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Note 1 - Organization and Nature of Business
12 Months Ended
Dec. 31, 2016
Notes to Financial Statements  
Nature of Operations [Text Block]
NOTE
1
ORGANIZATION AND NATURE OF BUSINESS
 
Company Background
 
Protagenic Therapeutics, Inc. (“we,” “our,” “Protagenic” or “the Company”), a Delaware corporation with
one
subsidiary named Protagenic Therapeutics Canada
(2006)
Inc., a corporation formed in
2006
under the laws of the Province of Ontario, Canada.
 
The Company was most recently known as Atrinsic, Inc., a company that was once a reporting company under the Securities Act, but that, in
2012
and
2013,
reorganized under Chapter
11
of the United States Bankruptcy Code and emerged from bankruptcy. On
February
12,
2016,
the Company acquired Protagenic Therapeutics, Inc. through a reverse merger. On
June
17,
2016,
Protagenic Therapeutics, Inc. (the then wholly-owned subsidiary of Atrinsic, Inc.) was merged with and into Atrinsic, Inc. Atrinsic, Inc. was the surviving corporation in this merger and changed its name from Atrinsic, Inc. to Protagenic Therapeutics, Inc.
 
The Company originally incorporated as a Delaware corporation under the name Millbrook Acquisition Corp. in
1994.
In
2007,
Millbrook Acquisition Corp. changed its name to New Motion, Inc. In
2008,
New Motion, Inc. merged with Traffix, Inc., pursuant to which Traffix, Inc. became a wholly-owned subsidiary of New Motion, Inc. In
2009,
New Motion, Inc. changed its name to Atrinsic, Inc. On
June
15,
2012,
the Company filed Chapter
11
in the United States Bankruptcy Court in Southern District of New York (Case No.
12
-
12553).
As of that date, the Company terminated all remaining employees and ceased normal business operations.
 
Prior to
March
30,
2012,
the Company was a reporting company under the Exchange Act, and filed periodic reports with the Securities and Exchange Commission (“SEC”). On
March
30,
2012,
the Company filed a Form
15
with the SEC, terminating its obligation to file periodic reports under Sections
13
and
15(d)
of the Exchange Act. Prior to the filing of our Plan of Reorganization under Chapter
11
of the United States Bankruptcy Code on
June
15,
2012
(the “Plan of Reorganization”), the Company was a marketer of direct-to-consumer subscription products and an Internet search marketing agency. The Company sold entertainment and lifestyle subscription products directly to consumers, which the Company marketed through the Internet. The Company also sold Internet marketing services to our corporate and advertising clients.
 
The Company emerged from Chapter
11
on
June
26,
2013,
at which time the Plan of Reorganization was conditionally confirmed by the United States Bankruptcy Court, Southern District of New York. The confirmation was subject to the consummation of the Company’s acquisition of a
51%
controlling interest in MomSpot LLC (“MomSpot”), which was subsequently completed on
July
12,
2013
(“Emergence Date”). MomSpot’s goal was to be the premier specialty retail affiliate marketing company targeting women between the ages of
24
and
45
who are either mothers or expecting their
first
child. The Emergence Date was the date the Company adopted fresh start accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic
852.
The adoption of fresh-start accounting resulted in the Company becoming a new entity for financial reporting purposes. At that time, our principal activities were conducted through MomSpot.
 
On
February
12,
2016,
the Company acquired Protagenic Therapeutics, Inc. (referred to herein as “Prior Protagenic”) through a reverse merger, pursuant to which all the issued and outstanding shares of Protagenic common stock converted on a
1
-for-
1
basis into shares of the Company’s Series B Preferred Stock, par value
$0.000001
per share. Concurrently with the reverse merger, the Company conducted the
first
closing of a private offering of our Series B Preferred Stock.
 
Since the
fourth
quarter of the
2015
fiscal year, MomSpot’s development plans have been suspended pending receipt of incremental funding. On
February
12,
2016,
the Company sold its
51%
interest of MomSpot to the remaining
49%
interest holder through a split off agreement. Additionally, on
February
12,
2016,
the Company sold its equity interests in
29
wholly-owned subsidiaries.
 
