Protalex (PRTX) 10-Q 11 Oct 17 2018 Q1 Quarterly report Financial data

Document And Entity Information

Document And Entity Information - shares	3 Months Ended
	Aug. 31, 2017	Oct. 11, 2017
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Aug. 31, 2017
Document Fiscal Year Focus	2,018
Document Fiscal Period Focus	Q1
Entity Registrant Name	PROTALEX INC
Entity Central Index Key	1,099,215
Current Fiscal Year End Date	--05-31
Entity Filer Category	Smaller Reporting Company
Trading Symbol	PRTX
Entity Common Stock, Shares Outstanding		28,767,582

CONDENSED BALANCE SHEETS

CONDENSED BALANCE SHEETS - USD ($)	Aug. 31, 2017	May 31, 2017
CURRENT ASSETS:
Cash and cash equivalents	$ 477,258	$ 487,383
Prepaid expenses	58,133	107,209
Total current assets	535,391	594,592
OTHER ASSETS:
Intellectual technology property, net of accumulated amortization of $17,403 and $17,148 as of August 31, 2017 and May 31, 2017, respectively	2,132	2,387
Total other assets	2,132	2,387
Total Assets	537,523	596,979
CURRENT LIABILITIES:
Accounts payable	588,669	489,029
Accrued expenses	36,106	57,786
Total current liabilities	624,775	546,815
LONG TERM LIABILITIES:
Senior Secured Note - related party	21,169,366	20,299,366
Senior Secured Note Accrued Interest - related party	1,647,977	1,490,416
Total liabilities	23,442,118	22,336,597
STOCKHOLDERS' (DEFICIT)
Preferred stock, par value $0.00001, 1,000,000 shares authorized; none issued and outstanding	0	0
Common stock, par value $0.00001, 100,000,000 shares authorized; 28,767,582 and 28,767,582 shares issued and outstanding, respectively	288	288
Additional paid in capital	77,446,343	77,446,343
Accumulated deficit	(100,351,226)	(99,186,249)
Total stockholders’ (deficit)	(22,904,595)	(21,739,618)
Total liabilities and stockholders’ (deficit)	$ 537,523	$ 596,979

CONDENSED BALANCE SHEETS (Paren

CONDENSED BALANCE SHEETS (Parenthetical) - USD ($)	Aug. 31, 2017	May 31, 2017
Intellectual technology property, accumulated amortization	$ 17,403	$ 17,148
Preferred stock, par value	$ 0.00001	$ 0.00001
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.00001	$ 0.00001
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	28,767,582	28,767,582
Common stock, shares outstanding	28,767,582	28,767,582

CONDENSED STATEMENTS OF OPERATI

CONDENSED STATEMENTS OF OPERATIONS - USD ($)	3 Months Ended
	Aug. 31, 2017	Aug. 31, 2016
Revenues	$ 0	$ 0
Operating Expenses
Research and development	681,829	448,981
Administrative	142,390	357,936
Professional fees	182,943	331,907
Depreciation and amortization	255	255
Operating loss	(1,007,417)	(1,139,079)
Other income (expense)
Interest income	1	1
Interest expense	(157,561)	(129,340)
Loss before income taxes	(1,164,977)	(1,268,418)
Provision for income taxes	0	0
Net loss	$ (1,164,977)	$ (1,268,418)
Weighted average number of common shares outstanding	28,767,582	28,767,582
Loss per common share - basic and diluted	$ (0.04)	$ (0.06)

CONDENSED STATEMENTS OF CASH FL

CONDENSED STATEMENTS OF CASH FLOWS - USD ($)	3 Months Ended
	Aug. 31, 2017	Aug. 31, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (1,164,977)	$ (1,268,418)
Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities:
Depreciation and amortization	255	255
Equity based expense	0	180,333
(Increase)/decrease in:
Prepaid expenses and deposits	49,076	(16,137)
Increase/(decrease) in:
Accounts payable and accrued expenses	77,960	(173,116)
Accrued interest payable	157,561	129,340
Net cash and cash equivalents used in operating activities	(880,125)	(1,147,743)
CASH FLOWS FROM INVESTING ACTIVITIES:	0	0
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of note payable to individuals	870,000	1,095,000
Net cash and cash equivalents provided by financing activities	870,000	1,095,000
NET DECREASE IN CASH AND CASH EQUIVALENTS	(10,125)	(52,743)
Cash and cash equivalents, beginning of period	487,383	444,179
Cash and cash equivalents, ending of period	477,258	391,436
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Interest paid	0	0
Taxes paid	$ 0	$ 0

