Stockholders' Equity

(a) Preferred Stock

The Company is authorized to issue 5,000,000 shares of $0.01 par value preferred stock with such designations, rights and preferences as may be determined by the Board of Directors. There were no Preferred Shares issued and outstanding at December 31, 2013 and 2012.

(b) Common Stock

The Company’s stockholders approved an amendment to the Company’s corporate Charter at the Annual Shareholder Meeting held in Philadelphia, PA that concluded on December 8, 2011. This amendment increased the Company’s authorized shares from 200,000,000 to 350,000,000 with specific limitations and restrictions on the usage of 75,000,000 of the 150,000,000 newly authorized shares.

As of December 31, 2013 and 2012, 168,660,370 shares and 166,490,190 shares were outstanding, respectively.

Pursuant to a May 28, 2010 Equity Distribution Agreement (the “Old EDA”) with Maxim Group LLC (“Maxim”), the Company established an At-The-Market (“ATM”) Equity Program pursuant to which the Company could sell up to 32,000,000 shares of their Common Stock from time to time through Maxim as their sales agent (the “Agent”). Under the Old EDA, the Agent was entitled to a commission at a fixed commission rate of 4.0% of the gross sales price per Share sold, up to aggregate gross proceeds of $10,000,000, and, thereafter, at a fixed commission rate of 3.0% of the gross sales price per Share sold. The Company had no obligation to sell any shares under this program, and could at any time terminate the Agreement. For the years ended December 31, 2012 and 2011, the Company sold no shares through this Old EDA and received no net cash proceeds. All sales related to the Old EDA took place in 2010, in which the Company had sold an aggregate of 520,000 shares through the ATM that resulted in net cash proceeds of approximately $293,000 and commissions paid to Maxim of approximately $12,000. In June 2012, the Old EDA with Maxim expired.

On July 23, 2012, the Company entered into a new Equity Distribution Agreement (the “New EDA”) with Maxim pursuant to which the Company may sell up to $75,000,000 worth of its shares of Common Stock from time to time through Maxim, as sales agent. Under the New EDA, Maxim is entitled to a fixed commission rate of 4.0% of the gross sales price of Shares sold under the EDA, up to aggregate gross proceeds of $10,000,000, and thereafter, at a fixed commission rate of 3.0% of the gross sales price of Shares sold under the EDA. Sales of the Shares, if any, may be made in transactions that are deemed to be “at-the-market” offerings as defined in Rule 415 under the Securities Act of 1933, as amended, including sales made by means of ordinary brokers’ transactions, including on the NYSE MKT, at market prices or as otherwise agreed with Maxim. The Company has no obligation to sell any of the Shares and may at any time suspend offers under the New EDA or terminate the New EDA. The Shares are being sold pursuant to the Company’s Universal Shelf Registration Statement on Form S-3, declared effective by the Securities and Exchange Commission on July 2, 2012. On September 14, 2012, the Company filed a Prospectus Supplement with the Securities and Exchange Commission related to increasing the offering from 12,000,000 to 20,000,000 shares under the New ATM. On October 5, 2012, the Company filed an updated Prospectus Supplement to revise the New EDA for an aggregate of 40,000,000 shares to be allocated for public sale under the Prospectus Supplement pursuant to the ATM. On December 23, 2013, the Company filed an updated Prospectus Supplement with the Securities and Exchange Commission to revise the new EDA for an aggregate of 90,000,000 shares to be allocated for public sale under the Prospectus Supplement pursuant to the ATM. As of December 31, 2013, the Company had sold an aggregate of approximately 30,470,000 shares that resulted in net cash proceeds of approximately $23,003,000 after direct expenses along with commissions paid to Maxim for approximately $828,000.

The Company plans to use the net proceeds from the offering as follows: (1) Costs to upgrade the Alferon N Injection® manufacturing facility and to prepare for the FDA pre-approval inspections of the Ampligen® facility, (2) Potential new preclinical or clinical studies in order to gain commercial approval for Ampligen® and broader approvals for Alferon® and Alferon LDO®, (3) Working capital to build and maintain sufficient inventory by procuring raw materials, supplies and other items for the New Brunswick manufacturing facility, as well as to remunerate outside contractors for necessary services, such as, final filling and finishing operations in order to meet any anticipated demand from normal operations as well as through the possible pursuit of other disease areas and/or geographic regions that may present themselves, (4) Pursuit of potential partnering opportunities for Ampligen®, (5) Potential establishment of sales and marketing capabilities, as well as consideration towards the expansion of the Company’s manufacturing capacity.

(d) Common Stock Options and Warrants

(i) Stock Options

The 1990 Stock Option Plan provides for the grant of options to purchase up to 460,798 shares of the Company's Common Stock to employees, Directors, and Officers of the Company and to consultants, advisors, and other persons whose contributions are important to the success of the Company. The recipients of options granted under the 1990 Stock Option Plan, the number of shares to be converted by each option, and the exercise price, vesting terms, if any, duration and other terms of each option shall be determined by the Company's Board of Directors or, if delegated by the Board, its Compensation Committee. no option is exercisable more than 10 years and one month from the date as of which an option agreement is executed. These shares become vested through various periods not to exceed four years from the date of grant. The option price represents the fair market value of each underlying share of Common Stock at the date of grant, based upon the public trading price. This plan is no longer in effect and no further options will be issued from this plan.

