7. 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. No such reverse stock split occurred prior to December 31, 2017

In December of 2017, we filed another amendment to our Amended and Restated Articles of Incorporation which increased the number of authorized shares of our common stock from 250,000,000 shares to 450,000,000. 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, 2018 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, after giving effect to the reverse stock split (see Note 14 - Subsequent Events), of 904,568 shares of its common stock to three accredited investors. The investors in the private placement included current Company shareholders, KFLP (581,508 shares) and Intrexon Corporation (“Intrexon”) (226,142 shares), as well as the Company’s Chairman, Dr. Frederick Telling (96,918 shares). 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 $5.159, which was the midpoint of the closing quote on the Company’s primary exchange, NYSE American, on June 29, 2016, after giving effect to the reverse stock split (see Note 14 - Subsequent Events), 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 9, 2017, in connection with and in furtherance of the equity based award program, the Board approved the award of 4,000 restricted shares, after giving effect to the reverse stock split (see Note 14 - Subsequent Events), of Company common stock, to each of the Company’s non-employee directors, Frederick Telling, Charles Pope, Alan Dunton, and Robert Koski under the Company’s 2012 Equity Incentive Plan. A total of 4,000 restricted shares have vested as of December 31, 2017 for each of the non-employee directors. 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 $123,200 in compensation expense relating to these awards.

On February 15, 2016, in connection with and in furtherance of the equity based award program, the Board approved the award of 4,000 restricted shares, after giving effect to the reverse stock split (see Note 14 - Subsequent Events), 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 Equity Incentive Plan. A total of 4,000 restricted shares have vested as of December 31, 2016 for directors, Frederick Telling, Charles Pope, Alan Dunton, and Robert Koski and a total of 2,000 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.

Preferred Stock

Issuance Of Series A Convertible Preferred Stock Financing

On May 10, 2017 we entered into a securities purchase agreement with three accredited investors, to purchase up to $3,000,000 of Series A Convertible Preferred Stock (the “Series A Preferred Stock Financing”). The sale of the Preferred Stock took place in two separate closings and at the first closing which occurred on May 10, 2017, we received gross proceeds of approximately $1,302,000. The second closing occurred on July 25, 2017 and we received gross proceeds of approximately $1,698,000, which was the balance of the Preferred Stock Financing. The full $3,000,000 of Preferred Stock, and after giving effect to the reverse stock split (see Note 14 -Subsequent Events), is convertible into one million two hundred thousand shares of our Common Stock, based on a fixed conversion price of $2.50 per share on an as-converted basis. In addition and after giving effect to the reverse stock split (see Note 14 -Subsequent Events), we issued warrants to purchase an aggregate of 462,106 shares of Common Stock at the first closing and we issued an aggregate of 602,414 shares of Common Stock at the second closing (“Summer 17 Warrants”). The Summer 17 Warrants have a term of seven years from the date of issuance are non-exercisable until 6 months after issuance, and after giving effect to the reverse stock split (see Note 14 - Subsequent Events), have an exercise price of $3.10 per share. Proceeds from the Series A Preferred Stock Financing (including the exercise of any warrants for cash) will be used for general corporate purposes, including working capital.

On July 27, 2017, we entered into an agreement to amend the warrants issued in connection with the Series A Preferred Stock Financing to provide notification and objection requirements with respect to the change of control provisions. The change of control provisions in the warrants had previously caused the warrants to be treated as a derivative liability as opposed to being treated as equity on our balance sheet. The warrants have been replaced by amended and restated warrants containing such notification and objection requirements (the “Amended and Restated Common Stock Purchase Warrants”) so that the Amended and Restated Common Stock Purchase Warrants are now treated as equity on our balance sheet. All other terms of the original warrants remain unchanged by the Amended and Restated Common Stock Purchase Warrants.

In connection with the Series A Preferred Financing, we filed a Certificate of Designations of Preferences, Rights and Limitations of Series A Preferred Stock with the Secretary of State of the State of Florida, to be effective May 10, 2017. The number of shares of Preferred Stock designated as Series A Preferred Stock is 12,000,000.

In connection with the issuance and sale of the Series A Preferred Stock and Summer 17 Warrants, we granted certain demand registration rights and piggyback registration rights with respect to the shares of our Common Stock issuable upon conversion of the Preferred Stock and exercise of the Warrants, pursuant to a Registration Rights Agreement.