ORGANIZATION AND BUSINESS ACTIV

ORGANIZATION AND BUSINESS ACTIVITIES	3 Months Ended
	Aug. 31, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]
ORGANIZATION AND BUSINESS ACTIVITIES	NOTE 1. ORGANIZATION AND BUSINESS ACTIVITIES The Company is focused on the development of a class of biopharmaceutical drugs for treating autoimmune and inflammatory diseases including rheumatoid arthritis (RA) and Immune Thrombocytopenia (ITP). Its lead product, PRTX-100, is a highly-purified form of Staphylococcal protein A, a bacterial protein known to modify aspects of the human immune system. The Company maintains an administrative office in Florham Park, New Jersey and currently outsources all of its product development and regulatory activities, including clinical trial activities, manufacturing and laboratory operations, to third-party contract research organizations and facilities. In April 2009, the Company ceased all operations and terminated all employees in light of insufficient funds to continue its clinical trials and related product development. The Company’s business was dormant until new management took control of its operations in November 2009. Since then the Company has been actively pursuing the commercial development of PRTX-100 for the treatment of RA and ITP. In the United States, the Company has open Investigational New Drug (IND) applications for the treatment of RA and ITP and in Europe, an open Investigational Medicinal Products Dossier (IMPD) for ITP. PRTX-100 has demonstrated effectiveness in animal models of autoimmune diseases as well as demonstrated activity on cultured human immune cells at very low concentrations, although the effectiveness of PRTX-100 shown in pre-clinical studies using animal models may not be predictive of the results of future human clinical trials. The safety, tolerability and pharmakinetics of PRTX-100 in humans have been characterized in six clinical studies and PRTX-100 has been granted Orphan Drug Designation (ODD) in the United States and Europe for the treatment of ITP. The Company does not anticipate generating operating revenue for the foreseeable future and does not currently have any products that are marketable.

GOING CONCERN

GOING CONCERN	3 Months Ended
	Aug. 31, 2017
Going Concern Disclosure [Abstract]
GOING CONCERN	NOTE 2. GOING CONCERN The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The ability of the Company to continue as a going concern is dependent upon developing products that receive regulatory approval and market acceptance. There is no assurance that these benchmarks will be realized. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. There is substantial doubt about the Company’s ability to continue as a going concern. From inception through August 31, 2017, the Company has incurred an accumulated deficit of $ 100,351,226 4,563,721 9,415,450 1,164,977 3,936,796 4,279,100 880,125 477,258 The Company has no significant payments due on long-term obligations. However, the Company anticipates entering into significant contracts to perform product manufacturing and to conduct clinical trials in the future and that it will need to raise additional capital to fund the ongoing FDA regulatory approval process. If the Company is unable to obtain approval of its future IND applications or otherwise advance the FDA approval process, its ability to sustain its operations would be significantly jeopardized. The most likely sources of additional financing include the sale of the Company’s equity or debt securities. On June 3, 2016, the Company filed Amendment #1 to the Registration Statement on Form S-1 with the U.S. Securities and Exchange Commission (SEC) (SEC File No. 333-206008), originally filed on July 31, 2015, with respect to a proposed public offering of Company securities. There is no assurance that the Company will consummate a public offering of its securities, or any other offering. Accordingly, additional capital that is required by the Company may not be available on reasonable terms, or at all.