Information regarding the options approved by the Board of Directors under the 1990 Stock Option Plan is summarized below:



	2011					2012						2013
	Shares		Option Price	Weighted Average Exercise Price		Shares		Option Price		Weighted Average Exercise Price		Shares		Option Price		Weighted Average Exercise Price
Outstanding, beginning of year	262,000		2.75-4.03	$	3.05	262,000		2.75-4.03		$	3.05	200,000		2.75		$	2.75
Granted	—		—	—		—		—		—		—		—		—
Forfeited	—		—	—		(62,000	)	4.03		4.03		(200,000	)	2.75		2.75
Exercised	—		—	—		—		—		—		—		—		—
Outstanding, end of year	262,000		2.75-4.03	$	3.05	200,000		$	2.75	$	2.75	—		$	—	$	—
Exercisable	262,000		2.75-4.03	$	3.05	200,000		$	2.75	$	2.75	—		$	—	$	—
Weighted average remaining contractual life (years)	2.86 years					0.83 years						0
Exercised in current and prior years	(27,215	)				(27,215	)					(27,215	)
Available for future grants	—					—						—

The Equity Plan effective May 1, 2004, authorizes the grant of non-qualified and incentive stock options, stock appreciation rights, restricted stock and other stock awards. A maximum of 8,000,000 shares of common stock is reserved for potential issuance pursuant to awards under the Equity Incentive Plan. Unless sooner terminated, the Equity Incentive Plan will continue in effect for a period of 10 years from its effective date.

The Equity Plan is administered by the Board of Directors. The Equity Incentive Plan provides for awards to be made to such Officers, other key employees, non-employee directors, consultants and advisors of the Company and its subsidiaries as the Board may select.

Information regarding the options approved by the Board of Directors under the Equity Plan is summarized below:



	December 31, 2011			December 31, 2012				December 31, 2013
	Shares	Option Price	Weighted Average Exercise Price	Shares		Option Price	Weighted Average Exercise Price	Shares		Option Price	Weighted Average Exercise Price
Outstanding beginning at year	6,640,934	1.30-6.00	2.66	6,640,934		1.30-6.00	2.66	6,630,934		1.30-6.00	2.66
Granted	—	—	—	—		—	—	—		—	—
Forfeited	—	—	—	(10,000	)	1.30	1.30	(150,000	)	2.00	2.00
Exercised	—	—	—	—		—	—	—		—	—
Outstanding end of year	6,640,934	1.30-6.00	2.66	6,630,934		1.30-6.00	2.66	6,480,934		1.30-6.00	2.68
Exercisable	6,625,934	1.30-6.00	2.66	6,630,934		1.30-6.00	2.66	6,480,934		1.30-6.00	2.68
Weighted average remaining contractual life (years)	4-5 years			3-4 years				2-3 years
Available for future grants	10,019			10,019				170,019

On June 20, 2007, the Stockholders approved the 2007 Equity Incentive Plan at our Annual Shareholder Meeting. This plan, effective June 1, 2007, authorizes the grant of non-qualified and incentive stock options, stock appreciation rights, restricted stock and other awards. A maximum of 9,000,000 shares of common stock is reserved for potential issuance pursuant to awards under this plan. Unless sooner terminated, this plan will continue in effect for a period of 10 years from its effective date. As of year-end, option awards under this plan were:



	December 31, 2011			December 31, 2012			December 31, 2013
	Shares	Option Price	Weighted Average Exercise Price	Shares	Option Price	Weighted Average Exercise Price	Shares	Option Price	Weighted Average Exercise Price
Outstanding beginning at year	1,550,000	0.72-3.05	2.17	1,550,000	0.72-3.05	2.17	1,550,000	0.72-3.05	2.17
Granted	—	—	—	—	—	—	—	—	—
Forfeited	—	—	—	—	—	—	—	—	—
Exercised	—	—	—	—	—	—	—	—	—
Outstanding end of year	1,550,000	0.72-3.05	2.17	1,550,000	0.72-3.05	2.17	1,550,000	0.72-3.05	2.17
Exercisable	1,550,000	0.72-3.05	2.17	1,550,000	0.72-3.05	2.17	1,550,000	0.72-3.05	2.17
Remaining contractual life	6.81 years			5.81 years			4.81 years
Available for future grants	19,626			19,626			19,626

On June 24, 2009, the Stockholders approved the 2009 Equity Incentive Plan at our Annual Shareholder Meeting. This plan, effective September 15, 2009, authorizes the grant of non-qualified and incentive stock options, stock appreciation rights, restricted stock and other awards. A maximum of 15,000,000 shares of common stock is reserved for potential issuance pursuant to awards under this plan. Unless sooner terminated, this plan will continue in effect for a period of 10 years from its effective date. As of year-end, option awards under this plan were:



