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Document and Entity Information (USD $)
12 Months Ended
May 31, 2012
Aug. 24, 2012
Nov. 30, 2011
Document Information [Line Items]
Document Type 10-K
Amendment Flag false
Document Period End Date May 31, 2012
Document Fiscal Year Focus 2012
Document Fiscal Period Focus FY
Trading Symbol PRTX
Entity Registrant Name PROTALEX INC
Entity Central Index Key 0001099215
Current Fiscal Year End Date --05-31
Entity Well-known Seasoned Issuer No
Entity Current Reporting Status Yes
Entity Voluntary Filers No
Entity Filer Category Smaller Reporting Company
Entity Common Stock, Shares Outstanding 18,926,615
Entity Public Float $ 6,400,000
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BALANCE SHEETS (USD $)
May 31, 2012
May 31, 2011
CURRENT ASSETS:
Cash and cash equivalents $ 190,395 $ 1,542,025
Prepaid expenses 42,679 38,441
Total current assets 233,074 1,580,466
OTHER ASSETS:
Intellectual technology property, net of accumulated amortization of $12,048 and $11,028 as of May 31, 2012 and May 31, 2011, respectively 7,487 8,507
Total other assets 7,487 8,507
Total Assets 240,561 1,588,973
CURRENT LIABILITIES:
Accounts payable 182,861 182,861
Accrued expenses 576,733 253,311
Current portion - long term debt 1,594,498 0
Total current liabilities 2,354,092 436,172
LONG TERM LIABILITIES:
Senior Secured Note - related party 1,000,000 0
Total liabilities 3,364,175 1,097,147
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, par value $0.00001, 1,000,000 shares authorized; none issued and outstanding 0 0
Common stock, par value $0.00001, 100,000,000 shares authorized; 18,926,615 and 18,926,615 shares issued and outstanding, respectively 189 189
Additional paid in capital 52,331,016 51,501,872
Deficit accumulated during the development stage (55,454,819) (51,010,235)
Total stockholders' equity (deficit) (3,123,614) 491,826
Total liabilities and stockholders' equity (deficit) 240,561 1,588,973
Accrued Interest
LONG TERM LIABILITIES:
Senior Secured Note - related party 10,083 0
Convertible Note
LONG TERM LIABILITIES:
Senior Secured Note - related party $ 0 $ 660,975
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BALANCE SHEETS (Parenthetical) (USD $)
May 31, 2012
May 31, 2011
Intellectual technology property, accumulated amortization $ 12,048 $ 11,028
Preferred stock, par value $ 0.00001 $ 0.00001
Preferred stock, shares authorized 1,000,000 1,000,000
Preferred stock, shares issued      
Preferred stock, shares outstanding      
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 $)
12 Months Ended 152 Months Ended
May 31, 2012
May 31, 2011
May 31, 2012
Revenues $ 0 $ 0 $ 0
Operating Expenses
Research and development (including depreciation and amortization) 1,900,001 1,597,257 32,542,093
Administrative (including depreciation and amortization) 1,291,867 594,314 18,469,283
Professional fees 309,696 446,073 4,630,851
Depreciation and amortization 1,020 1,020 181,946
Operating loss (3,502,584) (2,638,664) (55,824,173)
Other income (expense)
Interest income 1,607 4,861 2,207,890
Interest expense (943,607) (724,079) (1,838,536)
Net loss $ (4,444,584) $ (3,357,882) $ (55,454,819)
Weighted average number of common shares outstanding 18,926,615 15,766,527
Loss per common share - basic and diluted $ (0.23) $ (0.22)
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STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (USD $)
9 Months Ended 12 Months Ended 152 Months Ended
May 31, 2000
May 31, 2012
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
May 31, 2012
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)
November 15, 1999 - reverse merger transaction with Enerdyne Corporation, net transaction amounts 0
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)
May 31, 2004 - reclassify common stock contra to common stock 0
February 28, 2005 - Reclass Par Value for Reincorporation into DE as of 12/1/04 0
Warrants exercised 300,374 786,538
June 1, 2006 - May 31, 2007 - stock options exercised 15,200
Net loss (250,689) (4,444,584) (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) (55,454,819)
Ending Balance 346,655 (3,123,614) 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 (3,123,614)
Employee
November 30, 2004 - adjust March 1, 2004 common stock issued to employee (20,000)
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 829,144 124,722 335,741
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
September 30, 1999 - cost of public shell acquisition over net assets acquired to be accounted for as a Recapitalization (in shares) 0
September 30, 1999 - cost of public shell acquisition over net assets acquired to be accounted for as a Recapitalization 0
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
August 13, 2001 - Contribution by Stockholders (in shares) 0
August 13, 2001 - Contribution by Stockholders 0
Record beneficial conversion value attached to senior secured convertible debt 0 0
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)
November 26, 2001 - options issued to board member 0
May 31, 2001 - Forgiveness of debt owed to stockholder (in shares) 0
May 31, 2001 - Forgiveness of debt owed to stockholder 0
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 (in shares) 0
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 0 1
June 1, 2006 - May 31, 2007 - stock options exercised (in shares) 1,200
June 1, 2006 - May 31, 2007 - stock options exercised 0
Net loss 0 0
Ending Balance (in shares) 2,036,728 18,926,615 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 965,891 189 189 144 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 (in shares) 0
November 30, 2004 - adjust March 1, 2004 common stock issued to employee (20,000)
Common Stock | Board Members, Employees and Consultants
Share based compensation (in shares) 0 0 0
Compensation related to stock options issued 0 0 0 0
Share based compensation 0 0 0
Common Stock | Private Placement
Common Stock Issued (in shares) 1,214,203
Common Stock Issued 12
Common Stock | Employees and Debt Holders
Share based compensation (in shares) 0 0 0
Share based compensation 0 0 0
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 0 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 Issued 0
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
September 17, 1999 - initial issuance of 2,000 shares for intellectual technology license at $.15 per share 0
September 30, 1999 - cost of public shell acquisition over net assets acquired to be accounted for as a Recapitalization 0
November 15, 1999 - reverse merger transaction with Enerdyne Corporation, net transaction amounts 0
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 0 0
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 0 0
September 19, 2003 - repurchase and retired 598,961 shares for $300,000 0
May 31, 2004 - reclassify common stock contra to common stock 0
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
Net loss 0 0
Ending Balance 0 52,331,016 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 52,331,016
Additional Paid in Capital | Employee
November 30, 2004 - adjust March 1, 2004 common stock issued to employee 0
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 829,144 124,722 335,741
Additional Paid in Capital | Issuance During Period 1st
Common Stock Issued 0 0
Additional Paid in Capital | Issuance During Period 1st | President
Common Stock Issued 0
Additional Paid in Capital | Issuance During Period 1st | Employee
Common Stock Issued 100,000 0
Additional Paid in Capital | Issuance During Period 2nd
Common Stock Issued 0
Additional Paid in Capital | Issuance During Period 2nd | President
Common Stock Issued 0
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 0
Additional Paid in Capital | Issuance During Period 3rd | Legal Service
Common Stock Issued 0
Additional Paid in Capital | Issuance During Period 3rd | Employee
Common Stock Issued 0
Additional Paid in Capital | Issuance During Period 3rd | Private Placement
Common Stock Issued 5,510,962
Additional Paid in Capital | Issuance During Period 3rd | Terminated Employee
Common Stock Issued 0
Additional Paid in Capital | Issuance During Period 4th
