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, 2019

or

[  ] 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: 000-51353



PROTAGENIC
THERAPEUTICS, INC.

(Exact
name of registrant as specified in its charter)



|Delaware                            |  | 06-1390025             
|----------------------------------- |  | -----------------------
|(State or other
    jurisdiction of |  | (I.R.S. Employer       
|incorporation
    or organization)  |  | Identification
    No.)



149
Fifth Avenue, Suite 500, New York, New York 10010

(Address
of Principal Executive Office) (Zip Code)



(212)
994-8200

Registrant’s
Telephone Number Including Area Code





Securities registered pursuant to Section
12(b) of the Act:



|Title of each
    class |  | Ticker symbol(s) |  | Name of each
    exchange on which registered
|----------------------- |  | ---------------- |  | ---------------------------------------------
|N/A                     |  | N/A              |  | N/A                                          



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 [  ]



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 [  ]



Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting
company or 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 | [  ] | Accelerated filer         | [  ]
|----------------------- | ---- | ------------------------- | ----
|Non-accelerated filer   | [X]  | Smaller reporting company | [X] 
|Emerging Growth Company | [  ] |                           |     



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. [  ]



Indicate
by check mark whether the registrant is a shell company (as defined in Rule 126-2 of the Exchange Act). [  ] Yes [X]
No



As
of May 15, 2019, there were 10,261,419 shares of common stock outstanding.
























PROTAGENIC
THERAPEUTICS, INC.

Form
10-Q Report

For
the Fiscal Quarter Ended March 31, 2019

TABLE
OF CONTENTS



|           |                                                                                                                                       | Page
|---------- | ------------------------------------------------------------------------------------------------------------------------------------- | ----
|Part I.    | Financial Information                                                                                                                 |     
|           |                                                                                                                                       |     
|Item 1     | Financial Statements:                                                                                                                 | 3   
|           |                                                                                                                                       |     
|           | Condensed Consolidated Balance Sheets at March 31, 2019 (unaudited) and December 31, 2018                                             | 3   
|           |                                                                                                                                       |     
|           | Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2019 and 2018 (unaudited) | 4   
|           |                                                                                                                                       |     
|           | Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2019 and 2018 (unaudited)              | 5   
|           |                                                                                                                                       |     
|           | Condensed
    Consolidated Statements of Cash Flows for three months ended March 31, 2019 and 2018 (unaudited)                        | 6   
|           |                                                                                                                                       |     
|           | Notes to Condensed Consolidated Financial Statements (unaudited)                                                                      | 7   
|           |                                                                                                                                       |     
|Item 2     | Management’s Discussion and Analysis of Financial Condition and Results of Operations                                                 | 17  
|           |                                                                                                                                       |     
|Item 3     | Quantitative and Qualitative Disclosures about Market Risk                                                                            | 18  
|           |                                                                                                                                       |     
|Item 4     | Controls and Procedures                                                                                                               | 18  
|           |                                                                                                                                       |     
|Part II.   | Other Information                                                                                                                     |     
|           |                                                                                                                                       |     
|Item 1     | Legal Proceedings                                                                                                                     | 19  
|           |                                                                                                                                       |     
|Item 1A    | Risk Factors                                                                                                                          | 19  
|           |                                                                                                                                       |     
|Item 2     | Unregistered Sales of Equity Securities and Use of Proceeds                                                                           | 19  
|           |                                                                                                                                       |     
|Item 3     | Defaults upon Senior Securities                                                                                                       | 19  
|           |                                                                                                                                       |     
|Item 4     | Mine Safety Disclosures                                                                                                               | 19  
|           |                                                                                                                                       |     
|Item 5     | Other Information                                                                                                                     | 19  
|           |                                                                                                                                       |     
|Item 6     | Exhibits                                                                                                                              | 19  
|           |                                                                                                                                       |     
|Signatures | 20                                                                                                                                   





