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Document and Entity Information
6 Months Ended
Nov. 30, 2011
Jan. 12, 2012
Document Information [Line Items]
Document Type 10-Q
Amendment Flag false
Document Period End Date Nov 30, 2011
Document Fiscal Year Focus 2012
Document Fiscal Period Focus Q2
Trading Symbol PRTX
Entity Registrant Name PROTALEX INC
Entity Central Index Key 0001099215
Current Fiscal Year End Date --05-31
Entity Filer Category Smaller Reporting Company
Entity Common Stock, Shares Outstanding 18,926,615
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BALANCE SHEETS (USD $)
Nov. 30, 2011
May 31, 2011
CURRENT ASSETS:
Cash and cash equivalents $ 542,437 $ 1,542,025
Prepaid expenses 79,373 38,441
Total current assets 621,810 1,580,466
OTHER ASSETS:
Intellectual technology property, net of accumulated amortization of $11,283 and $11,028 as of November 30, 2011 and May 31, 2011, respectively 7,997 8,507
Total other assets 7,997 8,507
Total Assets 629,807 1,588,973
CURRENT LIABILITIES:
Accounts payable 182,861 182,861
Accrued expenses 448,630 253,311
Total current liabilities 631,491 436,172
LONG TERM LIABILITIES:
Senior Secured Convertible Note - net of debt discount - related party 1,128,925 660,975
Total liabilities 1,760,416 1,097,147
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, par value $0.00001, 1,000,000 shares authorized; none issued and outstanding      
Common stock, par value $0.00001, 100,000,000 shares authorized; 18,926,615 shares issued and outstanding, respectively 189 189
Additional paid in capital 52,013,284 51,501,872
Deficit accumulated during the development stage (53,144,082) (51,010,235)
Total stockholders' equity (deficit) (1,130,609) 491,826
Total liabilities and stockholders' equity (deficit) $ 629,807 $ 1,588,973
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BALANCE SHEETS (Parenthetical) (USD $)
Nov. 30, 2011
May 31, 2011
Intellectual technology property, accumulated amortization $ 11,283 $ 11,028
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 18,926,615 18,926,615
Common stock, shares outstanding 18,926,615 18,926,615
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STATEMENTS OF OPERATIONS (USD $)
3 Months Ended 6 Months Ended 146 Months Ended
Nov. 30, 2011
Nov. 30, 2010
Nov. 30, 2011
Nov. 30, 2010
Nov. 30, 2011
Revenues               
Operating Expenses
Research and development (including depreciation and amortization) 448,638 557,511 802,732 888,282 31,444,824
Administrative (including depreciation and amortization) 530,587 98,771 709,176 211,934 17,886,592
Professional fees 88,748 144,602 154,582 213,233 4,475,737
Depreciation and amortization 255 255 510 510 181,436
Operating loss (1,068,228) (801,139) (1,667,000) (1,313,959) (53,988,589)
Other income (expense)
Interest income 341 946 1,103 3,100 2,207,386
Interest expense (233,892) (51,061) (467,950) (102,372) (1,362,879)
Net loss $ (1,301,779) $ (851,254) $ (2,133,847) $ (1,413,231) $ (53,144,082)
Weighted average number of common shares outstanding 18,926,615 14,415,745 18,926,615 14,415,745
Loss per common share - basic and diluted $ (0.07) $ (0.06) $ (0.11) $ (0.1)
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STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (USD $)
3 Months Ended 6 Months Ended 9 Months Ended 12 Months Ended 146 Months Ended
Nov. 30, 2011
Nov. 30, 2011
May 31, 2000
May 31, 2011
May 31, 2010
May 31, 2009
May 31, 2008
May 31, 2007
May 31, 2006
May 31, 2005
May 31, 2004
May 31, 2003
May 31, 2002
May 31, 2001
Nov. 30, 2011
September 17, 1999 - initial issuance of 2,000 shares for intellectual technology license at $.15 per share $ 300
September 30, 1999 - cost of public shell acquisition over net assets acquired to be accounted for as a Recapitalization (250,000)
August 13, 2001 - Contribution by Stockholders 143,569
Record beneficial conversion value attached to senior secured convertible debt 1,616,667 521,793
Common Stock Issued 1,037,500 2,000,000 1,102,000 425,000
