Form 10-QSB
[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
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITES EXCHANGE
ACT OF 1934
For the quarterly period ended August 31, 2000
[ ] 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.
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(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) 260-1726
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(Issuer's telephone number)
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(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: Common Stock, no par value 10,183,635
as of October 12, 2000
Transitional Small Business Disclosure Format (check one):
Yes No X
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Protalex, Inc.
(A Company in the Development Stage)
BALANCE SHEET
(Unaudited)
August 31, 2000
ASSETS
CURRENT ASSETS
Cash, including certificate of deposit ........... $343,585
Prepaid expense .................................. 500
--------
Total current assets ...................... $344,085
EQUIPMENT
Lab equipment .................................... 129,922
Office and computer equipment .................... 92,099
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222,021
Less accumulated depreciation .................... 21,115 200,906
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OTHER ASSETS
Intellectual technology license, net of
accumulated amortization of $593 ............... 19,707 19,707
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$564,698
========
The accompanying notes are an integral part of this financial statement.
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LIABILITIES
CURRENT LIABILITIES
Professional fees payable ......................... $ 17,491
Payroll taxes payable ............................. 1,837
Interest payable .................................. 4,057
Current maturities of long-term liabilities ....... 22,764
Related party advance and license fee payable ..... 40,000
Accrued compensation .............................. 5,120
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Total current liabilities .................. $ 91,269
LONG-TERM LIABILITIES, less current maturities
Note payable to individual ........................ 185,330
Equipment note payable ............................ 64,367 249,697
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Total liabilities .......................... 340,966
STOCKHOLDERS' DEFICIT
Common stock, no par value, authorized
40,000,000 shares, 10,422,135 shares
issued, 10,183,635 shares outstanding ...........
238,500 shares in the treasury at
-0- cost ........................................ 965,891
Common stock, contra .............................. (368,547)
Deficit accumulated during the
development stage ............................... (373,612) 223,732
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$ 564,698
=========
The accompanying notes are an integral part of this financial statement.
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Protalex, Inc.
(A Company in the Development Stage)
STATEMENT OF OPERATIONS
(Unaudited)
For the Three Month Period Ended August
31, 2000 and from Inception (September 17,
1999) through August 31, 2000
From Inception
Period Ended Through
August 31, 2000 August 31, 2000
--------------- ---------------
Interest income .......................... $ 3,863 $ 14,531
Expenses
Development ............................ 71,958 195,448
Professional fees ...................... 20,892 98,412
Administrative ......................... 12,452 40,265
Interest ............................... 6,319 32,310
Depreciation and amortization .......... 15,164 21,707
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NET LOSS ........................ $ (122,922) $ (373,611)
============ ============
Loss per common share - Basic ............ $ (.01) $ (.04)
============ ============
Loss per common share - Diluted .......... $ (.01) $ (.04)
============ ============
Shares used in per-share
calculation - basic .................... 10,183,635 9,489,380
============ ============
Shares used in per-share
calculation - diluted .................. 10,213,065 9,568,093
============ ============
The accompanying notes are an integral part of this financial statement.
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Protalex, Inc.
(A Company in the Development Stage)
STATEMENT OF CASH FLOWS
(Unaudited)
For the Three Month Period Ended August
31, 2000 and from Inception (September 17,
1999) through August 31, 2000
From
Inception
Period Ended Through
August 31, August 31,
2000 2000
--------- ---------
Cash flows from operating activities
Net loss ........................................... $(122,922) $(373,611)
Adjustments to reconcile net loss to net
cash used by operating activities
Depreciation and amortization .................. 15,164 21,707
Non cash expenses .............................. -- 16,644
Decrease in interest receivable ................ 10,669 --
(Increase) in prepaid expense .................. -- (500)
Increase in payroll taxes payable .............. 1,061 1,836
(Decrease) increase in interest payable ........ (3,705) 4,057
Increase in professional fees payable .......... 9,709 17,490
Increase in compensation payable ............... -- 5,120
Increase in related party advance
and licenses fee payable ...................... -- 40,000
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Net cash used in operating activities ....... (90,024) (267,257)
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Cash flows from investing activities
Acquisition of intellectual technology license
- fee portion .................................... -- (20,000)
Acquisition of equipment ........................... (57,910) (130,589)
Excess of amounts paid for Public Shell
over assets acquired to be accounted for
as a recapitalization ............................ -- (250,000)
Reduction of note receivable from individual ....... 118,547 --
Issuance of note payable to individual ............. -- 368,546
Payment on note payable to individual .............. (183,216) (183,216)
Payment on equipment note payable .................. (4,299) (4,299)
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Net cash used in investing activities ....... (126,878) (219,558)
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Cash flows from financing activities
Proceeds from stock issuance ....................... -- 830,400
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Net cash provided by financing activities ... -- 830,400
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NET (DECREASE) INCREASE IN CASH ...................... (216,902) 343,585
Cash, beginning of period ............................ 560,487 --
--------- ---------
Cash, end of period .................................. $ 343,585 $ 343,585
========= =========
The accompanying notes are an integral part of this financial statement.