2









PART
I - FINANCIAL INFORMATION

Item
1. Financial Statements



PROTAGENIC
THERAPEUTICS, INC., AND SUBSIDIARY

CONDENSED
CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                                          |  | March 31, 2019 |             |   | December
31, 2018 |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | - | ----------------- | -
|                                                                                                                                                                                          |  | (Unaudited)    |             |   |                   |  
|ASSETS                                                                                                                                                                                    |  |                |             |   |                   |  
|                                                                                                                                                                                          |  |                |             |   |                   |  
|CURRENT ASSETS                                                                                                                                                                            |  |                |             |   |                   |  
|                                                                                                                                                                                          |  |                |             |   |                   |  
|Cash and cash equivalents                                                                                                                                                                 |  | $              | 419,334     |   |                   | $
|Marketable securities                                                                                                                                                                     |  |                | -           |   |                   |  
|Prepaid expenses                                                                                                                                                                          |  |                | 44,907      |   |                   |  
|                                                                                                                                                                                          |  |                |             |   |                   |  
|TOTAL CURRENT ASSETS                                                                                                                                                                      |  |                | 464,241     |   |                   |  
|                                                                                                                                                                                          |  |                |             |   |                   |  
|EQUIPMENT - NET                                                                                                                                                                           |  |                | 540         |   |                   |  
|                                                                                                                                                                                          |  |                |             |   |                   |  
|TOTAL ASSETS                                                                                                                                                                              |  | $              | 464,781     |   |                   | $
|                                                                                                                                                                                          |  |                |             |   |                   |  
|LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                                                                                                                                            |  |                |             |   |                   |  
|                                                                                                                                                                                          |  |                |             |   |                   |  
|CURRENT LIABILITIES                                                                                                                                                                       |  |                |             |   |                   |  
|                                                                                                                                                                                          |  |                |             |   |                   |  
|Accounts payable and accrued expenses                                                                                                                                                     |  |                | 199,924     |   |                   |  
|Derivative liability                                                                                                                                                                      |  |                | 626,677     |   |                   |  
|                                                                                                                                                                                          |  |                |             |   |                   |  
|TOTAL CURRENT LIABILITIES                                                                                                                                                                 |  |                | 826,601     |   |                   |  
|                                                                                                                                                                                          |  |                |             |   |                   |  
|STOCKHOLDERS’ EQUITY (DEFICIT)                                                                                                                                                            |  |                |             |   |                   |  
|                                                                                                                                                                                          |  |                |             |   |                   |  
|Preferred stock, $0.000001 par value; 20,000,000 shares authorized; 872,766 shares issued and
    outstanding in the following classes:                                                   |  |                |             |   |                   |  
|Preferred stock; par value $0.000001; 2,000,000 shares authorized; none issued and
    outstanding                                                                                        |  |                | -           |   |                   |  
|Series B convertible preferred stock, $0.000001 par value; 18,000,000 shares authorized; 872,766
    shares issued and outstanding at March 31, 2019, and December 31, 2018, respectively |  |                | 1           |   |                   |  
|Common stock, $.0001 par value, 100,000,000 shares authorized, 10,261,419 shares issued and
    outstanding at March 31 2019, and December 31, 2018, respectively                         |  |                | 1,026       |   |                   |  
|Additional paid-in-capital                                                                                                                                                                |  |                | 13,809,061  |   |                   |  
|Accumulated deficit                                                                                                                                                                       |  |                | (13,998,522 | ) |                   |  
|Accumulated other comprehensive loss                                                                                                                                                      |  |                | (173,386    | ) |                   |  
|                                                                                                                                                                                          |  |                |             |   |                   |  
|TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)                                                                                                                                                      |  |                | (361,820    | ) |                   |  
|                                                                                                                                                                                          |  |                |             |   |                   |  
|                                                                                                                                                                                          |  |                |             |   |                   |  
|TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                                                                                                                                      |  | $              | 464,781     |   |                   | $



See
accompanying notes to the unaudited condensed consolidated financial statements



3







PROTAGENIC
THERAPEUTICS, INC., AND SUBSIDIARY

CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS



|                                                   |  | For the three months ended March 31, |           
|-------------------------------------------------- |  | ------------------------------------ | ----------
|                                                   |  | 2019                                 |           
|                                                   |  | (Unaudited)                          |           
|OPERATING AND ADMINISTRATIVE EXPENSES              |  |                                      |           
|Research and development                           |  |                                      | 135,411   
|General and administrative                         |  |                                      | 518,604   
|                                                   |  |                                      |           
|TOTAL OPERATING AND ADMINISTRATIVE EXPENSES        |  |                                      | 654,015   
|                                                   |  |                                      |           
|LOSS FROM OPERATIONS                               |  |                                      | (654,015  
|                                                   |  |                                      |           
|OTHER (EXPENSE) INCOME                             |  |                                      |           
|                                                   |  |                                      |           
|Interest income                                    |  |                                      | 946       
|Realized gain on marketable securities             |  |                                      | 4,435     
|Change in fair value of derivative liability       |  |                                      | 49,402    
|                                                   |  |                                      |           
|TOTAL OTHER INCOME (EXPENSES)                      |  |                                      | 54,783    
|                                                   |  |                                      |           
|LOSS BEFORE TAX                                    |  |                                      | (599,232  
|                                                   |  |                                      |           
|INCOME TAX EXPENSE                                 |  |                                      | -         
|                                                   |  |                                      |           
|NET LOSS                                           |  | $                                    | (599,232  
|                                                   |  |                                      |           
|COMPREHENSIVE LOSS                                 |  |                                      |           
|                                                   |  |                                      |           
|Other Comprehensive Loss - net of tax              |  |                                      |           
|Net unrealized loss on marketable securities       |  |                                      | -         
|Foreign exchange translation loss                  |  |                                      | (7,669    
|                                                   |  |                                      |           
|TOTAL COMPREHENSIVE LOSS                           |  | $                                    | (606,901  
|                                                   |  |                                      |           
|Weighted average common shares - Diluted           |  |                                      |           
|                                                   |  |                                      |           
|Net loss per share - Basic and Diluted             |  | $                                    | (0.06     
|                                                   |  |                                      |           
|Weighted average common shares - Basic and Diluted |  |                                      | 10,261,419



