8. Shareholders’ Equity

Common Stock

Increase in the Number of Authorized Shares and Approval of a Reverse Stock Split

In January of 2017, we filed an amendment to our Amended and Restated Articles of Incorporation which increased the number of authorized shares of all classes of our capital stock from 120,000,000 shares to 270,000,000 shares by increasing the number of authorized shares of common stock from 100,000,000 shares of common stock to 250,000,000 shares of common stock. The amendment to our Amended and Restated Articles of Incorporation was previously approved by a majority of our shareholders. In addition, a majority of shareholders approved an amendment to our Amended and Restated Articles of Incorporation to effect a reverse stock split of our common stock by a ratio of not less than one-for-five and not more than one-for-ten, with the exact number to be set at a whole number within this range to be determined by our board of directors in its sole discretion and to authorize our board of directors to implement the reverse stock split at any time on or prior to December 31, 2017 by filing an amendment to our Amended and Restated Articles of Incorporation.

Issuance of Common Stock

On June 30, 2016, the Company closed on a private placement of 9,045,679 shares of its common stock to three accredited investors. The investors in the private placement included current significant Company shareholders, Koski Family Limited Partnership, or KFLP and Intrexon, as well as the Company’s Chairman, Dr. Frederick Telling. Approximately $4.667 million was raised of which $2,000,000 was payable under a note payable by the KFLP on or before September 30, 2016. The note accrued interest at 3% per annum. On September 15, 2016, the note payable with the KFLP was amended. Under the terms of the amendment, the KFLP paid $1,000,000 on September 30, 2016 which was first applied to accrued interest and then to the outstanding principal balance. In addition, the amendment extended the maturity date on the remaining balance of the note payable to December 31, 2016 and increased the interest rate on the note payable from 3% per annum to 6% per annum. On December 29, 2016, the KFLP made a payment of $1,000,000 which was first applied to accrued interest and then to the outstanding principal balance. The note was paid in full in January of 2017. The purchase price per share of the common stock sold in the private placement was $0.5159, which was the midpoint of the closing quote on the Company’s primary exchange, NYSE MKT, on June 29, 2016 as required by NYSE listing standards. The Company expects to use the net proceeds, after payment of offering expenses, for the continued funding of its research and development activities related to the Intrexon Exclusive Channel Collaborations and for general corporate purposes.

Award of Shares to Non-employee Directors

On February 15, 2016, in connection with and in furtherance of the equity based award program, the Board approved the award of 40,000 restricted shares of Company common stock to each of the Company’s non-employee directors, Frederick Telling, Charles Pope, Alan Dunton, Christine Koski and Robert Koski under the Company’s 2012 Plan. A total of 40,000 restricted shares have vested as of December 31, 2016 for directors, Frederick Telling, Charles Pope, Alan Dunton, and Robert Koski and a total of 20,000 restricted shares have vested as of December 31, 2016 for former director Christine Koski. The awards were considered issued and outstanding as of the date of the grant and were eligible to be voted by the recipient. The Company recognized $151,200 in compensation expense relating to these awards.

On March 16, 2015, in connection with and in furtherance of the new equity based award program, the Board approved the award of 40,000 restricted shares of Company common stock to each of the Company’s non-employee directors, Frederick Telling, Charles Pope, Alan Dunton, Christine Koski and Robert Koski under the Company’s 2012 Plan of which a total of 40,000 restricted shares have vested as of December 31, 2015 for each non-employee director. The awards were considered issued and outstanding as of the date of the grant and were eligible to be voted by the recipient. The Company recognized $264,000 in compensation expense relating to these awards.

Award of Shares to Employee

On June 6, 2016, in connection with the Company’s employment of Dr. Alan Joslyn as President and Chief Executive Officer, the Company issued (i) stock options to purchase 300,000 shares of the Company’s common stock at an exercise price equal to $0.55 per share which stock options shall vest in six installments of 50,000 shares every six months after June 6, 2016, provided that he has continued his employment with the Company through such dates, and (ii) 30,000 shares of restricted stock of the Company, vesting in two installments on the six month and twelve month anniversaries of June 6, 2016.

 

Exclusive Channel Collaboration Agreement with Intrexon-Oral Mucositis–Share Issuance

On December 1, 2015, the Company issued a Notice of Conversion to Intrexon indicating 3,381,004 shares of Company common stock has been issued to Intrexon effective December 1, 2015 in connection with the conversion of the Convertible Promissory Note (the “Note”) and in satisfaction of the Company’s obligations under the Note.

The Note was previously issued by the Company to Intrexon on June 9, 2015 as payment of the technology access fee under the Exclusive Channel Collaboration Agreement entered into with respect to the Company’s research, development and commercialization of products, including the continued development and commercialization of AG013, for use in the treatment of oral mucositis in humans and/or the administration to humans of a trefoil factor via genetically modified bacteria (including L. lactis) for the treatment of diseases and conditions of the oral cavity, throat, and esophagus, but, in any case, excluding the delivery of anti-cancer effectors for the purpose of treatment or prophylaxis of cancer. The Note was payable to Intrexon, at the Company’s option, in cash or shares of Company common stock prior to the maturity date of December 31, 2015 and the conversion price was equal to the closing price on the NYSE MKT of the Company’s common stock on the last trading day immediately prior to the date of conversion, December 1, 2015 which was $1.50 per share.

Warrants

The Company’s outstanding and exercisable warrants as of December 31, 2016 are presented below:

 

Exercise Price				Warrants Outstanding				Expiration Dates
$	1.50				175,584				7/31/17
					175,584

On March 23, 2015, warrants to acquire 2,170,925 shares of the Company’s common stock at a price of $2.00 per share expired.

On August 3, 2015, Griffin Securities Inc. exercised 185,585 of their previously issued warrants on a net issuance basis resulting in the issuance of 98,592 shares of our common stock.

As of December 31, 2016, there are 175,584 warrants and 1,621,523 stock options outstanding. If all warrants and stock options were exercised, the total number of outstanding common shares would be 50,911,326 as of December 31, 2016.