|
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
[X]
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For
the quarterly period ended September 30, 2019
or
[ ]
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For
the transition period from _________to___________
Commission
File Number: 000-51353
PROTAGENIC
THERAPEUTICS, INC.
(Exact
name of registrant as specified in its charter)
|
Delaware
|
|
06-1390025
|
|
(State
or other jurisdiction of
|
|
(I.R.S.
Employer
|
|
incorporation
or organization)
|
|
Identification
No.)
|
149
Fifth Avenue, Suite 500, New York, New York 10010
(Address
of Principal Executive Office) (Zip Code)
(212)
994-8200
Registrant’s
Telephone Number Including Area Code
Securities
registered pursuant to Section 12(b) of the Act:
|
Title
of each class
|
|
Ticker
symbol(s)
|
|
Name
of each exchange on which registered
|
|
N/A
|
|
N/A
|
|
N/A
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit such files). Yes [X] No [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting
company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”,
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer
|
[ ]
|
Accelerated
filer
|
[ ]
|
|
Non-accelerated
filer
|
[X]
|
Smaller
reporting company
|
[X]
|
|
Emerging
Growth Company
|
[ ]
|
|
|
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 126-2 of the Exchange Act).
[ ]
Yes [X] No
As
of November 14, 2019, there were 10,261,419 shares of common stock outstanding.
PROTAGENIC
THERAPEUTICS, INC.
Form
10-Q Report
For
the Fiscal Quarter Ended September 30, 2019
TABLE
OF CONTENTS
PART
I - FINANCIAL INFORMATION
Item
1. Financial Statements
PROTAGENIC
THERAPEUTICS, INC., AND SUBSIDIARY
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
September
30,
|
|
|
December
31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
277,386
|
|
|
$
|
362,486
|
|
|
Marketable
securities
|
|
|
-
|
|
|
|
250,388
|
|
|
Prepaid
expenses
|
|
|
9,531
|
|
|
|
83,399
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
CURRENT ASSETS
|
|
|
286,917
|
|
|
|
696,273
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUIPMENT
- NET
|
|
|
374
|
|
|
|
611
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
287,291
|
|
|
$
|
696,884
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
316,055
|
|
|
|
231,688
|
|
|
Derivative
liability
|
|
|
334,972
|
|
|
|
676,079
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
651,027
|
|
|
|
907,767
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
DEFICIT
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.000001 par value; 20,000,000 shares authorized; 872,766 shares issued and outstanding in the following classes:
|
|
|
|
|
|
|
|
|
|
Preferred
stock; par value $0.000001; 2,000,000 shares authorized; none issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
|
Series
B convertible preferred stock, $0.000001 par value; 18,000,000 shares authorized; 872,766 shares issued and outstanding at
September 30, 2019, and December 31, 2018
|
|
|
1
|
|
|
|
1
|
|
|
Common stock,
$.0001 par value, 100,000,000 shares authorized, 10,261,419 shares issued and outstanding at September 30, 2019, and
December 31, 2018
|
|
|
1,026
|
|
|
|
1,026
|
|
|
Additional
paid-in-capital
|
|
|
14,208,687
|
|
|
|
13,357,920
|
|
|
Accumulated
deficit
|
|
|
(14,400,335
|
)
|
|
|
(13,399,290
|
)
|
|
Accumulated
other comprehensive loss
|
|
|
(173,115
|
)
|
|
|
(170,540
|
)
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
STOCKHOLDERS’ DEFICIT
|
|
|
(363,736
|
)
|
|
|
(210,883
|
)
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
$
|
287,291
|
|
|
$
|
696,884
|
|
See
accompanying notes to the unaudited condensed consolidated financial statements
PROTAGENIC
THERAPEUTICS, INC., AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
|
|
|
For
the three months ended
September 30,
|
|
|
For
the nine months ended
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
OPERATING
AND ADMINISTRATIVE EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
31,153
|
|
|
|
163,071
|
|
|
|
291,828
|
|
|
|
687,347
|
|
|
General
and administrative
|
|
|
158,469
|
|
|
|
334,999
|
|
|
|
1,057,073
|
|
|
|
1,102,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
OPERATING AND ADMINISTRATIVE EXPENSES
|
|
|
189,622
|
|
|
|
498,070
|
|
|
|
1,348,901
|
|
|
|
1,789,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(189,622
|
)
|
|
|
(498,070
|
)
|
|
|
(1,348,901
|
)
|
|
|
(1,789,879
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
(EXPENSE) INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
1,108
|
|
|
|
1,044
|
|
|
|
2,314
|
|
|
|
2,694
|
|
|
Realized
gain on marketable securities
|
|
|
-
|
|
|
|
-
|
|
|
|
4,435
|
|
|
|
1,568
|
|
|
Change
in fair value of derivative liability
|
|
|
65,207
|
|
|
|
(474
|
)
|
|
|
341,107
|
|
|
|
17,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
OTHER INCOME (EXPENSES)
|
|
|
66,315
|
|
|
|
570
|
|
|
|
347,856
|
|
|
|
22,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
BEFORE TAX
|
|
|
(123,307
|
)
|
|
|
(497,500
|
)
|
|
|
(1,001,045
|
)
|
|
|
(1,767,869
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAX EXPENSE
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(123,307
|
)
|
|
$
|
(497,500
|
)
|
|
$
|
(1,001,045
|
)
|
|
$
|
(1,767,869
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive Loss - net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized loss on marketable securities
|
|
|
-
|
|
|
|
1,781
|
|
|
|
-
|
|
|
|
5,247
|
|
|
Foreign
exchange translation loss
|
|
|
(20
|
)
|
|
|
(2,266
|
)
|
|
|
(7,398
|
)
|
|
|
(2,590
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
COMPREHENSIVE LOSS
|
|
$
|
(123,327
|
)
|
|
$
|
(497,985
|
)
|
|
$
|
(1,008,443
|
)
|
|
$
|
(1,765,212
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares - Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share - Basic and Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares - Basic and Diluted
|
|
|
10,261,419
|
|
|
|
10,261,419
|
|
|
|
10,261,419
|
|
|
|
10,261,419
|
|
See
accompanying notes to the unaudited condensed consolidated financial statements
PROTAGENIC
THERAPEUTICS, INC., AND SUBSIDIARY
CONDENSED
CONSOLIDATED STOCKHOLDERS’ EQUITY (DEFICIT)
For
the Nine Months Ended September 30, 2018 and the Nine Months Ended September 30, 2019
(Unaudited)
|
|
|
Series
B Convertible Preferred Stock
|
|
|
Common
Stock
|
|
|
Additional
Paid-in-
|
|
|
Accumulated
|
|
|
Accumulated
Other Comprehensive
|
|
|
Stockholders’
(Deficit)
