Company Quick10K Filing
Proteo
Price0.08 EPS-0
Shares25 P/E-17
MCap2 P/FCF-12
Net Debt-0 EBIT-0
TEV2 TEV/EBIT-15
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-06-05
10-K 2019-12-31 Filed 2020-05-07
10-Q 2019-09-30 Filed 2019-11-14
10-Q 2019-06-30 Filed 2019-08-05
10-Q 2019-03-31 Filed 2019-05-14
10-K 2018-12-31 Filed 2019-04-15
10-Q 2018-09-30 Filed 2018-10-31
10-Q 2018-06-30 Filed 2018-08-01
10-Q 2018-03-31 Filed 2018-05-21
10-K 2017-12-31 Filed 2018-04-27
10-Q 2017-09-30 Filed 2017-11-07
10-Q 2017-06-30 Filed 2017-08-09
10-Q 2017-03-31 Filed 2017-05-15
10-K 2016-12-31 Filed 2017-04-14
10-Q 2016-09-30 Filed 2016-11-14
10-Q 2016-06-30 Filed 2016-08-08
10-Q 2016-03-31 Filed 2016-05-11
10-K 2015-12-31 Filed 2016-03-30
10-Q 2015-09-30 Filed 2015-11-10
10-Q 2015-06-30 Filed 2015-08-10
10-Q 2015-03-31 Filed 2015-05-13
10-K 2014-12-31 Filed 2015-03-30
10-Q 2014-09-30 Filed 2014-11-05
10-Q 2014-06-30 Filed 2014-08-18
10-Q 2014-03-31 Filed 2014-05-13
10-K 2013-12-31 Filed 2014-02-26
10-Q 2013-09-30 Filed 2013-11-12
10-Q 2013-06-30 Filed 2013-08-13
10-Q 2013-03-31 Filed 2013-05-09
10-K 2012-12-31 Filed 2013-03-29
10-Q 2012-09-30 Filed 2012-11-08
10-Q 2012-06-30 Filed 2012-08-09
10-Q 2012-03-31 Filed 2012-05-14
10-K 2011-12-31 Filed 2012-03-27
10-Q 2011-09-30 Filed 2011-11-03
10-Q 2011-06-30 Filed 2011-08-03
10-Q 2011-03-31 Filed 2011-05-13
10-K 2010-12-31 Filed 2011-03-15
10-Q 2010-09-30 Filed 2010-11-12
10-Q 2010-06-30 Filed 2010-08-06
10-Q 2010-03-31 Filed 2010-05-13
10-K 2009-12-31 Filed 2010-03-29
8-K 2020-07-17 Shareholder Rights, Amend Bylaw, Exhibits
8-K 2020-07-09 Shareholder Vote
8-K 2020-05-12
8-K 2020-03-30
8-K 2020-02-28
8-K 2019-04-08
8-K 2018-12-12
8-K 2018-11-15

PTEO 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 proteo_ex3101.htm
EX-31.2 proteo_ex3102.htm
EX-32 proteo_ex3200.htm

Proteo Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
1.20.80.4-0.1-0.5-0.92012201420172020
Assets, Equity
0.60.40.2-0.1-0.3-0.52012201420172020
Rev, G Profit, Net Income
0.40.20.1-0.1-0.2-0.42012201420172020
Ops, Inv, Fin

10-Q 1 proteo_10q-033120.htm FORM 10-Q

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

 

For the quarterly period ended March 31, 2020

 

OR

 

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

 

For the transition period from _______________ to _______________

 

Commission file number 000-30728

 

PROTEO, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

 

NEVADA 90-0019065

(STATE OR OTHER JURISDICTION OF

INCORPORATION OR ORGANIZATION)

(I.R.S. EMPLOYER

IDENTIFICATION NO.)

   
2102 BUSINESS CENTER DRIVE, IRVINE, CALIFORNIA 92612
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

 

(949) 253-4155

(Registrant's telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes  x  No  o.

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  x  No  o.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o Accelerated filer o
   
Non-accelerated filer o Smaller reporting company x
   
Emerging growth company  o  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

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

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

 

CLASS   NUMBER OF SHARES OUTSTANDING
Common Stock, $0.001 par value   33,379,350 shares of common stock at May 5, 2020

 

   

 

 

PROTEO, INC.

AND SUBSIDIARY

 

TABLE OF CONTENTS

 

    Page
     
PART I. FINANCIAL INFORMATION  
     
Item 1.  Financial Statements: 4
     
  Condensed Consolidated Balance Sheets as of March 31, 2020 (Unaudited) and December 31, 2019 4
     
  Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three-month Periods Ended March 31, 2020 and 2019 (Unaudited) 5
     
  Condensed Consolidated Statements of Stockholders’ Deficit for the Three-month Periods Ended March 31, 2020 and 2019 (Unaudited) 6
     
  Condensed Consolidated Statements of Cash Flows for the Three-month Periods Ended March 31, 2020 and 2019 (Unaudited) 7
     
  Notes to Condensed Consolidated Financial Statements (Unaudited) 8
     
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations 14
     
Item 3.  Quantitative and Qualitative Disclosure About Market Risk 19
     
Item 4. Controls and Procedures 20
     
PART II. OTHER INFORMATION  
     
Item 1.  Legal Proceedings 21
     
Item 1A.  Risk Factors 21
     
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds 21
     
Item 3.  Defaults Upon Senior Securities 21
     
Item 4.  Mine Safety Disclosures 21
     
Item 5.  Other Information 21
     
Item 6.  Exhibits 22
     
SIGNATURES 23

 

 

 

 2 

 

 

EXPLANATORY NOTE

 

On March 4, 2020, the U.S. Securities and Exchange Commission (the “SEC”) issued an order (Release No. 34-88318) under Section 36 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as modified and superseded by a new SEC order issued on March 25, 2020 (Release No. 34-88465) (as modified, the “Order”), that provides conditional relief to public companies that are unable to timely comply with certain reporting obligations under the Exchange Act as a result of the novel coronavirus (“COVID-19”) outbreak.

 

Proteo, Inc. (the “Company”) is filing this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (this “Quarterly Report”)  in reliance on the Order due to circumstances related to the COVID-19 outbreak. As disclosed in the Company’s Current Report on Form 8-K filed with the SEC on May 12, 2020, following the COVID-19 diagnosis for one of the Company’s employees, the Company closed its corporate offices and requested all employees to work remotely until further notice. Employees affected by such closure included certain of the Company’s key personnel of its German-based wholly-owned subsidiary, Proteo Biotech AG, whom are responsible for assisting the Company in the preparation of its financial statements. Additionally, the Company’s external accountant in Germany also switched to partial home office operations. This did not allow for timely access to certain accounting information, which contributed to the overall delay in completing the required financial statements of the Company. Accordingly, the Company relied on the Order because it was unable to timely file this Quarterly Report by the original May 15, 2020 deadline without undue hardship and expense to the Company due to COVID-19.

