9. Shareholders’ Equity

Common Stock

Restricted Stock Issuance — Retired Founder

In October 2011, the Company issued 120,000 restricted shares of common stock to its former Chief Scientific Officer and founder, Dr. Jeffrey Hillman in connection with his retirement from full time services to the Company effective October 31, 2011. The restricted shares are subject to performance conditions as well as time based vesting. The performance based vesting relates to the completion of certain work-in-process concerning Company intellectual property and the time vesting is equal over a three year period with restricted shares being subject to earlier vesting upon a change of control. The Company recorded compensation expense of $40,227 for the year ended December 31, 2011 and $169,773 for the year ended December 31, 2012 for these restricted shares. At December 31, 2012, 80,000 shares of restricted common stock are non-vested.

Unsecured Debt Conversion Issuance-KFLP

On March 23, 2012, pursuant to the terms of the Debt Exchange Agreement, the Company issued 6,285,619 shares of common stock to the KFLP. See Note 8 — Convertible Revolving Notes Payable to Shareholder.

Exclusive Channel Collaboration (“ECC”) Agreement Issuance-Intrexon Corporation (“Intrexon”)

On June 5, 2012, in conjunction with the Company’s execution and delivery of the Channel Agreement with Intrexon, the Company entered into a Stock Issuance Agreement which included certain registration rights, with Intrexon. On June 5, 2012, pursuant to that Stock Issuance Agreement, Intrexon was issued 4,392,425 shares of the Company’s common stock, which was deemed consideration for the execution and delivery of the Channel Agreement. This resulted in the Company recording a non-cash expense of $5,798,001 during the quarter ended June 30, 2012. Under the terms of the Stock Issuance Agreement, the Company agreed to issue to Intrexon additional shares of its common stock based upon the achievement of certain milestones. See Note 14 — Commitments and Contingencies.

The registration rights granted to Intrexon in the Stock Issuance Agreement by the Company consisted of “piggyback registration” rights which permit Intrexon to participate in any firm commitment underwritten offering of securities by the Company, subject to underwriter cutbacks and lockups. In addition, the Company is precluded from granting registration rights in connection with a private placement unless (i) all shares held by Intrexon are, at the time of such private placement, included on a registration statement, or (ii) the Company agrees, in connection with such private placement, to grant Intrexon the right to include on the registration statement a number of Intrexon’s Company shares equal to one half of the number of shares to be registered on behalf of the other holders or prospective holders.

Pursuant to the Stock Issuance Agreement, Intrexon is also entitled, at its election, to participate in future securities offerings of the Company that constitute “qualified financings” and purchase securities equal to 30% of the number of shares of common stock or other securities sold in such offering (exclusive of Intrexon’s purchase). For this purpose, a “qualified financing” means a sale of common stock or equity securities convertible into common stock in a public or private offering, raising gross proceeds of at least $1,000,000, where the sale of shares is either registered under the Securities Act of 1933, as amended, at the time of issuance or the Company agrees to register the resale of such shares.

July 2012 Private Placement Issuance-Purchasers

On July 30, 2012, the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) with certain accredited investors (the “Purchasers”) pursuant to which the Company: (i) sold to the Purchasers an aggregate of 8,666,665 shares of the Company’s Common Stock at a price per share of $1.50 (the “Common Shares”) for aggregate gross proceeds of approximately $13,000,000 (the “Offering”). The Company intends to use the net proceeds from this offering to accelerate development of several of the Company’s key initiatives including its recently announced Channel Agreement with Intrexon relating to the Company’s lantibiotics program, sales and marketing of the Company’s probiotic product lines and general corporate purposes.

Griffin Securities, Inc. (the “Placement Agent”) served as the placement agent for the Offering. In consideration for services rendered as the Placement Agent in the Offering, the Company agreed to (i) pay to the Placement Agent cash commissions equal to $899,698, or 7.0% of the gross proceeds received in the Offering, less certain excluded proceeds, (ii) issue to the Placement Agent, or its designee, a five-year warrant to purchase up to 771,169 shares of the Company’s Common Stock (representing 9% of the Common Shares sold in the Offering) with an exercise price of $1.50 per share (the “Agent Warrants”); and (iii) reimburse the Placement Agent for its reasonable actual out-of-pocket expenses, incurred in connection with the Offering, including reasonable legal fees and disbursements up to a maximum aggregate amount of $50,000. The determination of the Placement Agent’s fees did not include any shares issued to the KFLP, (in connection with the automatic conversion of its secured debt with us described below) or shares acquired by any officers or directors participating in the Offering.

The total amount charged to additional paid-in-capital as a result of the Offering was $1,111,664. This amount is comprised of $949,698 for services provided by Griffin Securities, Inc., $155,626 for services provided by the Company’s legal counsel and independent accountants, and $6,340 for other services.

On July 30, 2012, the Company issued to Griffin Securities, Inc., or its designee, a five-year warrant to purchase up to 771,169 shares of the Company’s Common Stock with an exercise price of $1.50 per share. The warrant was issued as partial consideration for Griffin Securities, Inc. acting as the Placement Agent for our July 2012 Private Placement Financing. The warrants were valued at $2.40 per share for a total of $1,850,806. The issuance of the warrant resulted in no charge being made to additional-paid-in capital.

