Form 10-QSB/A
[As last amended in Release No. 33-7505,
effective January 1, 1999, 63 F.R. 9632.]
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB/A
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from N/A to N/A
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Commission file number 0-28385
Protalex, Inc.
(Exact name of small business issuer as
specified in its charter)
New Mexico 91-2003490
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
P.O. Box 30952, Albuquerque, NM 87190
(Address of principal executive offices)
(505) 243-8220
(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: No Common no Par Value 11,490,235 as
of November 30, 2001.
Transitional Small Business Disclosure Format (check one):
Yes No X
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PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
The Company's unaudited financial statements for the quarter ended November 30,
2001 are included at exhibit 99 and incorporated herein by this reference.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS INCLUDING PLAN OF OPERATION.
The Company's principal activities consist of preparing for a Company sponsored
investigational new drug (IND) application to be submitted to the FDA in March
2002 and continuing laboratory research and development on its bioregulator
technology. Laboratory and animal work continue on schedule thus strengthening
and extending the Company's therapeutic approach. The Company is planning a
$1,000,000 private placement in March 2002 to assist in the transition to a
Company sponsored IND and to continue to develop and complete a broader patent
strategy. When completed, both developments will strengthen the Company's
position in the marketplace.
The Company continues to pursue additional financing in order to continue future
operations and necessary research and development. The near term goal of
approximately $5,000,000 remains the same. The Company's longer term funding
goal also remains the same at $15,000,000 to $20,000,000 in order to fully
implement the Company's bioregulator technology.
Protalex, Inc. successfully completed a private placement on September 7, 2001,
receiving funds of $1,102,000 for 881,600 shares of common stock. Funding from
the anticipated private placement together with current resources will fund
operations and necessary research and development over the next 10 months. In
connection with this anticipated funding and future funding efforts, an
affiliated company Alex, LLC, has completed the transfer of all intellectual
property rights, interests and application of bioregulator technology to the
Company so that the Company directly owns them. As noted above, the Company's
laboratory and animal work continue to support this intellectual property base.
The Company has acquired and will continue to acquire laboratory equipment.
These acquisitions will help to keep down the high cost associated with third
party contracting, and speed the process of learning more about various aspects
of the Company's core technology. The Company initiated the process of patent
applications in early July and believes the planned private placement scheduled
for March 2002, will allow them to advance a broader patent strategy.
Please refer to the Company's 10-SB filing (December 3, 1999) and amendments
thereto for more information on the Company's technology and risk factors.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
6.1 Index of Exhibits.
Reg. S-B Item 601
Number Exhibit Name
(99) Unaudited Financial Statements for the Quarter Ended November 30, 2001.
6.2 Reports on Form 8-K.
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PROTALEX, INC.
DATE: January 14, 2002 BY: John E. Doherty
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John E. Doherty
President and Director,
Principal Financial Officer
FINANCIAL STATEMENTS
PROTALEX, INC.
November 30, 2001
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Protalex, Inc.
(A Company in the Development Stage)
BALANCE SHEET
(Unaudited)
(As Restated)
November 30, 2001
ASSETS
CURRENT ASSETS
Cash .......................................... $ 876,325
Prepaid expense ............................... 10,923
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Total current assets ................... $ 887,248
EQUIPMENT
Lab equipment ................................. 175,376
Office and computer equipment ................. 143,142
Furniture and fixtures ........................ 21,268
Leasehold improvements ........................ 10,685
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350,471
Less accumulated depreciation ................... (138,485) 211,986
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OTHER ASSETS
Intellectual technology license, net of
accumulated amortization of $2,115 ........... 18,185
----------
$1,117,419
==========
The accompanying notes are an integral part of this financial statement.
LIABILITIES
CURRENT LIABILITIES
Professional fees payable ....................... $ 7,862
Payroll taxes payable ........................... 521
Interest payable ................................ 1,606
Current maturities of long-term liabilities ..... 39,229
Accounts payable ................................ 1,410
Accrued compensation ............................ 21,760
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Total current liabilities ................ $ 72,388
LONG-TERM LIABILITIES, less current maturities
Equipment note payable ............................ 20,319
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Total liabilities ........................ 92,707
STOCKHOLDERS' DEFICIT
Common stock, no par value, authorized
40,000,000 shares, 11,728,735 shares issued,
11,490,235 shares outstanding. 238,500
shares in the treasury at 0 cost ................ 2,492,891
Common stock, contra ............................ (368,547)
Additional paid in capital ...................... 316,569
Deficit accumulated during the development stage (1,416,201) 1,024,712
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$ 1,117,419
===========
The accompanying notes are an integral part of this financial statement.
Protalex, Inc.