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
Loss
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the nine months ended September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
-December 31, 2017
|
|
|
872,766
|
|
|
$
|
1
|
|
|
|
10,261,419
|
|
|
$
|
1,026
|
|
|
$
|
12,227,849
|
|
|
$
|
(10,841,759
|
)
|
|
$
|
(167,805
|
)
|
|
$
|
1,219,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(75
|
)
|
|
|
(75
|
)
|
|
Foreign
currency translation loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(827
|
)
|
|
|
(827
|
)
|
|
Stock
compensation - stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
344,647
|
|
|
|
|
|
|
|
|
|
|
|
344,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(598,159
|
)
|
|
|
|
|
|
|
(598,159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
-March 31, 2018
|
|
|
872,766
|
|
|
$
|
1
|
|
|
|
10,261,419
|
|
|
$
|
1,026
|
|
|
$
|
12,572,496
|
|
|
$
|
(11,439,918
|
)
|
|
$
|
(168,707
|
)
|
|
$
|
964,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,541
|
|
|
|
3,541
|
|
|
Foreign
currency translation gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
503
|
|
|
|
503
|
|
|
Stock
compensation - stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
263,148
|
|
|
|
|
|
|
|
|
|
|
|
263,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(672,210
|
)
|
|
|
|
|
|
|
(672,210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
-June 30, 2018
|
|
|
872,766
|
|
|
$
|
1
|
|
|
|
10,261,419
|
|
|
$
|
1,026
|
|
|
$
|
12,835,644
|
|
|
$
|
(12,112,128
|
)
|
|
$
|
(164,663
|
)
|
|
$
|
559,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,781
|
|
|
|
1,781
|
|
|
Foreign
currency translation loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,266
|
)
|
|
|
(2,266
|
)
|
|
Stock
compensation - stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
261,138
|
|
|
|
|
|
|
|
|
|
|
|
261,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(497,500
|
)
|
|
|
|
|
|
|
(497,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
-September 30, 2018
|
|
|
872,766
|
|
|
$
|
1
|
|
|
|
10,261,419
|
|
|
$
|
1,026
|
|
|
$
|
13,096,782
|
|
|
$
|
(12,609,628
|
)
|
|
$
|
(165,148
|
)
|
|
$
|
323,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the nine months ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
- December 31, 2018
|
|
|
872,766
|
|
|
$
|
1
|
|
|
|
10,261,419
|
|
|
$
|
1,026
|
|
|
$
|
13,357,920
|
|
|
$
|
(13,399,290
|
)
|
|
$
|
(170,540
|
)
|
|
$
|
(210,883
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,823
|
|
|
|
4,823
|
|
|
Foreign
currency translation loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,669
|
)
|
|
|
(7,669
|
)
|
|
Stock
compensation - stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
451,141
|
|
|
|
|
|
|
|
|
|
|
|
451,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(599,232
|
)
|
|
|
|
|
|
|
(599,232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
-March 31, 2019
|
|
|
872,766
|
|
|
$
|
1
|
|
|
|
10,261,419
|
|
|
$
|
1,026
|
|
|
$
|
13,809,061
|
|
|
$
|
(13,998,522
|
)
|
|
$
|
(173,386
|
)
|
|
$
|
(361,820
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
291
|
|
|
|
291
|
|
|
Stock
compensation - stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
260,560
|
|
|
|
|
|
|
|
|
|
|
|
260,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(278,506
|
)
|
|
|
|
|
|
|
(278,506
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
-June 30, 2019
|
|
|
872,766
|
|
|
$
|
1
|
|
|
|
10,261,419
|
|
|
$
|
1,026
|
|
|
$
|
14,069,621
|
|
|
$
|
(14,277,028
|
)
|
|
$
|
(173,095
|
)
|
|
$
|
(379,475
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20
|
)
|
|
|
(20
|
)
|
|
Stock
compensation - stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139,066
|
|
|
|
|
|
|
|
|
|
|
|
139,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(123,307
|
)
|
|
|
|
|
|
|
(123,307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
-September 30, 2019
|
|
|
872,766
|
|
|
$
|
1
|
|
|
|
10,261,419
|
|
|
$
|
1,026
|
|
|
$
|
14,208,687
|
|
|
$
|
(14,400,335
|
)
|
|
$
|
(173,115
|
)
|
|
$
|
(363,736
|
)
|
See
accompanying notes to the unaudited condensed consolidated financial statements
PROTAGENIC
THERAPEUTICS, INC., AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
For
the nine months ended September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(1,001,045
|
)
|
|
$
|
(1,767,869
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
|
Depreciation
expense
|
|
|
254
|
|
|
|
262
|
|
|
Stock
based compensation
|
|
|
850,767
|
|
|
|
868,933
|
|
|
Change
in fair value of the derivative liability
|
|
|
(341,107
|
)
|
|
|
(17,748
|
)
|
|
Gain
on sale of marketable securities
|
|
|
(4,435
|
)
|
|
|
(1,568
|
)
|
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses
|
|
|
73,867
|
|
|
|
30,589
|
|
|
Accounts
payable and accrued expenses
|
|
|
83,129
|
|
|
|
124,005
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
CASH USED IN OPERATING ACTIVITIES
|
|
|
(338,570
|
)
|
|
|
(763,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS PROVIDED BY INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of marketable securities
|
|
|
250,000
|
|
|
|
3,170,000
|
|
|
Purchase
of marketable securities
|
|
|
-
|
|
|
|
(2,369,839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET
CASH PROVIDED BY INVESTING ACTIVITIES
|
|
|
250,000
|
|
|
|
800,161
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate on cash and cash equivalents
|
|
|
3,470
|
|
|
|
(4,520
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(85,100
|
)
|
|
|
32,245
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
362,486
|
|
|
|
399,687
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
277,386
|
|
|
$
|
431,932
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest expense
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Cash
paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
NONCASH
TRANSACTIONS
|
|
|
|
|
|
|
|
|
|
Unrealized
(gain) loss on marketable securities
|
|
$
|
4,823
|
|
|
$
|
(6,674
|
)
|
See
accompanying notes to the unaudited condensed consolidated financial statements
PROTAGENIC
THERAPEUTICS, INC & SUBSIDIARY
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
NOTE
1 – ORGANIZATION AND NATURE OF BUSINESS
Company
Background
Protagenic
Therapeutics, Inc. (“we,” “our,” “Protagenic” or “the Company”), is a Delaware
corporation with one subsidiary named Protagenic Therapeutics Canada (2006) Inc. (“PTI Canada”), a corporation formed
in 2006 under the laws of the Province of Ontario, Canada.