Protagenic Therapeutics Canada
(2006)
Inc. (“PTI Canada”) was incorporated in
2006
in the Province of Ontario, Canada. PTI Canada was a wholly-owned subsidiary of Prior Protagenic, and following the Special Meeting, as defined in Note
7
below, it became a wholly-owned subsidiary of the Company. PTI Canada provides operational support and assistance for the implementation of corporate and operational activities conducted in Canada.
 
Reverse Business Combination (Merger)
 
On
February
12,
2016
(“Closing Date”), Protagenic Acquisition Corp., a wholly-owned subsidiary of the Company (which at the time was named Atrinsic, Inc.), merged (the “Merger”) with and into Prior Protagenic. Prior Protagenic was the surviving corporation of the Merger. As a result of the Merger, the Company acquired the business of prior Protagenic and will continue the existing business operations of Prior Protagenic as a wholly-owned subsidiary. On
June
17,
2016,
Prior Protagenic merged with and into the Company with the Company as the surviving corporation in the merger. Immediately thereafter, the Company changed its name from Atrinsic, Inc. to Protagenic Therapeutics, Inc.
 
On the Closing Date, all of the issued and outstanding
(6,612,838)
shares of Prior Protagenic common stock converted, on a
1
for
1
basis, into shares of the Company’s Series B Convertible Preferred Stock, par value
$0.000001
per share (“Series B Preferred Stock”). Also on the Closing Date, all of the issued and outstanding options to purchase shares of Prior Protagenic common stock, and all of the issued and outstanding warrants to purchase shares of Prior Protagenic common stock, converted, on a
1
for
1
basis, into options (the “New Options”) and warrants (the “New Warrants”) respectively, to purchase shares of Series B Preferred Stock. New Options to purchase
1,807,744
shares of Series B Preferred Stock, having an average exercise price of approximately
$0.87
per share, were issued to Prior Protagenic optionees. New Warrants to purchase
3,403,367
shares of Series B Preferred Stock at an average exercise price of approximately
$1.03
per share were issued to holders of Prior Protagenic warrants.
 
The common stockholders of Atrinsic, Inc. before the Merger (“Predecessor”) retained
25,867
shares of common stock, par value
$0.0001
per share (the “Common Stock”). Upon the effectiveness of the Merger, the holders of the Predecessor’s Series A Preferred Stock exchanged all of the issued and outstanding Series A Preferred Stock for an aggregate of
297,468
shares of Series B Preferred Stock. In addition, the holders of options to purchase Predecessor common stock were issued options (“Predecessor Options”) to purchase
17,784
shares of Series B Preferred Stock at
$1.25
per share. Warrants (“Predecessor Warrants”) to purchase
295,945
shares of Series B Preferred Stock at
$1.25
per share were issued to Strategic Bio Partners, LLC, the designee (the “Designee”) of the holders of the Predecessor’s debt in consideration of the cancellation of such debt amounting to
$665,000
in principal and
$35,000
in interest.
 
The Merger is being accounted for as a “Reverse Business Combination,” and Prior Protagenic is deemed to be the accounting acquirer in the merger. Consequently, the assets and liabilities and the historical operations that will be reflected in the financial statements prior to the Merger will be those of Prior Protagenic, and the consolidated financial statements after completion of the Merger will include the assets and liabilities of Prior Protagenic, historical operations of Prior Protagenic and combined operations of Prior Protagenic, Predecessor and the Company from the Closing Date of the Merger. Further, as a result of the issuance of the shares of Series B Preferred Stock pursuant to the Merger, a change in control of the Company occurred as of the date of consummation of the Merger.
 
The Merger will be treated as a recapitalization of the Company for financial accounting purposes. The historical financial statements of Predecessor before the Merger will be replaced with the historical financial statements of Prior Protagenic before the Merger in all future filings with the Securities and Exchange Commission (the “SEC”).
 
At the closing of the Merger, Predecessor had a
51%
interest in MomSpot, and the remaining
49%
was held by B.E. Global LLC. Barry Eisenberg is the sole owner of B.E. Global LLC and is the Chief Executive Officer of MomSpot LLC. Immediately after the closing of the Merger, the Company split off its
51%
membership interests in MomSpot. The split-off was accomplished through the transfer of all of its membership interests of MomSpot, having nominal value, to B.E. Global LLC via a split off agreement for nominal consideration.
 