 

 

 

 

 3 

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

PROTEO, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   March 31,   December 31, 
   2020   2019 
   (Unaudited)     
ASSETS          
           
CURRENT ASSETS          
Cash and cash equivalents  $284,900   $99,543 
Research supplies   46,575    47,402 
Grant funds receivable   20,012    34,060 
Prepaid expenses and other current assets   57,216    53,949 
Total current assets   408,703    234,954 
           
PROPERTY AND EQUIPMENT, NET   3,112    3,483 
           
Total assets  $411,815   $238,437 
           
LIABILITIES AND STOCKHOLDERS' DEFICIT          
           
CURRENT LIABILITIES          
Accounts payable and accrued liabilities  $127,720   $109,585 
Total current liabilities   127,720    109,585 
           
LONG TERM LIABILITIES          
Accrued licensing fees   626,974    639,290 
Other liabilities   139,694    142,438 
Total long term liabilities   766,668    781,728 
           
Total liabilities   894,388    891,313 
           
COMMITMENTS AND CONTINGENCIES          
           
STOCKHOLDERS' DEFICIT          
Non-voting preferred stock, par value $0.001 per share; 10,000,000 shares authorized;          
Series A, 723,590 shares issued and outstanding at March 31, 2020 and December 31, 2019   724    724 
Series B-1, 130,000 and 120,000 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively   130    120 
Series B-2, 159,800 shares issued and outstanding at March 31, 2020 and December 31, 2019   160    160 
Total non-voting preferred stock   1,014    1,004 
           
          
Common stock, par value $0.001 per share; 300,000,000 shares authorized; 33,379,350 and 24,879,350 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively   33,380    24,880 
Additional paid-in capital   9,598,125    9,385,584 
Accumulated other comprehensive loss   (39,225)   (33,613)
Accumulated deficit   (10,075,867)   (10,030,731)
Total stockholders' deficit   (482,573)   (652,876)
           
Total liabilities and stockholders' deficit  $411,815   $238,437 

 

SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 4 

 

 

PROTEO, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2020 AND 2019

(UNAUDITED)

 

   THREE MONTHS ENDED 
   MARCH 31, 
   2020   2019 
           
REVENUES          
Net Grant revenue  $481   $ 
    481     
EXPENSES          
General and administrative   60,258    49,559 
Research and development, net of grants       3,616 
           
TOTAL OPERATING EXPENSES   60,258    53,175 
           
LOSS FROM OPERATIONS   (59,777)   (53,175)
           
INTEREST AND OTHER INCOME (EXPENSE), NET   14,641    19,857 
           
NET LOSS  $(45,136)  $(33,318)
           
LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST       (1,270)
           
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS  $(45,136)  $(32,048)
           
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS   (5,612)   (1,975)
           
COMPREHENSIVE LOSS  $(50,748)  $(34,023)
           
BASIC AND DILUTED LOSS PER COMMON SHARE  $(0.00)  $(0.00)
           
BASIC AND DILUTED LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS PER SHARE  $(0.00)  $(0.00)
           
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING   27,901,572    24,801,572 

 

SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 5 

 

 

PROTEO, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2020 AND 2019

 

                       Accumulated             
                   Additional   Other             
   Preferred Stock   Common Stock   Paid-in   Comprehensive   Accumulated   Noncontrolling     
   Shares   Amount   Shares   Amount   Capital   Loss   Deficit   Interest   Total 
                                              
BALANCE - December 31, 2018   823,590   $824    24,379,350   $24,380   $9,144,464   $(31,231)  $(9,812,564)  $3,106   $(671,021)
                                              
Common stock issued for cash             500,000   $500   $39,500                   40,000 
                                              
Other comprehensive loss                       (1,975)            (1,975)
                                              
Net loss                           (32,048)   (1,270)   (33,318)
                                              
BALANCE - March 31, 2019   823,590   $824    24,879,350   $24,880   $9,183,964   $(33,206)  $(9,844,612)  $1,836   $(666,314)

 

                             Accumulated                
                        Additional    Other                
    Preferred Stock    Common Stock    Paid-in    Comprehensive    Accumulated    Noncontrolling      
    Shares    Amount    Shares    Amount    Capital    Loss    Deficit    Interest    Total 
                                              
BALANCE - December 31, 2019   1,003,390   $1,004    24,879,350   $24,880   $9,385,584   $(33,613)  $(10,030,731)  $   $(652,876)
                                              
Common stock issued for cash             8,500,000   $8,500   $201,451                   209,951 
                                              
Preferred stock issued for cash   10,000   $10             $11,090                   11,100 
                                              
Other comprehensive loss                       (5,612)            (5,612)
                                              
Net loss                           (45,136)       (45,136)
                                              
BALANCE - March 31, 2020   1,013,390   $1,014    33,379,350   $33,380   $9,598,125   $(39,225)  $(10,075,867)  $   $(482,573)

 

SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 6 

 

 

PROTEO, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2020 AND 2019

(UNAUDITED)

 

   THREE MONTHS ENDED 
   MARCH 31, 
   2020   2019 
           
CASH FLOWS FROM OPERATING ACTIVITIES          
Net loss  $(45,136)  $(33,318)
Adjustments to reconcile net income (loss) to net cash used in operating activities:          
Depreciation   307    377 
Foreign currency transaction gain   (12,316)   (12,901)
Changes in operating assets and liabilities:          
Research supplies   (86)   49 
Grant funds receivable   13,427    (7,595)
Prepaid expenses and other current assets   (4,307)   2,487 
Accounts payable and accrued liabilities   19,266    16,099 
NET CASH USED IN OPERATING ACTIVITIES   (28,845)   (34,802)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Proceeds from issuance of common stock   209,951    40,000 
Proceeds for issuance of preferred stock   11,100     
Deposit for preferred stock subscription       22,500 
NET CASH PROVIDED BY FINANCING ACTIVITIES   221,051    62,500 
           
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS   (6,849)   (2,544)
           
NET INCREASE IN CASH AND CASH EQUIVALENTS   185,357    25,154 
CASH AND CASH EQUIVALENTS--BEGINNING OF PERIOD   99,543    89,132 
           
CASH AND CASH EQUIVALENTS--END OF PERIOD  $284,900   $114,286 

 

SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 7 

 

 

PROTEO, INC. AND SUBSIDIARY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2020 (UNAUDITED)

 

1.   NATURE OF BUSINESS AND BASIS OF PRESENTATION

 

BASIS OF PRESENTATION

 

The accompanying condensed consolidated balance sheet as of December 31, 2019, which has been derived from audited financial statements, and the accompanying interim condensed consolidated financial statements as of March 31, 2020 and for the three-month periods ended March 31, 2020 and 2019, have been prepared by management pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial reporting. These interim condensed consolidated financial statements are unaudited and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments and accruals) necessary to present fairly the financial condition, results of operations and cash flows of Proteo, Inc. and its wholly owned subsidiary (hereinafter collectively referred to as the "Company") as of and for the periods presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Operating results for the three-month period ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020, or for any other interim period during such year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted in accordance with the rules and regulations of the SEC, although the Company believes that the disclosures made are adequate to make the information not misleading. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on May 7, 2020 as well as the amendment thereto filed on Form 10-K/A with the SEC on May 12, 2020.