The
Company was previously known as Atrinsic, Inc., a company that was once a reporting company under the Securities Exchange Act
of 1934, 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. (“Prior Protagenic”) through a reverse merger.
On
February 12, 2016, 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 has continued 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.
NOTE
2 - GOING CONCERN
As
shown in the accompanying condensed consolidated financial statements, the Company incurred a net loss of $1,001,045 and
$1,767,869 for the nine months ended September 30, 2019 and 2018, respectively. The Company has incurred losses since
inception resulting in an accumulated deficit of $14,400,335 as of September 30, 2019. The Company anticipates further losses
in the development of its business. The Company had a net working capital deficit of $364,110 as of September 30, 2019 as a result
of the continuing operations of the Company. Based on its current forecast and budget, management believes that its cash resources
will be sufficient to fund its operations at least until the end of the fourth quarter of 2019 . Absent generation
of sufficient revenue from the execution of the Company’s business plan, the Company will need to obtain debt or equity
financing by the first quarter of 2020.
As
reflected in the condensed consolidated financial statements, the Company had an accumulated deficit at September 30, 2019, a
net loss, and net cash used in operating activities for the nine months ended September 30, 2019. These factors raise substantial
doubt about the Company’s ability to continue as a going concern.
NOTE
3 - SUMMARY OF SIGNFICANT ACCOUNTING POLICIES
Basis
of presentation
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules and
regulations of the Securities and Exchange Commission (“SEC” for interim financial information. In the opinion of
the Company’s management, the accompanying condensed consolidated financial statements reflect all adjustments, consisting
of normal, recurring adjustments, considered necessary for a fair presentation of the results for the interim periods ended September
30, 2019 and 2018. As this is an interim period financial statement, certain adjustments are not necessary as with a financial
period of a full year. Although management believes that the disclosures in these unaudited condensed consolidated financial statements
are adequate to make the information presented not misleading, certain information and footnote disclosures normally included
in financial statements that have been prepared in accordance U.S. GAAP have been condensed or omitted pursuant to the rules and
regulations of the SEC.
The
accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s financial
statements for the year ended December 31, 2018, which contains the audited financial statements and notes thereto, for the years
ended December 31, 2018 and 2017 included within the Company’s Form 10-K filed with the SEC on March 29, 2019. The interim
results for the nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the year
ended December 31, 2019 or for any future interim periods.
Principles
of consolidation
The
condensed consolidated financial statements include the accounts of Protagenic Therapeutics, Inc., and its wholly owned Canadian
subsidiary, PTI Canada. All significant intercompany balances and transactions have been eliminated in the condensed consolidated
financial statements.
Use
of estimates
The
preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the condensed consolidated financial statements and the reported amounts of revenue and expense during the reporting
period. Actual results could differ from those estimates. Significant estimates underlying the condensed consolidated financial
statements include the allocation of the fair value of acquired assets and liabilities associated with the Merger, income tax
provisions, valuation of stock options and warrants and assessment of deferred tax asset valuation allowance.
Concentrations
of Credit Risk
The
Company maintains its cash accounts at financial institutions which are insured by the Federal Deposit Insurance Corporation.
At times, the Company may have deposits in excess of federally insured limits.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
While the Company’s marketable securities are cash equivalents it is the Company’s policy to present them separately
on the balance sheet. As of September 30, 2019, and December 31, 2018, the Company did not have any cash equivalents.
Equipment
Equipment
is stated at cost less accumulated depreciation. Cost includes expenditures for computer equipment. Maintenance and repairs are
charged to expense as incurred. When assets are sold, retired, or otherwise disposed of, the cost and accumulated depreciation
are removed from the accounts and any resulting gain or loss is reflected in operations. The cost of equipment is depreciated
using the straight-line method over the estimated useful lives of the related assets which is three years. Depreciation expense
was not material for the nine months ended September 30, 2019 and 2018.
Marketable
Securities
The
Company accounts for marketable debt securities, the only type of securities it owns, in accordance with sub-topic 320-10 of the
FASB Accounting Standards Codification (“Sub-topic 320-10”).
Pursuant
to Paragraph 320-10-35-1, investments in debt securities that are classified as available for sale shall be measured subsequently
at fair value in the condensed consolidated balance sheets at each balance sheet date. Unrealized holding gains and losses for
available-for-sale securities (including those classified as current assets) shall be excluded from earnings and reported in other
comprehensive income until realized.