See
accompanying notes to the unaudited condensed consolidated financial statements



4







PROTAGENIC
THERAPEUTICS, INC., AND SUBSIDIARY

CONDENSED
CONSOLIDATED STOCKHOLDERS’ EQUITY (DEFICIT)

For the three months Ended March 31, 2018 and the three months ended March 31, 2019

(Unaudited)



|                                                |  | Series
    B Convertible Preferred Stock |         |  | Common
    Stock |   |   | Additional
                                                                      Paid-in- |  |  | Accumulated |  |  | Treasury
    Stock |       |  | Accumulated
                                         Other
                                                                      Comprehensive |   |            | Stockholders’
                                                                      (Deficit) | 
|----------------------------------------------- |  | ---------------------------------------- | ------- |  | ---------------- | - | - | ----------------------------------------------------------------------------------------- |  |  | ----------- |  |  | ------------------ | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------- | --------------------------------------------------------------------------------------------- | 
|                                                |  | Shares                                   |         |  | Amount           |   |   | Shares                                                                                    |  |  | Amount      |  |  | Capital            |       |  | (Deficit)                                                                                                                                      |   |            | Shares                                                                                        | 
|                                                |  |                                          |         |  |                  |   |   |                                                                                           |  |  |             |  |  |                    |       |  |                                                                                                                                                |   |            |                                                                                               | 
|For the three months ended March 31, 2018       |  |                                          |         |  |                  |   |   |                                                                                           |  |  |             |  |  |                    |       |  |                                                                                                                                                |   |            |                                                                                               | 
|                                                |  |                                          |         |  |                  |   |   |                                                                                           |  |  |             |  |  |                    |       |  |                                                                                                                                                |   |            |                                                                                               | 
|BALANCE -December 31, 2017                      |  |                                          | 872,766 |  |                  | $ | 1 |                                                                                           |  |  | 10,261,419  |  |  | $                  | 1,026 |  |                                                                                                                                                | $ | 12,227,849 |                                                                                               | 
|                                                |  |                                          |         |  |                  |   |   |                                                                                           |  |  |             |  |  |                    |       |  |                                                                                                                                                |   |            |                                                                                               | 
|Unrealized gain (loss) on marketable securities |  |                                          |         |  |                  |   |   |                                                                                           |  |  |             |  |  |                    |       |  |                                                                                                                                                |   |            |                                                                                               | 
|Foreign currency translation loss               |  |                                          |         |  |                  |   |   |                                                                                           |  |  |             |  |  |                    |       |  |                                                                                                                                                |   |            |                                                                                               | 
|Stock compensation - stock options              |  |                                          |         |  |                  |   |   |                                                                                           |  |  |             |  |  |                    |       |  |                                                                                                                                                |   | 344,647    |                                                                                               | 
|                                                |  |                                          |         |  |                  |   |   |                                                                                           |  |  |             |  |  |                    |       |  |                                                                                                                                                |   |            |                                                                                               | 
|Net loss                                        |  |                                          |         |  |                  |   |   |                                                                                           |  |  |             |  |  |                    |       |  |                                                                                                                                                |   |            |                                                                                               | 
|                                                |  |                                          |         |  |                  |   |   |                                                                                           |  |  |             |  |  |                    |       |  |                                                                                                                                                |   |            |                                                                                               | 
|BALANCE -March 31, 2018                         |  |                                          | 872,766 |  |                  | $ | 1 |                                                                                           |  |  | 10,261,419  |  |  | $                  | 1,026 |  |                                                                                                                                                | $ | 12,572,496 |                                                                                               | 
|                                                |  |                                          |         |  |                  |   |   |                                                                                           |  |  |             |  |  |                    |       |  |                                                                                                                                                |   |            |                                                                                               | 
|For the three months ended March 31, 2019       |  |                                          |         |  |                  |   |   |                                                                                           |  |  |             |  |  |                    |       |  |                                                                                                                                                |   |            |                                                                                               | 
|                                                |  |                                          |         |  |                  |   |   |                                                                                           |  |  |             |  |  |                    |       |  |                                                                                                                                                |   |            |                                                                                               | 
|BALANCE - December 31, 2018                     |  |                                          | 872,766 |  |                  | $ | 1 |                                                                                           |  |  | 10,261,419  |  |  | $                  | 1,026 |  |                                                                                                                                                | $ | 13,357,920 |                                                                                               | 
|                                                |  |                                          |         |  |                  |   |   |                                                                                           |  |  |             |  |  |                    |       |  |                                                                                                                                                |   |            |                                                                                               | 
|Unrealized loss on marketable securities        |  |                                          |         |  |                  |   |   |                                                                                           |  |  |             |  |  |                    |       |  |                                                                                                                                                |   |            |                                                                                               | 
|Foreign currency translation loss               |  |                                          |         |  |                  |   |   |                                                                                           |  |  |             |  |  |                    |       |  |                                                                                                                                                |   |            |                                                                                               | 
|Stock compensation - stock options              |  |                                          |         |  |                  |   |   |                                                                                           |  |  |             |  |  |                    |       |  |                                                                                                                                                |   | 451,141    |                                                                                               | 
|                                                |  |                                          |         |  |                  |   |   |                                                                                           |  |  |             |  |  |                    |       |  |                                                                                                                                                |   |            |                                                                                               | 
|Net loss                                        |  |                                          |         |  |                  |   |   |                                                                                           |  |  |             |  |  |                    |       |  |                                                                                                                                                |   |            |                                                                                               | 
|                                                |  |                                          |         |  |                  |   |   |                                                                                           |  |  |             |  |  |                    |       |  |                                                                                                                                                |   |            |                                                                                               | 
|BALANCE -March 31, 2019                         |  |                                          | 872,766 |  |                  | $ | 1 |                                                                                           |  |  | 10,261,419  |  |  | $                  | 1,026 |  |                                                                                                                                                | $ | 13,809,061 |                                                                                               | 