 

NATURE OF BUSINESS

 

The Company is a clinical stage drug development company focusing on the development of anti-inflammatory treatments for rare diseases with significant unmet needs. The Company's management deems its lead drug candidate Tiprelestat (also known as Elafin) for intravenous use to be one of the most prospective treatments of acute postoperative inflammatory complications, in particular after esophageal cancer surgery. Elafin also appears to be a promising compound for the treatment of pulmonary arterial hypertension, for preventing complications of organ transplantation and for treatment of acute respiratory distress syndrome (“ARDS”). The clinical development is currently focused in Europe with the intention to receive the primary approval in Europe.

 

The products that the Company is developing, to the extent they are considered drugs or biologics, are governed by the Federal Food, Drug and Cosmetics Act (in the United States) and the regulations of State and various foreign government agencies. The Company's proposed pharmaceutical products to be used by humans are subject to certain clearance procedures administered by the above regulatory agencies.

 

From time to time, the Company enters into collaborative arrangements for the research and development (“R&D”), manufacture and/or commercialization of products and product candidates. These collaborations may provide for non-refundable, upfront license fees, R&D and commercial performance milestone payments, cost sharing, royalty payments and/or profit sharing. The Company's collaboration agreements with third parties are generally performed on a “best efforts” basis with no guarantee of either technological or commercial success.

 

Proteo, Inc.'s common stock is currently quoted on the Pink Open Market under the symbol "PTEO".

 

 

 

 8 

 

 

CONCENTRATIONS

 

The Company maintains substantially all of its cash in bank accounts at a German private commercial bank. The Company's bank accounts at this financial institution are presently fully protected by the voluntary "Deposit Protection Fund of The German Private Commercial Banks". The Company has not experienced any losses in these accounts.

  

The Company's operations, including research and development activities and most of its assets, are located in Germany. The Company's operations are subject to various political, economic, and other risks and uncertainties inherent in Germany and the European Union.

 

LIQUIDITY

 

Management expects existing cash to be sufficient to fund the Company’s operations for at least twelve months from the issuance date of these interim financial statements.

 

The Company will require substantial additional funding for continuing research and development, obtaining regulatory approval, and for the commercialization of its products. Management plans to generate revenues from product sales, but there are no purchase commitments for any of the proposed products. Additionally, the Company may generate revenues from out-licensing activities. There can be no assurance that further out-licensing may be achieved or whether such will generate significant profit. In the absence of significant sales and profits, the Company may seek to raise additional funds to meet its working capital requirements through the additional placement of debt and/or equity securities, entering into revenue sharing arrangements and obtaining government grants. There is no assurance that the Company will be able to obtain sufficient additional funds when needed, or that such funds, if available, will be obtainable on terms satisfactory to the Company.

 

OTHER RISKS AND UNCERTAINTIES

  

On March 10, 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) outbreak to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, quarantines in certain areas, and forced closures for certain types of public places and businesses. COVID-19 and the actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical areas in which the Company operates. While it is unknown how long these conditions will last and what the complete financial effects will be to the Company, the Company believes it reasonably possible that it is vulnerable to the risk of a near-term severe impact. COVID-19 has caused a substantial disruption in U.S. and international financial markets. The Company cannot at this point determine the subsequent near and long-term impact of the COVID-19 pandemic on the value of the Company.

 

The Company's line of future pharmaceutical products being developed by its German subsidiary, to the extent they may be considered drugs or biologics, are governed by the Federal Food, Drug and Cosmetics Act (in the United States) and by the regulations of State agencies and various foreign government agencies. There can be no assurances that the Company will obtain the regulatory approvals required to market its products. The pharmaceutical products under development will be subject to more stringent regulatory requirements because they are recombinant products for humans. The Company has no experience in obtaining regulatory clearance on these types of products. Therefore, the Company will be subject to the risks of delays in obtaining or failing to obtain regulatory clearance and other uncertainties, including financial, operational, technological, regulatory and other risks associated with an emerging business, including the potential risk of business failure.

 

The Company is exposed to risks related to fluctuations in foreign currency exchange rates. Management does not utilize derivative instruments to hedge against such exposure. 

 

PRINCIPLES OF CONSOLIDATION

 

The condensed consolidated financial statements have been prepared in accordance with GAAP and include the accounts of Proteo, Inc. and Proteo Biotech AG (“PBAG”), its wholly owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

 

 

 9 

 

 

RESEARCH AND DEVELOPMENT ACTIVITIES

 

The Company capitalizes the cost of supplies used in its research and development activities if such supplies are deemed to have alternative future uses, usually in other research and development projects. Such costs are expensed as used to research and development expenses in the accompanying condensed consolidated statements of operations.

 

Nonrefundable advance payments for goods or services that have the characteristics that will be used or rendered for future research and development activities are deferred and capitalized as prepaid expenses. Such amounts are expensed to research and development as the related goods and services are received.

 

The costs of materials that are acquired for a particular research and development project and that have no alternative future uses (in other research and development projects or otherwise) and therefore no separate economic values are expensed as research and development costs at the time the costs are incurred.

 

The Company may receive grants from the German government which are used to fund research and development activities (see Note 6). Grant funds received or to be received for the reimbursement of qualified research and development expenses are offset against such expenses in the accompanying condensed consolidated statements of operations and comprehensive loss when the related expenses are incurred.

  

FAIR VALUE MEASUREMENTS

 

The Fair Value Measurements and Disclosures Topic of the Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC” or “Codification”) requires disclosure of fair value information about financial instruments when it is practicable to estimate that value. Management believes that the carrying amounts of the Company's financial instruments, consisting primarily of cash, accounts payable and accrued expenses, approximate their fair value at March 31, 2020, due to their short-term nature. The Company does not have any assets or liabilities that are measured at fair value on a recurring basis and, during the three-month periods ended March 31, 2020 and 2019, did not have any assets or liabilities that were measured at fair value on a non-recurring basis.

  

REVENUE RECOGNITION

 

On January 1, 2018 the Company adopted ASC Topic 606, Revenue from Contracts with Customers (Topic 606). As of the adoption date and through March 31, 2020, management determined that there were no revenues which were deemed to be within the scope of Topic 606.

 

During the three-month period ended March 31, 2020, the Company recognized revenue in connection with a government grant. As described more fully in Note 6, funding received under this grant was generally recognized as an offset to related expenses incurred, and that revenue was only recognized to the extent that funding received exceeded related expenses incurred.

 

There were no revenues recorded during the three-month period ended March 31, 2019.