During
the nine months ended September 30, 2019 the Company purchased $0 and sold $250,000 in marketable securities with a realized gain
of $4,435 and an unrealized gain of $0. As of September 30, 2019 and December 31, 2018, the Company owned marketable securities
with a total value of $0 and $250,388, respectively.
As
of September 30, 2019, the Company held no marketable securities.
Fair
Value Measurements
ASC
820, “Fair Value Measurements and Disclosure,” defines fair value as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants at the measurement date, not adjusted for
transaction costs. ASC 820 also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value into three broad levels giving the highest priority to quoted prices in active markets for identical assets
or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
The
three levels are described below:
Level
1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that is accessible by the Company;
Level
2 Inputs – Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable,
either directly or indirectly;
Level
3 Inputs – Unobservable inputs for the asset or liability including significant assumptions of the Company and other market
participants.
The
carrying amount of the Company’s financial assets and liabilities, such as cash, accounts payable and accrued expenses approximate
their fair value because of the short maturity of those instruments.
Transactions
involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of
competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply
that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions
unless such representations can be substantiated.
The
assets or liability’s fair value measurement within the fair value hierarchy is based upon the lowest level of any input
that is significant to the fair value measurement. The following table provides a summary of financial instruments that are measured
at fair value as of September 30, 2019.
|
|
|
Carrying
|
|
|
Fair
Value Measurement Using
|
|
|
|
|
Value
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Derivative
warrants liabilities
|
|
$
|
(334,972
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(334,972
|
)
|
|
$
|
(334,972
|
)
|
The
following table provides a summary of financial instruments that are measured at fair value as of December 31, 2018.
|
|
|
Carrying
|
|
|
Fair
Value Measurement Using
|
|
|
|
|
Value
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities
|
|
|
250,388
|
|
|
|
250,388
|
|
|
|
—
|
|
|
|
—
|
|
|
|
250,388
|
|
|
Derivative
warrants liabilities
|
|
$
|
(676,079
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(676,079
|
)
|
|
$
|
(676,079
|
)
|
The
table below provides a summary of the changes in fair value, including net transfers in and/or out, of all financial assets and
liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months
ended September 30, 2019 and the year ended December 31, 2018:
|
|
|
Fair
Value Measurement
Using
Level 3
|
|
|
|
|
Inputs
Total
|
|
|
Balance,
December 31, 2017
|
|
$
|
425,838
|
|
|
Change
in fair value of derivative warrants liabilities
|
|
|
250,241
|
|
|
Balance, December
31, 2018
|
|
|
676,079
|
|
|
Change
in fair value of derivative warrants liabilities
|
|
|
(341,107
|
)
|
|
Balance,
September 30, 2019
|
|
$
|
334,972
|
|
The
fair value of the derivative feature of the 127,346 and 295,945 warrants issued to the placement agent of the Company’s
2016 private offering and to a holder of its debt for debt cancellation in connection with the Merger, respectively on the issuance
dates and at the balance sheet date were calculated using a Black-Scholes option model valued with the following assumptions:
|
|
|
December
31,
2018
|
|
|
September
30,
2019
|
|
|
Exercise
price
|
|
|
1.25
|
|
|
|
1.25
|
|
|
Risk
free interest rate
|
|
|
2.46
|
%
|
|
|
1.63
|
%
|
|
Dividend
yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Expected
volatility
|
|
|
152
|
%
|
|
|
123
|
%
|
|
Contractual
term
|
|
|
2.15
Years
|
|
|
|
1.40
Years
|
|
Risk-free
interest rate: The Company uses the risk-free interest rate of a U.S. Treasury Note with a similar expected term on the date of
measurement.
Dividend
yield: The Company uses a 0% expected dividend yield as the Company has not paid dividends to date and does not anticipate declaring
dividends in the near future.
Volatility:
The Company calculates the expected volatility of the stock price based on the corresponding volatility of the Company’s
peer group stock price for a period consistent with the warrants’ expected term.
Expected
term: The Company’s expected term is based on the remaining contractual maturity of the warrants.
During
the nine months ended September 30, 2019 and 2018, the Company marked the derivative feature of the warrants to fair value and
recorded a gain of $341,107 and a gain of $17,748 relating to the change in fair value, respectively.
Derivative
Liability
The
Company evaluates its options, warrants or other contracts, if any, to determine if those contracts or embedded components of
those contracts qualify as derivatives to be separately accounted for in accordance with ASC 815-10-05-4 and 815-40-25. The result
of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and
recorded as either an asset or a liability. In the event that the fair value is recorded as a liability, the change in fair value
is recorded in the condensed consolidated statement of operations as other income or expense. Upon conversion, exercise or cancellation
of a derivative instrument, the instrument is marked to fair value at the date of conversion, exercise or cancellation and then
the related fair value is reclassified to equity.
The
classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is
re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject
to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative
instrument liabilities will be classified in the balance sheet as current or non-current based on whether or not net-cash settlement
of the derivative instrument is expected within 12 months of the balance sheet date.
Stock-Based
Compensation
The
Company accounts for stock based compensation costs under the provisions of ASC 718, “Compensation—Stock Compensation”,
which requires the measurement and recognition of compensation expense related to the fair value of stock based compensation awards
that are ultimately expected to vest. Stock based compensation expense recognized includes the compensation cost for all stock
based payments granted to employees, officers, and directors based on the grant date fair value estimated in accordance with the
provisions of ASC 718. ASC. 718 is also applied to awards modified, repurchased, or canceled during the periods reported.
If
any award granted under the Company’s 2016 Equity Compensation Plan (the “2016 Plan”) payable in shares of common
stock is forfeited, cancelled, or returned for failure to satisfy vesting requirements, otherwise terminates without payment being
made, or if shares of common stock are withheld to cover withholding taxes on options or other awards, the number of shares of
common stock as to which such option or award was forfeited, or which were withheld, will be available for future grants under
the 2016 Plan. The Company recognizes the impact of forfeitures when they occur.