Immediately after the closing of the Merger, the Company also split off all of its equity interest in
29
wholly-owned subsidiaries of Predecessor. The split-off was accomplished through the sale of all equity interests in these wholly-owned subsidiaries to Quintel Holdings, Inc. for nominal considerations via a split off agreement. These entities had nominal value.
 
Private Offering
 
Concurrently and a condition of the closing of the Merger, the Company conducted the
first
closing of an offering (the “Private Offering”) of our Series B Preferred Stock. At the
first
closing, we sold
2,775,000
shares of Series B Preferred Stock at a purchase price of
$1.25
per share, for which we received total gross consideration of
$3,468,750.
Of this amount,
$350,000
consisted of the conversion of outstanding stockholder debt held by Garo H. Armen, our chairman and a member of our board of directors, and
$150,000
of legal expenses incurred by Strategic Bio Partners, LLC, on behalf of the stockholders of Predecessor, in conjunction with and as permitted under the terms of the Merger. On
March
2,
2016,
we completed the
second
closing of the Private Offering, at which we sold an additional
913,200
shares of Series B Preferred Stock, for total gross proceeds of
$1,141,500.
On
April
15,
2016
we completed the final closing of the Private Offering, at which we issued an additional
420,260
shares of Series B Preferred Stock to accredited investors, for total gross proceeds of
$525,325.
The Company paid commissions, legal and miscellaneous fees aggregating
$373,778
associated with these closings. We also issued Placement Agent Warrants to purchase
127,346
shares of Series B Preferred Stock valued at
$146,641
using a Black-Scholes model at an exercise price of
$1.25
per share to the Placement Agent and its selected dealers. The Company determined the fair value of the binomial lattice model and the Black-Scholes valuation model to be materially the same. For all
three
closings, the Company issued
4,108,460
shares of Series B Preferred Stock and raised total gross proceeds of
$4,635,575
and total net proceeds of
$4,261,797
(or total gross proceeds of
$5,135,575
and total net proceeds of
$4,761,797
, including the conversion of the
$350,000
in principal of stockholder debt, and
$150,000
of legal expenses incurred by the Predecessor’s stockholders.
 
Debt Exchange
 
Simultaneous with the Merger and the Private Offering, holders of
$665,000
of Predecessor debt accompanied with
$35,000
in accrued interest exchanged such debt for Predecessor Warrants to purchase
295,945
shares of Series B Preferred Stock at
$1.25
per share. The Predecessor Warrants were valued at
$340,784
(see Note
6).
 
Reverse Stock Split
 
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.
 
As a result of the Reverse Split,
400,000,000
shares of common stock were split into
25,867
shares of common stock. Additionally, as a result of the Reverse Split and in accordance with our certificate of designations for our Series B Preferred Stock, our Series B Preferred Stock immediately and automatically converted into our common stock on a
1
-for-
1
basis other than any Series B Preferred Stock (i) to the extent (but only to the extent) a Series B Preferred Stock holder would beneficially own greater than
9.99%
of our common stock (the “Springing Blocker”) and (ii) such holder has notified the Company in writing that it wants the Springing Blocker to apply to such holder. On
July
27,
2016,
10,146,000
of the Company’s
11,018,766
outstanding shares of Series B Preferred Stock were eligible to immediately convert into
10,146,000
shares of the Company’s common stock with
872,766
shares of Series B Preferred Stock remaining as a result of
one
holder exercising the Springing Blocker. As of
December
31,
2016,
10,146,000
shares of the Series B Preferred Stock were converted into
10,146,000
shares of common stock on the records of the Company.
 
Any Series B Preferred Stock not converted as a result of this provision would automatically convert into common stock as soon as such conversion would not violate the Springing Blocker. Our Series B Preferred Stock will cease to be designated as a separate series of our preferred stock when all of such shares have converted into shares of our common stock.
 
All share and per share amounts for the common stock have been retroactively restated to give effect to the reverse split.