 

 

 

 10 

 

 

SIGNIFICANT RECENT ACCOUNTING PRONOUNCEMENTS

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires, among other things, lessees to recognize for all leases (with the exception of short-term leases) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 is effective for the Company for the year beginning January 1, 2019. The adoption of this standard did not have a material effect on the Company’s consolidated financial statements and related disclosures due to the short-term nature of its leases. For these short-term leases, the Company has elected to not recognize lease assets and lease liabilities. Lease expense for such leases are recognized on a straight-line basis over the lease term.

 

During the three-months ended March 31, 2020, there have been no other changes to the Company’s significant accounting policies as described in the Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

 

2.   LOSS PER COMMON SHARE

 

Basic loss per common share is computed based on the weighted average number of shares outstanding for the period. Diluted loss per common share is computed by dividing net loss by the weighted average shares outstanding assuming all dilutive potential common shares, if any, were issued. There were no potential common shares outstanding at March 31, 2020 and 2019. As such, basic and diluted loss per common share equals net loss, as reported, divided by the weighted average number of common shares outstanding for the respective periods.

 

3.   FOREIGN CURRENCY TRANSLATION

 

Assets and liabilities of the Company's German operations are translated from Euros (the functional currency) into U.S. dollars (the reporting currency) at period-end exchange rates; equity transactions are translated at historical rates; and income and expenses are translated at weighted average exchange rates for the period. Net foreign currency exchange gains or losses resulting from such translations are excluded from the results of operations but are included in other comprehensive income and accumulated in a separate component of stockholders' deficit. Accumulated other comprehensive loss approximated $39,000 and $34,000 at March 31, 2020 and December 31, 2019, respectively. 

 

4.   FOREIGN CURRENCY TRANSACTIONS

 

The Company records payables related to a certain licensing agreement (see Note 5) in accordance with the Foreign Currency Matters Topic of the Codification. Quarterly commitments under such agreement are denominated in Euro. For each reporting period, the Company translates the quarterly amount to U.S. dollars at the exchange rate effective on that date. If the exchange rate changes between when the liability is incurred and the time payment is made, a foreign exchange gain or loss results.

 

Additionally, the Company computes a foreign exchange gain or loss at each balance sheet date on all recorded transactions denominated in foreign currencies that have not been settled. The difference between the exchange rate that could have been used to settle the transaction on the date it occurred and the exchange rate at the balance sheet date is the gain or loss that is currently recognized. The Company recorded foreign currency transaction gains of approximately $12,000 and $13,000 for the three-month periods ended March 31, 2020 and 2019, respectively, which are included in interest and other income (expense), net in the accompanying condensed consolidated statements of operations and comprehensive loss.

 

 

 

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5.   COMMITMENTS AND CONTINGENCIES

 

ACCRUED LICENSING FEES - RELATED PARTY

 

On December 30, 2000, the Company entered into a thirty-year license agreement, beginning January 1, 2001 (the "License Agreement"), with Dr. Oliver Wiedow, MD, the owner and inventor of several patents, patent rights and technologies related to Elafin. Pursuant to the License Agreement, the Company agreed to pay Dr. Wiedow an annual license fee of 110,000 Euro for a period of six years. The License Agreement was amended in December 2008 to waive non-payment defaults and to defer the due dates of each payment. In July 2011, February 2012, February 2013, June 2014, April 2017, June 2019, and again in November 2019, Dr. Wiedow agreed in writing to waive the non-payment defaults and agreed to defer the due dates of the payments for the outstanding balance of 570,000 Euro. As a result, the outstanding balance of 570,000 Euros is due on November 15, 2021. While the total amount owed does not currently bear interest, any late payment is subject to interest at an annual rate equal to the German Base Interest Rate plus six percent. In the event that the Company's financial condition improves, the parties can agree to increase and/or accelerate the payments. Dr. Wiedow, who is a director of the Company, beneficially owned approximately 19% of the Company's outstanding common stock as of March 31, 2020.

 

At March 31, 2020, the Company has accrued approximately $627,000 of licensing fees payable to Dr. Wiedow, which are included in long-term liabilities. This is a decrease over the respective accrual of approximately $639,000 at December 31, 2019, which was solely due to changes in foreign currency exchange rates.

 

OTHER LIABILITIES

 

Other liabilities at March 31, 2020 and December 31, 2019 consist of employee compensation that was incurred in 2015 to 2017, but for which payment was agreed to be deferred until November 2021.

  

6.   GRANTS

 

In June 2016, the German State of Schleswig-Holstein granted PBAG approximately 874,000 Euros (approximately $1,021,000) for further research and development of the Company's pharmaceutical product Elafin (the “Grant”). The Grant, as amended, covers 50% of eligible research and development costs incurred from December 1, 2015 through October 31, 2020. Research and development expenses for the three-month periods ended March 31, 2020 and 2019 were reduced by approximately $35,000 and $31,000, respectively, for Grant funds received and accrued during those periods. Approximately €18,000 ($20,000) and €30,000 ($34,000) of additional eligible expenses that were not previously reimbursed at March 31, 2020 and December 31, 2019, respectively, are included in the accompanying condensed consolidated balance sheets as grant funds receivable.

 

During the three months ended March 31, 2020, the Company received approval from the German State of Schleswig-Holstein to submit certain expenses for reimbursement that had been previously expensed under GAAP, which resulted in grant revenue exceeding grant expenses for the quarter. As such, the Company has presented net Grant revenue of approximately $500 for the three months ended March 31, 2020.

 

7.   INCOME TAXES

 

The Company accounts for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Management evaluates the need to establish a valuation allowance for deferred tax assets based upon the amount of existing temporary differences, the period in which they are expected to be recovered and expected levels of taxable income. A valuation allowance to reduce deferred tax assets is established when it is “more likely than not” that some or all of the deferred tax assets will not be realized. Management has determined that a full valuation allowance against the Company’s net deferred tax assets is appropriate at March 31, 2020 and December 31, 2019.

 

 

 

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There is no material income tax expense recorded for the three-month periods ended March 31, 2020 and 2019, due to the Company's net losses and related changes to the full valuation allowance for deferred tax assets.

  

Based on management’s evaluation of uncertainty in income taxes, the Company concluded that there were no significant uncertain tax positions requiring recognition in its financial statements or related disclosures. Accordingly, no adjustments to recorded tax liabilities or accumulated deficit were required. As of March 31, 2020, there were no increases or decreases to liability for income taxes associated with uncertain tax positions.