Stock-Based
Compensation for Non-Employees
The
Company accounts for warrants and options issued to non-employees under AUS 2018-07, Equity – Equity Based Payments to
Non-Employees, using the Black-Scholes option-pricing model.
Basic
and Diluted Net (Loss) per Common Share
Basic
(loss) per common share is computed by dividing the net (loss) by the weighted average number of shares of common stock outstanding
for each period. Diluted (loss) per share is computed by dividing the net (loss) by the weighted average number of shares of common
stock outstanding plus the dilutive effect of shares issuable through the common stock equivalents. The effect of dilution on
net loss becomes anti-dilutive and therefore is not reflected on the income statement.
|
|
|
Potentially
Outstanding
Dilutive Common Shares
|
|
|
|
|
For
the Nine Months Ended
September 30, 2019
|
|
|
For
the Nine Months Ended
September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
Conversion
Feature Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares issuable under the conversion feature of preferred shares
|
|
|
872,766
|
|
|
|
872,766
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options
|
|
|
3,972,866
|
|
|
|
3,846,299
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
3,826,658
|
|
|
|
3,826,658
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
potentially outstanding dilutive common shares
|
|
|
8,672,290
|
|
|
|
8,545,723
|
|
Research
and Development
Research
and development expenses are charged to operations as incurred.
Foreign
Currency Translation
The
Company follows Section 830-10-45 of the FASB Accounting Standards Codification (“Section 830-10-45”) for foreign
currency translation to translate the financial statements of the foreign subsidiary from the functional currency, generally the
local currency, into U.S. Dollars. Section 830-10-45 sets out the guidance relating to how a reporting entity determines the functional
currency of a foreign entity (including of a foreign entity in a highly inflationary economy), re-measures the books of record
(if necessary), and characterizes transaction gains and losses. Pursuant to Section 830-10-45, the assets, liabilities, and operations
of a foreign entity shall be measured using the functional currency of that entity. An entity’s functional currency is the
currency of the primary economic environment in which the entity operates; normally, that is the currency of the environment,
or local currency, in which an entity primarily generates and expends cash.
The
functional currency of each foreign subsidiary is determined based on management’s judgment and involves consideration of
all relevant economic facts and circumstances affecting the subsidiary. Generally, the currency in which the subsidiary transacts
a majority of its transactions, including billings, financing, payroll and other expenditures, would be considered the functional
currency, but any dependency upon the parent and the nature of the subsidiary’s operations must also be considered. If a
subsidiary’s functional currency is deemed to be the local currency, then any gain or loss associated with the translation
of that subsidiary’s financial statements is included in accumulated other comprehensive income. However, if the functional
currency is deemed to be the U.S. Dollar, then any gain or loss associated with the re-measurement of these financial statements
from the local currency to the functional currency would be included in the condensed consolidated statements of income and comprehensive
income (loss). If the Company disposes of foreign subsidiaries, then any cumulative translation gains or losses would be recorded
into the condensed consolidated statements of income and comprehensive income (loss). If the Company determines that there has
been a change in the functional currency of a subsidiary to the U.S. Dollar, any translation gains or losses arising after the
date of change would be included within the statement of income and comprehensive income (loss).
Based
on an assessment of the factors discussed above, the management of the Company determined its subsidiary’s local currency
(i.e. the Canadian dollar) to be the functional currency for its foreign subsidiary.
NOTE
4 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts
payable and accrued expenses consist of the following at:
|
|
|
September
30,
2019
|
|
|
December
31,
2018
|
|
|
|
|
|
|
|
|
|
|
Accounting
|
|
$
|
36,161
|
|
|
$
|
52,365
|
|
|
Research
and development
|
|
|
207,489
|
|
|
|
137,114
|
|
|
Legal
|
|
|
7,500
|
|
|
|
32,161
|
|
|
Other
|
|
|
64,905
|
|
|
|
10,048
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
316,055
|
|
|
$
|
231,688
|
|
NOTE
5 - DERIVATIVE LIABILITIES
Upon
closing of the private placement transactions in 2016, the Company issued 127,346 and 295,945 warrants, to the placement agent
of the private offering and to Strategic Bio Partners, a holder of the Company’s debt, for debt cancellation, respectively,
to purchase the Company’s Series B Preferred Stock with an exercise price of $1.25 and a five-year term. Upon the effectiveness
of our reverse stock split in July 2016, these became warrants to purchase our common stock on the same terms and conditions.
The warrants have a cashless exercise feature that requires the Company to classify the warrants as a derivative liability.
NOTE
6 - STOCKHOLDERS’ EQUITY (DEFICIT)
Stock-Based
Compensation
In
connection with the consummation of the Merger completed on February 12, 2016, we adopted Prior Protagenic’s 2006 Employee,
Director and Consultant Stock Plan (the “2006 Plan”). On June 17, 2016, our stockholders adopted the 2016 Plan and,
as a result, we terminated the 2006 Plan. We will not grant any further awards under the 2006 Plan. All outstanding grants under
the 2006 Plan will continue in effect in accordance with the terms of the particular grant and the 2006 Plan.
Pursuant
to the 2016 Plan, the Company’s Compensation Committee may grant awards to any employee, officer, director, consultant,
advisor or other individual service provider of the Company or any subsidiary. On each of January 1, 2017 and January 1, 2019,
pursuant to an annual “evergreen” provision contained in the 2016 Plan, the number of shares reserved for future grants
was increased by 564,378 shares, or a total of 1,128,756 shares. As a result of this increase, as of September 30, 2019, the aggregate
number of shares of common stock available for awards under the 2016 Plan was 3,739,867 shares. Options issued under the 2016
Plan are exercisable for up to ten years from the date of issuance.
