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Note 6 - Stockholders' Deficit
 9 Months Ended 12 Months Ended
Sep. 30, 2016
Dec. 31, 2015
Notes to Financial Statements    
Stockholders' Equity Note Disclosure [Text Block]
NOTE
7
-
STOCKHOLDERS’
EQUITY (DEFICIT)
 
 
On
June
17,
2016,
the Company held a Special Meeting of Stockholders (the “Special Meeting”). At the Special Meeting, the Company’s stockholders approved a
third
amendment and restatement (the “Third Amendment and Restatement”) to the Company’s Amended and Restated Certificate of Incorporation, effective
July
27,
2016
(the “Effective Time”), to effect a
one
-for-
15,463.7183
reverse split of the Company’s common stock (the “Reverse Stock Split”). Pursuant to the Reverse Stock Split, at the Effective Time, each
15,463.7183
shares of common stock owned by a stockholder were combined into
one
new share of common stock, with any fractional shares that would otherwise be issuable as a result of the Reverse Stock Split being rounded up to the nearest whole share. The Third Amendment and Restatement also effected (i) a reduction in the Company’s authorized shares of common stock from
100
billion shares to
100
million shares, (ii) an increase in the par value of the Company’s common stock from
$0.000001
per share to
$0.0001
per share and (iii) a reduction in the Company’s authorized shares of preferred stock from
5
billion shares to
20
million shares.    
 
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
1
for
1
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
2,592,229
options outstanding as of
September
30,
2016.
The fair value of each stock option granted was estimated using the Black-Scholes assumptions and or factors as follows:
 
Expected dividend yield
 
0%
 
Risk free interest rate
  1.01%
-
2.43%
Expected life in years
 
5
 
Expected volatility 
  85%
-
213%
 
The following is an analysis of the stock option grant activity under the Plan:
 
 
 
 
 
 
 
Exercise
 
 
Weighted Average
 
 
 
Number
 
 
Price
 
 
Exercise Price
 
Stock Options
 
 
 
 
 
 
 
 
 
 
 
 
                         
Outstanding January 1, 2016
   
1,707,744
     
 
     $
0.84
 
Granted
   
1,301,084
     $
1.25
     
 
  
Expired
    
(416,599
 )    
 
      
 
  
Outstanding September 30, 2016
   
2,592,229
      
 
     $
1.04
 
 
 
On
February
12,
2016,
the Company issued
100,000
options (on a post-Reverse Split basis) under the
2006
Plan to its Chief Financial Officer as a sign-on bonus. These options have an exercise price of
$1.25
per share, a
ten
-year term and vest over a
three
-year period in
35
monthly installments of
0.18
shares and a final installment of
2,778
shares. The terms of the option grant also include full vesting acceleration upon a change of control. The Company recognized compensation expense related to this issuance
$10,383
and
$5,192
for the
nine
and
three
months ended
September
30,
2016
and
March
31,
2016,
respectively.
 
On
April
15,
2016,
our Compensation Committee of our Board determined that each board member will be compensated an option grant of
40,000
options per year, plus
5,000
options for serving as the Chair of a committee. Options shall have
10
-year expiration dates,
24
-month vesting cycles, and a strike price of
$1.25
per share, or more in future time periods to match the fair market value of the Company’s common stock. The aggregate amount granted was
175,000
options.
 
On
April
15,
2016,
the Board granted
1,008,299
options to employees and consultants. These options shall have
10
-year expiration dates,
12
to
48
month vesting cycles, and a strike price of
$1.25
per share.
 
During the quarter,
17,785
options were granted to former Atrinsic executives. These options have
3
-year expiration dates, and a strike price of
$1.25
per share.
 
The total number of options granted and vested during the
nine
month period ended
September
30,
2016
was
1,974,445
and
133,229,
respectively. The exercise price for theses
1,974,445
options was
$1.25
per share.
 
The Company recognized compensation expense related to options issued of
$450,566
during the
nine
month period ended
September
30,
2016.
 