See
accompanying notes to the unaudited condensed consolidated financial statements



5









PROTAGENIC
THERAPEUTICS, INC., AND SUBSIDIARY

CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                               |  | For the three months ended March 31, |         
|------------------------------------------------------------------------------ |  | ------------------------------------ | --------
|                                                                               |  | 2019                                 |         
|                                                                               |  | (Unaudited)                          |         
|                                                                               |  |                                      |         
|CASH FLOWS FROM OPERATING ACTIVITIES                                           |  |                                      |         
|Net Loss                                                                       |  | $                                    | (599,232
|Adjustments to reconcile net loss to net cash used in operating
    activities |  |                                      |         
|Depreciation expense                                                           |  |                                      | 85      
|Stock based compensation                                                       |  |                                      | 451,141 
|Change in fair value of the derivative liability                               |  |                                      | (49,402 
|Gain on sale of marketable securities                                          |  |                                      | (4,435  
|Changes in operating assets and liabilities                                    |  |                                      |         
|Prepaid expenses                                                               |  |                                      | 38,492  
|Accounts payable and accrued expenses                                          |  |                                      | (32,664 
|                                                                               |  |                                      |         
|NET CASH USED IN OPERATING ACTIVITIES                                          |  |                                      | (196,015
|                                                                               |  |                                      |         
|CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES                          |  |                                      |         
|                                                                               |  |                                      |         
|Sale of marketable securities                                                  |  |                                      | 250,000 
|Purchase of marketable securities                                              |  |                                      | -       
|                                                                               |  |                                      |         
|NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                            |  |                                      | 250,000 
|                                                                               |  |                                      |         
|Effect of exchange rate on cash and cash equivalents                           |  |                                      | 2,863   
|                                                                               |  |                                      |         
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                           |  |                                      | 56,848  
|                                                                               |  |                                      |         
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                 |  |                                      | 362,486 
|                                                                               |  |                                      |         
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                       |  | $                                    | 419,334 
|                                                                               |  |                                      |         
|                                                                               |  |                                      |         
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                              |  |                                      |         
|Cash paid for interest expense                                                 |  | $                                    | -       
|Cash paid for income taxes                                                     |  | $                                    | -       
|                                                                               |  |                                      |         
|NONCASH TRANSACTIONS                                                           |  |                                      |         
|Unrealized (gain) loss on marketable securities                                |  | $                                    | 4,823   



See
accompanying notes to the unaudited condensed consolidated financial statements





6









PROTAGENIC
THERAPEUTICS, INC & SUBSIDIARY

NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March
31, 2019



NOTE
1 – ORGANIZATION AND NATURE OF BUSINESS



Company
Background



Protagenic
Therapeutics, Inc. (“we,” “our,” “Protagenic” or “the Company”), is a Delaware
corporation with one subsidiary named Protagenic Therapeutics Canada (2006) Inc. (“PTI Canada”), a corporation
formed in 2006 under the laws of the Province of Ontario, Canada.