(A Company in the Development Stage)
STATEMENT OF OPERATIONS
(Unaudited)
For the Three and Six Months Ended November 30,
2001 and 2000 and from Inception (September 17,
1999) through November 30, 2001
From Inception
Six Months Ended Three Months Ended Through
November 30, November 30, November 30,
2001 2001 2001
(As Restated) 2000 (As Restated) 2000 (As Restated)
------------ ------------ ------------ ------------ ------------
Interest income ............... $ 3,979 $ 9,367 $ 3,979 $ 5,504 $ 26,876
Expenses
Research and development .... 366,850 179,381 232,157 107,423 942,443
Administrative .............. 170,893 28,733 153,703 16,281 240,929
Professional fees ........... 62,700 26,983 51,003 6,091 177,079
Depreciation and amortization 9,015 23,959 4,613 8,795 26,819
Interest .................... 6,167 12,900 1,606 6,581 55,807
------------ ------------ ------------ ------------ ------------
NET LOSS ............. $ (611,646) $ (262,589) $ (439,103) $ (139,667) $ (1,416,201)
============ ============ ============ ============ ============
Loss per common share - Basic . $ (0.06) $ (0.03) $ (0.04) $ (0.01) $ (0.15)
============ ============ ============ ============ ============
Shares used in per share
calculation - Basic ......... 11,049,235 10,183,772 11,490,235 10,422,135 9,760,840
============ ============ ============ ============ ============
The accompanying notes are an integral part of this financial statement.
Protalex, Inc.
(A Company in the Development Stage)
STATEMENT OF CASH FLOWS
(Unaudited)
For the Six Months Ended November 30, 2001
and 2000 and from Inception (September 17, 1999)
through November 30, 2001
From Inception
Six Months Ended Six Months Ended Through
November 30, 2001 November 30, November 30, 2001
(As Restated) 2000 (As Restated)
----------- ----------- -----------
Cash flows from operating activities
Net loss ........................................... $ (611,646) $ (262,589) $(1,416,201)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation and amortization .................. 55,077 34,687 140,600
Non cash compensation expense .................. 133,000 -- 133,000
Non cash expenses .............................. -- -- 16,640
(Increase) in interest receivable .............. -- 10,669 --
Decrease (Increase) in prepaid expense ......... 6,218 (39,094) (10,923)
(Decrease) Increase in payroll taxes payable ... (4,131) 60 522
(Decrease) increase in interest payable ........ (1,398) (4,591) 1,606
Increase (decrease) in accounts and fees payable 9,080 (7,782) 9,271
Increase in accrued compensation payable ....... 3,838 -- 21,764
Increase in related party advance
and licenses fee payable ...................... -- -- (24,687)
----------- ----------- -----------
Net cash used in operating activities ....... (409,962) (268,640) (1,128,408)
----------- ----------- -----------
Cash flows from investing activities
Acquisition of intellectual technology license
- fee portion .................................... -- -- (20,000)
Acquisition of equipment ........................... (21,511) (71,296) (259,039)
Excess of amounts paid for Public Shell
over assets acquired to be accounted for
as a recapitalization ............................ -- -- (250,000)
Note receivable from individual .................... -- 118,547 --
Issuance of note payable to individual ............. -- -- 368,546
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Net cash used in investing activities ....... (21,511) 47,251 (160,493)
----------- ----------- -----------
Cash flows from financing activities
Payment on note payable to individual .............. (142,830) (183,216) (368,547)
Payment on equipment note payable .................. (7,195) (10,901) (7,195)
Additional Paid-in-capital ......................... 143,569 -- 183,569
Proceeds from stock issuance ....................... 1,102,000 25,000 2,357,400
----------- ----------- -----------
Net cash provided by financing activities ... 1,095,544 (169,117) 2,165,227
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH ...................... 664,071 (390,506) 876,326
Cash, beginning of period ............................ 212,254 560,487 --
----------- ----------- -----------
Cash, end of period .................................. $ 876,325 $ 169,981 $ 876,326
=========== =========== ===========
The accompanying notes are an integral part of this financial statement.
Protalex, Inc.
(A Company in the Development Stage)
STATEMENT OF CASH FLOWS -CONTINUED
(Unaudited)
For the Six Months Ended November 30, 2001
and 2000 and from Inception (September 17, 1999)
through November 30, 2001
From Inception
Six Months Ended Six Months Ended Through
November 30, 2001 November 30, November 30, 2001
(As Restated) 2000 (As Restated)
--------------------- -------------------- ---------------------
Interest paid $ 7,565 $ 16,636 $ 51,159
===================== ==================== =====================
Taxes paid $ - $ - $ 50
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SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES
10,000 shares of company stock were issued
as part of the cost of acquisition of
the intellectual technology license at
inception - value at $.03 per share $ - $ - $ 300
===================== ==================== =====================
100,000 shares of company stock were issued
in exchange for legal services performed $ - $ - $ 15,000
===================== ==================== =====================
1,644 shares of company stock were issued
in exchange for interest payable $ - $ - $ 1,644
===================== ==================== =====================
Lab equipment was acquired through issuance
of installment contract to seller $ - $ - $ 91,430
===================== ==================== =====================
The accompanying notes are an integral part of this financial statement.
