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PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS.
DECEMBER 31, 2015 AND 2014
PROTAGENIC THERAPEUTICS, INC. AND
DECEMBER 31, 2015 AND 2014
| Page | ||
| Reports of Independent Registered Public Accounting Firms | 1-2 | |
| Consolidated Financial Statements | ||
| Consolidated Balance Sheets | 3 | |
| Consolidated Statements of Operations and Comprehensive Loss | 4 | |
| Consolidated Statements of Stockholders' Deficit | 5 | |
| Consolidated Statements of Cash Flows | 6 | |
| Notes to Consolidated Financial Statements | 7-22 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
of Protagenic Therapeutics, Inc.
We have audited the accompanying consolidated balance sheet of Protagenic Therapeutics, Inc. (the "Company") as of December 31, 2015, and the related consolidated statements of operations and comprehensive loss, changes in stockholders' deficit and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Protagenic Therapeutics, Inc. as of December 31, 2015, and the consolidated results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2015 AND 2014
| 2015 | 2014 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 3,343 | $ | 22,733 | ||||
| TOTAL CURRENT ASSETS | 3,343 | 22,733 | ||||||
| EQUIPMENT | ||||||||
| Office | - | 9,414 | ||||||
| Computer | 1,712 | 12,506 | ||||||
| 1,712 | 21,920 | |||||||
| Less: Accumulated depreciation | (143 | ) | (21,920 | ) | ||||
| Total equipment | 1,569 | - | ||||||
| OTHER ASSETS | 6,230 | 4,147 | ||||||
| TOTAL ASSETS | $ | 11,142 | $ | 26,880 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Bridge Loan Payable - Stockholder and accrued interest | $ | 399,103 | $ | - | ||||
| Accounts payable and accrued expenses | 276,532 | 145,733 | ||||||
| Income taxes payable | 2,723 | 2,500 | ||||||
| TOTAL CURRENT LIABILITIES | 678,358 | 148,233 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS' DEFICIT | ||||||||
| Common stock at $.001 par value, 20,000,000 shares authorized; 7,613,338 shares issued and 6,613,338 outstanding for December 31, 2015 and 2014 | 7,613 | 7,613 | ||||||
| Additional paid-in-capital | 5,880,119 | 5,401,490 | ||||||
| Accumulated deficit | (6,306,297 | ) | (5,282,875 | ) | ||||
| Treasury stock, at cost $.001 par value, 1,000,000 shares, for December 31, 2015 and 2014 | (100,000 | ) | (100,000 | ) | ||||
| Accumulated other comprehensive loss | (148,651 | ) | (147,581 | ) | ||||
| TOTAL STOCKHOLDERS' DEFICIT | (667,216 | ) | (121,353 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 11,142 | $ | 26,880 |
The accompanying notes are an integral part of these consolidated financial statements.
PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
| 2015 | 2014 | |||||||
| REVENUE | $ | - | $ | - | ||||
| OPERATING AND ADMINISTRATIVE EXPENSES | ||||||||
| Research and development expenses | ||||||||
| Sponsorship research and development | 170,575 | 67,270 | ||||||
| Legal fees | 164,855 | 25,287 | ||||||
| Salaries | 73,815 | 88,791 | ||||||
| Patent expense | 22,435 | 60,434 | ||||||
| Consulting | 10,008 | 10,861 | ||||||
| Payroll taxes and employee benefits | 10,170 | 5,335 | ||||||
| Rent - related party and officer | 4,546 | 5,862 | ||||||
| Travel | 6,228 | 2,892 | ||||||
| Telephone, internet and website | 1,658 | 2,703 | ||||||
| Miscellaneous | 165 | - | ||||||
| Rebates from research and development Canadian tax credits | (8,181 | ) | (78,366 | ) | ||||
| Total research and development expenses | 456,274 | 191,069 | ||||||
| General and administrative expenses | 568,764 | 101,031 | ||||||
| TOTAL OPERATING AND ADMINISTRATIVE EXPENSES | 1,025,038 | 292,100 | ||||||
| LOSS FROM OPERATIONS | (1,025,038 | ) | (292,100 | ) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Interest income | - | 49 | ||||||
| Interest expense - stockholder | (11,473 | ) | - | |||||
| Foreign currency exchange gain (loss) | 13,089 | (10,430 | ) | |||||
| TOTAL OTHER INCOME (EXPENSE) | 1,616 | (10,381 | ) | |||||
| NET LOSS | (1,023,422 | ) | (302,481 | ) | ||||
| COMPREHENSIVE LOSS | ||||||||
| Other Comprehensive Loss - net of tax | ||||||||
| Foreign exchange translation loss | (1,070 | ) | (156,338 | ) | ||||
| TOTAL COMPREHENSIVE LOSS | $ | (1,024,492 | ) | $ | (458,819 | ) | ||
| Net loss per common share - basic and diluted | $ | (0.15 | ) | $ | (0.05 | ) | ||
| Weighted average common shares - basic and diluted | 6,613,338 | 6,613,338 |
The accompanying notes are an integral part of these consolidated financial statements.
PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
| Accumulated | ||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||
| Common Stock | Additional | Accumulated | Treasury Stock | Comprehensive | Stockholders' | |||||||||||||||||||||||||||
| Shares | Amount | Paid-in-Capital | Deficit | Shares | Amount | Loss | Deficit | |||||||||||||||||||||||||
| BALANCE - January 1, 2014 | 7,613,338 | $ | 7,613 | $ | 5,316,322 | $ | (4,980,394 | ) | (1,000,000 | ) | $ | (100,000 | ) | $ | 8,757 | $ | 252,298 | |||||||||||||||
| Stock compensation | - | - | 85,168 | - | - | - | - | 85,168 | ||||||||||||||||||||||||
| Foreign currency translation loss | - | - | - | - | - | - | (156,338 | ) | (156,338 | ) | ||||||||||||||||||||||
| Net loss | - | - | - | (302,481 | ) | - | - | - | (302,481 | ) | ||||||||||||||||||||||
| BALANCE - December 31, 2014 | 7,613,338 | 7,613 | 5,401,490 | (5,282,875 | ) | (1,000,000 | ) | (100,000 | ) | (147,581 | ) | (121,353 | ) | |||||||||||||||||||
| Stock compensation | - | - | 478,629 | - | - | - | - | 478,629 | ||||||||||||||||||||||||
| Foreign currency translation loss | - | - | - | - | - | - | (1,070 | ) | (1,070 | ) | ||||||||||||||||||||||
| Net loss | - | - | - | (1,023,422 | ) | - | - | - | (1,023,422 | ) | ||||||||||||||||||||||
| BALANCE - December 31, 2015 | 7,613,338 | $ | 7,613 | $ | 5,880,119 | $ | (6,306,297 | ) | (1,000,000 | ) | $ | (100,000 | ) | $ | (148,651 | ) | $ | (667,216 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
| 2015 | 2014 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Loss | $ | (1,023,422 | ) | $ | (302,481 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Depreciation expense | 143 | 380 | ||||||
| Stock based compensation | 478,629 | 85,168 | ||||||
| Interest added to bridge loan | 11,473 | - | ||||||
| Changes in operating assets and liabilities | ||||||||
| Prepaid research and development expenses | - | 47,224 | ||||||
| Other assets | (2,916 | ) | (1,084 | ) | ||||
| Accounts payable and accrued expenses | 154,529 | 15,423 | ||||||
| Income taxes payable | 223 | (600 | ) | |||||
| NET CASH USED IN OPERATING ACTIVITIES | (381,341 | ) | (155,970 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of equipment | (1,791 | ) | - | |||||
| NET CASH USED IN INVESTING ACTIVITIES | (1,791 | ) | - | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from bridge loan | 387,630 | - | ||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 387,630 | - | ||||||
| Effect of exchange rate on cash and cash quivalents | (23,888 | ) | 22,720 | |||||
| NET DECREASE IN CASH AND CASH EQUIVALENTS | (19,390 | ) | (133,250 | ) | ||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | 22,733 | 155,983 | ||||||
| CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 3,343 | $ | 22,733 | ||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Cash paid for interest expense | $ | - | $ | - | ||||
| Cash paid for income taxes | $ | - | $ | - |
The accompanying notes are an integral part of these consolidated financial statements.
PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 1 ORGANIZATION AND NATURE OF BUSINESS
Protagenic Therapeutics, Inc. ("PTI U.S.A.") was organized on September 29, 2004 in the State of Delaware. On September 14, 2015, PTI U.S.A. obtained its renewal and revival of its Delaware charter which had become inoperative effective August 7, 2015. The Company is a privately held biotechnology company focused on the discovery, research and development of pre-clinical studies for developing novel, naturally occurring, human neuropeptide-based, brain- active therapeutics for treatment of depression, mood, anxiety and other neurodegenerative disorders. The Company is also interested in acquiring exclusive intellectual property rights for peptide-based therapeutics for the treatment of neurological and mood disorders. Once the Company's planned principal operations commence, its focus will be licensing certain technologies and the continued research of the new technologies.
