company will be required to delay, reduce or eliminate research and development programs, and pursue merger or acquisition strategies, if possible.

Operations of the Company are subject to other certain risks and uncertainties, including, but not limited to, uncertainty of product candidate development; technological uncertainty; dependence on collaborative partners; uncertainty regarding patents and proprietary rights; regulatory approvals and other comprehensive government regulations; having no commercial manufacturing, marketing or sales capability or experience; and dependence on key personnel. Any significant delays in the development or marketing of products could have a material adverse effect on the Company’s business and financial results.

The Company sources certain critical components from single source suppliers. If the Company is required to purchase these components from an alternative source, it could adversely affect development of the Company’s product candidates.