November 26, 2001 - options issued to board member 133,000
May 31, 2001 - Forgiveness of debt owed to stockholder 40,000
Purchase of common stock from stockholder (8,333) (91,667)
September 19, 2003 - repurchase and retired 598,961 shares for $300,000 (300,000)
Warrants exercised 300,374 786,538
June 1, 2006 - May 31, 2007 - stock options exercised 15,200
Net loss (1,301,779) (2,133,847) (250,689) (3,357,882) (3,067,842) (7,230,206) (10,490,758) (8,451,942) (6,104,402) (5,567,729) (2,989,364) (1,665,090) (1,280,465) (553,866) (53,144,082)
Ending Balance (1,130,609) (1,130,609) 346,655 491,826 1,070,819 1,281,127 7,758,065 17,237,798 9,329,595 8,606,813 8,996,388 243,570 355,893 257,789 (1,130,609)
Employee
November 30, 2004 - adjust March 1, 2004 common stock issued to employee (20,000)
Share based compensation 511,412
Board Members, Employees and Consultants
Compensation related to stock options issued 404,679 308,711 448,096 287,343
Share based compensation 753,268 1,011,025 1,826,850
Private Placement
Common Stock Issued 14,217,721
Employees and Debt Holders
Share based compensation 124,722 335,741
Issuance During Period 1st
Common Stock Issued 25,000 1,263,000
Issuance During Period 1st | President
Common Stock Issued 16,418
Issuance During Period 1st | Employee
Common Stock Issued 100,000 38,250
Issuance During Period 2nd
Common Stock Issued 165,400
Issuance During Period 2nd | President
Common Stock Issued 82,841
Issuance During Period 2nd | Employee
Common Stock Issued 25,000
Issuance During Period 2nd | Private Placement
Common Stock Issued 4,851,193 11,356,063
Issuance During Period 3rd | Legal Service
Common Stock Issued 15,000
Issuance During Period 3rd | Employee
Common Stock Issued 11,250
Issuance During Period 3rd | Private Placement
Common Stock Issued 5,510,967
Issuance During Period 3rd | Terminated Employee
Common Stock Issued 102,438
Issuance During Period 4th
Common Stock Issued 640,000
Issuance During Period 4th | Employee
Common Stock Issued 127,500
Issuance During Period 5th | Interest Due
Common Stock Issued 1,644
Common Stock
September 17, 1999 - initial issuance of 2,000 shares for intellectual technology license at $.15 per share (in shares) 2,000
September 17, 1999 - initial issuance of 2,000 shares for intellectual technology license at $.15 per share 300
November 15, 1999 - reverse merger transaction with Enerdyne Corporation, net transaction amounts (in shares) 1,794,493
November 15, 1999 - reverse merger transaction with Enerdyne Corporation, net transaction amounts 118,547
Common Stock Issued (in shares) 4,510,870 8,695,652 176,320 85,000
Common Stock Issued 45 87 1,102,000 425,000
Purchase of common stock from stockholder (in shares) (2,419) (26,191)
Purchase of common stock from stockholder (8,333) (91,667)
September 19, 2003 - repurchase and retired 598,961 shares for $300,000 (in shares) (598,961)
September 19, 2003 - repurchase and retired 598,961 shares for $300,000 (300,000)
May 31, 2004 - reclassify common stock contra to common stock (368,547)
February 28, 2005 - Reclass Par Value for Reincorporation into DE as of 12/1/04 (14,702,070)
Warrants exercised (in shares) 26,700 70,320
Warrants exercised 1
June 1, 2006 - May 31, 2007 - stock options exercised (in shares) 1,200
Ending Balance (in shares) 18,926,615 18,926,615 2,036,728 18,926,615 14,415,745 5,720,093 5,720,093 5,720,093 4,477,990 3,878,644 3,356,887 2,449,591 2,298,048 2,121,728 18,926,615
Ending Balance 189 189 965,891 189 144 57 57 57 45 39 14,683,854 3,758,315 2,492,891 1,390,891 189
Common Stock | Employee
November 30, 2004 - adjust March 1, 2004 common stock issued to employee (20,000)
Common Stock | Private Placement
Common Stock Issued (in shares) 1,214,203
Common Stock Issued 12
Common Stock | Issuance During Period 1st
Common Stock Issued (in shares) 17 168,400
Common Stock Issued 25,000 1,263,000
Common Stock | Issuance During Period 1st | President
Common Stock Issued (in shares) 1,667
