| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 3 – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES Principles
of consolidation The
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. Use
of estimates The
preparation of the 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 consolidated financial statements include 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 September 30, 2023, the Company does not have bank balances
that exceed 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. Funds
held in the Company’s marketable securities are not insured. 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 September 30, 2023 and December 31, 2022 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 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, 2023 the Company purchased $ 12,979 2,566,192 146,554 55,503 5,119,252 7,763,517 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 $ 1,600 zero 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. 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 September 30, 2023. SCHEDULE OF FAIR VALUE ASSETS AND LIABILITIES MEASURED ON RECURRING BASIC
Carrying Fair Value Measurement Using
Value Level 1 Level 2 Level 3 Total
Marketable securities $ 5,119,252 $ 5,119,252 $ — $ — $ 5,119,252 The
following table provides a summary of financial instruments that are measured at fair value on a recurring basis as of December 31, 2022.
Carrying Fair Value Measurement Using
Value Level 1 Level 2 Level 3 Total
Marketable securities $ 7,763,517 $ 7,763,517 $ — $ — $ 7,763,517 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 cancelled 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. 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 consolidated statements of operations and comprehensive loss. SCHEDULE OF ANTI-DILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE
Potentially Outstanding Dilutive Common Shares
For the Nine Months Ended September 30, 2023 For the Nine Months Ended September 30, 2022
Conversion Feature Shares
Stock Options 1,357,466 1,376,215
Warrants 1,055,066 1,537,158
Convertible Notes 86,000 86,000
Total potentially outstanding dilutive common shares 2,498,532 2,999,373 Research
and Development Research
and development expenses are charged to operations as incurred. Foreign
Currency Translation The
Company follows ASC 830, Foreign Currency Matters 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. 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 In
June 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326)
Measurement of Credit Losses on Financial Instruments Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and
Leases (Topic 842): Effective Dates In
August 2020, the FASB issued ASU 2020-06, which simplifies the guidance on the issuer’s accounting for convertible debt instruments
by removing the separation models for convertible debt with a cash conversion feature and convertible instruments with a beneficial conversion
feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt and will account for
a convertible debt instrument wholly as debt, unless certain other conditions are met. The elimination of these models will reduce reported
interest expense and increase reported net income for entities that have issued a convertible instrument that is within the scope of
ASU 2020-06. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and treasury
stock method will be no longer available. ASU 2020-06 is applicable for fiscal years beginning after December 15, 2022, with early adoption
permitted no earlier than fiscal years beginning after December 15, 2020. The Company does not intend to early adopt, and continues to
evaluate the impact of the provisions of ASU 2020-06 on its consolidated financial statements. |