Except as otherwise required by law, the Series A Preferred Stock shall have no voting rights. However, as long as any shares of Series A Preferred Stock are outstanding, we shall not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series A Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series A Preferred Stock or alter or amend the Certificate of Designation, (b) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the holders of Series A Preferred Stock, (c) increase the number of authorized shares of Series A Preferred Stock, or (d) enter into any agreement with respect to any of the foregoing. Upon any liquidation, dissolution or winding-up by us, whether voluntary or involuntary that is not a Fundamental Transaction (as defined in the Certificate of Designation), the holders of Series A Preferred Stock shall be entitled to receive out of the assets, the greater of (i) the product of the number of shares of Series A Preferred Stock then held by such holder, multiplied by the Original Issue Price; and (ii) the amount that would be payable to such holder in the Liquidation in respect of Common Stock issuable upon conversion of such shares of Series A Preferred Stock if all outstanding shares of Series A Preferred Stock were converted into Common Stock immediately prior to the Liquidation. The Series A Preferred Stock is classified as permanent equity.

 

The Series B Non-Voting, Convertible Preferred Stock Financing

On November 8, 2017, we completed a private placement of $3,300,000 of Series B Non-Voting, Convertible Preferred Stock (the “Series B Convertible Preferred Stock”) pursuant to a Securities Purchase Agreement with four existing shareholders who are accredited investors including an entity affiliated with a director of the Company (the “Series B Preferred Stock Financing”).

The full $3,300,000 of Series B Convertible Preferred Stock is convertible, after giving effect to the reverse stock split (see Note 14 - Subsequent Events) into one million three hundred and twenty thousand shares of our Common Stock, based on a conversion of one share of Series B Preferred Stock into two shares of Common Stock. The purchase price per share of the Series B Preferred Stock is represented by $2.50 per share of the Common Stock on an as converted basis. In addition, and after giving effect to the reverse stock split (see Note 14 - Subsequent Events), we issued to the investors in the private placement accompanying common stock purchase warrants to purchase an aggregate of 1,064,518 shares of Common Stock (the “Fall 17 Warrants”). The Fall17 Warrants have a term of seven years from the date of issuance, and are non-exercisable until six (6) months after issuance, and after giving effect to the reverse stock split (see Note 14 - Subsequent Events), have an exercise price of $3.10 per share.

In connection with the Series B Preferred Financing, we filed a Certificate of Designation and Rights of Series B Convertible Preferred Stock with the Secretary of State of the State of Florida, to be effective November 8, 2017. The number of shares of Preferred Stock designated as Series B Preferred Stock is 6,600,000.

Except as otherwise required by law, the Series B Preferred Stock shall have no voting rights. However, as long as any shares of Series B Preferred Stock are outstanding, we shall not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series B Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series B Preferred Stock or alter or amend the Certificate of Designation, (b) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the holders of Series B Preferred Stock, (c) increase the number of authorized shares of Series B Preferred Stock, or (d) enter into any agreement with respect to any of the foregoing.

The Series B Preferred Stock shall rank (i) on par with the Common Stock and Series A Preferred Stock and junior to Series C Preferred Stock as to dividend rights and (ii) junior to Series C Preferred Stock, on par with Series A Preferred Stock and senior to the Common Stock as to distribution of assets upon liquidation, dissolution or winding-up by us, whether voluntary or involuntary.

Upon any liquidation, dissolution or winding-up by us, whether voluntary or involuntary, the holders of Series B Preferred Stock shall be entitled to receive out of the assets, after payment to the Series C Preferred Stock but on par with the Series A Preferred Stock and in preference to the holders of the Common Stock, an amount of cash equal to the greater of (i) the product of the number of shares of Series B Preferred Stock then held by such holder, multiplied by the Original Issue Price; and (ii) the amount that would be payable to such holder in the Liquidation in respect of Common Stock issuable upon conversion of such shares of Series B Preferred Stock if all outstanding shares of Series B Preferred Stock were converted into Common Stock immediately prior to the Liquidation. The Series B Preferred Stock is classified as permanent equity.