BASIS OF PRESENTATION AND SUMMA

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	3 Months Ended
	Aug. 31, 2017
Accounting Policies [Abstract]
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	NOTE 3. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The interim financial data contained in this Report is unaudited; however in the opinion of management, the interim data includes all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim period. The financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures included herein are adequate to make the information presented not misleading. The results of operations in interim periods are not necessarily indicative of the results that may be expected for the full year. Information regarding the organization and business of the Company, accounting policies followed by the Company and other important information is contained in the notes to the Company's financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2017. This Report should be read in conjunction with the Company’s Annual Report. The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions affecting the reported amounts of assets, liabilities, and expense, and the disclosure of contingent assets and liabilities. Estimated amounts could differ from actual results. The Financial Accounting Standards Board (FASB) has issued guidance for “Earnings Per Share” which provides for the calculation of “Basic” and “Diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net loss to common stockholders by the weighted average number of common shares outstanding for the period. All potentially dilutive securities consisting of employee stock options and warrants have been excluded from the computations since they would be antidilutive. However, these dilutive securities could potentially dilute earnings per share in the future. As of August 31, 2017 and August 31, 2016, the Company had potentially dilutive securities consisting of 3,980,543 3,982,543 For the purposes of reporting cash flows, the Company considers all cash accounts which are not subject to withdrawal restrictions or penalties, and highly liquid investments with original maturities of 90 days or less to be cash and cash equivalents. The cash and cash equivalent deposits are not insured by The Federal Deposit Insurance Corporation. Certain reclassifications have been made to the prior periods to conform to the current presentations in the financial statements. Research and development costs are expensed as incurred. Effective June 1, 2006, the Company adopted the FASB accounting guidance for fair value recognition provisions of the “Accounting for Share-Based Payment”. This standard requires the Company to measure the cost of employee services received in exchange for equity share options granted based on the grant-date fair value of the options. The cost is recognized as compensation expense over the vesting period of the options. The fair value of compensation costs attributed to equity rights issued was $ 0 180,333 The accounting guidance requires the use of a valuation model to calculate the fair value of each stock-based award. The Company uses the Black-Scholes model to estimate the fair value of stock options granted based on the following assumptions: Expected Term or Life Expected Volatility Risk-Free Interest Rate. At August 31, 2017, there were 4,180,543 3,980,543 0 400,000

RECENT ACCOUNTING PRONOUNCEMENT

RECENT ACCOUNTING PRONOUNCEMENTS	3 Months Ended
	Aug. 31, 2017
New Accounting Pronouncements and Changes in Accounting Principles [Abstract]
RECENT ACCOUNTING PRONOUNCEMENTS	NOTE 4. RECENT ACCOUNTING PRONOUNCEMENTS Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying consolidated financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances. In August 2014, the FASB issued Accounting Standards Update “ASU” 2014-15 on “Presentation of Financial Statements Going Concern (Subtopic 205-40) – Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. Currently, there is no guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments in this ASU provide that guidance. In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt,

RELATED PARTIES

RELATED PARTIES	3 Months Ended
	Aug. 31, 2017
Related Party Transactions [Abstract]
RELATED PARTIES	NOTE 5. RELATED PARTIES Niobe Ventures, LLC, a Delaware limited liability company (“Niobe”), the majority stockholder of the Company and the holder of the Consolidated Note (defined in Note 6, below), is controlled by Arnold P. Kling, the Company’s president and director.