On
June
17,
2016,
the stockholders of the Company approved the adoption of the
2016
equity compensation plan at the Special Meeting. No further options will be granted under the
2006
equity compensation plan, which we assumed in connection with the Merger. Details of this plan can be found with the Company’s Form
8
-K filed
June
20,
2016.
 
Warrants:
 
In connection with the Merger, all of the issued and outstanding warrants to purchase shares of Prior Protagenic common stock, converted, on a
1
for
1
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
6.
 
 
A summary of warrant issuances are as follows:
 
 
 
 
 
 
 
Exercise
 
 
Weighted Average
 
 
 
Number
 
 
Price
 
 
Exercise Price
 
Warrants
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding January 1, 2016
   
3,403,367
     
 
     $
1.05
 
Granted
   
423,291
    $
1.25
     
 
  
Outstanding September 30, 2016
   
3,826,658
     
 
     $
1.07
 
NOTE
6
                   STOCKHOLDERS’ DEFICIT
 
Common Stock
 
The Company adopted a certificate of amendment to the Company’s restated certificate of incorporation to increase the number of authorized shares of its
$.001
par value common stock from
10,000,000
shares to
20,000,000
shares which was recorded by the state of Delaware on
October
2,
2015.
 
No
common stock was issued during the years ended
December
31,
2015
and
2014.
 
Stock-Based Compensation
 
On
March
15,
2006,
the Company adopted the “Protagenic Therapeutic, Inc.
2006
Employee, Director and Consultant Stock Plan” (the “Plan”) and authorized
140,000
shares for issuance pursuant to the Plan. On
April
1,
2012,
the Company increased the number of authorized shares to
2,000,000
shares. 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, as determined by the Board of Directors. During the years ended
December
31,
2015
and
2014,
the Company granted a total of
490,000
and
240,000
respectively, options to purchase shares of the Company’s common stock at an exercise price of
$1.25
and
$1.00
per share. The
2015
and
2014
options vest monthly ranging from
six
months to over a
five
-year period for
one
individual.
 
Management has determined that for each round of stock options granted, it was reasonable to estimate the fair value of the common stock options using the Black Scholes option pricing model. Accordingly, the Company has accounted for options using this calculated value method. Based on the fact that the Company is a privately held company with no revenue, management has estimated its expected future equity volatility factor in valuing the Company’s common stock equivalents by starting with its historical volatility adjusted for the volatility of equity interests from comparable publicly traded and privately held published companies to arrive at such industry benchmarks to evaluate.
 
The fair value of each stock option granted and warrant issued during
2015
and
2014
was estimated using the Black Scholes assumptions and or factors as follows:
 
 
  
2015
  
2014
  
Expected dividend yield
 
 
 0%
 
 
 
 0
%
Risk free interest rate
 
 1.66%
-
2.43% 
 
 
 2.30
%
Expected life in years
 
 
10
 
 
 
10
 
Expected volatility
 
 
85%
 
 
 
85
%
    
No
stock options expired or were forfeited during the years ended
December
31,
2015
and
2014.
As of
December
31,
2015,
the stock options had
no
intrinsic value as there was no current market value for the shares. The Company recognized stock-based compensation expense pertaining to the options granted of
$190,751
and
$85,168
during the years ended
December
31,
2015
and
2014,
respectively.
 
Stock-Based Compensation (continued)
 
As of
December
31,
2015
and
2014,
the Plan had remaining option shares to be granted of
292,256
and
782,256,
respectively. Unrecognized compensation expense related to unvested awards as of
December
31,
2015
was approximately
$290,985,
and will be recognized over the remaining vesting periods of the underlying awards.
 