	December 31, 2011			December 31, 2012			December 31, 2013
	Shares	Option Price	Weighted Average Exercise Price	Shares	Option Price	Weighted Average Exercise Price	Shares	Option Price	Weighted Average Exercise Price
Outstanding beginning at year	1,879,978	0.52-2.81	0.92	3,189,978	0.21-2.81	0.70	4,688,978	0.21-4.03	0.61
Granted	1,310,000	0.21-0.55	0.38	1,499,000	0.29-4.03	0.42	2,020,000	0.22-2.00	0.40
Forfeited	—	—	—	—	—	—	—	—	—
Exercised	—	—	—	—	—	—	—	—	—
Outstanding end of year	3,189,978	0.21-2.81	0.70	4,688,978	0.21-4.03	0.61	6,708,978	0.21-4.03	0.55
Exercisable at end of year	2,856,645	0.21-2.81	1.57	3,962,183	0.21-4.03	0.61	5,713,145	0.21-4.03	0.55
Remaining contractual life	6.81 years			7.67 years			8.21 years
Available for future grants	9,765,847			6,907,247			3,090,478

(ii) Stock Warrants

Stock warrants are issued as needed by the Board of Directors and have no formal plan.

The fair value of each warrant award is estimated on the date of grant using a Black-Scholes-Merton pricing option valuation model. Expected volatility is based on the historical volatility of the price of the Company’s stock. The risk-free interest rate is based on U.S. Treasury issues with a term equal to the expected life of the option. The Company uses historical data to estimate expected dividend yield, life and forfeiture rates. The expected life of the warrants was estimated based on historical option holder’s behavior and represents the period of time that options are expected to be outstanding. The fair values of the warrants granted in 2013, were estimated based on the following weighted average assumptions:



	December 31, 2013
Risk-free interest rate	0.14%-1.40%
Expected dividend yield	—
Expected life	2.5 years
Expected volatility	89.73%-118.22%
Weighted average grant date fair value of warrants issued	$0.11 for 2,100,000 warrants

Information regarding warrants outstanding and exercisable into shares of common stock is summarized below:



	December 31, 2011					December 31, 2012				December 31, 2013
	Shares		Warrant Price	Weighted Average Exercise Price		Shares	Warrant Price	Weighted Average Exercise Price		Shares	Warrant Price	Weighted Average Exercise Price
Outstanding beginning at year	10,983,246		0.51-3.60	$	1.61	10,978,246	0.51-1.65	$	1.55	11,128,246	0.51-2.00	$	1.44
Granted	—		—	—		150,000	0.89-2.00	$	1.30	2,100,000	0.25-0.50	$	0.33
Forfeited	(5,000	)	3.60	$	3.60	—	—	—		—	—	—
Exercised	—		—	—		—	—	—		—	—	—
Outstanding end of year	10,978,246		0.51 –1.65	$	1.55	11,128,246	0.51 –2.00	$	1.44	13,228,246	0.25-2.00	$	1.26
Exercisable	10,978,246		0.51-1.65	$	1.55	11,128,246	0.51-2.00	$	1.44	11,328,246	0.50-2.00	$	1.42
Weighted average remaining contractual life	2.9 years					2.0 years				1.5 years
Years exercisable	2012-2019					2013-2022				2014-2023

Stock warrants are issued at the discretion of the Board. In 2013, warrants to purchase 2,100,000 shares were issued to independent contractors or consultants for services.

Certain of the stock warrants outstanding are subject to adjustments for stock splits and dividends.

No warrants were exercised during 2011, 2012 or 2013.

(e) Rights Offering

On November 19, 2002, the Board of Directors of the Company declared a dividend distribution of one Right for each outstanding share of Common Stock to stockholders of record at the close of business on November 29, 2002 (the "Record Date"). Each Right entitles the registered holder to purchase from the Company a unit consisting of one one-hundredth of a share (a "Unit") of Series A Junior Participating Preferred Stock, par value $0.01 per share (the "Series A Preferred Stock") at a Purchase Price of $30.00 per Unit, subject to adjustment. The description and terms of the Rights are set forth in a Rights Agreement (the "Rights Agreement") between the Company and Continental Stock Transfer & Trust Company, as Rights Agent.

On November 2, 2012, the Company executed an Amended and Restated Rights Agreement amending and restating the November 19, 2002 Rights Agreement between the Company and Continental Stock Transfer & Trust Company, as Rights Agent (as amended, the “Amended Rights Agreement”). The Amended Rights Agreement extends the term of the Rights Plan to November 18, 2017 and amends certain other provisions, as described in the Company’s Amended Registration Statement on Form 8-A/A, filed on November 2, 2012 (the “Amended Form 8-A”). The Amended Rights Plan entitles holders to buy one-hundredth unit of preferred stock for $30.00 and may be redeemed prior to November 19, 2017, the expiration date, at $0.001 per Right under certain circumstances. The Rights generally are not transferable apart from the common stock and will not be exercisable unless and until a person or group acquires or commences a tender or exchange offer to acquire, beneficial ownership of 15% or more of our common stock. However, for Dr. Carter, our Chief Executive Officer, who already beneficially owns approximately 4.99% of our common stock, the Rights Plan’s threshold will be 20%, instead of 15%.