Common Stock Issued 16,418
Common Stock | Issuance During Period 1st | Employee
Common Stock Issued (in shares) 8,000 3,000
Common Stock Issued 38,250
Common Stock | Issuance During Period 2nd
Common Stock Issued (in shares) 91,889
Common Stock Issued 165,400
Common Stock | Issuance During Period 2nd | President
Common Stock Issued (in shares) 8,334
Common Stock Issued 82,841
Common Stock | Issuance During Period 2nd | Employee
Common Stock Issued (in shares) 2,000
Common Stock | Issuance During Period 2nd | Private Placement
Common Stock Issued (in shares) 518,757 1,489,129
Common Stock Issued 5 11,356,063
Common Stock | Issuance During Period 3rd | Legal Service
Common Stock Issued (in shares) 20,000
Common Stock Issued 15,000
Common Stock | Issuance During Period 3rd | Employee
Common Stock Issued (in shares) 1,000
Common Stock Issued 11,250
Common Stock | Issuance During Period 3rd | Private Placement
Common Stock Issued (in shares) 519,026
Common Stock Issued 5
Common Stock | Issuance During Period 3rd | Terminated Employee
Common Stock Issued (in shares) 7,880
Common Stock Issued 102,438
Common Stock | Issuance During Period 4th
Common Stock Issued (in shares) 128,000
Common Stock Issued 640,000
Common Stock | Issuance During Period 4th | Employee
Common Stock Issued (in shares) 10,000
Common Stock Issued 127,500
Common Stock | Issuance During Period 5th | Interest Due
Common Stock Issued (in shares) 329
Common Stock Issued 1,644
Additional Paid in Capital
August 13, 2001 - Contribution by Stockholders 143,569
Record beneficial conversion value attached to senior secured convertible debt 1,616,667 521,793
Common Stock Issued 1,037,455 1,999,913
November 26, 2001 - options issued to board member 133,000
May 31, 2001 - Forgiveness of debt owed to stockholder 40,000
February 28, 2005 - Reclass Par Value for Reincorporation into DE as of 12/1/04 14,702,070
Warrants exercised 300,374 786,537
June 1, 2006 - May 31, 2007 - stock options exercised 15,200
Ending Balance 52,013,284 52,013,284 51,501,872 48,723,028 45,865,581 45,112,313 44,101,288 27,741,155 20,913,977 1,052,008 603,912 316,569 40,000 52,013,284
Additional Paid in Capital | Employee
Share based compensation 511,412
Additional Paid in Capital | Board Members, Employees and Consultants
Compensation related to stock options issued 404,679 308,711 448,096 287,343
Share based compensation 753,268 1,011,025 1,826,850
Additional Paid in Capital | Private Placement
Common Stock Issued 14,217,709
Additional Paid in Capital | Employees and Debt Holders
Share based compensation 124,722 335,741
Additional Paid in Capital | Issuance During Period 1st | Employee
Common Stock Issued 100,000
Additional Paid in Capital | Issuance During Period 2nd | Employee
Common Stock Issued 25,000
Additional Paid in Capital | Issuance During Period 2nd | Private Placement
Common Stock Issued 4,851,188
Additional Paid in Capital | Issuance During Period 3rd | Private Placement
Common Stock Issued 5,510,962
Common Stock- Contra
September 30, 1999 - cost of public shell acquisition over net assets acquired to be accounted for as a Recapitalization (250,000)
November 15, 1999 - reverse merger transaction with Enerdyne Corporation, net transaction amounts (118,547)
May 31, 2004 - reclassify common stock contra to common stock 368,547
Ending Balance (368,547) (368,547) (368,547) (368,547)
Deficit Accumulated During The Development Stage
Net loss (2,133,847) (250,689) (3,357,882) (3,067,842) (7,230,206) (10,490,758) (8,451,942) (6,104,402) (5,567,729) (2,989,364) (1,665,090) (1,280,465) (553,866)
Ending Balance $ (53,144,082) $ (53,144,082) $ (250,689) $ (51,010,235) $ (47,652,353) $ (44,584,511) $ (37,354,305) $ (26,863,547) $ (18,411,605) $ (12,307,203) $ (6,739,474) $ (3,750,110) $ (2,085,020) $ (804,555) $ (53,144,082)
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STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (Parenthetical) (USD $)