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Protalex, Inc.
(A Company in the Development Stage)
STATEMENT OF CASH FLOWS -CONTINUED
(Unaudited)
For the Three Month Period Ended August
31, 2000 and from Inception (September 17,
1999) through August 31, 2000
From Inception
Period Ended Through
August 31, 2000 August 31, 2000
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Interest paid ................................ $ 10,024 $ 26,609
============= =============
Taxes paid ................................... $ -- $ --
============= =============
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.
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Protalex, Inc.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
From Inception (September 17, 1999) through August 31, 2000
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, 2000
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
Loss per common share is computed by dividing loss to common shareholders by
the weighted average number of common shares outstanding for the period.
Diluted loss per share assumes the exercise of outstanding stock options.
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<PAGE>
Protalex, Inc.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
From Inception (September 17, 1999) through August 31, 2000
NOTE D - COMPARABLES
The Company was incorporated on September 17, 1999. Therefore there are no
comparable prior periods to present on the statement of operations and cash
flows.
NOTE E - STOCK OPTIONS
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. The options are "stand alone" options. There is no Company stock
option plan currently.
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. $5,120 of compensation expense was recorded on the Company
books at August 31, 2000 to reflect an estimated portion of the options
awarded for past services of certain individuals and corporate associate. An
additional $20,420 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.
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<PAGE>
ITEM 2 - PROTALEX INC. - MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company is a development stage enterprise. Its operating plan is to proceed
with all necessary developmental efforts necessary to bring its bio-regulator
technology to market.
The Company's principal activities presently consist of continued laboratory
work on its bio-regulator technology and ongoing animal studies. In May of this
year the Company completed its planned private placement of its common stock,
raising approximately $640,000. The majority of these funds will go toward the
Company's development efforts, both in the laboratory and through animal
studies. Approximately one-third of these funds will go to the animal studies.
Significantly less money will be spent on the in vitro or laboratory effort.
Related to its overall pharmaceutical development, the Company has entered into
an installment purchase agreement for an automated cell sorter. The remaining
funds will go to professional services, the repayment of debt and a smaller part
for computers and administration. Computer equipment totaling $49,427 was
acquired during the three months ended August 31, 2000. The Company has averaged
outlays of approximately $30,000 per month and estimates that after a private
placement of approximately $350,000 in early November 2000 it will have cash
reserves to fund operations for the next twelve months. The Company has spent
approximately $195,000 on development efforts through August 31, 2000.
In the longer term, the Company will continue to need to raise substantially
more capital. Based on the most recent discussions with FDA consultants and
possible funding sources, the Company has revised this amount to be in the
$15,000,000 to $20,000,000 range, which would probably take the form of a public
offering of common stock. This financing would primarily be devoted to the
Company's human clinical trials. The Company does not expect any revenues to be
generated by operations during this period of time.
Management believes that even at this relatively early stage, the animal studies
support the Company's earlier work and extend the application of the
bio-regulator to a much more complex whole animal model. Alex LLC, the company
that has licensed exclusively and in perpetuity its bio-regulator technology to
the Company for the treatment of arthritis, will delay patent filings until
after the first animal study concludes in late October or early November.
Management agrees that this will allow for more comprehensive and defensible
patent coverage, which in turn will result in a more valuable license for the
Company.
Please refer to the Company's 10-KSB filing for its most recent year-end, May
31, 2000 (filed August 25, 2000) for more information on the Company's business
concept, development stage status, intellectual technology and risk factors.
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ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
6.1 Index of Exhibits.
Exhibit
Number Exhibit Name
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27 Financial Data Schedule
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: October 13, 2000 BY: John E. Doherty
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John E. Doherty
President and Director,
Principal Financial Officer
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