Common Stock Issued 0
Additional Paid in Capital | Issuance During Period 4th | Employee
Common Stock Issued 0
Additional Paid in Capital | Issuance During Period 5th | Interest Due
Common Stock Issued 0
Common Stock- Contra
September 17, 1999 - initial issuance of 2,000 shares for intellectual technology license at $.15 per share 0
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)
August 13, 2001 - Contribution by Stockholders 0
Record beneficial conversion value attached to senior secured convertible debt 0 0
Common Stock Issued 0 0 0 0
November 26, 2001 - options issued to board member 0
May 31, 2001 - Forgiveness of debt owed to stockholder 0
Purchase of common stock from stockholder 0 0
September 19, 2003 - repurchase and retired 598,961 shares for $300,000 0
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 0
Warrants exercised 0 0
June 1, 2006 - May 31, 2007 - stock options exercised 0
Net loss 0 0
Ending Balance (368,547) 0 0 0 0 0 0 0 0 0 (368,547) (368,547) (368,547) 0
Common Stock- Contra | Employee
November 30, 2004 - adjust March 1, 2004 common stock issued to employee 0
Common Stock- Contra | Board Members, Employees and Consultants
Compensation related to stock options issued 0 0 0 0
Share based compensation 0 0 0
Common Stock- Contra | Private Placement
Common Stock Issued 0
Common Stock- Contra | Employees and Debt Holders
Share based compensation 0 0 0
Common Stock- Contra | Issuance During Period 1st
Common Stock Issued 0 0
Common Stock- Contra | Issuance During Period 1st | President
Common Stock Issued 0
Common Stock- Contra | Issuance During Period 1st | Employee
Common Stock Issued 0 0
Common Stock- Contra | Issuance During Period 2nd
Common Stock Issued 0
Common Stock- Contra | Issuance During Period 2nd | President
Common Stock Issued 0
Common Stock- Contra | Issuance During Period 2nd | Employee
Common Stock Issued 0
Common Stock- Contra | Issuance During Period 2nd | Private Placement
Common Stock Issued 0 0
Common Stock- Contra | Issuance During Period 3rd | Legal Service
Common Stock Issued 0
Common Stock- Contra | Issuance During Period 3rd | Employee
Common Stock Issued 0
Common Stock- Contra | Issuance During Period 3rd | Private Placement
Common Stock Issued 0
Common Stock- Contra | Issuance During Period 3rd | Terminated Employee
Common Stock Issued 0
Common Stock- Contra | Issuance During Period 4th
Common Stock Issued 0
Common Stock- Contra | Issuance During Period 4th | Employee
Common Stock Issued 0
Common Stock- Contra | Issuance During Period 5th | Interest Due
Common Stock Issued 0
Deficit Accumulated During The Development Stage
September 17, 1999 - initial issuance of 2,000 shares for intellectual technology license at $.15 per share 0
September 30, 1999 - cost of public shell acquisition over net assets acquired to be accounted for as a Recapitalization 0
November 15, 1999 - reverse merger transaction with Enerdyne Corporation, net transaction amounts 0
August 13, 2001 - Contribution by Stockholders 0
Record beneficial conversion value attached to senior secured convertible debt 0 0
Common Stock Issued 0 0 0 0
November 26, 2001 - options issued to board member 0
May 31, 2001 - Forgiveness of debt owed to stockholder 0
Purchase of common stock from stockholder 0 0
September 19, 2003 - repurchase and retired 598,961 shares for $300,000 0
May 31, 2004 - reclassify common stock contra to common stock 0
February 28, 2005 - Reclass Par Value for Reincorporation into DE as of 12/1/04 0
Warrants exercised 0 0
June 1, 2006 - May 31, 2007 - stock options exercised 0
Net loss (250,689) (4,444,584) (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 (250,689) (55,454,819) (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) (55,454,819)
Deficit Accumulated During The Development Stage | Employee
November 30, 2004 - adjust March 1, 2004 common stock issued to employee 0
Deficit Accumulated During The Development Stage | Board Members, Employees and Consultants
Compensation related to stock options issued 0 0 0 0
Share based compensation 0 0 0
Deficit Accumulated During The Development Stage | Private Placement
Common Stock Issued 0
Deficit Accumulated During The Development Stage | Employees and Debt Holders
Share based compensation 0 0 0
Deficit Accumulated During The Development Stage | Issuance During Period 1st
Common Stock Issued 0 0
Deficit Accumulated During The Development Stage | Issuance During Period 1st | President
Common Stock Issued 0
Deficit Accumulated During The Development Stage | Issuance During Period 1st | Employee
Common Stock Issued 0 0
Deficit Accumulated During The Development Stage | Issuance During Period 2nd
Common Stock Issued 0
Deficit Accumulated During The Development Stage | Issuance During Period 2nd | President
Common Stock Issued 0
Deficit Accumulated During The Development Stage | Issuance During Period 2nd | Employee
Common Stock Issued 0
Deficit Accumulated During The Development Stage | Issuance During Period 2nd | Private Placement
Common Stock Issued 0 0
Deficit Accumulated During The Development Stage | Issuance During Period 3rd | Legal Service
Common Stock Issued 0
Deficit Accumulated During The Development Stage | Issuance During Period 3rd | Employee
Common Stock Issued 0
Deficit Accumulated During The Development Stage | Issuance During Period 3rd | Private Placement
Common Stock Issued 0
Deficit Accumulated During The Development Stage | Issuance During Period 3rd | Terminated Employee
Common Stock Issued 0
Deficit Accumulated During The Development Stage | Issuance During Period 4th
Common Stock Issued 0
Deficit Accumulated During The Development Stage | Issuance During Period 4th | Employee
Common Stock Issued 0
Deficit Accumulated During The Development Stage | Issuance During Period 5th | Interest Due
Common Stock Issued $ 0
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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 $)
12 Months Ended 152 Months Ended
May 31, 2012
May 31, 2011
May 31, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,444,584) $ (3,357,882) $ (55,454,819)
Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities
(Gain) on disposal of equipment, net 0 0 (81,544)
Depreciation and amortization 934,544 725,099 1,970,123
Equity based expense 829,144 124,722 7,686,996
(Increase)/decrease in:
Prepaid expenses and deposits (4,239) 563 (50,669)
Increase/(decrease) in:
Accounts payable and accrued expenses 333,505 (143,567) 769,677
Payroll and related liabilities 0 (156,994) 0
Net cash and cash equivalents used in operating activities (2,351,630) (2,808,059) (45,160,239)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of intellectual technology license - fee portion 0 0 (20,000)
Refund of security deposits 0 0 7,990
Acquisition of equipment 0 0 (905,936)
Excess of amounts paid for public shell over assets acquired to be accounted for as a recapitalization 0 0 (250,000)
Proceeds from disposal of equipment 0 0 229,135
Net cash and cash equivalents provided by (used in) investing activities 0 0 (938,811)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock issuance, including options and warrants exercised 0 0 42,658,458
Principal payment on equipment notes payable and capital leases 0 0 (295,411)
Contribution by stockholders 0 0 183,569
Principal payment on note payable to individuals 0 0 (225,717)
Issuance of note payable to individuals 1,000,000 2,000,000 4,368,546
Acquisition of common stock 0 0 (400,000)
Net cash and cash equivalents provided by financing activities 1,000,000 2,000,000 46,289,445
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,351,630) (808,059) 190,395
Cash and cash equivalents, beginning 1,542,025 2,350,084 0
Cash and cash equivalents, ending 190,395 1,542,025 190,395
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Interest paid 0 0 66,770
Taxes paid 0 0 100
NON-CASH FINANCING ACTIVITIES:
Conversion of debt to equity $ 0 $ 1,037,500 $ 1,037,500
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ORGANIZATION AND BUSINESS ACTIVITIES
12 Months Ended
May 31, 2012
ORGANIZATION AND BUSINESS ACTIVITIES
1. ORGANIZATION AND BUSINESS ACTIVITIES

