UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 


FORM 10-Q
 

 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2010

OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-28385
 

Protalex, Inc.
(Exact Name of Registrant as Specified in its Charter)

 
Delaware
 
91-2003490
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification Number)
133 Summit Avenue, Suite 22
Summit, NJ 07901
(Address of Principal Executive Offices and Zip Code)

215-862-9720
(Registrant’s Telephone Number, Including Area Code)

 145 Union Square Drive
New Hope, PA 18938
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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.  x  Yes  ¨   No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that he registrant was required to submit and post such files).  ¨  Yes ¨  No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨
Accelerated filer  ¨
 
     
Non-accelerated filer  ¨
Smaller reporting company x
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ¨   Yes    x   No

Number of shares outstanding of the issuer’s Common Stock, par value $0.00001 per share, as of April 7, 2010: 72,078,724 shares.

 
 

 

PROTALEX, INC.

Quarterly Report on Form 10-Q
For the Period Ended February 28, 2010

TABLE OF CONTENTS
 
       
 Page No.
PART I.
 
FINANCIAL INFORMATION
   
ITEM 1.
 
Financial Statements:
   
   
Balance Sheets at February 28, 2010 (Unaudited) and May 31, 2009
 
3
   
Statements of Operations for the three and nine months ended February 28, 2010 and 2009, and the period from September 17, 1999 (inception) to February 28, 2010 (Unaudited)
 
4
   
Statement of Changes in Stockholders’ Equity for the period from September 17, 1999 (inception) through February 28, 2010 (Unaudited)
 
5
   
Statements of Cash Flows for the nine months ended February 28, 2010 and 2009, and the period from September 17, 1999 (inception) to February 28, 2010 (Unaudited)
 
9
   
Notes to Unaudited Financial Statements
 
10
ITEM 2.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
16
ITEM 3.
 
Quantitative and Qualitative Disclosures About Market Risk
 
20
ITEM 4T.
 
Controls and Procedures
 
20
PART II.
 
OTHER INFORMATION
   
ITEM 6.
 
Exhibits
 
21
   
SIGNATURES
 
22
 
FORWARD-LOOKING STATEMENTS
 
Certain statements made in this Quarterly Report on Form 10-Q are “forward-looking statements” regarding the plans and objectives of management for future operations and market trends and expectations.  Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties.  Our plans and objectives are based, in part, on assumptions involving the continued expansion of our business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control.  Although we believe that our assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Report will prove to be accurate.  In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved.  We undertake no obligation to revise or update publicly any forward-looking statements for any reason.  The terms “we”, “our”, “us”, or any derivative thereof, as used herein refer to Protalex, Inc., a Delaware corporation, and its predecessors.

 
2

 

PART I - FINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS
PROTALEX, INC.
(A Development Stage Company)
BALANCE SHEETS
  
 
February 28,
   
May 31,
 
   
2010
   
2009
 
   
(Unaudited)
       
CURRENT ASSETS:
           
Cash and cash equivalents
 
$
3,119,925
   
$
2,637,292
 
Prepaid expenses
   
69,456
     
193,757
 
Total current assets
   
3,189,381
     
2,831,049
 
                 
PROPERTY & EQUIPMENT:
               
Property & equipment - net
   
-
     
25,162
 
                 
OTHER ASSETS:
               
Deposits
   
7,990
     
7,990
 
Intellectual technology property, net of accumulated amortization of $10,008 and $9,753 as of February 28, 2010 and May 31, 2009, respectively
 
 
10,292
  
 
 
10,547
 
                 
Total other assets
   
18,282
     
18,537
 
                 
Total Assets
 
$
3,207,663
   
$
2,874,748
 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
CURRENT LIABILITIES:
               
Accounts payable
 
$
182,864
   
$
398,734
 
Payroll and related liabilities
   
281,361
     
1,185,638
 
Accrued expenses
   
92,456
     
8,057
 
Deferred rent
   
743
     
1,192
 
                 
Total current liabilities
   
557,424
     
1,593,621
 
LONG TERM LIABILITIES:
               
  Senior Secured Convertible Note – net of debt discount - related party
   
540,085
     
-
 
Total liabilities
   
1,097,509
     
1,593,621
 
STOCKHOLDERS' EQUITY
               
Common stock, par value $0.00001,
               
100,000,000 shares authorized;
72,078,724 and 28,600,464 shares issued and outstanding, respectively
   
721
     
286
 
Additional paid in capital
   
48,666,166
     
45,865,352
 
Deficit accumulated during the development stage
   
(46,556,733
)
   
(44,584,511
)
Total stockholders’ equity
   
2,110,154
     
1,281,127
 
Total liabilities and stockholders’ equity
 
$
3,207,663
   
$
2,874,748
 
The accompanying notes are an integral part of these financial statements.