 

8.   CAPITAL EQUITY TRANSACTIONS

 

COMMON STOCK

 

On December 12, 2018, Proteo, Inc., entered into a Common Stock Purchase Agreement (the “Agreement”) with Jork von Reden (the “Investor”), who is also a member of the Company’s board of directors. Pursuant to the Agreement, the Company agreed to issue and sell to the Investor 1,000,000 shares of the Company’s Common Stock (the “Purchase Shares”) at the price of $0.08 per share (the “Purchase Price”), for an aggregate purchase price of $80,000. The Purchase Price was equal to the closing price of the Registrant’s common stock as quoted on the OTCQB on December 6, 2018. The initial closing of 500,000 of the Purchase Shares occurred upon the Company’s receipt of the initial payment of $40,000 of the Purchase Price in December 2018. A second closing of the remaining 500,000 Purchase Shares occurred in January 2019 (the “Second Closing Date”), at which time the Investor paid the remaining $40,000 Purchase Price.

 

On February 28, 2020, the Company entered into a Common Stock Purchase Agreement with a third-party. Pursuant to the Agreement, the Company agreed to issue and sell to the third-party 4,250,000 shares of the Company’s common stock at the price of $0.0247 per share for an aggregate purchase price of $104,975. The Purchase Price was equal to the closing price of the Company’s common stock as quoted on the Pink Open Market on February 25, 2020. During the three-months ended March 31, 2020, the Company received the purchase price pursuant to the Common Stock Purchase Agreement and issued to the third-party 4,250,000 shares of the Company’s common stock.

 

On February 29, 2020, the Company entered into a Common Stock Purchase Agreement with another third-party. Pursuant to the Agreement, the Company agreed to issue and sell to this third-party 4,250,000 shares of the Company’s common stock at the price of $0.0247 per share for an aggregate purchase price of $104,975. The Purchase Price was equal to the closing price of the Company’s common stock as quoted on the Pink Open Market on February 25, 2020. During the three-months ended March 31, 2020, the Company received the purchase price pursuant to the Common Stock Purchase Agreement and issued to the third-party 4,250,000 shares of the Company’s common stock.

 

PREFERRED STOCK

 

On September 9, 2016, the Company entered into a Preferred Stock Purchase Agreement (the “B-1 Stock Agreement”) with a third-party (“B-1 Stock Investor”). Pursuant to the B-1 Stock Agreement, the Company agreed to issue and sell to the B-1 Stock Investor 1,000,000 shares of the Company’s Series B-1 Preferred Stock at the price of 1.00 Euro per share, for an aggregate purchase price of 1,000,000 Euro. Through December 31, 2019, the Company received 120,000 Euros (approximately $139,000), and 120,000 shares of Series B-1 Preferred Stock were issued. In January 2020, the Company received an additional 10,000 Euro ($11,500) and issued 10,000 shares of Series B-1 Preferred Stock. However, the B-1 Stock Investor failed to deliver the full purchase price required under the B-1 Stock Agreement. Currently, Management believes that the Company will not receive any further payments under the B-1 Stock Agreement.

 

On April 10, 2019, the Company entered into a Preferred Stock Purchase Agreement (the “B-2 Stock Agreement”) with a Swiss corporation (the "B-2 Stock Investor"). Pursuant to the B-2 Stock Agreement, the Company agreed to issue and sell to the B-2 Stock Investor 1,000,000 shares of the Company’s Series B-2 Preferred Stock (the “Purchase Shares”) at the price of €1.00 per share (the “Purchase Price”), for an aggregate purchase price of 1,000,000 Euros. During the three months ended March 31, 2019, the Company received a deposit of 20,000 Euros ($23,000) pursuant to the B-2 Stock Agreement, which was included in accounts payable and accrued liabilities at March 31, 2019. An additional 80,000 Euros (approximately $90,000) were received during the three-months ended June 30, 2019, and 100,000 shares of Series B-2 Preferred Stock were issued during June 2019. During the three-month period ended September 30, 2019, another 59,800 Euros (approximately $67,000) were received and 59,800 shares of Series B-2 Preferred Stock were issued. In September 2019, the B-2 Stock Investor requested the Company to renegotiate the B-2 Stock Agreement. Currently, Management believes that an agreement cannot be reached and that the Company will not receive any further payments under the B-2 Stock Agreement.

 

 

 

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ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

CAUTIONARY STATEMENTS

 

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company intends that such forward-looking statements be subject to the safe harbors created by such statutes. The forward-looking statements included herein are based on current expectations that involve a number of risks and uncertainties. Accordingly, to the extent that this Quarterly Report contains forward-looking statements regarding the financial condition, operating results, business prospects or any other aspect of the Company, please be advised that the Company's actual financial condition, operating results and business performance may differ materially from that projected or estimated by management in forward-looking statements.

 

Such differences may be caused by a variety of factors, including but not limited to, the potential impact of COVID-19 on our Company, including on our business activities, adverse economic conditions, intense competition, including intensification of price competition and entry of new competitors and products, adverse federal, state and local government regulation, inadequate capital, unexpected costs and operating deficits, increases in general and administrative costs and other specific risks that may be alluded to in this Quarterly Report or in other reports issued by the Company. In addition, the business and operations of the Company are subject to substantial risks that increase the uncertainty inherent in the forward-looking statements, including those discussed in Part II, Item 1A of this Quarterly Report and in any of our subsequent reports filed with the SEC. The inclusion of forward-looking statements in this Quarterly Report should not be regarded as a representation by management or any other person that the objectives or plans of the Company will be achieved.

 

There can be no assurance that the Company's products will receive the required governmental approvals, including for marketing, in the future. Further, even if such approvals are obtained, there can be no assurance that the Company will generate positive cash flow and there can be no assurances as to the level of revenues, if any, the Company may actually achieve from its planned principal operations.

 

OVERVIEW

 

Proteo is a clinical stage drug development company focusing on the development of anti-inflammatory treatments for rare diseases with significant unmet needs. The Company's management deems its lead drug candidate Elafin for intravenous use to be one of the most prospective treatments of acute postoperative inflammatory complications, in particular after esophageal cancer surgery. Further, the Company believes that Elafin appears to be a promising compound for the treatment of pulmonary arterial hypertension, for preventing complications of organ transplantation and for treatment of acute respiratory distress syndrome (“ARDS”).

 

The Company's success, among other factors, depends on its ability to prove that Elafin is well tolerated by humans and its efficacy in the indicated diseases in order to demonstrate a favorable benefit/risk balance. There can be no assurance that the Company will receive government approval for the use of Elafin in further clinical trials or its use as a drug in any of the intended applications.

 

The Company has obtained Orphan drug designations within the European Union for the use of Elafin for the treatment of pulmonary arterial hypertension and chronic thromboembolic pulmonary hypertension as well as for the treatment of esophageal cancer. The latter indication, especially the postoperative inflammation, the main reason for postoperative morbidity, will be targeted by Elafin treatment. Within the United States, Proteo has obtained Orphan drug designations for the use of Elafin for the treatment of pulmonary arterial hypertension as well as for the prevention of inflammatory complications of transthoracic esophagectomy.

 

For the development of its lead product Elafin, Proteo has established a network of globally renowned research institutes, physicians and hospitals in Europe and the US. The development of Elafin has been widely supported by public grants. Worldwide leading funding bodies, such as the American National Institute of Health (“NIH”) and the British MRC, supported preclinical and clinical studies on Elafin with high volume grants.

