UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For
the quarterly period ended
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:
PROTAGENIC THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
(Address of Principal Executive Office) (Zip Code)
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 | ||
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.
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).
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 | ☐ |
| ☒ | Smaller reporting company | ||
| 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 ☒
As of May 11, 2022 there were shares of common stock, $.0001 par value per share, outstanding.
PROTAGENIC THERAPEUTICS, INC.
Form 10-Q Report
For the Fiscal Quarter Ended March 31, 2022
TABLE OF CONTENTS
| 2 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PROTAGENIC THERAPEUTICS, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| March 31, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Marketable securities | ||||||||
| Prepaid expenses | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accounts payable and accrued expenses - related party | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| PIK convertible notes payable, net of debt discount | ||||||||
| PIK convertible notes payable, net of debt discount - related parties | ||||||||
| TOTAL LIABILITIES | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock, $ par value; shares authorized; shares issued and outstanding in the following classes: | ||||||||
| Preferred stock; par value $; shares authorized; issued and outstanding | ||||||||
| Series B convertible preferred stock, $ par value; shares authorized; and shares issued and outstanding at March 31, 2022, and December 31, 2021 | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding at March 31, 2022, and December 31, 2021 | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
See accompanying notes to the unaudited consolidated financial statements
| 3 |
PROTAGENIC THERAPEUTICS, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| For
the three months ended March 31, |
||||||||
| 2022 | 2021 | |||||||
| OPERATING AND ADMINISTRATIVE EXPENSES | ||||||||
| Research and development | ||||||||
| General and administrative | ||||||||
| TOTAL OPERATING AND ADMINISTRATIVE EXPENSES | ||||||||
| LOSS FROM OPERATIONS | ( |
) | ( |
) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Interest income | ||||||||
| Interest expense | ( |
) | ( |
) | ||||
| Realized loss on marketable securities | ( |
) | ||||||
| Change in fair value of derivative liability | ||||||||
| TOTAL OTHER INCOME (EXPENSE) | ( |
) | ( |
) | ||||
| LOSS BEFORE TAX | ( |
) | ( |
) | ||||
| INCOME TAX EXPENSE | ||||||||
| NET LOSS | $ | ( |
) | $ | ( |
) | ||
| COMPREHENSIVE LOSS | ||||||||
| Other Comprehensive Loss - net of tax | ||||||||
| Net unrealized loss on marketable securities | ( |
) | ||||||
| Foreign exchange translation income | ||||||||
| TOTAL COMPREHENSIVE LOSS | $ | ( |
) | $ | ( |
) | ||
| Net loss per common share - Basic and Diluted | $ | ( |
) | $ | ( |
) | ||
| Weighted average common shares - Basic and Diluted | ||||||||
See accompanying notes to the unaudited consolidated financial statements
| 4 |
PROTAGENIC THERAPEUTICS, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
For the Three Months Ended March 31, 2022 and 2021
(Unaudited)
| Series B Convertible | Additional | Accumulated Other | ||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in- | Accumulated | Comprehensive | Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Deficit | |||||||||||||||||||||||||
| For the three months ended March 31, 2021 | ||||||||||||||||||||||||||||||||
| BALANCE -December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Foreign currency translation gain | - | - | ||||||||||||||||||||||||||||||
| Stock compensation | - | - | ||||||||||||||||||||||||||||||
| Exercise of options | - | ( | ) | |||||||||||||||||||||||||||||
| Exercise of warrants | - | |||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| BALANCE -March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| For the three months ended March 31, 2022 | ||||||||||||||||||||||||||||||||
| BALANCE -December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Foreign currency translation gain | - | - | ||||||||||||||||||||||||||||||
| Unrealized loss on marketable securities | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Stock compensation | - | - | ||||||||||||||||||||||||||||||
| Conversion of notes and interest | - | |||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| BALANCE -March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
See accompanying notes to the unaudited consolidated financial statements
| 5 |
PROTAGENIC THERAPEUTICS, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the three months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Stock-based compensation | ||||||||
| Change in fair value of the derivative liability | ( | ) | ||||||
| Realized loss on sale of marketable securities | ||||||||
| Amortization of debt discount | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Prepaid expenses | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| NET CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Proceeds from sale of marketable securities | ||||||||
| NET CASH USED IN INVESTING ACTIVITIES | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Exercise of warrants for cash | ||||||||
| Proceeds from PIK convertible notes | ||||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| Effect of exchange rate changes on cash | ||||||||
| NET DECREASE IN CASH | ( | ) | ( | ) | ||||
| CASH, BEGINNING OF THE PERIOD | ||||||||
| CASH, END OF THE PERIOD | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Cash paid for interest expense | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| NONCASH FINANCING AND INVESTING TRANSACTIONS | ||||||||
| Shares issued for conversion of notes and interest | $ | $ | ||||||
| Unrealized loss on marketable securities | $ | $ | ||||||
See accompanying notes to the unaudited consolidated financial statements
| 6 |
PROTAGENIC THERAPEUTICS, INC. & SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 2022
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS
Company Background
Protagenic Therapeutics, Inc. (“we,” “our,” “Protagenic” or “the Company”), formerly known as known as Atrinsic, Inc., 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.