 

The Company is a development stage company which has been engaged in developing a class of biopharmaceutical drugs for treating autoimmune inflammatory diseases. Its 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 currently have any products on the market and does not anticipate generating operating revenue for the foreseeable future.

 

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.

 

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.

 

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.

 

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 the Company would see in future human clinical trials. In August 2010, the Company commenced a multi-center Phase 1b clinical trial of PRTX-100 in South Africa in adult patients with active RA on methotrexate. The RA Study was a proof of concept study to evaluate safety and potential efficacy of PRTX-100 in patients with active RA and was approved to enroll up to 40 patients in four dose escalating cohorts. In January 2012, the Company completed patient dosing in the fourth cohort of the RA Study. A total of 37 patients were enrolled in four cohorts ranging from 0.15 μg/kg to 1.50 μg/kg of PRTX-100 or placebo, administered weekly for four weeks. Safety and disease were evaluated over 16 weeks following the first dose. The RA Study results demonstrated that PRTX-100 was generally safe and well-tolerated in patients with active RA at all dose levels. More patients in the 0.90 mg/kg and 1.50 mg/kg cohorts showed improvement in their CDAI (Clinical Disease Activity Index for RA) than did patients in the lower dose or placebo cohorts. The safety, tolerability, and pharmacokinetics (PK) of PTRX-100 in humans have now been characterized in four clinical studies. The Company currently markets no products.

 

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.