Protalex, Inc.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
From Inception (September 17, 1999) through November 30, 2001 (As Restated)
NOTE A - NOTES TO INTERIM FINANCIAL STATEMENTS
The interim financial data 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 Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles 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 organization and business of the Company, accounting policies followed
by the Company and other information are contained in the notes to the
Company's financial statements filed as part of the Company's May 31, 2001
Form 10-KSB. This quarterly report should be read in conjunction with such
annual report.
NOTE B - GOING CONCERN UNCERTAINTY
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the Company as a going concern. The Company is a development stage
enterprise and does not have operating revenue nor anticipate generating
operating revenue for the foreseeable future. The ability of the Company to
continue as a going concern is dependent initially on its ability to raise
sufficient investment capital to fund all necessary operations and product
development activities. Secondly, the Company must develop products that are
regulatory approved and market accepted to generate operating revenue. There
is no assurance that these plans will be realized in whole or in part. The
financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
NOTE C - LOSS PER COMMON SHARE
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS No. 128)
which is effective for periods ending after December 15, 1997. SFAS No. 128
provides for the calculation of "Basic" and "Diluted" earnings per share.
Basic earnings per share includes no dilution and is computed by dividing
loss to common shareholders by the weighted average number of common shares
outstanding for the period. All potentially dilutive securities have been
excluded from the computations since they would be antidilutive. However,
these dilutive securities could potentially dilute earnings per share in the
future.
Protalex, Inc.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
From Inception (September 17, 1999) through November 30, 2001 (As Restated)
NOTE D - STOCK OPTIONS (AS RESTATED)
The Company granted stock options to three individuals and a corporate
associate to purchase 10,000 shares each of Company common stock at $0.36
per share in April 2000. The options are "stand alone" options. There is no
current Company stock option plan. In addition, the Company issued 185,200
warrants in connection with its private placement of 881,600 shares of
common stock.
The Company accounted for the options using the "intrinsic" method which
records as compensation cost the difference between exercise price of the
options and the fair market value of Company stock on the measurement
(grant) date. $21,760 of compensation expense was recorded on the Company
books at November 30, 2001 to reflect an estimated portion of the options
awarded for past services of certain individuals and corporate associate. An
additional $3,840 of compensation expense will be recorded in future periods
ending April 28, 2002 to reflect an estimated portion of the options awarded
for future services of the individuals and associate.
An alternate method of accounting for stock options is the fair value method
based on an accepted valuation model. Compensation cost would not be
materially different if it was calculated using the fair value method.
Restatement Information
The accompanying balance sheet, statement of operations and statement of
cash flows have been restated to recognize the cost to the Company of
issuing a stock option to one of its non-employee directors. The option
vested immediately, has a ten-year term and has an exercise price of $1.25
per share. The Company accounted for the option in accordance with APB
Opinion No. 25 and has recognized compensation expense based on the
"intrinsic value" method. This method records compensation cost as the
difference between the exercise price of the option and the fair market
value of the Company's stock on the measurement (grant) date. Because the
options vested immediately, $133,000 of compensation expense was recorded on
the Company books at November 30, 2001. The option was granted November 26,
2001.
Had the Company determined compensation expense based on the fair value at
the measurement date for its stock option under Statement of Financial
Accounting Standards No. 123, the Company's net loss and loss per share
would have increased to the proforma amounts indicated as follows:
Protalex, Inc.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
From Inception (September 17, 1999) through November 30, 2001 (As Restated)
NOTE D - STOCK OPTIONS (AS RESTATED) - CONTINUED
Six From Inception
Months Ended Six Through
November 30, 2001 Months Ended November 30, 2001
(As Restated) November 30, 2000 (As Restated)
Net loss, as reported $ (611,646) $ (262,589) $ (1,416,201)
Proforma net loss (709,865) (262,589) (1,514,420)
Loss per share, as reported (0.06) (0.03) (0.15)
Proforma loss per share (0.06) (0.03) (0.16)
The fair value of the options are estimated on the date of the grant using
the Black-Scholes option pricing model with the following assumptions:
dividends of $0 per year; expected volatility of 83 percent; risk-free
interest rate of 5.05 percent; and an expected life of five years.