SENIOR SECURED NOTES - RELATED

SENIOR SECURED NOTES - RELATED PARTY	3 Months Ended
	Aug. 31, 2017
Debt Disclosure [Abstract]
SENIOR SECURED NOTES - RELATED PARTY	NOTE 6. SENIOR SECURED NOTES - RELATED PARTY On October 11, 2013, the Company issued a Consolidated, Amended and Restated Promissory Note to Niobe in the principal amount of $ 9,219,366 9.0 3 (a) the maturity date was changed to September 1, 2015, which was after the latest maturity date of any of the Secured Notes; and (b) it provided for partial mandatory repayment in the event that the Company received aggregate gross proceeds in excess of $7.5 million from a single or multiple “Liquidity Events” in an amount equal to twenty-five (25%) percent of such gross proceeds (the “Mandatory Prepayment Amount”). (a) the sale of any of the Company’s equity, or equity-linked, securities, and (b) the receipt of proceeds, directly or indirectly related to a development and/or commercialization relationship entered into with an unaffiliated third party. 7.5 On November 4, 2014, the Company entered into a new Credit Facility Agreement (the “2014 Credit Facility Agreement”) pursuant to which the Company may borrow up to an additional $ 5.0 3 In addition, on November 4, 2014, the Company entered into a Note Modification Agreement (the “Note Modification Agreement”) with Niobe pursuant to which the Consolidated Note was further amended to increase the threshold amount requiring a Mandatory Prepayment from $ 7.5 10 10 On December 1, 2015, the 2014 Credit Facility was amended to increase the funds available for loans to the Company to $ 7.5 3 September 1, 2017 On June 30, 2016, the 2014 Credit Facility was again amended to increase the funds available for loans to the Company to $ 9.0 On August 31, 2016, the Company and Niobe agreed to extend the maturity date of the Consolidated Note and the maturity dates of all thirteen outstanding Original Notes with an aggregate principal amount of $ 5,030,000 On October 31, 2016, the 2014 Credit Facility was amended to increase the funds available for loans to the Company to $ 11.25 3 As of May 31, 2017, the outstanding principal balance under the 2014 Credit Facility totaled $ 11,080,000 3,980,000 On June 1, 2017, the 2014 Credit Facility was amended to increase the funds available for loans to the Company to $ 13.05 On June 15, 2017, July 10, 2017 and August 10, 2017, the Company borrowed $290,000, $290,000 and $290,000, respectively, under the 2014 Credit Facility pursuant to the Fourth Amended and Restated Agreement and issued Niobe a new 2018 Note for each borrowing in the same principal amount of each loan. On August 22, 2017, the Company and Niobe agreed to extend the maturity date of all outstanding notes issued to Niobe from the current maturity date of March 31, 2018 September 1, 2018 As of August 31, 2017, the outstanding principal balance under the 2014 Credit Facility totaled $ 11,950,000 870,000 290,000 290,000 290,000

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS	3 Months Ended
	Aug. 31, 2017
Subsequent Events [Abstract]
SUBSEQUENT EVENTS	NOTE 7. SUBSEQUENT EVENTS On September 15, 2017, the Company borrowed an additional $ 290,000 September 1, 2018 The Company has evaluated all other subsequent events and has determined that there were no other subsequent events to recognize or disclose in these financial statements.

BASIS OF PRESENTATION AND SUM13

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)	3 Months Ended
	Aug. 31, 2017
Accounting Policies [Abstract]
Estimates	Estimates The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions affecting the reported amounts of assets, liabilities, and expense, and the disclosure of contingent assets and liabilities. Estimated amounts could differ from actual results.
Loss per Common Share	The Financial Accounting Standards Board (FASB) has issued guidance for “Earnings Per Share” which provides for the calculation of “Basic” and “Diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net loss to common stockholders by the weighted average number of common shares outstanding for the period. All potentially dilutive securities consisting of employee stock options and warrants have been excluded from the computations since they would be antidilutive. However, these dilutive securities could potentially dilute earnings per share in the future. As of August 31, 2017 and August 31, 2016, the Company had potentially dilutive securities consisting of 3,980,543 3,982,543
Cash and Cash Equivalents	Cash and Cash Equivalents For the purposes of reporting cash flows, the Company considers all cash accounts which are not subject to withdrawal restrictions or penalties, and highly liquid investments with original maturities of 90 days or less to be cash and cash equivalents. The cash and cash equivalent deposits are not insured by The Federal Deposit Insurance Corporation.
Reclassifications	Reclassifications Certain reclassifications have been made to the prior periods to conform to the current presentations in the financial statements.
Research and Development	Research and Development Research and development costs are expensed as incurred.
Share Based Compensation	Share Based Compensation Effective June 1, 2006, the Company adopted the FASB accounting guidance for fair value recognition provisions of the “Accounting for Share-Based Payment”. This standard requires the Company to measure the cost of employee services received in exchange for equity share options granted based on the grant-date fair value of the options. The cost is recognized as compensation expense over the vesting period of the options. The fair value of compensation costs attributed to equity rights issued was $ 0 180,333 The accounting guidance requires the use of a valuation model to calculate the fair value of each stock-based award. The Company uses the Black-Scholes model to estimate the fair value of stock options granted based on the following assumptions: Expected Term or Life Expected Volatility Risk-Free Interest Rate. At August 31, 2017, there were 4,180,543 3,980,543 0 400,000