We are a biopharmaceutical company specializing in the discovery and development of therapeutics to treat stress-related neuropsychiatric and mood disorders.
NOTE 2 - LIQUIDITY
As shown in the accompanying consolidated financial statements, the Company has incurred significant recurring losses resulting in an accumulated deficit. The Company anticipates further losses in the development of its business. The Company also had negative cash flows used in operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
Based on its cash resources and positive working capital as of March 31, 2022, the Company has sufficient resources to fund its operations at least until the end of the third quarter of 2023. The positive working capital as of March 31, 2022 was due to funds raised by the Company from its equity offering during the year ended December 31, 2021. 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 third quarter of 2023. Because of these factors, the Company believes that this alleviates the substantial doubt in connection with the Company’s ability to continue as a going concern.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying unaudited 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 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 March 31, 2022 and 2021. 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 Securities and Exchange Commission (the “SEC”).
| 7 |
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s financial statements for the year ended December 31, 2021, which contain the audited financial statements and notes thereto, for the years ended December 31, 2021 and 2020 included within the Company’s Form 10-K filed with the SEC on April 7, 2022. The interim results for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 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 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 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. As of March 31, 2022, the Company has bank balances that exceeds the federally insured limits. The Company has not experienced losses on these accounts and management believes, based upon the quality of the financial institutions, that the credit risk with regard to these deposits is not significant.
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. As of March 31, 2022 and December 31, 2021 the Company did not have any cash equivalents.
Marketable Securities
The Company accounts for marketable debt securities, the only type of securities it owns, in accordance with the FASB Accounting Standards Codification 320, Investments – Debt and Equity Securities (“ASC 320”).
Pursuant to ASC 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 three months ended March 31, 2022 the Company purchased $
| 8 |
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 term maturity of those instruments. The carrying value of long-term debt approximates fair value since the related rates of interest approximate current market rates.
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 on a recurring basis as of March 31, 2022.
| Carrying | Fair Value Measurement Using | |||||||||||||||||||
| Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| Marketable securities | $ | $ | $ | $ | $ | |||||||||||||||
The following table provides a summary of financial instruments that are measured at fair value on a recurring basis as of December 31, 2021.
| Carrying | Fair Value Measurement Using | |||||||||||||||||||
| Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| Marketable securities | $ | $ | $ | $ | $ | |||||||||||||||
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, non-employees, 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.
| 9 |
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 consolidated statements of operations and comprehensive loss.
| Potentially Outstanding Dilutive Common Shares | ||||||||
| For the Three Months Ended March 31, 2022 | For the Three Months Ended March 31, 2021 | |||||||
| Conversion Feature Shares | ||||||||
| Common shares issuable under the conversion feature of preferred shares | ||||||||
| Stock Options | ||||||||
| Warrants | ||||||||
| Convertible Notes | ||||||||
| Total potentially outstanding dilutive common shares | ||||||||
Research and Development
Research and development expenses are charged to operations as incurred.
Foreign Currency Translation
The Company follows ASC 830, Foreign Currency Matters (“ASC 830”) 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. ASC 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 ASC 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 operations 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 operations 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 condensed consolidated statements of operations and comprehensive loss.
| 10 |
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.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements.
NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at:
| March 31, 2022 | December 31, 2021 | |||||||
| Accounting | $ | $ | ||||||
| Research and development | ||||||||
| Legal | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
NOTE 5 – NOTE PAYABLE AND CONVERTIBLE NOTE PAYABLE (PIK NOTES)
Convertible Notes Payable
During
the three months ended March 31, 2022 and 2021, the Company amortized $
During
the three months ended March 31, 2022, a total of shares of the Company’s common stock was issued for the conversion of
notes and interest. A total of $
As
of March 31, 2022 and December 31, 2021, the Company owes $
| Maturity Date of Notes for Twelve Months Ended March 31, 2022 | Amount due | |||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total | $ | |||
Convertible Notes Payable – Related Parties
During
the three months ended March 31, 2022 and 2021, the Company amortized $
| 11 |
As
of March 31, 2022 and December 31, 2021, the Company owes $
| Maturity Date of Notes for Twelve Months Ended March 31, 2022 | Amount due | |||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total | $ | |||
NOTE 6 - STOCKHOLDERS’ DEFICIT
Common Stock
During the three months ended March 31, 2022, the Company issued shares of common stock for the conversion of notes and interest. (See Note 5)
Stock-Based Compensation
The Company adopted an Employee, Director and Consultant Stock Plan on June 17, 2016 (the “2016 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, January 1, 2019 and January 1, 2020, pursuant to an annual “evergreen” provision contained in the 2016 Plan, the number of shares reserved for future grants was increased by shares, or a total of shares. On January 1, 2021, shares of common stock were added to the 2016 Plan pursuant to this evergreen provision. On January 1, 2022, additional shares of common stock available for issuance under the 2016 Plan as a result of operation of the evergreen provision: (a) shares resulting from operation of the evergreen provision in 2019, which were never previously registered and (b) shares resulting from operation of the evergreen provision in 2022. As a result of these increases, as of March 31, 2022 and December 31, 2021, the aggregate number of shares of common stock available for awards under the 2016 Plan was shares and shares, respectively. Options issued under the 2016 Plan are exercisable for up to ten years from the date of issuance.
There were options outstanding as of March 31, 2022. The fair value of each stock option granted during the three months ended March 31, 2022 was estimated using the Black-Scholes assumptions and or factors as follows:
| Exercise price | $ | |||
| Expected dividend yield | % | |||
| Risk free interest rate | % | |||
| Expected life in years | ||||
| Expected volatility | % |
| 12 |
Weighted Average | Weighted Average | |||||||||||
| Number | Exercise Price | Remaining Life | ||||||||||
| Stock Options | ||||||||||||
| Outstanding December 31, 2021 | $ | |||||||||||
| Granted | $ | |||||||||||
| Expired | ( | ) | $ | - | ||||||||
| Exercised | $ | - | ||||||||||
| Outstanding March 31, 2022 | $ | |||||||||||
| Nonvested Options | Options | Weighted- Average | ||||||
| Nonvested at December 31, 2021 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( | ) | $ | |||||
| Forfeited | $ | |||||||
| Nonvested at March 31, 2022 | $ | |||||||
As of March 31, 2022, the Company had shares issuable under options outstanding at a weighted average exercise price of $ and an intrinsic value of $.
The total number of options granted during the three months ended March 31, 2022 and 2021 was and , respectively. The exercise price for these options ranges from $ to $ per share.
The Company recognized compensation expense related to options issued of $ and $ during the three months ended March 31, 2022 and 2021, respectively, in which $ and $ is included in general and administrative expenses and $ and $ in research and development expenses, respectively. For the three months ended March 31, 2022, $ of the stock compensation was related to employees and $ was related to non-employees.
As
of March 31, 2022, the unamortized stock option expense was $
On January 6, 2022, the Company issued a total of options to purchase shares of the Company’s common stock to a consultant. These options had a grant date fair value of $. These options have an exercise price of $, a term of years, and vest over four years.
Warrants:
A summary of warrant issuances are as follows:
Weighted Average | Weighted Average | |||||||||||
| Number | Exercise Price | Remaining Life | ||||||||||
| Warrants | ||||||||||||
| Outstanding December 31, 2021 | $ | |||||||||||
| Granted | ||||||||||||
| Expired | - | |||||||||||
| Exercised | - | |||||||||||
| Outstanding March 31, 2022 | $ | |||||||||||
| 13 |
As of March 31, 2022, the Company had shares issuable under warrants outstanding at a weighted average exercise price of $ and an intrinsic value of $.
The Company recognized compensation expense related to warrants issued of $ and $ during the three months ended March 31, 2022 and 2021, respectively.
On
January 6, 2022, the Company cancelled options and replaced them with
NOTE 7 - COLLABORATIVE AGREEMENTS
The Company and the University of Toronto (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, 2017. The extension allowed for further development of the technologies and use of their applications. On April 10, 2018, the agreement was amended and the research agreement has been further extended to December 31, 2023.