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CHANGE OF OWNERSHIP TRANSACTION
12 Months Ended
May 31, 2012
CHANGE OF OWNERSHIP TRANSACTION
2. CHANGE OF OWNERSHIP TRANSACTION

 

On November 11, 2009 (the “Effective Date”), the Company consummated a financing transaction in which it raised $3,000,000 of working capital pursuant to a Securities Purchase Agreement (the “Purchase Agreement”) with Niobe Ventures, LLC, a Delaware limited liability company (“Niobe”) (the “Financing”). Pursuant to the Purchase Agreement, the Company issued to Niobe (i) 8,695,652 restricted shares of 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 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 Common Stock.

 

 

On February 11, 2011, for the purpose of providing the Company with additional working capital, pursuant to an existing 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 of $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.

 

The $2 Million Secured Note is convertible at any time, by the holder, subject only to the requirement that the Company has 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 the Company undertakes certain Fundamental Transactions, as defined in the $2 Million Secured Note, (such as a merger, sale of all of its assets, exchange or tender offer, or reclassification of its 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.

 

On February 1, 2012, the Company raised $1 million of working capital pursuant to a loan from Niobe and issued to Niobe a secured promissory note in the principal amount of $1 million, which bears interest at a rate of 3% per annum and matures on February 1, 2014 (the “February 2012 Secured Note”). Payment of the principal and accrued interest on the February 2012 Secured Note will, at Niobe’s election, automatically become immediately due and payable if the Company undertakes certain Fundamental Transactions or upon an Event of Default, both as defined in the February 2012 Secured Note.

 

The Company’s obligations under the $2 Million Secured Note and the February 2012 Secured Note are secured by a security agreement (see Note 9, below) granting Niobe a security interest in substantially all of the Company’s personal property and assets, including its intellectual property.  

 

As contemplated by the Purchase Agreement, all of the Company’s executive officers and all of the members of its 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, the 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.

 

In addition, on the Effective Date, the Company terminated (i) the Investor Rights Agreement dated September 18, 2003 among the Company, vSpring SBIC L.P. (“vSpring”) and certain of the investors set forth on Schedule A thereto and the Registration Rights Agreement dated May 25, 2005 among the Company, vSpring and certain of the investors set forth on Schedule I thereto in accordance with their respective terms and (ii) stock options exercisable for an aggregate of 246,714 shares of Common Stock, approximately 41% of the Company’s then outstanding stock options.

 

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
12 Months Ended
May 31, 2012
GOING CONCERN
3. GOING CONCERN

  

Since inception, the Company has incurred an accumulated deficit of $55,454,819 through May 31, 2012. For the years ended May 31, 2012 and 2011, the Company had net losses of $4,444,584 and $3,357,882, respectively. The Company has used $2,351,630 and $2,808,059 of cash in operating activities for the years ended May 31 2012 and 2011, respectively. As of May 31, 2012, the Company had cash and cash equivalents of $190,395 and negative net working capital of $2,121,018. 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 2013 and that it will need to raise additional capital 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. Additional capital that is required by the Company may not be available on reasonable terms, or at all.

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BASIS OF ACCOUNTING AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
12 Months Ended
May 31, 2012
BASIS OF ACCOUNTING AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
4. BASIS OF ACCOUNTING AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

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, and expense, and the disclosure of contingent assets and liabilities. Estimated amounts could differ from actual results.

 

Loss per Common Share

 

The Financial Accounting Standards Board (FASB) has issued accounting guidance “Earnings Per Share” that provides for the calculation of “Basic” and “Diluted” earnings per share. Basic earnings per share include no dilution and is computed by dividing the loss to common stockholders 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. As of May 31, 2012 and 2011, the Company had a total of 2,268,927 and 1,538,927 potentially dilutive securities comprised solely of stock options, respectively.

 

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, compensation cost included in operating expenses was $829,144 and $124,722 for the years ended May 31, 2012 and 2011, respectively and 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, 2012 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 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 or the Compensation Committee. There are 900,000 shares reserved for grants of options under the plan, of which 288,384 have been issued and 800 were exercised. The Company has issued 1,980,543 stock options as stand-alone 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 or the Compensation Committee) from the date of the grant. The plan will continue in effect until terminated or amended by the Board.

 

 

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 the Company’s Common Stock. 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 the Company’s stock-based awards.

 

As of May 31, 2012, there were 2,268,927 stock options outstanding.  At May 31, 2012, the aggregate unrecognized compensation cost of unvested options, as determined using a Black-Scholes option valuation model was approximately $315,349 (net of estimated forfeitures) will be recognized over a weighted average period of six months.  For the year ended May 31, 2012, the Company granted 750,000 stock options, with a fair value of $664,050 (net of estimated forfeitures). 20,000 options expired and none were forfeited.

 

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:

 

   

 

Year Ended

May, 31, 2012

   

 

Year Ended

May, 31, 2011

   

From Inception

Through

May 31, 2012

 
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)     7-10       5-9       3-9  
Weighted Average Fair Value   $ 1.01     $ 1.10     $ 2.41  

  

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 (“FDIC”).

 

Intellectual Technology Property, Amortization

 

The Company’s intellectual technology property was originally licensed from a former related party. This intellectual technology property was then assigned to the Company upon the dissolution of the related party. The cost of the intellectual technology property is being amortized over a 20-year period. Amortization expense is $1,020, $1,020 and $12,048 for the years ended May 31, 2012, 2011 and from inception through May 31, 2012, respectively. The Company reviews the intellectual property for impairment on at least an annual basis in accordance with the accounting guidance for “Goodwill and Other Intangible Assets”; no impairment charge was recorded as of May 31, 2012. Amortization expense for the intellectual property will be $1,020 for each of the next five years.