 

The Company currently focuses on the clinical development of Elafin for prophylactic treatment of acute postoperative inflammatory complications in the surgical therapy of esophageal cancer and Elafin for chronical treatment of pulmonary arterial hypertension (“PAH”). Future clinical trials for PAH will be conducted in cooperation with third parties.

 

 

 

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The tolerability of Elafin in healthy male subjects was demonstrated in a Phase I clinical intravenous single dose escalating study. A placebo-controlled Phase II clinical trial on the effect of Elafin on the postoperative inflammatory reactions and postoperative clinical course was conducted in patients undergoing transthoracic esophagectomy for esophageal cancer. A further Phase II study, EMPIRE (Elafin Myocardial Protection from Ischemia Reperfusion Injury), an investigator-initiated trial at Edinburgh University, was conducted to investigate the safety and efficacy of Elafin in coronary bypass surgery. The result from the EMPIRE trial which indicates that Elafin has cardioprotective properties by reducing the cardiac troponin I release has been published in 2015 (Alam et al., Heart 2015). Further details are described in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on May 7, 2020.

  

In June 2016, we announced that our subsidiary has been awarded a BFEI grant (the “Grant”) from the German State of Schleswig-Holstein. The Grant has a volume of up to Euro 874,000 and will be used for the R&D program to develop a new formulation of Proteo's lead compound Elafin. If effective, a new Elafin formulation would allow Proteo to extend the development pipeline to treat chronic diseases, such as pulmonary arterial hypertension ("PAH"). In June 2018, we received approval from the German State of Schleswig-Holstein to extend the project under the BFEI grant for a further 12 months until November 30, 2019. In November of 2019, the Company was granted a second extension through April 30, 2020. During April 2020, the Company applied for a third extension of 6 months due to delays caused by the COVID-19 pandemic. On April 22, 2020, we received approval from the German State of Schleswig-Holstein to extend the project under the Grant for another 6 months through October 31, 2020.

 

In September 2016, we entered into a Preferred Stock Purchase Agreement (the “Agreement”) with a third-party. Pursuant to the Agreement, the Company agreed to issue and sell to the third-party 1,000,000 shares of the Company’s Series B-1 Preferred Stock at the price of 1.00 Euro per share, for an aggregate purchase price of 1,000,000 Euro. Through the end of December 31, 2019, the Company received 120,000 Euros, and 120,000 shares of Series B-1 Preferred Stock were issued. Currently, Management believes that the Company will not receive any further payments under the Agreement. See Note 8 to the accompanying condensed consolidated financial statements for additional information.

 

In October 2018, our subsidiary established the test site, Proteo R&D, for the operation of an archive in accordance with the principles of Good Laboratory Practice ("GLP") for archiving GLP documents related to our own development products. We have applied for GLP attestation of test category 9 for the test site. The GLP inspection occurred in December 2018. In February 2019, we received the GLP Certificate from the competent authority. After archiving of the first GLP documents during 2019, a GLP re-inspection occurred in September 2019. The Inspectors did not note any major deviations from GLP principles.

 

In December 2018, the Company entered into a Common Stock Purchase Agreement with the purchaser of its stock, Jork von Reden, who is also a member of our board of directors. Pursuant to the Agreement, we agreed to issue and sell to the Investor 1,000,000 shares of Proteo’s Common Stock at the price of $0.08 per share, for an aggregate purchase price of USD $80,000. The Purchase Price was equal to the closing price of our common stock as quoted on the OTCQB on December 6, 2018. See Note 8 to the accompanying condensed consolidated financial statements for additional information.

 

In March 2019, we were informed by our research partners at Stanford University School of Medicine that The Duke University Early Phase Research Unit has initiated the recruitment of healthy individuals for the Phase I clinical trial in the U.S. to assess the safety and tolerability of repeated single subcutaneous doses of Elafin. Proteo’s research partners and investigators at Stanford University School of Medicine, Dr. Marlene Rabinovitch and Dr. Roham Zamanian, are responsible for the conduct of the investigator-initiated trial. The trial with the title “Safety and Tolerability of Escalating Doses of Subcutaneous Elafin (Tiprelestat) Injection in Healthy Normal Subjects” marks the beginning of the clinical development program of Elafin for chronic use initially focusing on the treatment of patients suffering from the still fatal disease pulmonary arterial hypertension (PAH). In October 2019, we were informed by our research partners at Stanford University School of Medicine that dosing and follow-up of the last subject has been completed. No severe adverse events occurred. A final report is expected during the first half of 2020. 

 

 

 

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In April 2019, we entered into a Preferred Stock Purchase Agreement with a third-party. Pursuant to the Agreement, the Company agreed to issue and sell to the third-party 1,000,000 shares of the Company’s Series B-2 Preferred Stock at the price of 1.00 Euro per share, for an aggregate purchase price of 1,000,000 Euros. See Note 8 to the accompanying condensed consolidated financial statements for additional information.

 

In January 2020, the European Patent Office granted a patent “Use of Elafin for disorders associated with elastase independent increase in troponin” for preventing or treating certain disorders associated with cardiac muscle damage with Elafin.

 

On February 28, 2020, we entered into a Common Stock Purchase Agreement with a third-party. Pursuant to the Agreement, the Company agreed to issue and sell to the third-party 4,250,000 shares of the Company’s common stock at the price of $0.0247 per share for an aggregate purchase price of $104,975.

 

On February 29, 2020, we entered into a Common Stock Purchase Agreement with another third-party. Pursuant to the Agreement, the Company agreed to issue and sell to this third-party 4,250,000 shares of the Company’s common stock at the price of $0.0247 per share for an aggregate purchase price of $104,975.

 

During the first quarter of 2020, the Company continued its discussions to make its Elafin technology available for licensing and partnership with external partners. There can be no assurance that the Company will be successful in its pursuit of any such licensing or partnership arrangements.

 

COVID-19 Update: Following the COVID-19 diagnosis for one of the Company’s employees, the Company closed its corporate offices and requested all employees to work remotely until further notice. Due to recent developments, including the impact of the COVID-19 outbreak and disruptions in government spending, the Company is unlikely to receive funding under a new grant. At this time, we cannot predict the impact of COVID-19 on our ability to obtain financing necessary for the Company to fund our working capital requirements and on our ability to conduct preclinical and clinical trials.

 

RESULTS OF OPERATIONS

 

REVENUES

 

Revenue includes net Grant funds received or accrued in excess of research and development expenses incurred during the period. As more fully discussed below, Grant funds, net of R&D expenses for the three-month period ended March 31, 2020 approximated $500.