9 Months Ended 12 Months Ended 9 Months Ended 12 Months Ended 9 Months Ended 12 Months Ended 9 Months Ended 12 Months Ended 9 Months Ended 12 Months Ended 9 Months Ended
May 31, 2000
May 31, 2011
May 31, 2010
May 31, 2004
May 31, 2003
May 31, 2002
May 31, 2001
May 31, 2007
Private Placement
May 31, 2000
Issuance During Period 1st
May 31, 2003
Issuance During Period 1st
May 31, 2004
Issuance During Period 1st
President
May 31, 2006
Issuance During Period 1st
Employee
May 31, 2005
Issuance During Period 1st
Employee
May 31, 2000
Issuance During Period 2nd
May 31, 2003
Issuance During Period 2nd
President
May 31, 2006
Issuance During Period 2nd
Employee
May 31, 2005
Issuance During Period 2nd
Private Placement
May 31, 2004
Issuance During Period 2nd
Private Placement
May 31, 2000
Issuance During Period 3rd
Legal Service
May 31, 2003
Issuance During Period 3rd
Employee
May 31, 2006
Issuance During Period 3rd
Private Placement
May 31, 2004
Issuance During Period 3rd
Terminated Employee
May 31, 2000
Issuance During Period 4th
May 31, 2004
Issuance During Period 4th
Employee
May 31, 2000
Issuance During Period 5th
Interest Due
Common Stock issued, per share $ 0.15 $ 0.23 $ 6.25 $ 5 $ 12.5 $ 7.5 $ 12.75 $ 1.8 $ 9.75 $ 8.5 $ 11.25 $ 13 $ 5 $ 12.75
Common Stock issued, issuance start date Nov 18, 1999 Jan 15, 2003 May 1, 2000
Common Stock issued, issuance date Sep 17, 1999 Feb 11, 2011 Nov 11, 2009 Nov 7, 2001 Dec 7, 2000 Jul 7, 2006 Oct 27, 1999 Jul 5, 2002 Jun 15, 2003 Aug 23, 2005 Jan 13, 2005 Oct 19, 2005 May 25, 2005 Sep 18, 2003 Jan 1, 2000 May 14, 2003 Dec 30, 2005 Dec 12, 2003 Mar 1, 2004 May 27, 2000
Common Stock issued, issuance end date Feb 7, 2000 May 15, 2003 May 27, 2000
Common stock shares repurchased, per share $ 3.5
Common stock shares repurchased, start date Jul 1, 2002
Common stock shares repurchased, end date May 1, 2003
Common stock shares repurchased, date Jun 15, 2003
Common stock shares repurchased and retired, date Sep 19, 2003
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STATEMENTS OF CASH FLOWS (USD $)
6 Months Ended 146 Months Ended
Nov. 30, 2011
Nov. 30, 2010
Nov. 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,133,847) $ (1,413,231) $ (53,144,082)
Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities
(Gain) on disposal of equipment, net (81,544)
Depreciation and amortization 510 510 1,036,089
Equity based expense 979,363 102,374 7,837,215
(Increase)/decrease in:
Prepaid expenses and deposits (40,932) (32,243) (87,363)
Increase/(decrease) in:
Accounts payable and accrued expenses 195,318 (58,724) 631,488
Payroll and related liabilities (156,994)
Net cash and cash equivalents used in operating activities (999,588) (1,558,308) (43,808,197)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of intellectual technology license - fee portion (20,000)
Refund of security deposits 7,990
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 229,135
Net cash and cash equivalents used in investing activities (938,811)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock issuance, including options and warrants exercised 42,658,458
Principal payment on equipment notes payable and capital leases (295,411)
Contribution by stockholders 183,569
Principal payment on note payable to individuals (225,717)
Issuance of note payable to individuals 3,368,546
Acquisition of common stock (400,000)
Net cash and cash equivalents provided by financing activities 45,289,445
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (999,588) (1,558,308) 542,437
Cash and cash equivalents, beginning of period 1,542,025 2,350,084
Cash and cash equivalents, ending of period 542,437 791,776 542,437
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Interest paid 66,770
Taxes paid 100
NON-CASH FINANCING ACTIVITIES:
Conversion of debt for equity $ 1,037,500
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ORGANIZATION AND BUSINESS ACTIVITIES
6 Months Ended
Nov. 30, 2011
ORGANIZATION AND BUSINESS ACTIVITIES
NOTE 1. ORGANIZATION AND BUSINESS ACTIVITIES