The
Company was previously known as Atrinsic, Inc., a company that was once a reporting company under the Securities Exchange Act
of 1934, but that, in 2012 and 2013, reorganized under Chapter 11 of the United States Bankruptcy Code and emerged from bankruptcy.
On February 12, 2016, the Company acquired Protagenic Therapeutics, Inc. (“Prior Protagenic”) through a reverse
merger.



On
February 12, 2016, Protagenic Acquisition Corp., a wholly-owned subsidiary of the Company (which at the time was named Atrinsic,
Inc.), merged (the “Merger”) with and into Prior Protagenic. Prior Protagenic was the surviving corporation of the
Merger. As a result of the Merger, the Company acquired the business of Prior Protagenic and has continued the existing
business operations of Prior Protagenic as a wholly-owned subsidiary. On June 17, 2016, Prior Protagenic merged with and into
the Company with the Company as the surviving corporation in the merger. Immediately thereafter, the Company changed its name
from Atrinsic, Inc. to Protagenic Therapeutics, Inc.



NOTE
2 - GOING CONCERN



As
shown in the accompanying condensed consolidated financial statements, the Company incurred a net loss of $599,232 and $598,159
for the three months ended March 31, 2019 and 2018, respectively. The Company has incurred losses since inception resulting in
an accumulated deficit of $13,998,522 as of March 31, 2019. The Company anticipates further losses in the development of its business.
The Company had a net working capital deficit of $362,360 as of March 31, 2019 as a result of the continuing operations
of the Company. Based on its current forecast and budget, management believes that its cash resources will be sufficient
to fund its operations at least until the end of the third quarter of 2019. Absent generation of sufficient revenue from the execution
of the Company’s business plan, the Company will need to obtain debt or equity financing by the fourth quarter of
2019.



As
reflected in the condensed consolidated financial statements, the Company had an accumulated deficit at March 31, 2019,
a net loss, and net cash used in operating activities for the three months ended March 31, 2019. These factors raise substantial
doubt about the Company’s ability to continue as a going concern.



NOTE
3 - SUMMARY OF SIGNFICANT ACCOUNTING POLICIES



Basis
of presentation



The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules and
regulations of the Securities and Exchange Commission (“SEC” for interim financial information. In the opinion of
the Company’s management, the accompanying condensed consolidated financial statements reflect all adjustments, consisting
of normal, recurring adjustments, considered necessary for a fair presentation of the results for the interim periods ended March
31, 2019 and 2018. As this is an interim period financial statement, certain adjustments are not necessary as with a financial
period of a full year. Although management believes that the disclosures in these unaudited condensed consolidated financial statements
are adequate to make the information presented not misleading, certain information and footnote disclosures normally included
in financial statements that have been prepared in accordance U.S. GAAP have been condensed or omitted pursuant to the rules and
regulations of the SEC.



7







The
accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s financial
statements for the year ended December 31, 2018, which contains the audited financial statements and notes thereto, for the years
ended December 31, 2018 and 2017 included within the Company’s Form 10-K filed with the SEC on March 29, 2019. The
interim results for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the
year ended December 31, 2019 or for any future interim periods.



Principles
of consolidation



The
condensed consolidated financial statements include the accounts of Protagenic Therapeutics, Inc., and its wholly owned Canadian
subsidiary, PTI Canada. All significant intercompany balances and transactions have been eliminated in the condensed consolidated
financial statements.



Use
of estimates



The
preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the condensed consolidated financial statements and the reported amounts of revenue and expense during the reporting
period. Actual results could differ from those estimates. Significant estimates underlying the condensed consolidated financial
statements include the allocation of the fair value of acquired assets and liabilities associated with the Merger, income tax
provisions, valuation of stock options and warrants and assessment of deferred tax asset valuation allowance.



Concentrations
of Credit Risk



The
Company maintains its cash accounts at financial institutions which are insured by the Federal Deposit Insurance Corporation.
At times, the Company may have deposits in excess of federally insured limits.



Cash
and Cash Equivalents



The
Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
While the Company’s marketable securities are cash equivalents it is the Company’s policy to present them separately
on the balance sheet. As of March 31, 2019, and December 31, 2018, the Company did not have any cash equivalents.



Equipment



Equipment
is stated at cost less accumulated depreciation. Cost includes expenditures for computer equipment. Maintenance and repairs are
charged to expense as incurred. When assets are sold, retired, or otherwise disposed of, the cost and accumulated depreciation
are removed from the accounts and any resulting gain or loss is reflected in operations. The cost of equipment is depreciated
using the straight-line method over the estimated useful lives of the related assets which is three years. Depreciation expense
was not material for the three months ended March 31, 2019 and 2018.