 

 

Income Taxes

 

Income taxes are recognized using enacted tax rates, and are composed of taxes on financial accounting income that is adjusted for the requirement of current tax law and deferred taxes. Deferred taxes are accounted for using the liability method. Under this method, deferred tax assets and liabilities are recognized based on the difference between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The Company does not expect to have current income taxes payable or deferred tax asset balances for the foreseeable future.

 

The FASB accounting guidance for, Accounting for Income Taxes and establishes the criterion that an individual tax position has to meet for some or all of the benefits of that position to be recognized in the Company’s financial statements. On initial application, ASC 740 must be applied to all tax positions for which the statute of limitations remains open. Only tax positions that meet the more-likely-than-not recognition threshold at the adoption date will be recognized or continue to be recognized. The cumulative effect of applying this accounting guidance is to be reported as an adjustment to retained earnings at the beginning of the period in which it is adopted.

 

Research and Development

 

Research and development costs are expensed as incurred and also include depreciation as reported above.

 

Financial Instruments

 

The Company adopted FASB ASC 820-Fair Value Measurements and Disclosure or ASC 820 for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements establishes a framework for measuring fair value and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company’s financial position or operating results, but did expand certain disclosures.

 

ASC 820 defines fair value as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

 

Level 1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities

 

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data

 

Level 3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

 

The Company values its financial instruments as required by estimating their fair value. The estimated fair value amounts have been determined by the Company, using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange.

 

The Company’s financial instruments primarily consist of cash and cash equivalents, convertible debt, accounts payable and accruals.

 

Cash and cash equivalents include money market securities and commercial paper that are considered to be highly liquid and easily tradable. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within the fair value hierarchy.

 

As of the balance sheet dates, the estimated fair values of the financial instruments were not materially different from their carrying values as presented due to the short maturities of these instruments and that the interest rates on the borrowings approximate those that would have been available for loans of similar remaining maturity and risk profile at respective year ends.

 

 

 

New Accounting Pronouncements

 

In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820) Improving Disclosures about Fair Value Measurements, which enhances the usefulness of fair value measurements. The amended guidance requires both the disaggregation of information in certain existing disclosures, as well as the inclusion of more robust disclosures about valuation techniques and inputs to recurring and nonrecurring fair value measurements. The amended guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disaggregation requirement for the reconciliation disclosure of Level 3 measurements, which is effective for fiscal years beginning after December 15, 2010 and for interim periods within those years. The Company does not anticipate that this pronouncement will have a material impact on its results of operations or financial position.

 

Management does not believe that any other 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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REVERSE MERGER
12 Months Ended
May 31, 2012
REVERSE MERGER
5. REVERSE MERGER

 

On November 15, 1999, Enerdyne Corporation or Enerdyne acquired all of the outstanding Common Stock of Protalex, Inc. in exchange for the issuance of additional shares of Enerdyne stock. The ratio of exchange was 822 shares of Enerdyne stock issued for each share of Protalex stock received. For accounting purposes, the acquisition has been treated as an acquisition of Enerdyne by Protalex and as a recapitalization of Protalex or Reverse Merger. The historical statement of operations presented herein include only those of the accounting acquirer and the retained earnings or deficit of only the accounting acquirer carries over consistent with the requirements of reverse merger accounting. Concurrently with the share exchange, Enerdyne changed its name to Protalex, Inc.

 

The details of the reverse merger transaction are as follows:

 

Account Description   Protalex, Inc.     Enderdyne
Corporation
    Transaction
Adjustments
    Balance Sheet at
November 16, 1999
 
                                 
Cash   $ 23,531     $ 0     $ 0     $ 23,531  
Note receivable stockholder     0       118,547       0       118,547  
License     20,300       0       0       20,300  
Investment in Enerdyne     368,547       0       (368,547 )     0  
Other current assets     8,212       0       0       8,212  
Other current liabilities     (17,555 )     0       0       (17,555 )
Accounts payable Alex     (40,000 )     0       0       (40,000 )
Note payable     (368,546 )     0       0       (368,546 )
Common stock     (25,300 )     (833,459 )     714,912       (143,847 )
Additional paid in capital     0       (1,105,014 )     1,105,014       0  
Treasury stock     0       430,424       (430,424 )     0  
Accumulated deficit     30,811       1,389,502       (1,389,502 )     30,811  
Common stock – contra     0       0       368,547       368,547  
    $ 0     $ 0     $ 0     $ 0  
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INCOME TAXES
12 Months Ended
May 31, 2012
INCOME TAXES
6. INCOME TAXES

 

For the years ended May 31, 2012 and 2011, the components of income tax benefit (expense) consist of the following:

 

Current:   Year Ended
May 31, 2012
    Year Ended
May 31, 2011
 
Federal   $ 0     $ 0  
State     0       0  
                 
Deferred:                
Federal     1,511,000       1,142,000  
State     267,000       201,000  
Tax credits     109,000       97,000  
 Permanent timing difference     (727,000 )     (374,000 )
Increase in valuation allowance     (1,160,000 )     (1,066,000 )
Income tax benefit   $ 0     $ 0  

 

Income tax as a percentage of income for the year ended May 31, 2012 and 2011 differ from statutory federal income tax rates due to the following:

 

    Year Ended
May 31, 2012
    Year Ended
May 31, 2010
 
Statutory federal income tax rate     (34 %)     (34 %)
State income taxes, net of federal income tax impact     (6 %)     (6 %)
Change in valuation allowance     26 %     32 %
Permanent timing differences     18 %     11 %
General business credit/other     (2 %)     (3 %)
      0 %     0 %

 