 
3

 
 
PROTALEX, INC.
(A Development Stage Company)

STATEMENTS OF OPERATIONS

For the three and nine month periods ended February 28, 2010 and 2009 and
From Inception (September 17, 1999) through February 28, 2010
(Unaudited)
   
Three
Months Ended
February 28,
2010
   
Three
Months Ended
February 28,
2009
   
Nine
Months Ended
February 28,
2010
   
Nine
Months Ended
February 28,
2009
   
From Inception
Through
February 28,
2010
 
Revenues
  $ -     $ -     $ -     $ -     $ -  
Operating Expenses
                                       
Research and development (including depreciation and amortization)
    329,487       1,002,553       671,674       2,866,890       28,425,458  
Administrative (including depreciation and amortization)
    324,722       569,142       698,476       1,800,483       16,313,108  
(Gain) on disposal of equipment, net
    (9,625 )     -       (3,233 )     (78,174 )     (77,219 )
Professional fees
    77,658       32,780       530,933       296,073       3,776,067  
Depreciation and amortization
    -       1,019       15,070       3,127       178,886  
Operating loss
    (722,242 )     (1,605,494 )     (1,912,920 )     (4,888,399 )     (48,616,300 )
Other income (expense)
                                       
Interest income
    3,786       1,566       2,522       57,126       2,198,399  
Interest expense
    (50,978 )     -       (61,824 )     -       (132,435 )
Loss on sale of investments
    -       -       -       -       (6,394 )
Net loss
  $ (769,434 )   $ (1,603,928 )   $ (1,972,222 )   $ (4,831,273 )   $ (46,556,730 )
Weighted average number of common shares outstanding
    55,076,052       28,600,464       46,088,030       28,600,464       20,363,183  
Loss per common share – basic and diluted
  $ (0.02 )   $ (0.06 )   $ (0.05 )   $ (0.17 )   $ (2.29 )

The accompanying notes are an integral part of these financial statements.

 
4

 

PROTALEX, INC.
(A Development Stage Company)

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

From Inception (September 17, 1999) through February 28, 2010
(Unaudited)

                           
Deficit
       
                           
Accumulated
       
               
Additional
   
Common
   
During The
       
   
Common Stock
   
Paid in
   
Stock-
   
Development
       
   
Shares
   
Amount
   
Capital
   
Contra
   
Stage
   
Total
 
September 17, 1999 — initial issuance of 10,000 shares for intellectual technology license at $.03 per share
   
10,000
   
$
300
   
$
   
$
   
$
   
$
300
 
September 30, 1999 — cost of public shell acquisition over net assets acquired to be accounted for as a Recapitalization
   
     
     
     
(250,000
)
   
     
(250,000
)
October 27, 1999 — issuance of 84 shares to individual for $25,000
   
84
     
25,000
     
     
     
     
25,000
 
November 15, 1999 — reverse merger transaction with Enerdyne Corporation, net transaction amounts
   
8,972,463
     
118,547
     
     
(118,547
)
   
     
 
November 18, 1999 — February 7, 2000 — issuance of 459,444 shares to various investors at $0.36 per share
   
459,444
     
165,400
     
     
     
     
165,400
 
January 1, 2000 — issuance of 100,000 shares in exchange for legal services
   
100,000
     
15,000
     
     
     
     
15,000
 
May 1 - 27, 2000 — issuance of 640,000 shares to various investors at $1.00 per share
   
640,000
     
640,000
     
     
     
     
640,000
 
May 27, 2000 — issuance of 1,644 shares to an individual in exchange for interest Due
   
1,644
     
1,644
     
     
     
     
1,644
 
Net loss for the year ended May 31, 2000
   
     
     
     
     
(250,689
)
   
(250,689
)
Balance, May 31, 2000
   
10,183,635
     
965,891
     
     
(368,547
)
   
(250,689
)
   
346,655
 
December 7, 2000 — issuance of 425,000 shares to various investors at $1.00 per share
   
425,000
     
425,000
     
     
     
     
425,000
 
May 31, 2001 — Forgiveness of debt owed to shareholder
   
     
     
40,000
     
     
     
40,000
 
Net loss for the year ended May 31, 2001
   
     
     
     
     
(553,866
)
   
(553,866
)
Balance, May 31, 2001
   
10,608,635
     
1,390,891
     
40,000
     
(368,547
)
   
(804,555
)
   
257,789
 

The accompanying notes are an integral part of this financial statement.