Marketable
Securities



The
Company accounts for marketable debt securities, the only type of securities it owns, in accordance with sub-topic 320-10 of the
FASB Accounting Standards Codification (“Sub-topic 320-10”).



8







Pursuant
to Paragraph 320-10-35-1, investments in debt securities that are classified as available for sale shall be measured subsequently
at fair value in the condensed consolidated balance sheets at each balance sheet date. Unrealized holding gains and losses for
available-for-sale securities (including those classified as current assets) shall be excluded from earnings and reported in other
comprehensive income until realized.



During
the three months ended March 31, 2019 the Company purchased $0 and sold $250,000 in marketable securities with a realized gain
of $4,435 and an unrealized gain of $0. As of March 31, 2019 and December 31, 2018, the Company owned marketable securities
with a total value of $0 and $250,388, respectively.



As
of March 31, 2019, the Company held no marketable securities.



Fair
Value Measurements



ASC
820, “Fair Value Measurements and Disclosure,” 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.



The
carrying amount of the Company’s financial assets and liabilities, such as cash, accounts payable and accrued expenses approximate
their fair value because of the short maturity of those instruments.



Transactions
involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of
competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply
that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions
unless such representations can be substantiated.



The
assets or liability’s fair value measurement within the fair value hierarchy is based upon the lowest level of any input
that is significant to the fair value measurement. The following table provides a summary of financial instruments that are measured
at fair value as of March 31, 2019.



|                                    |  | Carrying |          |   | Fair
    Value Measurement Using |  
|----------------------------------- |  | -------- | -------- | - | -------------------------------- | -
|                                    |  | Value    |          |   | Level
    1                      |  
|                                    |  |          |          |   |                                  |  
|Marketable
    securities           |  |          | —        |   |                                  |  
|Derivative warrants
    liabilities |  | $        | (626,677 | ) |                                  | $



The
following table provides a summary of financial instruments that are measured at fair value as of December 31, 2018.



|                                    |  | Carrying |          |   | Fair
    Value Measurement Using |  
|----------------------------------- |  | -------- | -------- | - | -------------------------------- | -
|                                    |  | Value    |          |   | Level
    1                      |  
|                                    |  |          |          |   |                                  |  
|Marketable
    securities           |  |          | 250,388  |   |                                  |  
|Derivative warrants
    liabilities |  | $        | (676,079 | ) |                                  | $





9







The
table below provides a summary of the changes in fair value, including net transfers in and/or out, of all financial assets and
liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months
ended March 31, 2019 and the year ended December 31, 2018:



|                                                            |  | Fair
        Value Measurement
        Using
        Level 3 |         
|----------------------------------------------------------- |  | ------------------------------------------------------------ | --------
|                                                            |  | Inputs
    Total                                             |         
|Balance, December 31, 2017                                  |  | $                                                            | 425,838 
|Change in fair
    value of derivative warrants liabilities |  |                                                              | (250,241
|Balance, December 31, 2018                                  |  |                                                              | 676,079 
|Change in fair
    value of derivative warrants liabilities |  |                                                              | (49,402 
|Balance, March
    31, 2019                                 |  | $                                                            | 626,677 



The
fair value of the derivative feature of the 127,346 and 295,945 warrants issued to the placement agent of the Company’s
2016 private offering and to a holder of its debt for debt cancellation in connection with the Merger, respectively
on the issuance dates and at the balance sheet date were calculated using a Black-Scholes option model valued with the following
assumptions:



|                            |  | December
    31, 2018 |            |   | March
    31, 2019 | 
|--------------------------- |  | --------------------- | ---------- | - | ------------------ | 
|Exercise price              |  |                       | 1.25       |   |                    | 
|Risk free interest
    rate |  |                       | 2.46       | % |                    | 
|Dividend yield              |  |                       | 0.00       | % |                    | 
|Expected volatility         |  |                       | 152        | % |                    | 
|Contractual term            |  |                       | 2.15 Years |   |                    | 



Risk-free
interest rate: The Company uses the risk-free interest rate of a U.S. Treasury Note with a similar expected term on the date of
measurement.



Dividend
yield: The Company uses a 0% expected dividend yield as the Company has not paid dividends to date and does not anticipate declaring
dividends in the near future.



Volatility:
The Company calculates the expected volatility of the stock price based on the corresponding volatility of the Company’s
peer group stock price for a period consistent with the warrants’ expected term.



Expected
term: The Company’s expected term is based on the remaining contractual maturity of the warrants.