There
were 3,972,866 options outstanding as of September 30, 2019. The fair value of each stock option granted was estimated using the
Black-Scholes assumptions and or factors as follows:
|
Exercise price
|
|
$
|
1.00
- $1.75
|
|
|
Expected
dividend yield
|
|
|
0
|
%
|
|
Risk
free interest rate
|
|
|
2.09%
- 2.70
|
%
|
|
Expected
life in years
|
|
|
10
|
|
|
Expected
volatility
|
|
|
137%
- 140
|
%
|
There
were 3,846,299 options outstanding as of December 31, 2018. The fair value of each stock option granted was estimated using the
Black-Scholes assumptions and or factors as follows:
|
Exercise price
|
|
$
|
1.25
- $1.75
|
|
|
Expected
dividend yield
|
|
|
0
|
%
|
|
Risk
free interest rate
|
|
|
2.73%
- 2.85
|
%
|
|
Expected
life in years
|
|
|
3.75-9.40
|
|
|
Expected
volatility
|
|
|
139%
- 146
|
%
|
The
following is an analysis of the stock option grant activity under the Plan:
|
|
|
|
|
|
Weighted
Average
|
|
|
Weighted
Average Remaining
|
|
|
|
|
Number
|
|
|
Exercise
Price
|
|
|
Life
|
|
|
Stock
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
December 31, 2017
|
|
|
3,566,299
|
|
|
$
|
1.33
|
|
|
|
8.05
|
|
|
Granted
|
|
|
280,000
|
|
|
$
|
1.75
|
|
|
|
9.15
|
|
|
Expired
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Outstanding
December 31, 2018
|
|
|
3,846,299
|
|
|
$
|
1.36
|
|
|
|
7.20
|
|
|
Granted
|
|
|
126,567
|
|
|
$
|
1.15
|
|
|
|
9.70
|
|
|
Expired
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Outstanding
September 30, 2019
|
|
|
3,972,866
|
|
|
$
|
1.36
|
|
|
|
6.52
|
|
A
summary of the status of the Company’s nonvested option as of September 30, 2019, and changes during the nine months ended
September 30, 2019, is presented below:
|
Nonvested
Options
|
|
Options
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Nonvested
at December 31, 2017
|
|
|
1,492,861
|
|
|
$
|
1.54
|
|
|
Granted
|
|
|
280,000
|
|
|
$
|
1.75
|
|
|
Vested
|
|
|
(972,651
|
)
|
|
$
|
1.29
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
Nonvested
at December 31, 2018
|
|
|
800,210
|
|
|
$
|
1.63
|
|
|
Granted
|
|
|
126,567
|
|
|
$
|
1.15
|
|
|
Vested
|
|
|
(544,187
|
)
|
|
$
|
1.35
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
Nonvested
at September 30, 2019
|
|
|
382,590
|
|
|
$
|
1.43
|
|
As
of September 30, 2019, the Company had 3,972,866 shares issuable under options outstanding at a weighted average exercise price
of $1.36 and an intrinsic value of $168,572.
The
total number of options granted during the nine months ended September 30, 2019 and 2018 was 126,567 and 280,000, respectively.
The exercise price for these options was $1.00 per share or $1.25 per share.
The
Company recognized compensation expense related to options issued of $139,066 and $261,138 during the three months ended September
30, 2019 and 2018, respectively, which is included in general and administrative expenses and research and development expenses.
For the three months ended September 30, 2019, $74,005 of the stock compensation was related to employees and $65,061 was related
to non-employees.
The
Company recognized compensation expense related to options issued of $850,767 and $868,933 during the nine months ended September
30, 2019 and 2018, respectively, which is included in general and administrative expenses and research and development expenses.
For the nine months ended September 30, 2019, $524,739 of the stock compensation was related to employees and $326,028 was related
to non-employees.
As
of September 30, 2019, the unamortized stock option expense was $582,235 with $255,159 being related to employees and $327,076
being related to non-employees. As of September 30, 2019, the weighted average period for the unamortized stock compensation to
be recognized is 2.87 years.
On
February 25, 2019, the Company granted 101,567 options with an exercise price of $1.00 and a ten year term. 59,900 of these options
vest immediately and 41,667 vest bi-weekly over two months. These options have a Black-Scholes value of $199,807.
On
June 17, 2019, the Company granted 25,000 options with an exercise price of $1.75 and a ten year term. These options vest immediately
and have a Black-Scholes value of $36,374.
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, the holder
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. All of these warrants automatically converted
into warrants to purchase our common stock upon the effectiveness of our reverse stock split in July 2016. See Note 5.
A
summary of warrant issuances are as follows:
|
|
|
|
|
|
Weighted
Average
|
|
|
Weighted
Average Remaining
|
|
|
|
|
Number
|
|
|
Exercise
Price
|
|
|
Life
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
December 31, 2017
|
|
|
3,826,658
|
|
|
$
|
1.05
|
|
|
|
4.69
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding
December 31, 2018
|
|
|
3,826,658
|
|
|
$
|
1.05
|
|
|
|
3.69
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding
September 30, 2019
|
|
|
3,826,658
|
|
|
$
|
1.05
|
|
|
|
2.94
|
|
As
of September 30, 2019, the Company had 3,826,658 shares issuable under warrants outstanding at a weighted average exercise price
of $1.05 and an intrinsic value of $3,633,335.
NOTE
8 - COLLABORATIVE AGREEMENTS
The
Company and the University of Toronto, a stockholder of the Company (the “University”) entered into an agreement effective
December 14, 2004 (the “Research Agreement”) for the performance of a research project titled “Evidence for
existence of TCAP receptors in neurons” (the “Project”). The Research Agreement expired on March 31, 2013.