 
5

 

PROTALEX, INC.
(A Development Stage Company)

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY - (continued)

From Inception (September 17, 1999) through February 28, 2010
(Unaudited)

                           
Deficit
       
                           
Accumulated
       
               
Additional
   
Common
   
During The
       
   
Common Stock
   
Paid in
   
Stock-
   
Development
       
   
Shares
   
Amount
   
Capital
   
Contra
   
Stage
   
Total
 
August 13, 2001 — Contribution by Shareholders
   
     
     
143,569
     
     
   
$
143,569
 
November 7, 2001 — issuance of 881,600 Shares at $1.25 per share
   
881,600
   
$
1,102,000
   
$
     
   
$
   
$
1,102,000
 
November 26, 2001 — options issued to board member
   
     
     
133,000
     
     
     
133,000
 
Net loss for the year ended May 31, 2002
   
     
     
     
     
(1,280,465
)
   
(1,280,465
)
Balance, May 31, 2002
   
11,490,235
     
2,492,891
     
316,569
     
(368,547
)
   
(2,085,020
)
   
355,893
 
July 5, 2002 — issuance of 842,000 shares at $1.50 per share
   
842,000
     
1,263,000
     
     
     
     
1,263,000
 
July 1, 2002 - May 1, 2003 – purchase of common stock from shareholder at $.70 per share
   
(130,955
)
   
(91,667
)
   
     
     
     
(91,667
)
January 15, 2003 - May 15, 2003 — common stock issued to Company president
   
41,670
     
82,841
     
     
     
     
82,841
 
May 14, 2003 — common stock issued to employee
   
5,000
     
11,250
     
     
     
     
11,250
 
June 1, 2002 - May 31, 2003 – compensation related to stock options issued to board members, employees and consultants
   
     
     
287,343
     
     
     
287,343
 
Net loss for the year ended May 31, 2003
   
     
     
     
     
(1,665,090
)
   
(1,665,090
)
Balance, May 31, 2003
   
12,247,950
     
3,758,315
     
603,912
     
(368,547
)
   
(3,750,110
)
   
243,570
 
June 15, 2003, common stock issued to Company president
   
8,334
     
16,418
     
     
     
     
16,418
 
June 15, 2003, purchase of common stock from shareholder
   
(12,093
)
   
(8,333
)
   
     
     
     
(8,333
)
September 18, 2003 – issuance of 7,445,646 of common stock issued in private placement At $1.70 per share, net of transaction costs
   
7,445,646
     
11,356,063
     
     
     
     
11,356,063
 
September 19, 2003 – repurchase and retired 2,994,803 shares for $300,000
   
(2,994,803
)
   
(300,000
)
   
     
     
     
(300,000
)
December 12, 2003 – issuance of 39,399 shares to terminated employees at $2.60 per share
   
39,399
     
102,438
     
     
     
     
102,438
 
March 1, 2004 – common stock issued to employee at $2.55 per share
   
50,000
     
127,500
     
     
     
     
127,500
 
May 31, 2004 – reclassify common stock contra to common stock
   
     
(368,547
)
   
     
368,547
     
     
 

The accompanying notes are an integral part of this financial statement.