During
the three months ended March 31, 2019 and 2018, the Company marked the derivative feature of the warrants to fair value and recorded
a gain of $49,402 and a gain of $6,160 relating to the change in fair value, respectively.



Derivative
Liability



The
Company evaluates its options, warrants or other contracts, if any, to determine if those contracts or embedded components of
those contracts qualify as derivatives to be separately accounted for in accordance with ASC 815-10-05-4 and 815-40-25. The result
of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and
recorded as either an asset or a liability. In the event that the fair value is recorded as a liability, the change in fair value
is recorded in the condensed consolidated statement of operations as other income or expense. Upon conversion, exercise or cancellation
of a derivative instrument, the instrument is marked to fair value at the date of conversion, exercise or cancellation and then
the related fair value is reclassified to equity.



10







The
classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is
re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject
to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative
instrument liabilities will be classified in the balance sheet as current or non-current based on whether or not net-cash settlement
of the derivative instrument is expected within 12 months of the balance sheet date.



Stock-Based
Compensation



The
Company accounts for stock based compensation costs under the provisions of ASC 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, and directors based on the grant date fair value estimated in accordance with the
provisions of ASC 718. ASC. 718 is also applied to awards modified, repurchased, or canceled during the periods reported.



If
any award granted under the Company’s 2016 Equity Compensation Plan (the “2016 Plan”) payable
in shares of common stock is forfeited, cancelled, or returned for failure to satisfy vesting requirements, otherwise terminates
without payment being made, or if shares of common stock are withheld to cover withholding taxes on options or other awards, the
number of shares of common stock as to which such option or award was forfeited, or which were withheld, will be available for
future grants under the 2016 Plan. The company recognizes the impact of forfeitures when they occur.



Stock-Based
Compensation for Non-Employees



The
Company accounts for warrants and options issued to non-employees under AUS 2018-07, Equity – Equity Based Payments to
Non-Employees, using the Black-Scholes option-pricing model.



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. The effect of dilution on
net loss becomes anti-dilutive and therefore is not reflected on the income statement.



|                                                                            |  | Potentially
    Outstanding 
    Dilutive Common Shares |          
|--------------------------------------------------------------------------- |  | ------------------------------------------------------- | ---------
|                                                                            |  | For
    the Three Months Ended 
    March 31, 2019      |          
|                                                                            |  |                                                         |          
|Conversion Feature Shares                                                   |  |                                                         |          
|                                                                            |  |                                                         |          
|Common shares issuable under
    the conversion feature of preferred shares |  |                                                         | 872,766  
|                                                                            |  |                                                         |          
|Stock Option                                                                |  |                                                         | 3,947,866
|                                                                            |  |                                                         |          
|Warrant                                                                     |  |                                                         | 3,826,658
|                                                                            |  |                                                         |          
|Total potentially outstanding dilutive common
    shares                    |  |                                                         | 8,647,290



11







Research
and Development



Research
and development expenses are charged to operations as incurred.



Foreign
Currency Translation



The
Company follows Section 830-10-45 of the FASB Accounting Standards Codification (“Section 830-10-45”) for foreign
currency translation to translate the financial statements of the foreign subsidiary from the functional currency, generally the
local currency, into U.S. Dollars. Section 830-10-45 sets out the guidance relating to how a reporting entity determines the functional
currency of a foreign entity (including of a foreign entity in a highly inflationary economy), re-measures the books of record
(if necessary), and characterizes transaction gains and losses. Pursuant to Section 830-10-45, the assets, liabilities, and operations
of a foreign entity shall be measured using the functional currency of that entity. An entity’s functional currency is the
currency of the primary economic environment in which the entity operates; normally, that is the currency of the environment,
or local currency, in which an entity primarily generates and expends cash.



The
functional currency of each foreign subsidiary is determined based on management’s judgment and involves consideration of
all relevant economic facts and circumstances affecting the subsidiary. Generally, the currency in which the subsidiary transacts
a majority of its transactions, including billings, financing, payroll and other expenditures, would be considered the functional
currency, but any dependency upon the parent and the nature of the subsidiary’s operations must also be considered. If a
subsidiary’s functional currency is deemed to be the local currency, then any gain or loss associated with the translation
of that subsidiary’s financial statements is included in accumulated other comprehensive income. However, if the functional
currency is deemed to be the U.S. Dollar, then any gain or loss associated with the re-measurement of these financial statements
from the local currency to the functional currency would be included in the condensed consolidated statements of income and comprehensive
income (loss). If the Company disposes of foreign subsidiaries, then any cumulative translation gains or losses would be recorded
into the condensed consolidated statements of income and comprehensive income (loss). If the Company determines that there has
been a change in the functional currency of a subsidiary to the U.S. Dollar, any translation gains or losses arising after the
date of change would be included within the statement of income and comprehensive income (loss).



