NOTE

STOCKHOLDERS’

EQUITY

Stock-Based Compensation

In connection with the Merger, all of the issued and outstanding options to purchase shares of Prior Protagenic common stock converted, on a

-for-

basis, into options (the “

New Options

”), to purchase shares of our Series B Preferred Stock. The New Options will be administered under Prior Protagenic’s

2006

Employee, Director and Consultant Stock Plan (the “

2006

Plan

”), which the Company assumed and adopted.

The Plan is authorized to issue up to

2,000,000

stock options. In accordance with the Plan, the Company can grant to certain employees, directors or consultants options to purchase shares of the Company’s common stock which vest automatically or ranging from a

one

-year period to a

five

-year period. The shares are exercisable over a period of

ten

years from the date of grant. The Plan provides that qualified options be granted at an exercise price equal to the fair market value at the date of grant.

There were

2,484,445

options outstanding as of

December

31,

2016.

The fair value of each stock option granted was estimated using the Black-Scholes assumptions and or factors as follows:

Exercise price	$.26	-	$1.25
Expected dividend yield		0%
Risk free interest rate	1.01%	-	2.43%
Expected life in years		5
Expected volatility	85%	-	213%

There were

2,613,299

options outstanding as of

March

31,

2017.

The fair value of each stock option granted was estimated using the Black-Scholes assumptions and or factors as follows:

Exercise price	$1.	-	$1.25
Expected dividend yield		0%
Risk free interest rate	1.93%	-	2.40%
Expected life in years	4.60	-	9.84
Expected volatility	210%	-	266%

The following is an analysis of the stock option grant activity under the Plan:

	Number			Weighted Average Exercise Price		Weighted Average Remaining Life
Stock Options

Outstanding January 1, 2017		2,484,445		$	1.18		9.82
Granted		150,000			1.25		4.60
Expired		(21,146	)		1.00
Outstanding March 31, 2017		2,613,299		$	1.14		8.17

As of

March

31,

2017

and

December

31,

2016,

the options outstanding had an intrinsic value of

$166,250

and

$171,537,

respectively.

The total number of options granted during the

three

months ended

March

31,

2017

and

2016

was

150,000

and

161,582,

respectively. The exercise price for these options was

$1.25

per share.

The Company recognized compensation expense related to options issued of

$355,336

and

$102,908

during the

three

months ended

March

31,

2017

and

2016,

respectively, which is included in general and administrative expenses.

Warrants:

In connection with the Merger, all of the issued and outstanding warrants to purchase shares of Prior Protagenic common stock, converted, on a

-for-

basis, into new warrants (the “

New Warrants

”) to purchase shares of our Series B Preferred Stock.

Simultaneous with the Merger and the Private Offering, New Warrants to purchase

3,403,367

shares of Series B Preferred Stock at an average exercise price of approximately

$1.05

per share were issued to holders of Prior Protagenic warrants; additionally, holders of

$665,000

of our debt and

$35,000

of accrued interest exchanged such debt for

five

-year warrants to purchase

295,945

shares of Series B Preferred Stock at

$1.25

per share. Placement Agent Warrants to purchase

127,346

shares of Series B Preferred Stock at an exercise price of

$1.25

per share were issued in connection with the Private offering. These warrants to purchase

423,291

shares of Series B Preferred Stock have been recorded as derivative liabilities. See Note

A summary of warrant issuances are as follows:

			Weighted Average		Weighted Average
	Number		Exercise Price		Remaining Life
Warrants

Outstanding January 1, 2017		3,826,658	$	1.02		5.72
Expired		100,000		1.25
Outstanding March 31, 2017		3,726,658	$	1.05		5.51

As of

March

31,

2017

the Company had

3,726,658

shares issuable under warrants outstanding at a weighted average exercise price of

$1.05

and an intrinsic value of

$763,342.