 
6

 

PROTALEX, INC.
(A Development Stage Company)

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY - (continued)

From Inception (September 17, 1999) through February 28, 2010
(Unaudited)

                           
Deficit
       
                           
Accumulated
       
               
Additional
   
Common
   
During The
       
   
Common Stock
   
Paid in
   
Stock-
   
Development
       
   
Shares
   
Amount
   
Capital
   
Contra
   
Stage
   
Total
 
June 1, 2003 – May 31, 2004 – compensation related to stock options issued to board members, employees and consultants
   
     
     
448,096
     
     
     
448,096
 
Net loss for the year ended May 31, 2004
   
     
     
     
     
(2,989,364
)
   
(2,989,364
)
Balance, May 31, 2004
   
16,784,433
     
14,683,854
     
1,052,008
     
     
(6,739,474
)
   
8,996,388
 
November 30, 2004 – adjust March 1, 2004 common stock issued to employee
   
     
(20,000
)
           
     
     
(20,000
)
January 13, 2005 – common stock issued to employee at $2.55 per share
   
15,000
     
38,250
     
     
     
     
38,250
 
February 28, 2005 – Reclass Par Value for Reincorporation into DE as of 12/1/04
   
     
(14,701,935
)
   
14,701,935
     
     
     
0
 
May 25, 2005 - issuance of 2,593,788 shares of common stock issued in private placement At $1.95 per share, net of transaction costs
   
2,593,788
     
25
     
4,851,168
     
     
     
4,851,193
 
June 1, 2004 – May 31, 2005 – compensation related to stock options issued to board members, employees and consultants
   
     
     
308,711
     
     
     
308,711
 
Net loss for the year ended May 31, 2005
   
     
     
     
     
(5,567,729
)
   
(5,567,729
)
Balance, May 31, 2005
   
19,393,221
     
194
     
20,913,822
     
     
(12,307,203
)
   
8,606,813
 
August 23, 2005 – common stock issued to employee
   
40,000
     
0
     
100,000
     
     
     
100,000
 
October 19, 2005 – common stock issued to employee
   
10,000
     
0
     
25,000
     
     
     
25,000
 
December 30, 2005 – issuance of 2,595,132 shares of common stock issued in private placement at $2.25 per share, net of transaction costs
   
2,595,132
     
26
     
5,510,941
     
     
     
5,510,967
 
June 1, 2005 – May 31, 2006 – warrants exercised
   
351,598
     
4
     
786,534
     
     
     
786,538
 
June 1, 2005– May 31, 2006 – compensation related to stock options issued to board members, employees and consultants
   
     
     
404,679
     
     
     
404,679
 
Net loss for the year ended May 31, 2006
   
     
     
     
     
(6,104,402
)
   
(6,104,402
)
Balance, May 31, 2006
   
22,389,951
     
224
     
27,740,976
     
     
(18,411,605
)
   
9,329,595
 

The accompanying notes are an integral part of this financial statement.

 
7

 

PROTALEX, INC.
(A Development Stage Company)

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY - (continued)

From Inception (September 17, 1999) through February 28, 2010
(Unaudited)

                       
Deficit
       
                       
Accumulated
       
             
Additional
 
Common
   
During The
       
   
Common Stock
 
Paid in
 
Stock-
   
Development
       
   
Shares
   
Amount
 
Capital
 
Contra
   
Stage
   
Total
 
July 7, 2006 – issuance of 6,071,013 shares of common stock issued in private placement at $2.50 per share, net of transaction costs
   
6,071,013
     
61
   
14,217,660
   
     
     
14,217,721
 
June 1, 2006 – May 31, 2007 – warrants exercised
   
133,500
     
1
   
300,373
   
     
     
300,374
 
June 1, 2006 – May 31, 2007 – stock options exercised
   
6,000
     
0
   
15,200
   
     
     
15,200
 
June 1, 2006 – May 31, 2007 – share based compensation to board members, employees and consultants
   
     
   
1,826,850
   
     
     
1,826,850
 
Net loss for the year ended May 31, 2007
   
     
   
   
     
(8,451,942
)
   
(8,451,942
)
Balance, May 31, 2007
   
28,600,464
     
286
   
44,101,059
   
     
(26,863,547
)
   
17,237,798
 
June 1, 2007 – May 31, 2008 – share based compensation to board members, employees and consultants
   
     
   
1,011,025
   
     
     
1,011,025
 
Net loss for the year ended May 31, 2008
   
     
   
   
     
(10,490,758
)
   
(10,490,758
)
Balance, May 31, 2008
   
28,600,464
     
286
   
45,112,084
   
     
(37,354,305
)
   
7,758,065
 
June 1, 2008 – May 31, 2009 – shared-based compensation to board members, employees and consultants
   
     
   
753,268
   
     
     
753,268
 
Net loss for the year ended May 31, 2009
   
     
   
   
     