 

OPERATING EXPENSES

 

The Company's operating expenses for the three-month period ended March 31, 2020 were approximately $60,000, an increase of approximately $7,000 over the same period of the prior year. General and administrative expenses (mostly accounting and professional fees) for the three-month period ended March 31, 2020 increased $11,000 due primarily to increased professional fees. Research and development expenses decreased by approximately $4,000 over the same three-month period. The decrease in research and development expenses was primarily due an increase in the Grant reimbursement reported. Grant funds recorded during the three months ended March 31, 2019 approximated $31,000, which were netted against $35,000 of research and development expenses and presented research and development, net of grants, while during the three months ended March 31, 2020, Grant funds of approximately $35,000 were offset against approximately $34,000 of R&D costs and presented as net Grant revenue. This net revenue is driven by differences between eligible expense reporting under the grant agreement and expense recognition under GAAP.

 

INTEREST AND OTHER INCOME (EXPENSE)

 

Interest and other income (expense), net for the three-month period ended March 31, 2020, approximated $15,000, a decrease of $5,000 over the same period in 2019. The decrease was driven primarily by smaller foreign currency transaction gains during 2020, due to a strengthening of the U.S. Dollar compared to the Euro, compared to similar gains in 2019. Foreign currency transaction gains were primarily driven by unrealized gains and losses on accrued licensing fees related to the Licensing Agreement, which is denominated in Euros.

 

 

 

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INCOME TAXES

 

There is no material income tax expense recorded for the three-month periods ended March 31, 2020 and 2019, due to the Company's net losses. The Company had a deferred tax asset of $2,018,000 at March 31, 2020 relating primarily to tax net operating loss carryforwards and temporary differences related to the recognition of accrued licensing fees. Full valuation allowances have been established against these deferred tax assets as it is likely that the Company will not be able to utilize them.

 

The Federal NOL expires in varying years through 2025. The foreign net operating loss relates to Germany and does not have an expiration date. In the event the Company undergoes a greater than 50% change in ownership, as defined in Section 382 of the Internal Revenue Code, the utilization of the Company's Federal NOLs could be restricted.

 

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS

 

The Company experienced other comprehensive losses related to foreign currency translation adjustments of approximately ($6,000) and ($2,000) during the three-month periods ended March 31, 2020 and 2019, respectively. The changes are primarily due to a fluctuating U.S. Dollar (our reporting currency) compared to the Euro (our functional currency) during the periods.

 

LIQUIDITY AND CAPITAL RESOURCES

 

The Company owns 100% of Proteo Biotech AG, its operating subsidiary in Germany (the “Subsidiary”). To date the Subsidiary has not had any significant earnings, and it does not expect to have any significant earnings for several years pending the approval of its first product candidate. In this regard, there were no undistributed earnings of the Subsidiary to repatriate to the Company.

 

The Company continues to use cash in excess of grant funds received to support its operations and development activities, with cash used in operating activities for the three-month periods ended March 31, 2020 and 2019, approximating $29,000 and $35,000, respectively. Positive cash flows for the three-month periods ended March 31, 2020 and 2019 are driven by financing activities (mostly stock transactions), as discussed below.

 

In June 2016, the German State of Schleswig-Holstein granted the Subsidiary approximately 874,000 Euro (the “Grant”) for further research and development of the Company's pharmaceutical product Elafin. The Grant covers 50% of eligible research and development costs incurred from December 1, 2015 through October 31, 2020. Grant funds approximating $35,000 and $31,000 were recorded during the three-month periods ended March 31, 2020 and 2019, respectively.

 

In September 2016, the Company entered into a Preferred Stock Purchase Agreement (the “Agreement”) with a third-party (“Investor”). Pursuant to the Agreement, the Company agreed to issue and sell to the Investor 1,000,000 shares of the Company’s Series B-1 Preferred Stock at the price of 1.00 Euro per share, for an aggregate purchase price of 1,000,000 Euro. The initial 100,000 Euro (approximately $117,000) deposit was fully received by September 2018, with $20,000 received during the three-months ended September 30, 2018. As conditions for the initial closing were met, 100,000 shares of Series B-1 Preferred Stock were issued during September 2018. In 2019 we received 20,000 Euro and issued 20,000 shares of Series B-1 Preferred Stock. In January 2020 we received an additional 10,000 Euro and issued 10,000 shares of Series B-1 Preferred Stock. However, the Investor failed to deliver the full purchase price. Currently, Management believes that the Company will not receive any further payments under the B-1 Stock Agreement.. See Note 8 to the accompanying condensed consolidated financial statements for additional information.

 

In December 2018, the Company entered into a Common Stock Purchase Agreement with the purchaser of its stock, Jork von Reden (the “Investor”). Pursuant to the Agreement, we agreed to issue and sell to the Investor 1,000,000 shares of Proteo’s Common Stock at the price of $0.08 per share, for an aggregate purchase price of USD $80,000. We received $40,000 in December 2018 and $40,000 in January 2019 under this agreement. 

 

In April 2019, the Company entered into a Preferred Stock Purchase Agreement with a third-party. Pursuant to the Agreement, the Company agreed to issue and sell to the Investor 1,000,000 shares of the Company’s Series B-2 Preferred Stock at the price of 1.00 Euro per share, for an aggregate purchase price of 1,000,000 Euros. The initial 100,000 Euros (approximately $113,000) deposit was fully received by June 2019. As conditions for the initial closing were met, 100,000 shares of Series B-2 Preferred Stock were issued during June 2019. During the three-month period ended September 30, 2019, further 59,800 Euros (approximately $67,000) were received and 59,800 shares of Series B-2 Preferred Stock were issued. In September 2019 the B-2 Stock Investor requested the Company to renegotiate the Preferred Stock Purchase Agreement. Currently, Management believes that an agreement cannot be reached and that the Company will not receive any further payments under the B-2 Stock Agreement.

 

 

 

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In November 2019, Dr. Wiedow agreed in writing to waive any non-payment defaults under the License Agreement and to defer all current payments to November 15, 2021. See Note 5 to the condensed consolidated financial statements included elsewhere for the payment terms under the License Agreement.

 

On February 28, 2020, we entered into a Common Stock Purchase Agreement with a third-party. Pursuant to the Agreement, the Company agreed to issue and sell to Investor 4,250,000 shares of the Company’s common stock at the price of $0.0247 per share for an aggregate purchase price of $104,975. In March 2020 we received $104,975 under this agreement.

 

On February 29, 2020, we entered into a Common Stock Purchase Agreement with a third-party. Pursuant to the Agreement, the Company agreed to issue and sell to Investor 4,250,000 shares of the Company’s common stock at the price of $0.0247 per share for an aggregate purchase price of $104,975. In March 2020 we received $104,975 under this agreement.