Protalex, Inc., a Delaware corporation, (“we,” “us,” “our,” the “Company” or “its”) is a development stage company which has been engaged in developing a class of biopharmaceutical drugs for treating autoimmune inflammatory diseases.  Our lead product, PRTX-100, is formulated with highly-purified staphylococcal protein A, which is an immune modulating protein produced by bacteria.  The Company does not anticipate generating operating revenue for the foreseeable future.

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 that we would see in future human clinical trials. The safety, tolerability, and pharmacokinetics (“PK”) of PRTX-100 in humans have now been characterized in three clinical studies.  In August 2010, the Company commenced a multi-center Phase 1b clinical trial of PRTX-100 in South Africa on adult patients with active rheumatoid arthritis (RA) and dosed its first patient enrolled in the study (the “RA Study”).  The RA Study, which is a proof of concept study to evaluate safety and potential efficacy of PRTX-100 in patients with active RA, enrolled a total of 37 patients in Part A in four dose escalating cohorts with dosing completed in December 2011.  Patients in the fourth cohort were administered a dose that was increased by a factor of 0.67 times from the third cohort.  We currently have no products on the market.

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 following the change in control transaction more fully described below.  The Company is currently actively pursuing the commercial development of PRTX-100 for the treatment of RA.

The Company maintains an administrative office in Summit, 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.

On December 8, 2010, the Company effected a reverse stock split of the outstanding shares of its common stock, with par value of $0.00001 per share (“Common Stock”), on the basis of one share of Common Stock for each five shares of Common Stock outstanding.  Unless otherwise noted, all references in these financial statements and notes to financial statements to number of shares, price per share and weighted average number of shares outstanding of Common Stock prior to this reverse stock split have been adjusted to reflect the reverse stock split on a retroactive basis.
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CHANGE OF OWNERSHIP TRANSACTION
6 Months Ended
Nov. 30, 2011
CHANGE OF OWNERSHIP TRANSACTION
NOTE 2. CHANGE OF OWNERSHIP TRANSACTION

On November 11, 2009 (the “Effective Date”), we consummated a financing transaction in which we raised $3,000,000 of additional working capital pursuant to a Securities Purchase Agreement (the “Purchase Agreement”) with Niobe Ventures, LLC, a Delaware limited liability company (the “Financing”).  Pursuant to the Purchase Agreement, we issued to Niobe Ventures, LLC (the “Investor” or “Niobe”), (i) 8,695,652 restricted shares of our Common Stock at a purchase price of $0.23 per share (or $2 million in the aggregate) and (ii) a senior secured convertible promissory note in the principal amount of $1 million convertible into shares of our Common Stock at an initial conversion price equal to $0.23 per share (the “$1 Million Secured Note”).  On February 11, 2011, Niobe converted the $1 Million Secured Note, including $37,500 of accrued interest thereon, into 4,510,870 shares of our Common Stock.

For the purpose of providing the Company with additional working capital, on February 11, 2011, pursuant to a Credit Facility Agreement dated as of December 2, 2009 (the “Facility”) between the Company and Niobe, the Company issued to Niobe a senior secured convertible promissory note in the principal amount of $2 million (the “$2 Million Secured Note”).  The $2 Million Secured Note is convertible into shares of Common Stock at a conversion price equal to $0.23 per share, for an aggregate of 8,695,652 shares of Common Stock (net of accrued interest thereon), bears interest at a rate of 3% per annum and matures on December 31, 2012.


Our obligations under the $2 Million Secured Note are secured by an Amended Security Agreement (as defined in Note 8, below) which granted Niobe a security interest in substantially all of our personal property and assets, including our intellectual property.  The $2 Million Secured Note is convertible at any time, by the holder, subject only to the requirement that we have sufficient authorized shares of Common Stock after taking into account all outstanding shares of Common Stock and the maximum number of shares issuable under all issued and outstanding convertible securities.  In addition, the $2 Million Secured Note will automatically be converted if we undertake certain Fundamental Transactions, as defined in the $2 Million Secured Note, (such as a merger, sale of all of our assets, exchange or tender offer, or reclassification of our stock or compulsory exchange).  The $2 Million Secured Note also provides for the adjustment of the conversion price in the event of stock dividends and stock splits, and provides for acceleration of maturity, at the holder’s option, upon an event of default, as defined in the $2 Million Secured Note.