The
Company and the University entered into an agreement effective April 1, 2014 (the “New Research Agreement”) for the
performance of a research project titled “Teneurin C-terminal Associated Peptide (“TCAP”) mediated stress attenuation
in vertebrates: Establishing the role of organismal and intracellular energy and glucose regulation and metabolism” (the
“New Project”). The New Project is to perform research related to work done by Dr. David A. Lovejoy, a professor at
the University and stockholder of the Company, in regard to TCAP mediated stress attenuation in vertebrates: Establishing the
role of organismal and intracellular energy and glucose regulation and metabolism. In addition to the New Research Agreement,
Dr. Lovejoy entered into an agreement with the University in order to commercialize certain technologies. The New Research Agreement
expired on March 30, 2016. In February 2017, the New Research Agreement was extended to December 31, 2016. The extension allowed
for further development of the technologies and use of their applications. This new research agreement has been further extended
to December 31, 2023.
Prior
to January 1, 2016, the University has been granted 25,000 stock options which are fully vested at the exercise price of $1.00
exercisable over a ten year period which ends on April 1, 2022. As of September 30, 2019, Dr. David Lovejoy of the University
has been granted 533,299 stock options, of which 478,384 are fully vested. These have an exercise price of $1.00, $1.25 or 1.75
and are exercisable over ten or thirteen year periods which end either on March 30, 2021, December 1, 2022, April 15, 2026, March
1, 2027 or on October 16, 2027.
The
sponsorship research and development expenses pertaining to the Research Agreements were $63,787 and $0 for the nine months ended
September 30, 2019 and 2018, respectively.
NOTE
9 - LICENSING AGREEMENTS
On
July 31, 2005, the Company had entered into a Technology License Agreement (“License Agreement”) with the University
pursuant to which the University agreed to license to the Company patent rights and other intellectual property, among other things
(the “Technologies”). The Technology License Agreement was amended on February 18, 2015 and currently does not provide
for an expiration date.
Pursuant
to the License Agreement and its amendment, the Company obtained an exclusive worldwide license to make, have made, use, sell
and import products based upon the Technologies, or to sublicense the Technologies in accordance with the terms of the License
Agreement and amendment. In consideration, the Company agreed to pay to the University a royalty payment of 2.5% of net sales
of any product based on the Technologies. If the Company elects to sublicense any rights under the License Agreement and amendment,
the Company agrees to pay to the University 10% of any up-front sub-license fees for any sub-licenses that occurred on or after
September 9, 2006, and, on behalf of the sub-licensee, 2.5% of net sales by the sub-licensee of all products based on the Technologies.
The Company had no sales revenue for the nine months ended September 30, 2019 and 2018 and therefore was not subject to paying
any royalties.
In
the event the Company fails to provide the University with semi-annual reports on the progress or fails to continue to make reasonable
commercial efforts towards obtaining regulatory approval for products based on the Technologies, the University may convert our
exclusive license into a non-exclusive arrangement. Interest on any amounts owed under the License Agreement and amendment will
be at 3% per annum. All intellectual property rights resulting from the Technologies or improvements thereon will remain the property
of the other inventors and/or Dr. Lovejoy, and/or the University, as the case may be. The Company has agreed to pay all out-of-
pocket filing, prosecution and maintenance expenses in connection with any patents relating to the Technologies. In the case of
infringement upon any patents relating to the Technologies, the Company may elect, at its own expense, to bring a cause of action
asserting such infringement. In such a case, after deducting any legal expenses the Company may incur, any settlement proceeds
will be subject to the 2.5% royalty payment owed to the University under the License Agreement and amendment.
The
patent applications were made in the name of Dr. Lovejoy and other inventors, but the Company’s exclusive, worldwide rights
to such patent applications are included in the License Agreement and its amendment with the University. The Company maintains
exclusive licensing agreements and it currently controls the six intellectual patent properties.
Legal
Proceedings
From
time to time we may be named in claims arising in the ordinary course of business. Currently, no legal proceedings, government
actions, administrative actions, investigations or claims are pending against us or involve us that, in the opinion of our management,
could reasonably be expected to have a material adverse effect on our business and financial condition.
NOTE
10 - SUBSEQUENT EVENTS
On
November 5, 2019, the Company entered into a convertible note with a related part. The convertible note has principle of $50,000.
The note accrues 6% interest per year that increases to 12% per year in the case of the note entering default. The loan is due
on November 5, 2023. The note is convertible into shares of the Company’s common stock with an exercise price of $1.25 per
share.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operation
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals,
expectations, anticipations, assumptions, estimates, intentions and future performance, and involve known and unknown risks, uncertainties
and other factors, which may be beyond our control, and which may cause our actual results, performance or achievements to be
materially different from future results, performance or achievements expressed or implied by such forward-looking statements.
All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify
these forward-looking statements through our use of words such as “may,” “can,” “anticipate,”
“assume,” “should,” “indicate,” “would,” “believe,” “contemplate,”
“expect,” “seek,” “estimate,” “continue,” “plan,” “point to,”
“project,” “predict,” “could,” “intend,” “target,” “potential”
and other similar words and expressions of the future. The matters discussed in these forward-looking statements are subject to
risks, uncertainties and other factors that could cause our actual results to differ materially from those projected, anticipated
or implied in the forward-looking statements. As a result, you should not place undue reliance on any forward-looking statements.
Except to the limited extent required by applicable law, we undertake no obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
Historical
Background
Protagenic
Therapeutics, Inc. (“we,” “our,” “Protagenic” or the “Company”) is a Delaware
corporation with one subsidiary named Protagenic Therapeutics Canada (2006) Inc. (“PTI Canada”), which is a corporation
formed in 2006 under the laws of the Province of Ontario, Canada.
The
Company was formerly known as Atrinsic, Inc., a company that, in 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. (“Prior Protagenic”)
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.
Results
of Operations
We
are a development stage company currently performing clinical trials to obtain FDA approval and commercialization of our product.