GOING CONCERN - Additional Info

GOING CONCERN - Additional Information (Detail) - USD ($)	3 Months Ended		12 Months Ended
	Aug. 31, 2017	Aug. 31, 2016	May 31, 2017	May 31, 2016
Cash Flow Supplemental Disclosures [Line Items]
Deficit accumulated during the development stage	$ 100,351,226
Net loss	1,164,977	$ 1,268,418	$ 4,563,721	$ 9,415,450
Net Cash Provided by (Used in) Operating Activities, Continuing Operations, Total	(880,125)	(1,147,743)	3,936,796	4,279,100
Cash and cash equivalents	477,258	$ 391,436	$ 487,383	$ 444,179
Net working capital deficit	$ (89,384)

BASIS OF PRESENTATION AND SUM15

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Additional Information (Detail) - USD ($)	3 Months Ended
	Aug. 31, 2017	Aug. 31, 2016
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based compensation, number of stock options outstanding	4,180,543
Aggregate unrecognized compensation cost of unvested options	$ 0
Share based compensation, number of stock options expired during period	400,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number	3,980,543
Operating Expense
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Compensation cost included in operating expenses	$ 0	$ 180,333
Stock Option
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	3,980,543	3,982,543

SENIOR SECURED NOTES - RELATE16

SENIOR SECURED NOTES - RELATED PARTY - Additional Information (Detail) - USD ($)

Aug. 10, 2017

Jul. 10, 2017

Nov. 04, 2014

Oct. 11, 2013

Aug. 22, 2017

Jun. 15, 2017

Jun. 02, 2017

Oct. 31, 2016

Dec. 02, 2015

Aug. 31, 2017

Aug. 31, 2016

May 31, 2017

Jun. 30, 2016

Related Party Transaction [Line Items]

Proceeds From Notes Payable

$ 870,000

$ 1,095,000

Long-term Line of Credit

11,950,000

Proceeds from Lines of Credit

$ 290,000

$ 290,000

$ 290,000

$ 870,000

Senior Secured Note

Related Party Transaction [Line Items]

Debt instrument, face amount

$ 9,000,000

Secured note payable, interest rate

3.00%

3.00%

3.00%

Debt instrument carrying amount

$ 9,219,366

Terms of consolidated note identical to secured notes

(a) the maturity date was changed to September 1, 2015, which was after the latest maturity date of any of the Secured Notes; and (b) it provided for partial mandatory repayment in the event that the Company received aggregate gross proceeds in excess of $7.5 million from a single or multiple Liquidity Events in an amount equal to twenty-five (25%) percent of such gross proceeds (the Mandatory Prepayment Amount).

Consummation of equity financing, amount

$ 13,050,000

$ 11,250,000

$ 7,500,000

Description of Liquidity Event

(a) the sale of any of the Companys equity, or equity-linked, securities, and (b) the receipt of proceeds, directly or indirectly related to a development and/or commercialization relationship entered into with an unaffiliated third party.

Line of Credit Facility, Maximum Borrowing Capacity

$ 9,000,000

Debt Instrument, Maturity Date

Sep. 1, 2018

Mar. 31, 2018

Sep. 1, 2017

Niobe Ventures LLC

Related Party Transaction [Line Items]

Debt instrument, face amount

$ 5,030,000

Notes Payable

$ 7,500,000

Niobe Ventures LLC | Senior Secured Note

Related Party Transaction [Line Items]

Debt instrument, face amount

$ 11,080,000

Secured note payable, interest rate

3.00%

Line of Credit Facility, Remaining Borrowing Capacity

$ 5,000,000

Proceeds From Notes Payable

10,000,000

$ 3,980,000

Niobe Ventures LLC | Senior Secured Note | Minimum

Related Party Transaction [Line Items]

Notes Payable

7,500,000

Niobe Ventures LLC | Senior Secured Note | Maximum

Related Party Transaction [Line Items]

Notes Payable

$ 10,000,000

SUBSEQUENT EVENTS - Additional

SUBSEQUENT EVENTS - Additional Information (Detail) - Subsequent Event	1 Months Ended
	Sep. 15, 2017USD ($)
Subsequent Event [Line Items]
Debt Instrument, Face Amount	$ 290,000
Debt Instrument, Maturity Date	Sep. 1, 2018