Prior
to January 1, 2016, the University has been granted stock options which are fully vested at the exercise price of $ exercisable
over a period which ends on April 1, 2022. As of March 31, 2022, Dr. David Lovejoy of the University has been granted
stock options, of which are fully vested and have expired.
The
sponsorship research and development expenses pertaining to the Research Agreements were $
NOTE 8 - COMMITMENTS AND CONTINGENCIES
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
| 14 |
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
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 five 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 9 – RELATED PARTY TRANSACTIONS
The Company is provided free office space consisting of a conference room by the Company Executive Chairman, Dr. Armen. The Company does not pay any rent for the use of this space. This space is used for quarterly board meetings and our annual shareholder meeting.
During the year ended
December 31, 2021, the Company engaged Agenus Inc., a related party, to perform research and development services. Agenus Inc. is a related
party due to the Company’s Director and Chairman of the Board being the CEO and Chairman of the Board for Agenus Inc. The Company
accrued $
NOTE 10 - SUBSEQUENT EVENTS
On
April 13, 2022, a total of shares of the Company’s common stock was issued for the conversion of notes and interest. A total
of $
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q and other written and oral statements we make from time to time contain certain “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). You can identify these forward-looking statements by the fact they use words such as “could,” “expect,” “anticipate,” “estimate,” “target,” “may,” “project,” “guidance,” “intend,” “plan,” “believe,” “will,” “potential,” “opportunity,” “future” and other words and terms of similar meaning and expression in connection with any discussion of future operating or financial performance. You can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. Such forward-looking statements are based on current expectations and involve inherent risks and uncertainties, including factors that could delay, divert or change any of them, and could cause actual outcomes to differ materially from current expectations. These statements relate to, among other things, our business strategy, our research and development, our product development efforts, our ability to commercialize our product candidates, the activities of our licensees, our prospects for initiating partnerships or collaborations, the timing of the introduction of products, the effect of new accounting pronouncements, uncertainty regarding our future operating results and our profitability, anticipated sources of funds as well as our plans, objectives, expectations, and intentions.
We have included more detailed descriptions of these risks and uncertainties and other risks and uncertainties applicable to our business that we believe could cause actual results to differ materially from any forward-looking statements in Part II-Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q. We encourage you to read those descriptions carefully. Although we believe we have been prudent in our plans and assumptions, no assurance can be given that any goal or plan set forth in forward-looking statements can be achieved. We caution investors not to place significant reliance on forward-looking statements contained in this document; such statements need to be evaluated in light of all the information contained in this document. Furthermore, the statements speak only as of the date of this document, and we undertake no obligation to update or revise these statements.
The discussion and analysis of our financial condition and results of operations are based on our financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate such estimates and judgments, including those described in greater detail below. We base these estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We expect to continue to incur significant expenses and minimal positive net cash flows from operations or negative net cash flows from operations for the foreseeable future, and those expenses and losses may fluctuate significantly from quarter-to-quarter and year-to-year. We anticipate that our expenses will fluctuate substantially as we:
| ● | continue our ongoing preclinical studies, clinical trials and our product development activities for our pipeline of product candidates; | |
| ● | seek regulatory approvals for any product candidates that successfully complete clinical trials; | |
| ● | continue research and preclinical development and initiate clinical trials of our other product candidates; | |
| ● | seek to discover and develop additional product candidates either internally or in partnership with other pharmaceutical companies; | |
| ● | adapt our regulatory compliance efforts to incorporate requirements applicable to marketed products; | |
| ● | maintain, expand and protect our intellectual property portfolio; and | |
| ● | incur additional legal, accounting and other expenses in operating as a public company. |
Overview
Our proprietary, patent-protected, first-in-class lead compound, PT00114, is a synthetic form of Teneurin Carboxy-terminal Associated Peptide (“TCAP”), an endogenous brain signaling peptide that can dampen overactive stress responses. Our preclinical models have demonstrated efficacy of PT00114 in animal models of depression, anxiety, substance abuse & addiction, and PTSD.