The components of the net deferred tax asset as of May 31, 2012 and 2011 are as follows:

 

Assets:   May 31, 2012     May 31, 2011  
Net operating losses   $ 17,770,000     $ 16,720,000  
Severance accrual     0       0  
General business credit     2,106,000       1,996,000  
Deferred tax assets     19,876,000       18,716,000  
Liability:                
Gross deferred tax asset     19,876,000       18,716,000  
Less valuation allowance     (19,876,000 )     (18,716,000 )
Deferred tax asset, net of valuation allowance   $ 0     $ 0  

 

The gross deferred tax assets have been fully offset by a valuation allowance since the Company cannot currently conclude that it is more likely than not that the benefits will be realized. The net operating loss carryforward for income tax purposes of approximately $44,351,000 as of May 31, 2012 expires beginning in 2021 through 2032. Internal Revenue Code Section 382 places a limitation on the amount of taxable income that can be offset by carryforwards after a change in control. As a result of these provisions, utilization of the NOL and tax credit carryforwards may be limited. Most of the deferred tax asset of net operating loss carryforwards and tax credits are subject to a Section 382 and 383 limitations on the amount to be utilized in a given year.

 

The Company adopted the provisions of the FASB issued accounting guidance, Accounting for Uncertainty in Income Taxes. Previously, the Company had accounted for tax contingencies in accordance with the FASB issued accounting guidance, Accounting for Contingencies. As required by the accounting guidance, Accounting for Income Taxes, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. As of May 31, 2012, the Company has no uncertain tax positions to be disclosed.

 

The Company is subject to U.S. federal income tax as well as income taxes of state jurisdiction. The Company is not currently under examination by any Federal or state jurisdiction. The federal statute of limitations and state are opened from inception forward. Management believes that the accrual for tax liabilities is adequate for all open years. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. On the basis of present information, it is the opinion of the Company’s management that there are no pending assessments that will result in a material adverse effect on the Company’s financial statements over the next twelve months. The Company recognizes any interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses for all periods presented. The Company has not recorded any material interest or penalties during any of the years presented.

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RELATED PARTIES
12 Months Ended
May 31, 2012
RELATED PARTIES
7. RELATED PARTIES

 

On November 11, 2009, the Company consummated a financing transaction in which it raised $3,000,000 of working capital. Pursuant to the Purchase Agreement, the Company issued to Niobe (i) 8,695,652 restricted shares of Common Stock at a purchase price of $0.23 per share (or $2 million in the aggregate) and (ii) the Secured Note.

 

On February 11, 2011: (i) Niobe converted the $1 Million Secured Note, including $37,500 of accrued interest thereon, into 4,510,870 shares of Common Stock; and (ii) for the purpose of providing the Company with additional working capital, pursuant to an existing 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 of $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.

 

On February 1, 2012, the Company raised $1 million of working capital pursuant to a loan from Niobe and issued to Niobe a secured promissory note in the principal amount of $1 million, which bears interest at a rate of 3% per annum and matures on February 1, 2014 (the “February 2012 Secured Note”).

 

Niobe, a majority stockholder of the Company and the holder of the $2 Million Secured Note and the February 2012 Secured Note, is controlled by the Company’s President and Director, Arnold P. Kling.

 

During the fiscal year ended May 31, 2011, the Company issued an aggregate of 950,543 options to John Doherty, one of the Company’s directors, and Kirk M Warshaw, chief financial officer and a director of the Company. The 950,542 options issued during the fiscal year ended May 31, 2011 are ten year options with exercise prices ranging from $0.25 to $0.50. These options vest in three tranches, upon commencement of the drug test trial, upon demonstrated efficacy of the drug trial and finally, upon the execution of a licensing or financing deal. The 950,542 options have been valued at $493,200 for which $384,177 of compensation expense has been recorded.

 

During the fiscal year ended May 31, 2012, the Company issued an aggregate of 450,000 options to Mr. Doherty and Mr. Warshaw. The 450,000 options issued during the fiscal year ended May 31, 2012 have lives that range from 7.5 years to ten years with an exercise price of $1.01. These options vested 50% upon issuance and the remainder will vest on November 1, 2012. The 450,000 options have been valued at $392,730 for which $310,911 of compensation expense has been recorded.

 

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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STOCK OPTIONS
12 Months Ended
May 31, 2012
STOCK OPTIONS
8. STOCK OPTIONS

 

Prior to January 22, 2004, all options were issued as “stand alone” options. On January 22, 2004, the Board approved the Protalex, Inc. 2003 Stock Option Plan., and on October 25, 2005, the stockholders approved an amendment to the Protalex, Inc. 2003 Stock Option Plan to increase the authorized number of shares under the Plan from 300,000 to 900,000 which provides for incentive and non-qualified stock options to purchase a total of 900,000 shares of the Company’s Common Stock. Under the terms of the plan, incentive options may not be granted at exercise prices less than the fair market value of the Common Stock at the date of the grant and non-qualified options shall not be granted at exercise prices equal to less than 85% of the fair market value of the Common Stock at the date of the grant. Beginning January 1, 2005, all stock options are granted at fair market value. Vesting generally occurs ratably over forty eight months and is exercisable over a period no longer than ten years after the grant date. As of May 31, 2012, options to purchase 2,268,927 shares of the Company’s Common Stock were outstanding, of which 288,384 were issued and 800 were exercised under the Company’s 2003 Stock Option Plan and the remaining 1,980,543 were issued and 400 were exercised as standalone options. As of May 31, 2012, 1,099,602 are exercisable.