(7,230,206
)
   
(7,230,206
)
Balance, May 31, 2009
   
28,600,464
     
286
   
45,865,352
   
     
(44,584,511
)
   
1,281,127
 
June 1, 2009 – February 28, 2010 – shared-based expense to employees and debt holders
   
     
   
279,510
   
     
     
279,510
 
November 11, 2009 – record beneficial conversion value attached to senior secured convertible debt
   
     
   
521,739
   
     
     
521,739
 
November 11, 2009 – issuance of 43,478,260 shares of common stock at $.046
   
43,478,260
     
435
   
1,999,565
   
     
     
2,000,000
 
Net loss for the nine months ended February 28, 2010
   
     
   
   
     
(1,972,222
)
   
(1,972,222
)
Balance, February 28, 2010
   
72,078,724
   
$
721
 
$
48,666,166
 
$
   
$
(46,556,733
)
 
$
2,110,154
 

The accompanying notes are an integral part of this financial statement.

 
8

 
 
PROTALEX, INC.
(A Development Stage Company)

STATEMENTS OF CASH FLOWS

For the nine month periods ended February 28, 2010 and 2009 and
From Inception (September 17, 1999) through February 28, 2010
(Unaudited)
   
Nine
   
Nine
   
From
Inception
 
   
Months Ended
   
Months Ended
   
Through
 
   
February 28,
   
February 28,
   
February 28,
 
   
2010
   
2009
   
2010
 
                   
CASH FLOWS FROM OPERATING ACTIVITIES:
                 
Net loss
 
$
(1,972,222
)
 
$
(4,831,273
)
 
$
(46,556,730
)
Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities
                       
(Gain) on disposal of equipment, net
   
     
(78,174
)
   
(67,594
)
Depreciation and amortization
   
15,070
     
45,621
     
919,772
 
Share based compensation expense
   
288,689
     
468,785
     
5,945,354
 
Non cash expenses
   
47,145
     
     
63,789
 
(Increase)/decrease in:
                       
Prepaid expenses and deposits
   
124,301
     
238,148
     
(77,446
)
Increase/(decrease) in:
                       
Accounts payable and accrued expenses
   
(131,473
)
   
(686,662
)
   
275,318
 
Payroll and related liabilities
   
(904,277
)
   
(13,001
)
   
281,361
 
Other liabilities
   
     
183
     
1,192
 
Net cash and cash equivalents used in operating activities
   
(2,532,767
)
   
(4,856,373
)
   
(39,214,984
)
                         
CASH FLOWS FROM INVESTING ACTIVITIES:
                       
Acquisition of intellectual technology license – fee portion
   
     
     
(20,000
)
Acquisition of equipment
   
     
     
(905,936
)
Excess of amounts paid for public shell over assets acquired to be accounted for as a recapitalization
   
     
     
(250,000
)
Proceeds from disposal of equipment
   
15,400
     
200,000
     
221,400
 
Net cash and cash equivalents provided by (used in) investing activities
   
15,400
     
200,000
     
(954,536
)
                         
CASH FLOWS FROM FINANCING ACTIVITIES:
                       
Proceeds from stock issuance, including options and warrants exercised
   
2,000,000
     
     
42,658,458
 
Principal payment on equipment notes payable and capital leases
   
     
     
(295,411
)
Contribution by shareholders
   
     
     
183,569
 
Principal payment on note payable to individuals
   
     
     
(225,717
)
Issuance of note payable to individuals
   
1,000,000
     
     
1,368,546
 
Acquisition of common stock
   
     
     
(400,000
)
  Net cash and cash equivalents provided by financing activities
   
3,000,000
     
     
43,289,445
 
                         
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
   
482,633
     
(4,656,373)
     
3,119,925
 
Cash and cash equivalents, beginning
   
2,637,292
     
8,442,809
     
 
Cash and cash equivalents, ending
 
$
3,119,925
   
$
3,786,436
   
$
3,119,925
 
                         
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
                       
Interest paid
 
$
   
$
   
$
66,770
 
Taxes paid
 
$
   
$
   
$
100
 
The accompanying notes are an integral part of these financial statements.

 
9

 

PROTALEX, INC.
(A Company in the Development Stage)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
From Inception (September 17, 1999) through February 28, 2010

NOTE 1. ORGANIZATION AND BUSINESS ACTIVITIES