PT00114 leverages a completely novel mechanism of action. Protagenic owns exclusive, worldwide rights to PT00114 through its license agreement with the University of Toronto and has an exclusive right to license additional intellectual property generated by Dr. David Lovejoy’s lab at University of Toronto. Additionally, the company is engaged in the research & development of follow-on compounds in the TCAP family. Extensive publications in peer-reviewed scientific journals underline the central role stress plays in the onset and proliferation of neuropsychiatric disorders like depression, anxiety, substance abuse & addiction, and PTSD. The mechanism of action of TCAP suggests that it counterbalances stress overdrive at the cellular level within the brain’s stress response cascade. TCAP works to alleviate the harmful behavioral, biochemical, and physiological effects of these disorders, while simultaneously restoring brain health. This mechanism has been corroborated in preclinical animal models of the psychiatric disorders listed above. Preclinical experiments required for IND filing have been completed, and the company will seek to prove the safety and efficacy of PT00114 in humans through its initial clinical studies to commence in the second quarter of 2022.
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Results of Operations
We are a development stage company currently performing clinical trials to obtain Food and Drug Administration (“FDA”) approval and commercialization of our product.
During the three months ended March 31, 2022, we incurred a loss from operations of $1,341,276 as compared to $1,206,190 for the three months ended March 31, 2021. The increase in the loss is due to an increase in research and development expense of $77,487 from $592,351 for the three months ended March 31, 2021 to $669,838 for the three months ended March 31, 2022, and from an increase in general and administrative expenses of $57,599 from $613,839 for the three months ended March 31, 2021 to $671,438 for the three months ended March 31, 2022.
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 March 31, 2022, we had cash of $482,175 and working capital of $9,014,644. We anticipate further losses from the development of our business. Based on its cash resources as of March 31, 2022, the Company has sufficient resources to fund its operations at least until the end of the third quarter of 2023. 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 third quarter of 2023. Because of these factors, the Company believes that this alleviates substantial doubt in connection with the Company’s ability to continue as a going concern.
Operating activities used $430,565 and $607,707 in cash for the three months ended March 31, 2022 and 2021, respectively. The use of cash in operating activities during the three months ended March 31, 2022, primarily comprised of $1,362,109 net loss, $235,779 in stock compensation expense, a decrease in prepaid expenses of $675,750, and a $11,569 decrease 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 $370,763 and $0 in cash for the three months ended March 31, 2022 and 2021, respectively. The use of cash in investing activities was due to the sale of marketable securities.
Financing activities provided $0 and $127,125 in cash the three months ended March 31, 2022 and 2021.
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 Securities Exchange Act of 1934 (the “Exchange Act), as of March 31, 2022. Based on this evaluation, we have identified material weaknesses in our internal control over financial reporting. Due to material weaknesses, 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.
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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 weaknesses we identified are described below:
| 1) | 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. | |
| 2) | Limited level of multiple reviews among those tasked with preparing the financial statements. |
These 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.
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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
This Quarterly Report on Form 10-Q contains forward-looking information based on our current expectations. Because our actual results may differ materially from any forward-looking statements made by or on behalf of us, this section includes a discussion of important factors that could affect our actual future results, including our revenues, expenses, operating results, cash flows and net loss per share. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. You should carefully consider these risk factors, together with all of the other information included in this Quarterly Report on Form 10-Q as well as our other publicly available filings with the U.S. Securities and Exchange Commission, or SEC.
There have been no material changes to our risk factors from those disclosed under “Risk Factors” in Part I, Item 1A of the 2021 Form 10-K. The risks and uncertainties described below and in the 2021 Form 10-K are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also materially adversely affect our business, financial condition, or results of operations.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
During the three months ended March 31, 2022, the Company issued 43,666 shares of common stock for the conversion of notes and interest.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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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.
| Exhibit | Description | |
| 31.1 | Chief Executive Officer Certification as required under section 302 of the Sarbanes Oxley Act (€) | |
| 31.2 | Chief Financial Officer Certification as required under section 302 of the Sarbanes Oxley Act (€) | |
| 32.1 | Chief Executive Officer and Chief Financial Officer Certification pursuant to 18 U.S.C. section 1350 as adopted pursuant to section 906 of the Sarbanes Oxley Act * | |
| 101.INS | Inline XBRL Instance Document (€) | |
| 101.CAL | Inline XBRL Taxonomy Extension Schema Document (€) | |
| 101.SCH | Inline XBRL Taxonomy Extension Calculation Linkbase Document (€) | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document (€) | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document (€) | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document (€) | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
(€) - Filed herewith.
(*) -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.
| May 13, 2022 | Protagenic Therapeutics, Inc. | |
| By: | /s/ Alexander K. Arrow | |
| Chief Financial Officer | ||
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