As contemplated by the Purchase Agreement, all of our executive officers and all of the members of our Board of Directors (the “Board”) prior to the closing of the Financing, with the exception of Frank M. Dougherty, resigned effective concurrently with the closing of the Financing.  Mr. Dougherty resigned effective upon the expiration of the 10-day notice period required by Rule 14f-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  In addition, effective upon the closing of the Financing, our Board appointed Arnold P. Kling as a director and then elected him as president and elected Kirk M. Warshaw as chief financial officer and secretary of the Company.

In addition, on the Effective Date, we terminated (i) the Investor Rights Agreement dated September 18, 2003 among us, vSpring SBIC L.P. (“vSpring”) and certain of the investors set forth on Schedule A thereto (the “2003 IRA”) and the Registration Rights Agreement dated May 25, 2005 among us, vSpring and certain of the investors set forth on Schedule I thereto (the “2005 RRA”) in accordance with their respective terms and (ii) stock options exercisable for an aggregate of 246,714 shares of our Common Stock (approximately 41% of our then outstanding stock options), all of which were held by three option holders, Steven H. Kane, our former CEO (“Kane”), Marc L. Rose, our former CFO (“Rose”) and vSpring.

The securities issued in the Financing were issued in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Act”) pursuant to Section 4(6) and Rule 506 of Regulation D thereof.  The offer, sale and issuance of such securities were made without general solicitation or advertising.  The securities were offered and issued only to “accredited investors” as such term is defined in Rule 501 under the Act.
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GOING CONCERN
6 Months Ended
Nov. 30, 2011
GOING CONCERN
NOTE 3. 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 are regulatory approved and market accepted. 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.

Since inception, the Company has incurred an accumulated deficit of $53,144,082 through November 30, 2011. For the years ended May 31, 2011 and 2010, the Company had net losses of $3,357,882 and $3,067,842, respectively and for the six months ended November 30, 2011, the Company had a net loss of $2,133,847.  The Company has used $2,808,059 and $3,318,333 of cash in operating activities for the years ended May 31 2010 and 2010, respectively and $999,588 during the six months ended November 30, 2011.  As of November 30, 2011, the Company had cash and cash equivalents of $542,437 and a net working capital deficit of $9,681.  The Company has incurred negative cash flow from operating activities since its inception.   The Company has spent, and subject to obtaining additional financing, expects to continue to spend, substantial amounts in connection with executing its business strategy, including continued development efforts relating to PRTX-100.

The Company has no significant payments due on long-term obligations.  However, the Company anticipates entering into significant contracts to perform product manufacturing and clinical trials in fiscal year 2012 and that it will need to raise additional capital in the future to fund the ongoing FDA approval process. If the Company is unable to obtain approval of its future IND applications or otherwise advance in the FDA approval process, its ability to sustain its operations would be significantly jeopardized.

 
The most likely sources of additional financing include the private sale of the Company’s equity or debt securities or loans from majority stockholders. Additional capital that is required by the Company may not be available on reasonable terms, or at all.
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BASIS OF PRESENTATION
6 Months Ended
Nov. 30, 2011
BASIS OF PRESENTATION
NOTE 4. BASIS OF PRESENTATION

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 Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America 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, 2011. This quarterly report should be read in conjunction with our annual report.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
6 Months Ended
Nov. 30, 2011
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NOTE 5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 60 days or less to be cash and cash equivalents. The cash and cash equivalent deposits are not insured by The Federal Deposit Insurance Corporation.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenues and expense, and the disclosure of contingent assets and liabilities. Estimated amounts could differ materially 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 November 30, 2011 the Company had potentially dilutive securities consisting of 2,288,927 stock options.  As of November 30, 2010, the Company had potentially dilutive securities consisting of warrants and stock options totaling 2,080,682 comprised of 601,755 warrants and 1,478,927 stock options.