During
the three months ended September 30, 2019, we incurred a loss from operations of $189,622 as compared to $498,070 for the three
months ended September 30, 2018. The decrease in the loss is due to a decrease in research and development expense of $131,918
from $163,071 for the three months ended September 30, 2018 to $31,153 for the three months ended September 30, 2019, and a decrease
in general and administrative expenses of $176,530 from $334,999 for the three months ended September 30, 2018 to $158,469 for
the three months ended September 30, 2019 due to an decrease in stock compensation expense.
During
the nine months ended September 30, 2019, we incurred a loss from operations of $1,348,901 as compared to $1,789,879 for the nine
months ended September 30, 2018. The decrease in the loss is due to a decrease in research and development expense of $395,519
from $687,347 for the nine months ended September 30, 2018 to $291,828 for the nine months ended September 30, 2019, and a decrease
in general and administrative expenses of $45,459 from $1,102,532 for the nine months ended September 30, 2018 to $1,057,073 for
the nine months ended September 30, 2019 due to an decrease in stock compensation expense.
Liquidity
and Going Concern
We
continually project anticipated cash requirements, predominantly from the ongoing funding requirements of our neuropeptide drug
development program. The majority of these expenses relate to paying external vendors such as Contract Research Organizations
and peptide synthesizer companies. These expenses could also include business combinations, capital expenditures, and new drug
development working capital requirements. As of September 30, 2019, we had cash of $277,386 and working capital deficit of $364,110.
The Company currently has a derivative liability on the books in the amount of $334,972 and we don’t expect to settle this
liability in cash. Removing the derivative liability from the working capital calculation would increase our working capital deficit
to $29,138. We anticipate further losses from the development of our business. Based on its current forecast and budget,
management believes that the Company’s cash resources will be sufficient to fund its operations at least until the end of
the fourth quarter of 2019. Absent generation of sufficient revenue from the execution of the Company’s business plan, the
Company will need to obtain debt or equity financing by the first quarter of 2020.
Operating
activities used $338,570 and $763,396 in cash for the nine months ended September 30, 2019 and 2018, respectively. The use of
cash in operating activities during the nine months ended September 30, 2019, primarily comprised of $1,001,045 net loss, $850,767
in stock compensation expense, $341,107 of change in the fair value of the derivative liability since December 31, 2018, an decrease
in prepaid expenses of $73,867, $4,435 from a gain on the sale of marketable securities, and a $83,129 increase of
accounts payable and accrued expenses, which included payments to tax penalties, legal and accounting professionals, payments
to consultants, and other administrative expenses.
Investing
activities provided $250,000 and $800,161 in cash for the nine months ended September 30, 2019 and 2018, respectively. The cash
provided by investing activities consisted of $250,000 from the sale of marketable securities. The cash provided by investing
activities during the nine months ended September 30, 2018 consisted of the sale of marketable securities of $3,170,000 and the
purchase of marketable securities of $2,369,839.
We
did not have any financing activities for the nine months ended September 30, 2019 and 2018.
Item
3. Quantitative and Qualitative Disclosures about Market Risk.
Not
applicable.
Item
4. Controls and Procedures
Disclosure
Controls and Procedures
Evaluation
of disclosure controls and procedures
Under
the supervision and with the participation of our management, including our principal executive officer and principal financial
officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and
Rule 15d-15(e) promulgated under the Exchange Act, as of September 30, 2019. Based on this evaluation, we have identified a material
weakness in our internal control over financial reporting. Due to this material weakness, our principal executive officer and
principal financial officer concluded that our disclosure controls and procedures are not effective to ensure that information
required to be disclosed by us in the reports we file or submit under the Exchange Act, including this Quarterly Report on Form
10-Q, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and
that our disclosure and controls are not designed to ensure that information required to be disclosed by us in the reports that
we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive
and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required
disclosure.
Material
Weakness in Internal Control Over Financial Reporting
A
material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there
is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not
be prevented or detected on a timely basis.
The
material weakness we identified is described below:
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1)
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We
do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size
and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However,
to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be
performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment
of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material
weakness.
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This
material weaknesses could result in a material misstatement to the annual or interim condensed consolidated financial statements
that would not be prevented or detected.
Remediation
Plan
To
address the material weakness described above the Company has engaged an independent third party to enhance our segregation of
duties.
Since
we remain a small Company, with limited segregation of duties, the third party has identified certain areas where we can layer
in added controls and procedures. Management intends to implement such controls and procedures in the future.
A
control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives
of the control system are met. The design of any system of controls is also based in part on certain assumptions regarding the
likelihood of certain events, and there can be no assurance that any design will succeed in achieving its stated goals under all
potential future conditions. Given these and other inherent limitations of control systems, these are only reasonable assurances
that our controls will succeed in achieving their stated goals under all potential future conditions.
Changes
in Internal Control over Financial Reporting
Other
than as discussed above, there were no changes in our internal controls over financial reporting that occurred during the quarter
covered by this Report that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Part
II: Other Information
Item
1. Legal Proceedings
From
time to time we may be named in claims arising in the ordinary course of business. Currently, no legal proceedings, government
actions, administrative actions, investigations or claims are pending against us or involve us that, in the opinion of our management,
could reasonably be expected to have a material adverse effect on our business and financial condition.
Item
1A. Risk Factors
Not
applicable.
Item
2. Unregistered Sale of Equity Securities and Use of Proceeds
None.
Item
3. Defaults upon Senior Securities
None.
Item
4. Mine Safety Disclosures
Not
applicable.
Item
5. Other Information
None.
Item
6. Exhibits
The
following is a complete list of exhibits filed as part of this Form 10-Q. Exhibit numbers correspond to the numbers in the Exhibit
Table of Item 601 of Regulation S-K.
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(€)
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Filed herewith.
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(*)
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Furnished, not filed, in accordance with item 601(32)(ii) of Regulation S-K.
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SIGNATURES
Pursuant
to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
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Date:
November 14, 2019
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Protagenic
Therapeutics, Inc.
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By:
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/s/
Alexander K. Arrow
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Chief
Financial Officer
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