 

On March 10, 2020, the World Health Organization declared the COVID-19 outbreak to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, quarantines in certain areas, and forced closures for certain types of public places and businesses. The coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical areas in which the Company operates. While it is unknown how long these conditions will last and what the complete financial effects will be to the Company, the Company believes it reasonably possible that it is vulnerable to the risk of a near-term severe impact. The coronavirus has caused a substantial disruption in U.S. and international financial markets. Our business may suffer from the severity or longevity of the COVID-19 outbreak. COVID-19 is currently impacting countries, communities, supply chains and markets, as well as the global financial markets. To date, COVID-19 has not had a material impact on the Company. However, the Company cannot predict whether COVID-19 will have a material impact on our financial condition and results of operations due to understaffing, disruptions in government spending, among other factors. In addition, at this time we cannot predict the impact of COVID-19 on our ability to obtain financing necessary for the Company to fund its working capita1 requirements and our ability to conduct preclinical and clinical studies. In most respects, it is too early in the COVID-19 pandemic to be able to quantify or qualify the longer-term ramifications on our business and/or our potential investors.

 

The Company has cash approximating $285,000 at March 31, 2020. Such cash is held by the Subsidiary in Germany in Euro and is to be used to fund the Subsidiary’s continued operations. The Company does not intend to repatriate any amount of this cash to the United States. Given the Company's current cash on hand and the Grant of the German State of Schleswig-Holstein, management believes the Company will have sufficient cash resources to cover its operations through one year from the filing of this Form 10-Q. As for periods beyond this filing, we expect to continue to direct the majority of our research and development expenses towards the development of Elafin. It is extremely difficult for us to reasonably estimate all future research and development costs associated with Elafin due to the number of unknowns and uncertainties associated with preclinical and clinical trial development.

 

These unknown variables and uncertainties include, but are not limited to:

 

  · the uncertainty of future clinical trial results;
  · the uncertainty of the ultimate number of patients to be treated in any current or future clinical trial;
  · the uncertainty of the applicable regulatory bodies allowing our studies to move forward;
  · the uncertainty of the rate at which patients are enrolled into any current or future study. Any delays in clinical trials could significantly increase the cost of the study and would extend the estimated completion dates;
  · the uncertainty of terms related to potential future partnering or licensing arrangements;
  · the uncertainty of protocol changes and modifications in the design of our clinical trial studies, which may increase or decrease our future costs,
  · the uncertainty of the influence of the COVID-19 pandemic on the ability to conduct preclinical and clinical trials, Closure of study sites, interruptions of study conduct and any impairment of the ability to follow the study protocols may have substantial impact on study results and may also lead to delays and premature termination.
  · the uncertainty of our ability to raise additional capital to support our future research and development efforts;

 

 

 

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As a result of the foregoing, the Company's success will largely depend on its ability to generate revenues from out-licensing activities, secure additional funding through the sale of its Common/Preferred Stock and/or the sale of debt securities. There can be no assurance, however, that the Company will be able to generate revenues from out-licensing activities and/or to consummate debt or equity financing in a timely manner, or on a basis favorable to the Company, if at all. If we are unable to secure additional financing when needed, we may choose to delay or reduce other spending including Elafin research and development spending.

 

GRANT FUNDS RECEIVABLE

 

Grant funds receivable decreased from $34,000 at December 31, 2019 to $20,000 at March 31, 2020. The Company received approximately $34,000 during the three-month period ended March 31, 2020 and submitted an additional $20,000 for reimbursement that was not received by March 31, 2020.

 

LONG TERM ASSETS

 

The Company’s capitalized property and equipment, which are all located in Germany, decreased during 2020, primarily due to amortization.

 

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

Accounts payable and accrued liabilities increased from $110,000 at December 31, 2019 to $128,000 at March 31, 2020, primarily due to the increase in operating expenses, as previously discussed.

 

ACCRUED LICENSING FEES - RELATED PARTY

 

Accrued licensing fees decreased from $639,000 at December 31, 2019 to $627,000 at March 31, 2020, due to a strengthening of the U.S. Dollar compared to Euro. The Licensing Agreement is denominated in Euro, and the accrued licensing fee was 570,000 Euro at both March 31, 2020 and December 31, 2019.

 

OTHER LIABILITIES

 

Other liabilities at March 31, 2020 and December 31, 2019 consist of employee compensation that was incurred in 2015 to 2017, but for which payment was agreed to be deferred until 2021.

 

OFF BALANCE SHEET ARRANGEMENTS

 

The Company does not currently have any off-balance sheet arrangements.

 

CAPITAL EXPENDITURES

 

The Company does not have any material capital expenditures.

 

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

A smaller reporting company ("SRC") is not required to provide any information in response to Item 305 of Regulation S-K.

 

 

 

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ITEM 4.   CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including to Dr. Oliver Wiedow, our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

As required by Rule 13a-15 under the Exchange Act, our management, including Dr. Wiedow our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2020. Based on that evaluation, Dr. Wiedow concluded that as of March 31, 2020, our disclosure controls and procedures were effective.

 

Changes in Internal Control Over Financial Reporting

 

Our management, with the participation of Dr. Wiedow, our Chief Executive Officer and Chief Financial Officer, has concluded there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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PART II - OTHER INFORMATION

 

ITEM 1.  LEGAL PROCEEDINGS.

 

None.

 

ITEM 1A. RISK FACTORS.

 

Our business may suffer from the severity or longevity of the COVID-19 outbreak. COVID-19 is currently impacting countries, communities, supply chains and markets, as well as the global financial markets. To date, COVID-19 has not had a material impact on the Company. However, the Company cannot predict whether COVID-19 will have a material impact on our financial condition and results of operations due to understaffing, disruptions in government spending, among other factors. In addition, at this time we cannot predict the impact of COVID-19 on our ability to obtain financing necessary for the Company to fund its working capita1 requirements and our ability to conduct preclinical and clinical studies. In most respects, it is too early in the COVID-19 pandemic to be able to quantify or qualify the longer-term ramifications on our business and/or our potential investors.

 

Further risk factors are not disclosed, as a SRC is not required to provide any information in response to Item 503(c) of Regulation S-K.

 

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

All sales of unregistered securities during the three months ended March 31, 2020 have previously been disclosed in our Current Report on Form 8-K filed with the SEC on March 3, 2020.

 

 

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4.  MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5.  OTHER INFORMATION.

 

None.

 

 

 

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ITEM 6.  EXHIBITS.

 

Exhibits:

10.1 Common Stock Purchase Agreement, dated February 28, 2020, between Proteo, Inc. and Kai Bartels (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 3, 2020)
   
10.2 Common Stock Purchase Agreement, dated February 29, 2020, between Proteo, Inc. and Diethelm Siebuhr (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 3, 2020)
   
31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
101.INS XBRL Instance Document
101.SCH XBRL Schema Document
101.CAL XBRL Calculation Linkbase Document
101.DEF XBRL Definition Linkbase Document
101.LAB XBRL Label Linkbase Document
101.PRE XBRL Presentation Linkbase Document

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  PROTEO, INC.  
       
Dated: June 4, 2020 By: /s/ Oliver Wiedow  
    Oliver Wiedow  
   

Chief Executive Officer

and Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer and Principal Accounting Officer)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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