In connection with the Offering, the Company also entered into a registration rights agreement with the Purchasers (the “Registration Rights Agreement”). The Registration Rights Agreement required that the Company file a registration statement (the “Initial Registration Statement”) with the Securities and Exchange Commission (the “SEC”) within forty-five (45) days of the closing date of the Offering (the “Filing Date”) for the resale by the Purchasers of all of the Common Shares and all shares of Common Stock issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect thereto (the “Registrable Securities”). On August 31, 2012, the Company filed Form S-1 Registration Statement with the SEC. On September 21, 2012 the Company filed Amendment No. 1 to Form S-1 Registration Statement with the SEC. On September 26, 2012 the Registration Statement was declared effective by the SEC. Upon the occurrence of certain events (each an “Event”), including, but not limited to, that the Initial Registration Statement is not filed prior to the Filing Date, the Company will be required to pay liquidated damages to each of the Purchasers equal to 1.5% of the aggregate purchase price paid by such Purchaser for the Registrable Securities upon the date of the Event and then monthly thereafter until the earlier of: (i) the Event is cured, or (ii) the registrable shares are eligible for resale under Rule 144 without manner of sale or volume limitations. In no event shall the aggregate amount of liquidated damages payable to each of the Purchasers exceed in the aggregate 10% of the aggregate purchase price paid by such Purchaser for the Registrable Securities.

In connection with the Offering, the KFLP waived receiving comparable registration rights as the Purchasers in the Offering as well as its piggyback registration rights applicable to the Offering. Intrexon also waived its piggyback registration rights applicable to the Offering and waived its participation rights.

Secured Debt Conversion Issuance-KFLP

On July 30, 2012, the Company’s secured debt in the principal amount of $2.5 million, together with accrued but unpaid interest of $38,185 thereon, due to the KFLP was automatically converted contemporaneously with the closing of the Offering into 1,692,123 shares of common stock issued to the KFLP at the same price of $1.50 per share paid by the Purchasers in the Offering. The conversion occurred because the Offering constituted a “qualified financing” under the terms of the Company’s Loan Agreement with the KFLP. See Note 8 Convertible Revolving Notes Payable to Shareholder.

On August 6, 2012, both the Board of Directors and the Compensation Committee of the Board of Directors of the Company met and determined that one of the performance goals established in the Company’s Long Term Incentive Programs (“LTIP”) as part of executive compensation and non-employee director compensation programs had been achieved. The performance goal met was the goal related to the Company successfully raising $10,000,000 of new capital. The aggregate shares awarded under the LTIP of 465,816, consisted of a total of 215,405 shares to non-employee directors and 250,411 shares to executive officers. Of the aggregate 465,816 shares awarded under the LTIPs, 66,233 shares were retained by the Company for applicable tax withholding obligations.

2012 Incentive Plan Issuances

On October 23, 2012 the Compensation Committee of the Board of Directors approved discretionary bonus award in the form of 83,500 shares of our common stock to Michael Sullivan our Chief Financial Officer. Of the 83,500 shares which were awarded, 26,261 shares were retained by the Company for applicable tax withholding obligations. The award was made in consideration of Mr. Sullivan’s services since he joined the Company, including but not limited to, his services regarding the Company’s securities filings, the financings by the KFLP, the Intrexon collaboration, the recent substantial capital raise closing and related follow-on registration statement.

On March 11, 2011, our Board of Directors and Compensation Committee awarded 10,000 shares of restricted common stock to each of Mr. Brian Bohunicky, our former Chief Financial Officer and to Mr. Robert Koski, our director at a grant date fair value of $3.60 per share. The restricted stock awards were pursuant to the Company’s Stock Incentive Plan. Half of the awarded shares vest in six (6) months and the other half on the anniversary date of the award. On January 27, 2012, Mr. Brian Bohunicky resigned as our Chief Financial Officer, Secretary and Treasurer to pursue other opportunities. As a result of his resignation, Mr. Bohunicky forfeited 5,000 shares of the previously granted restricted stock. The Company recorded a net reversal of previously recorded compensation expense of $11,340 and compensation expense of $65,341 for the years ended December 31, 2012 and 2011, respectively.

Compensation expense related to restricted stock awards is a non-cash expense and is included in selling, general and administrative expenses in the accompanying statement of operations. At December 31, 2012, no shares of restricted common stock are non-vested.

Warrants

The Company’s outstanding and exercisable warrants as of December 31, 2012 are presented below:

On March 23, 2012, pursuant to the terms of a Debt Exchange Agreement and a Loan Agreement with the Koski Family Limited Partnership, or KFLP, the Company issued warrants to acquire 1,571,405 and 599,520 shares of common stock, respectively, to the KFLP. The warrants are exercisable immediately at a price per share of $2.00 and expire three years from the date of issuance. The warrants were valued at $1.00 per share. See Note 8 — Convertible Revolving Notes Payable to Shareholder.

On July 30, 2012, the Company issued to Griffin Securities, Inc., or its designee, a five-year warrant to purchase up to 771,169 shares of the Company’s Common Stock with an exercise price of $1.50 per share. The warrant was issued as partial consideration for Griffin Securities, Inc. acting as the Placement Agent for our July 2012 Private Placement Financing. The warrants were valued at $2.40 per share.

On September 14, 2012, warrants to acquire 12,500 shares of the Company’s common stock at a price of $6.00 per share expired. On September 27, 2012, the KFLP made a distribution of a portion of its warrants to the underlying partners of the KFLP. As a result of such distribution the KFLP retained warrants to acquire 61,405 and 599,520 respectively and its underlying partners (including certain trusts) were issued warrants to acquire an aggregate of 1,510,000 shares of common stock.

As of December 31, 2012 there are 3,235,982 warrants and 660,423 stock options outstanding. If all warrants and stock options were exercised, the total number of outstanding common shares would be approximately 31,279,235 as of December 31, 2012.

Treasury Stock

During 2011, the board of directors authorized and the Company repurchased 2,500 shares of the Company’s common stock at an aggregate cost of $3,751. In 2011, we retired all shares of treasury stock. These shares remain as authorized stock; however, they are now considered unissued.