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” using the modified prospective method.  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.  Under the modified prospective method, $75,859 and $0 compensation cost is included in operating expenses for the three months ended November 30, 2011 and 2010 , respectively.   These amounts included both the compensation cost of stock options granted prior to but not yet vested as of June 1, 2006 and compensation cost for all options granted subsequent to May 31, 2006.  In accordance with the modified prospective application transition method, prior period results are not restated.  Incremental compensation cost for a modification of the terms or conditions of an award is measured by comparing the fair value of the modified award with the fair value of the award immediately before the modification.  No tax benefit was recorded as of May 31, 2010 in connection with these compensation costs due to the uncertainty regarding ultimate realization of certain net operating loss carryforwards.  The Company has also implemented the SEC interpretations in Staff Accounting Bulletin (“SAB”) for “Share-Based Payments”, in connection with the adoption of FASB accounting guidance.

The Board of Directors adopted and the stockholders approved the 2003 Stock Option Plan on October 2003 and it was amended in October 2005. The plan was adopted to recognize the contributions made by the Company’s employees, officers, consultants, and directors, to provide those individuals with additional incentive to devote themselves to the Company’s future success, and to improve the Company’s ability to attract, retain and motivate individuals upon whom the Company’s growth and financial success depends. Under the plan, stock options may be granted as approved by the Board of Directors or the Compensation Committee. There are 900,000 shares reserved for grants of options under the plan, of which 88,800 have been issued and 800 were exercised. The Company has issued 271,784 stock options as standalone grants, of which 400 were exercised. Stock options vest pursuant to individual stock option agreements. No options granted under the plan are exercisable after the expiration of ten years (or less in the discretion of the Board of Directors or the Compensation Committee) from the date of the grant. The plan will continue in effect until terminated or amended by the Board of Directors.

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. The expected term or life of stock options granted issued represents the expected weighted average period of time from the date of grant to the estimated date that the stock option would be fully exercised. The weighted average expected option term was determined using a combination of the “simplified method” for plain vanilla options as allowed by the accounting guidance. The “simplified method” calculates the expected term as the average of the vesting term and original contractual term of the options.

Expected Volatility. Expected volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate. Expected volatility is based on the historical daily volatility of the price of our common shares. The Company estimated the expected volatility of the stock options at grant date.

Risk-Free Interest Rate. The risk-free interest rate is based on the implied yield on U.S. Treasury zero-coupon issues with remaining terms equivalent to the expected term of our stock-based awards.

As of November 30, 2011, there were 2,288,927 stock options outstanding.  At November 30, 2011, the aggregate unrecognized compensation cost of unvested options, as determined using a Black-Scholes option valuation model was approximately $633,081 (net of estimated forfeitures) will be recognized ratably through December 31, 2012.  The remaining amount of options will be valued once they vest upon the future events.  During the six months ended November 30, 2011, the Company granted 750,000 stock options and no options were forfeited or expired.

 
The fair value of the options is estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions:

   
Six Months Ended
November 30, 2011
   
Six Months Ended
November 30, 2010
   
From Inception
Through
November 30, 2011
 
Dividends per year
    0       0       0  
Volatility percentage
    97.5 %     97.5 %     90%-112 %
Risk free interest rate
    3.47 %     3.47 %     2.07%-5.11 %
Expected life (years)
    5.0-10.0       5.0-9.0       3-10  
Weighted Average Fair Value
  $ 1.32     $ .45     $ 2.48  
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RECENT ACCOUNTING PRONOUNCEMENTS
6 Months Ended
Nov. 30, 2011
RECENT ACCOUNTING PRONOUNCEMENTS
NOTE 6. 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.
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RELATED PARTIES
6 Months Ended
Nov. 30, 2011
RELATED PARTIES
NOTE 7. RELATED PARTIES

Niobe, our majority stockholder and the holder of our $2 Million Secured Note, is controlled by Arnold P. Kling, our president and director.