 

 

The 750,000 options issued during the year ended May 31, 2012 are seven and one half year and ten year options with exercise prices of $1.01 per share. These options vested 50% upon issuance and the remainder vest on November 1, 2012. The options issued during the year ended May 31, 2012 have been valued at $664,050 for which $525,706 of compensation expense has been recorded. The balance of the option expense recorded is related to options issued in prior years.

 

A summary of the Common Stock option activity for employees, directors, officers and consultants as of May 31, 2012 and for the three years then ended is as follows:

 

   

 

 

 

 

Shares

   

 

 

Weighted

Average Exercise

Price

   

 

Weighted

Average Remaining Contractual Term (Years)

 
Outstanding at May 31, 2010     1,478,927     $ 2.05       4.65  
Granted     60,000     $ 0.50       0  
Exercised     0       0       0  
Forfeited     0       0       0  
Expired     0       0       0  
Outstanding at May 31, 2011     1,538,927     $ 1.99       3.70  
Granted     750,000     $ 1.01       0  
Exercised     0       0       0  
Forfeited     0       ---       0  
Expired     (20,000 )   $ 6.25       0  
Outstanding at May 31, 2012     2,268,927     $ 1.27       7.65  
Exercisable at May 31, 2012      1, 099,601     $ 2.41       0  

 

The outstanding and exercisable stock options as of May 31, 2012 and 2011 had an intrinsic value of $692,902 and $598,236, respectively.

 

The 750,000 options issued during the year were issued at an exercise price that was equal to the market price.

 

 

The following summarizes certain information regarding stock options at May 31, 2012:

 

          Total                 Exercisable        
Exercise Price Range   Number     Weighted Average
Exercise Price
    Weighted Average
Remaining Life
(years)
    Number     Weighted Average
Exercise Price
    Weighted Average
Remaining Life
(years)
 
$0.00 – 5.00     1,980,543     $ 0.65       8.6       811,217     $ 0.67       9.0  
$5.01 – 10.00     251,384     $ 7.52       1.0       251,384     $ 7.52       1.0  
$10.01 – 15.00     37,000     $ 13.86       4.0       37,000     $ 13.86       4.0  
      2,268,927     $ 1.27       7.65       1,099,601     $ 2.41       7.60  
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SENIOR SECURED CONVERTIBLE NOTE - RELATED PARTY
12 Months Ended
May 31, 2012
SENIOR SECURED CONVERTIBLE NOTE - RELATED PARTY

9. SENIOR SECURED CONVERTIBLE NOTE - RELATED PARTY

 

On November 11, 2009, the Company issued a $1 Million Secured Note to Niobe, its majority stockholder, which is controlled by the Company’s President and Director, Arnold P. Kling.  The $1 Million Secured Note bears interest at a rate of 3% per annum and matures on November 13, 2012.  In order to secure its obligations under the $1 Million Secured Note, the Company also entered into a Security Agreement dated November 11, 2009 (the “Security Agreement”) granting Niobe a security interest in substantially all of its personal property and assets, including its intellectual property.

 

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 November 11, 2009, the date of issuance of the Secured Note, the fair market value of each of the Company’s shares was $0.35. The Company has determined that the maximum allocation to the conversion feature should be $521,793 and will reduce the face amount of the convertible debt carried on its balance sheet. This discount will be amortized over 36 months and will serve to increase the interest expense of the Secured Note during its term.

 

On December 2, 2009, the Company entered into a Credit Facility Agreement dated December 2, 2009 (the “Facility”) with Niobe which will provide up to $2.0 million of additional capital in the form of secured loans from Niobe at any time prior to June 30, 2012 subject to the achievement of certain predetermined benchmarks.

 

On February 11, 2011, pursuant to the terms of the $1 Million Secured Note, Niobe exercised their right to convert the debt into equity. As a result, the Company issued 4,510,870 shares of Common Stock to Niobe and canceled the $1 million obligation as well as $37,500 of accrued interest thereon.

 

For the purpose of providing the Company with additional working capital, on February 11, 2011, pursuant to the Credit Facility Agreement, Niobe acquired from the Company a senior secured convertible promissory note, dated February 11, 2011 (the “$2 Million Secured Note”), in the principal amount of $2,000,000, convertible into Common Stock at a conversion price equal to $0.23 per share for an aggregate of 8,695,652 shares of Common Stock (not including accrued interest thereon.) The $2 Million Secured Note bears interest at a rate of 3% per annum and matures on December 31, 2012.

 

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 each of the Company’s shares was $1.20. The Company determined that the maximum allocation to the conversion feature should be $1,616,667 and reduced the face amount of the convertible debt carried on its balance sheet. This discount is being amortized over 22 months and serves to increase the interest expense of the Secured Note during its term. As of May 31, 2012, $485,001 of the original discount remained resulting in the net amount of the debt being $1,514,999 as of May 31, 2012.

 

In connection with the Facility, on December 2, 2009, the Security Agreement securing the Company’s obligations under the 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 its personal property and assets, including its intellectual property to collateralize all amounts due to it under the Secured Note and the Facility.

 

 

 

On February 1, 2012 and June 5, 2012, the Amended Security Agreement was amended in connection with the Company’s issuance of the February 2012 Secured Note (as described in Note 10, below) and the June 2012 Secured Note (as described in Note 12, below).

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SENIOR SECURED NOTE - RELATED PARTY
12 Months Ended
May 31, 2012
SENIOR SECURED NOTE - RELATED PARTY
10. SENIOR SECURED NOTE – RELATED PARTY

 

On February 1, 2012, the Company raised $1 million of working capital pursuant to a loan from Niobe and issued to Niobe a secured promissory note in the principal amount of $1 million, which bears interest at a rate of 3% per annum and matures on February 1, 2014 (the “February 2012 Secured Note”).