The following is an analysis of the stock option grant activity under the Plan:
 
 
 
 
 
 
 
Exercise
 
 
Weighted
Average
 
 
 
Number
 
 
Price
 
 
Exercise Price
 
Stock Options
 
 
 
 
 
 
 
 
 
 
 
 
                         
Outstanding January 1, 2014
   
977,744
     
 
     $
0.60
 
Granted
   
240,000
    $
1.00
     
 
  
Outstanding December, 31, 2014
   
1,217,744
     
 
     $
0.68
 
Granted
   
490,000
    $
1.25
     
 
  
Outstanding December, 31, 2015
   
1,707,744
     
 
     $
0.84
 
 
 
The following is an analysis of the vested and non-vested stock options under the Plan as of
December
31,
2015:
 
Number
of
Options
       Expiration
Date
 
Remaining
Contractual Life
(Years)
 
 
Exercise
Price
 
104,150  
March 1, 2016
    
0.17
     $
0.26
  
312,449  
March 15, 2016
    
0.21
     $
0.26
  
55,000  
August 1, 2016
    
0.59
     $
0.26
  
60,000  
November 1, 2016
    
0.84
     $
0.26
  
21,145  
February 1, 2017
    
1.09
     $
1.00
  
290,000  
March 1, 2021
    
5.25
     $
1.00
  
10,000  
June 10, 2021
    
5.45
     $
1.00
  
50,000  
April 1, 2022
    
6.25
     $
1.00
  
75,000  
December 1, 2022
    
6.92
     $
1.00
  
90,000  
March 1, 2024
    
8.17
     $
1.00
  
215,000  
March 1, 2025
    
9.17
     $
1.25
  
75,000  
March 9, 2025
    
9.19
     $
1.25
  
150,000  
March 1, 2027
    
11.17
     $
1.00
  
200,000  
January 22, 2030
    
14.07
     $
1.25
  
1,707,744                    
 
Warrants
 
The Company has conducted private placement offerings to raise financing since its formation. In connection with the private placement offerings that occurred in
2013,
2011,
and
2007,
the Company offered its common stock at a fixed purchase price of
$1.00
per share,
$0.001
par value, and offered
3
warrants for each share purchased. The warrants have an exercise price of
$1.00
per share and have an exercise term of
ten
years from the date of issuance.
 
The Company has warrants outstanding as follows:
 
 
 
December
31,
2015
 
 
December
31,
2014
 
Financing and stock subscriptions (includes
300,000 warrants to the Major Stockholder and
Chairman)
    
2,100,000
      
2,100,000
  
Consultants
    
350,000
      
100,000
  
Major Stockholder and Chairman
    
953,367
      
953,367
  
Total Warrants Issued
    
3,403,367
      
3,153,367
  
 
 
A summary of warrant issuances are as follows:
 
 
 
 
 
 
 
Exercise
 
 
Weighted
Average
 
 
 
Number
 
 
Price
 
 
Exercise Price
 
Warrants
 
 
 
 
 
 
 
 
 
 
 
 
                         
Outstanding January 1, 2014
   
3,153,367
     
 
     $
1.01
 
Granted
   
-
    $
-
     
 
  
Outstanding December, 31, 2014
   
3,153,367
     
 
     $
1.00
 
Granted
   
250,000
    $
1.25
     
 
  
Outstanding December, 31, 2015
   
3,403,367
     
 
     $
1.05
 
 
All outstanding warrants are currently exercisable. A summary of warrants issued and outstanding at
December
31,
2015
is summarized as follows:
 
Number of
Common Stock
Equivalents
 
Expiration
Date
 
Remaining Contractual
Life(Years)
 
Exercise Price
 
100,000  
01/01/2017
  
 
1.2
 
   $
1.25
  
675,000  
07/07/2021
  
 5.5
to
6.7 
   $
1.00
  
2,628,367  
12/20/2023
  
 7.3
to
8.1
   $
1.05
  
3,403,367                    
 
 
The Company recognized stock-based compensation expense pertaining to the warrants issued of
$287,878
and
$0
during the years ended
December
31,
2015
and
2014,
respectively.
 
As of
December
31,
2015,
the Major Stockholder and Chairman has been issued
1,253,367
warrants to purchase
417,789
shares of common stock at an exercise price of
$1.00
exercisable over
10
year periods which ends either on
May
19,
2021
(warrants to purchase
100,000
shares of common stock) or on
February18,
2023
(warrants to purchase
317,789
shares of common stock).