Protagenic Therapeutics Canada (2006) Inc. ("PTI Canada") was incorporated in 2006 in the Province of Ontario, Canada. PTI Canada is a wholly-owned subsidiary of PTI U.S.A. (collectively, the "Company"). It provides operational support and assistance for the implementation of corporate and operational activities conducted in Canada.
As shown in the accompanying consolidated financial statements, the Company incurred a net loss of $1,023,422 and $302,481 for the years ended December 31, 2015 and 2014, respectively. The Company has incurred losses since inception resulting in an accumulated deficit of $6,306,297 as of December 31, 2015, and has had negative cash flows from operating activities. The Company anticipates further losses in the development of its business. Additionally, the Company had a net working capital deficiency of $675,015 at December 31, 2015.
The Company intends to finance its activities through managing current cash and cash equivalents on hand and seeking additional funds raised in the future through the issuance of common stock, borrowing of funds or merging with another company (see Note 11). Subsequently in February 2016 through April 2016, the Company raised total gross proceeds $4,635,575 (net proceeds of $4,283,438) through a private offering of Series B Preferred Stock. As a result, the Company expects its cash to sustain its operations through the end of 2017. In the next 12 months, the Company expects to burn cash of approximately $2,691,000. In addition to the above capital raise, the Company will need to raise additional funds. However, there can be no assurance that financing will be available when required or if available, obtained on satisfactory terms to the company.
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of PTI U.S.A, and its wholly owned subsidiary, PTI Canada. All significant intercompany transactions and balances have been eliminated from the consolidated financial statements.
PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Foreign Currency Translation and Transactions
The assets and liabilities of the Company's foreign subsidiary PTI Canada are translated into U.S. dollars from its functional currency using the exchange rate in effect at the balance sheets date. Additionally, the accounts on the statements of operations are translated using exchange rates approximating average rates prevailing during the years. Equity accounts are translated at historical exchange rates. Translation adjustments that arise from translating its financial statements from the local currency to the U.S. dollar are accumulated and reflected as a separate component of stockholders' deficit. The current year effect of the transaction adjustments are included on the statement of operations as a foreign currency exchange gain (loss).
In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amount of revenues and expenses during the reporting period. Significant estimates include accruals, contingencies, valuation allowance for deferred tax assets and valuation of stock options and warrants. These estimates may be adjusted as more current information becomes available, and any adjustment could have a significant impact on recorded amounts. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash equivalents consist of money market instruments with an original maturity at the time of purchase of three months or less. The Company maintains its cash and cash equivalents with two high credit quality financial institutions with one located in each the United States and Canada, which at times, may be in excess of insured amounts with the U.S. Federal Deposit Insurance Company and Canada Deposit Insurance Corporation. The Company's policy is to maintain its cash and cash equivalents with reputable financial institutions assessed on an annual basis. There are no cash equivalents at this time. There is little concentration of credit risk for foreign cash as minimal balances of cash are held by PTI Canada.
Equipment was stated at cost less accumulated depreciation. Improvements and replacements of equipment are capitalized. Maintenance and repairs that do not improve or extend the lives of equipment are charged to expense as incurred. When assets are retired, their cost and related accumulated depreciation are removed from the accounts and any gain or loss will be reported in the consolidated statements of operations. Depreciation is computed using straight- line methods over their estimated useful lives ranging from 3 to 5 years.
PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Rebates from Research and Development Credits
The Company derives rebates from scientific research and experimental development tax credits issued by the Canada Revenue Agency for qualified expenditures. The credits are recognized when the rebate is issued. The amounts received are reinvested into the Company's scientific research, experimental development and operational works conducted in Canada.
Research and Development Expenses, net of Rebates
The Company's research and development expenditures for present and future products are expensed as incurred.
Management of the Company does not plan to retire the stock and applies the cost method to its treasury stock transactions. Differences between proceeds for reissuance of treasury stock and the cost are credited or charged to additional paid in capital to the extent of the prior credits and thereafter to accumulated deficit.
Fair Value Measurements
Accounting Standards Codification 820, "Fair Value Measurements and Disclosure," ("ASC 820") defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, not adjusted for transaction costs. ASC 820 also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels giving the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
The three levels are described below:
Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that is accessible by the Company;
Level 2 Inputs - Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly;
Level 3 Inputs - Unobservable inputs for the asset or liability including significant assumptions of the Company and other market participants.
There were no transfers in or out of any level for the years ended December 31, 2015 and 2014. The Company determines fair values for its investment assets as follows:
Cash and cash equivalents, accounts payable, and accrued expenses carry value equals approximately the fair value due to its short term nature. Based on the borrowing rates currently available to the Company for loans with similar terms and the expected short term maturity, the carrying value of the bridge note payable approximates fair value.
PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based Compensation
The Company accounts for stock based compensation costs under the provisions of ASC No. 718, Compensation-Stock Compensation, which requires the measurement and recognition of compensation expense related to the fair value of stock based compensation awards that are ultimately expected to vest. Stock based compensation expense recognized includes the compensation cost for all stock based payments granted to employees, officers, directors, and consultants based on the grant date fair value estimated in accordance with the provisions of ASC No. 718. ASC No. 718 is also applied to awards modified, repurchased, or canceled during the periods reported. Pursuant to ASC No. 718 the Company recognize the compensation cost for an award of share-based over the requisite service period, with a corresponding credit to equity (generally, paid-in capital). The requisite service period is the period during which an employee is required to provide service in exchange for an award, which often is the vesting period.
The Company accounts for income taxes utilizing the liability method. Deferred income tax assets and liabilities are computed annually for differences between the consolidated financial statement basis and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that such asset will be realized.
Management has determined that a valuation allowance is required for the deferred tax assets which is primarily attributable to net operating loss carry forwards for federal and state tax purposes. The net operating losses expire through 2035 and 2022 for federal and state taxes, respectively. Thus, the consolidated financial statements do not reflect a deferred tax provision.
Basic and Diluted Net (Loss) per Common Share
Basic (loss) per common share is computed by dividing the net (loss) by the weighted-average number of shares of common stock outstanding for each period. Diluted (loss) per share is computed by dividing the net (loss) by the weighted-average number of shares of common stock outstanding plus the dilutive effect of shares issuable through the common stock equivalents. Potentially dilutive securities consisting of options and warrants aggregating 5,111,111 and 4,371,111 for the years ended December 31, 2015 and 2014, respectively were not included in the calculation of weighted-average shares of common stock outstanding as they were determined to be anti-dilutive.
PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements
On March 30, 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation" which simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. For public business entities, the ASU is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods. Early adoption will be permitted in any interim or annual period for which financial statements have not yet been issued or have not been made available for issuance. If early adoption is elected, all amendments in the ASU that apply must be adopted in the same period. In addition, if early adoption is elected in an interim period, any adjustments should be reflected as of the beginning of the annual period that includes that interim period. The Company is in the process of evaluating the impact of the standard on its consolidated financial statements.
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases. The main provisions of ASU No. 2016-02 require management to recognize lease assets and lease liabilities for all leases. ASU 2016-02 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model, the effect of leases in the statement of comprehensive income and the statement of cash flows is largely unchanged from previous GAAP. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently assessing the impact of this ASU on the Company's consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17, Income taxes. The provisions of ASU No. 2015-17 simplify the presentation of deferred income taxes, the amendments in this ASU require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this Update apply to all entities that present a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this Update. The amendments in this ASU are effective for the annual period ending after December 15, 2016, including interim periods within those fiscal years. The Company does not believe that the adoption of this update will have a significant impact to the Company's consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern. The provisions of ASU No. 2014-15 require management to assess an entity's ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management's plans, (4) require certain disclosures when substantialdoubt is alleviated as a result of consideration of management's plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company is currently assessing the impact of this ASU on the Company's consolidated financial statements.
PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements (continued)
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the consolidated financial statements filed with this annual report.
NOTE 4 ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following as of December 31:
| 201 5 | 201 4 | |||||||
| Legal expenses | $ | 186,936 | $ | 51,120 | ||||
| Salaries | 41,166 | -- | ||||||
| Patent cost | 29,239 | 87,244 | ||||||
| Research and development | 8,128 | 6,089 | ||||||
| Payroll taxes and employee benefits | 6,222 | -- | ||||||
| Other | 4,841 | 1,280 | ||||||
| $ | 276,532 | $ | 145,733 |
NOTE 5 BRIDGE LOAN PAYABLE - STOCKHOLDER
The Company did not enter into any bridge loan arrangements during 2014. During January 1, 2015 through December 31, 2015, the Company had entered into a series of bridge loan arrangements for total borrowings received and interest accrued of $399,103 with a major Stockholder and Chairman. The proceeds were used to fund research, development and the general operating activity of the Company. The Company has guaranteed the payment of all principal and interest in the form of the Company's common stock at a purchase price of $1.25 per share. The loan bears interest at a rate of 10% per annum. The Company recorded interest expense of $11,473 for the year ended December 31, 2015. Subsequent to December 31, 2015, the Company converted $350,000 in principal on the note into shares of Series B Preferred Stock in the Private Offering at a price of $1.25 per share. In addition, during June 2016, the Company has agreed to convert the remaining principal and interest at $1.25 per share.