 

In addition, payment of the principal and accrued interest on the February 2012 Secured Note will, at Niobe’s election, automatically become immediately due and payable if the Company undertakes certain Fundamental Transactions or upon an Event of Default, both as defined in the February 2012 Secured Note.

 

The Company’s obligations under the $2 Million Secured Note and the February 2012 Secured Note are secured by a security agreement granting Niobe a security interest in substantially all of the Company’s personal property and assets, including its intellectual property.

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STOCKHOLDERS EQUITY
12 Months Ended
May 31, 2012
STOCKHOLDERS EQUITY
11. STOCKHOLDERS EQUITY

 

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 (1) share of Common Stock for each five (5) shares of Common Stock outstanding. 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 unless otherwise noted,

 

On December 8, 2010, the Company authorized one (1) million shares of a “blank check” class of preferred stock.

 

The data presented for stockholders' equity for the period of September 2003 to May 31, 2008 is unaudited.

 

On September 18, 2003, the Company raised $12,657,599 through the sale of 1,489,129 shares of Common Stock at $8.50 per share, with warrants to purchase an additional 632,879 shares of Common Stock, at an exercise price of $12.00 per share. These warrants expired on September 19, 2008. Net of transaction costs of $1,301,536, the Company’s proceeds were $11,356,063.

 

On May 25, 2005, the Company raised $5,057,885 through the sale of 518,758 shares of Common Stock at $9.75 per share, with warrants to purchase an additional 184,024 shares of Common Stock, at an exercise price of $11.25 per share. All of these warrants expired on May 25, 2010.  Net of transaction costs of $206,717, the Company’s proceeds were $4,851,168.

 

On December 30, 2005, the Company raised $5,839,059 through the sale of 519,026 shares of Common Stock at $11.25 per share, with warrants to purchase an additional 129,757 shares of Common Stock, at an exercise price of $14.95 per share. The Company also issued warrants to purchase 45,415 shares of Common Stock, at an exercise price of $14.95 per share, to the placement agent.  All of these warrants expired on December 30, 2010.  Net of transaction costs of approximately $328,118, the Company’s proceeds were $5,510,941.

 

In the fourth fiscal quarter of 2006, existing investors exercised 70,320 warrants which resulted in $786,538 in cash proceeds.

 

On July 7, 2006, the Company raised $14,217,660, net of transaction costs of $959,874, through the sale of 1,214,203 shares of Common Stock at $12.50 per share, with warrants to purchase an additional 303,551 shares of Common Stock, at an exercise price of $19.25 per share. The Company also issued warrants to purchase 106,243 shares of Common Stock, at an exercise price of $19.25 per share, to the placement agent.  All of these warrants expired on July 7, 2011.

 

In the first fiscal quarter of 2007, existing investors and option holders exercised 26,700 warrants and 1,200 options which resulted in $315,574 in cash proceeds.

 

 

On November 11, 2009 (the “Effective Date”), the Company consummated a financing transaction in which it raised $3,000,000 of additional working capital pursuant to a Securities Purchase Agreement dated that date (the “Purchase Agreement”) with Niobe Ventures, LLC (“Niobe”), a Delaware limited liability company (the “Financing”). Pursuant to the Purchase Agreement, the Company issued to the Investor (i) 8,695,652 restricted shares of Common Stock at a purchase price of $0.23 per share (or $2,000,000 in the aggregate) and (ii) a senior secured convertible promissory note in the principal amount of $1,000,000 and convertible into shares of Common Stock at an initial conversion price equal to $0.23 per share (the “$1 Million Secured Note”).

 

On December 2, 2009, the Company entered into the Facility with Niobe, which will provide up to $2.0 million of additional capital in the form of secured loans from Niobe to the Company at any time prior to June 30, 2012 subject to its achievement of certain predetermined benchmarks. On February 11, 2011, Niobe, pursuant to the Facility, advanced the Company $2 million. On the same date, Niobe converted the $1 million Secured Note and $37,500 of accrued interest thereon, into 4,510,870 shares of Common Stock.

 

In December 2006, the FASB issued accounting guidance "Accounting for Registration Payment Arrangements", which specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement should be separately recognized and measured in accordance with the accounting guidance, "Accounting for Contingencies." For the Company’s private placement transactions in September 2003, May 2005, December 2005 and July 2006, the Company granted registration rights which included payment arrangements of liquidated damages under certain circumstances, as noted in each respective registration rights agreement, including in the event an effective registration statement registering the resale of shares of Common Stock issuable upon exercise of the warrants does not remain effective. The Company generally uses its best efforts or all commercially reasonable efforts to maintain effective registration statements.  The Company completed its evaluation, and believes that an obligation to transfer consideration under its registration payment arrangement for all registrations since inception was not required.

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SUBSEQUENT EVENTS
12 Months Ended
May 31, 2012
SUBSEQUENT EVENTS
12. SUBSEQUENT EVENTS

 

On June 5, 2012, the Company raised an additional $1 million of working capital pursuant to a loan from Niobe and issued to Niobe a secured promissory note in the principal amount of $1 million, which bears interest at a rate of 3% per annum and matures on May 31, 2014 (the “June 2012 Secured Note”). In addition, payment of the principal and accrued interest on the June 2012 Secured Note will, at Niobe’s election, automatically become immediately due and payable if the Company undertakes certain Fundamental Transactions or upon an Event of Default, both as defined in the June 2012 Secured Note.

 

The Company’s obligations under the $2 Million Secured Note and the 2012 Notes are secured by a security agreement granting Niobe a security interest in substantially all of the Company’s personal property and assets, including its intellectual property.  

 

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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