The Series C Non-Voting, Non- Convertible Preferred Stock Financing Intrexon Debt Conversion

Concurrently with the Series B Preferred Stock Financing, we also entered into a Debt Conversion Agreement (the “Intrexon Debt Conversion Agreement”) with Intrexon Corporation (“Intrexon”) pursuant to which Intrexon exchanged the $2,400,000 unsecured non-convertible promissory note previously issued by us to Intrexon (the “Intrexon Note”), the accrued interest on the Intrexon Note and trade payables owed by us (collectively the “Debt”) in the aggregate amount of approximately $3,400,000 for equity in the form of 100 shares of Series C, Non-Voting, Non-Convertible Preferred Stock (the “Series C Preferred Stock”) issued by us to Intrexon pursuant to the Debt Conversion Agreement which 100 shares have a stated value equal to the amount of the Debt.

In connection with the Intrexon Debt Conversion Agreement, we filed a Certificate of Designation and Rights of Series C Non-Convertible Preferred Stock with the Secretary of State of the State of Florida, to be effective November 8, 2017. The number of shares of Preferred Stock designated as Series C Preferred Stock is 1,000.

Each issued and outstanding share of Series C Preferred Stock entitles the holder of record to receive dividends at the annual rate of twelve percent (12%) (the “Initial Rate”) of its Stated Value, payable by issuing additional shares of Series C Preferred Stock within thirty days after the end of each calendar year pro-rata for partial years. The Initial Rate shall be subject to increase to twenty percent (20%) automatically after May 10, 2019.

 

The Series C Preferred Stock shall rank senior to the Common Stock, Series A Preferred Stock, Series B Preferred Stock and to any other equity securities issued by us (the “Junior Securities”) as to rights upon liquidation, dissolution or winding-up by us, whether voluntary or involuntary.

Upon any liquidation, dissolution or winding-up by us, whether voluntary or involuntary, the holders of Series C Preferred Stock shall be entitled to receive, in preference to the Junior Securities, an amount of cash equal to the product of (i) sum of (a) the number of shares of Series C Preferred Stock then held by such holder plus, (b) the number of shares of Series C Preferred Stock issuable to such holder in connection with any accrued but unpaid dividends, multiplied by (ii) the Stated Value, of $33,847.9874 per share, of Series C Preferred Stock (“the Series C Liquidation Amount”) and no distribution or payments shall be made in respect of any Junior Securities unless all Series C Liquidation Amounts, if any, are first paid in full.

Increase in the Number of Authorized Shares

In December of 2017, we filed an amendment to our Amended and Restated Articles of Incorporation which increased the number of authorized shares of our preferred stock from 20,000,000 shares to 50,000,000. The amendment to our Amended and Restated Articles of Incorporation was previously approved by a majority of our shareholders.

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, after giving effect to the reverse stock split (see Note 14 - Subsequent Events), (i) stock options to purchase, 30,000 shares of the Company’s common stock at an exercise price equal to $5.50 per share which stock options shall vest in six installments of 5,000 shares every six months after June 6, 2016, provided that he has continued his employment with the Company through such dates, and (ii) 3,000 shares of restricted stock of the Company, vesting in two installments on the six month and twelve month anniversaries of June 6, 2016.

 

Warrants

After giving effect to the reverse stock split (see Note 14 - Subsequent Events), the Company’s outstanding and exercisable warrants as of December 31, 2017 are presented below:

 

Exercise Price		Total Warrants Outstanding				ExerciseableWarrants Outstanding				Expiration Date
$                 3.10			48,387				—				9/19/2022
$                 3.10			462,106				462,106				5/10/2024
$                 3.10			602,414				—				7/25/2024
$                 3.10			1,064,518				—				11/8/2024
			2,177,425				462,106

On July 31, 2017, warrants to acquire 17,559 shares of the Company’s common stock at a price of $15.00 per share expired.

In connection with the Series A Preferred Stock financing and the Series B Preferred Stock financing, and after giving effect to the reverse stock split, the Company has issued warrants to purchase 2,129,038 shares of the Company’s Common stock. The warrants have a term of seven years from the date of issuance and are non-exercisable until six months after issuance, and have an exercise price of $3.10 per share.

In addition, the Company issued a warrant to purchase 48,387 shares of the Company’s Common stock pursuant to the terms of a financial advisory services agreement. The warrant has a term of five years from the date of issuance and is non-exercisable until six months after issuance, and has an exercise price of $3.10 per share.

As of December 31, 2017, there are 2,177,425 warrants and 260,633 stock options outstanding. If all warrants and stock options were exercised, the total number of outstanding common shares would be 7,366,393 as of December 31, 2017.