During the year ended May 31, 2010, the Company issued an aggregate of 950,543 options to John Doherty, one of our directors, and Kirk M. Warshaw, our chief financial officer and director.  During the six months ended November 30, 2011, the Company issued an aggregate of 450,000 options to John Doherty, one of our directors, and Kirk M. Warshaw, our chief financial officer and director

The Company’s principal offices are located at 133 Summit Avenue, Suite 22, Summit, New Jersey which are owned by Kirk M. Warshaw, LLC (the “LLC”), an affiliated company of Kirk Warshaw, the Company’s chief financial officer.  The Company occupies its principal offices on a month to month basis.  On March 1, 2010, it began paying a monthly fee of $500 to the LLC for the use and occupancy, and administrative services, related to its principal offices.
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SENIOR SECURED CONVERTIBLE NOTES - RELATED PARTY
6 Months Ended
Nov. 30, 2011
SENIOR SECURED CONVERTIBLE NOTES - RELATED PARTY
NOTE 8. SENIOR SECURED CONVERTIBLE NOTES - RELATED PARTY

On the Effective Date, the Company issued the $1 Million Secured Note to Niobe, its majority stockholder which is controlled by Arnold P. Kling, our president and director.  The $1 Million Secured Note bore interest at a rate of 3% per annum and had a scheduled  maturity on November 13, 2012.  Our obligations under the $1 Million Secured Note were secured by a Security Agreement dated the Effective Date (the “Security Agreement”) which granted Niobe a security interest in substantially all of our personal property and assets, including our intellectual property.  On February 11, 2011, Niobe converted the $1 Million Secured Note, including $37,500 of accrued interest thereon, into 4,510,870 shares of our Common Stock.

The Company evaluated the conversion feature of the $1 Million Secured Note and determined that under the accounting guidance for “Accounting for Convertible Securities with Beneficial Conversion Features” that a value should be attributed to the embedded conversion feature.  On the date of issuance of the Secured Note, the fair market value of the Company’s Common Stock was $0.35 per share.  The Company determined the allocation to the conversion feature to be $521,793 which reduced the face amount of the convertible debt carried on our balance sheet.


On December 2, 2009, the Company entered into the Facility with Niobe pursuant to which Niobe agreed to provide up to $2.0 million of additional capital in the form of secured loans at any time prior to June 30, 2012 subject to the achievement of certain predetermined benchmarks.  In connection with the Facility, on December 2, 2009, the Security Agreement securing our obligations under the $1 Million Secured Note was amended and restated to also secure any incremental obligations under the Facility (the “Amended Security Agreement”).  Pursuant to the Amended Security Agreement, Niobe has a security interest in substantially all of our personal property and assets, including its intellectual property to collateralize all amounts due to it under the $1 Million Secured Note and the Facility.

Pursuant to the Facility, on February 11, 2011, we received $2 million of additional working capital from Niobe and issued the $2 Million Secured Note to Niobe.  The $2 Million Secured Note bears interest at a rate of 3% per annum and matures on December 31, 2012.

Our obligations under the $2 Million Secured Note are secured by an Amended Security Agreement.  The $2 Million Secured Note is convertible at any time, by the holder, subject only to the requirement that we have sufficient authorized shares of Common Stock after taking into account all outstanding shares of Common Stock and the maximum number of shares issuable under all issued and outstanding convertible securities.  In addition, the $2 Million Secured Note will automatically be converted if we undertake certain Fundamental Transactions, as defined in the $2 Million Secured Note, (such as a merger, sale of all of our assets, exchange or tender offer, or reclassification of our stock or compulsory exchange).  The $2 Million Secured Note also provides for the adjustment of the conversion price in the event of stock dividends and stock splits, and provides for acceleration of maturity, at the holder’s option, upon an event of default, as defined in the $2 Million Secured Note.

The Company evaluated the conversion feature of the $2 Million Secured Note and determined that under the accounting guidance for “Accounting for Convertible Securities with Beneficial Conversion Features” that a value should be attributed to the embedded conversion feature.  On February 11, 2011, the date of issuance of the $2 million Secured Note, the fair market value of the Company’s Common Stock was $1.20 per share.  The Company determined the allocation to the conversion feature to be $1,616,667 which reduced the face amount of the convertible debt carried on our balance sheet.  This discount will be amortized over 22 months and will serve to increase the interest expense of the $2 Million Secured Note during its term.
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SUBSEQUENT EVENTS
6 Months Ended
Nov. 30, 2011
SUBSEQUENT EVENTS
NOTE 9. SUBSEQUENT EVENTS

The Company has evaluated subsequent events and has determined that there were no other subsequent events to recognize or disclose in these financial statements.
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