Based
on an assessment of the factors discussed above, the management of the Company determined its subsidiary’s local
currency (i.e. the Canadian dollar) to be the functional currency for its foreign subsidiary.



Recent
Accounting Pronouncements



In
October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory”,
which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity transfers
of assets other than inventory until the asset has been sold to an outside party. The updated guidance is effective for annual
periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption of the update is
permitted. The adoption of this standard will not have a material impact on the Company’s condensed consolidated
financial statements and related disclosures.



NOTE
4 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES



Accounts
payable and accrued expenses consist of the following at:



|                         |  | March
    31, 2019 |         |  | December
    31, 2018 |  
|------------------------ |  | ------------------ | ------- |  | --------------------- | -
|                         |  |                    |         |  |                       |  
|Accounting               |  | $                  | 36,161  |  |                       | $
|Research and development |  |                    | 116,941 |  |                       |  
|Legal                    |  |                    | -       |  |                       |  
|Other                    |  |                    | 46,822  |  |                       |  
|                         |  |                    |         |  |                       |  
|                         |  | $                  | 199,924 |  |                       | $



12







NOTE
5 - DERIVATIVE LIABILITIES



Upon
closing of the private placement transactions in 2016, the Company issued 127,346 and 295,945 warrants, to the placement agent
of the private offering and to Strategic Bio Partners, a holder of the Company’s debt, for debt cancellation, respectively,
to purchase the Company’s Series B Preferred Stock with an exercise price of $1.25 and a five-year term. Upon the effectiveness
of our reverse stock split in July 2016, these became warrants to purchase our common stock on the same terms and conditions.
The warrants have a cashless exercise feature that requires the Company to classify the warrants as a derivative liability.



NOTE
6 - STOCKHOLDERS’ EQUITY (DEFICIT)



Stock-Based
Compensation



In
connection with the consummation of the Merger completed on February 12, 2016, we adopted Prior Protagenic’s 2006
Employee, Director and Consultant Stock Plan (the “2006 Plan”). On June 17, 2016, our stockholders adopted the
2016 Plan and, as a result, we terminated the 2006 Plan. We will not grant
any further awards under the 2006 Plan. All outstanding grants under the 2006 Plan will continue in effect in accordance with
the terms of the particular grant and the 2006 Plan.



Pursuant
to the 2016 Plan, the Company’s Compensation Committee may grant awards to any employee, officer, director, consultant,
advisor or other individual service provider of the Company or any subsidiary. On each of January 1, 2017 and January
1, 2019, pursuant to an annual “evergreen” provision contained in the 2016 Plan, the number of shares reserved
for future grants was increased by 564,378 shares a total of 1,128,756 shares. As a result of this increase, as of March
31, 2019, the aggregate number of shares of common stock available for awards under the 2016 Plan was 3,739,867.
Options issued under the 2016 Plan are exercisable for up to ten years from the date of issuance.



There
were 3,947,866 options outstanding as of March 31, 2019. The fair value of each stock option granted was estimated using the Black-Scholes
assumptions and or factors as follows:



|Exercise price          |  | $ | 1.00         |  
|----------------------- |  | - | ------------ | -
|Expected dividend yield |  |   | 0            | %
|Risk free interest rate |  |   | 2.67% - 2.70 | %
|Expected life in years  |  |   | 10           |  
|Expected volatility     |  |   | 140          | %



There
were 3,846,299 options outstanding as of December 31, 2018. The fair value of each stock option granted was estimated using the
Black-Scholes assumptions and or factors as follows:



|Exercise price          |  | $ | 1.25 - $1.75 |  
|----------------------- |  | - | ------------ | -
|Expected dividend yield |  |   | 0            | %
|Risk free interest rate |  |   | 2.73% - 2.85 | %
|Expected life in years  |  |   | 3.75-9.40    |  
|Expected volatility     |  |   | 139% - 146   | %



The
following is an analysis of the stock option grant activity under the Plan:



|                                  |  |        |           |  | Weighted
    Average |   |      | Weighted
    Average Remaining | 
|--------------------------------- |  | ------ | --------- |  | -------------------- | - | ---- | ------------------------------ | 
|                                  |  | Number |           |  | Exercise
    Price   |   |      | Life                           | 
|Stock Options                     |  |        |           |  |                      |   |      |                                | 
|                                  |  |        |           |  |                      |   |      |                                | 
|Outstanding December 31,
    2017 |  |        | 3,566,299 |  |                      | $ | 1.33 |                                | 
|Granted                           |  |        | 280,000   |  |                      | $ | 1.75 |                                | 
|Expired                           |  |        | -         |  |                      |   |      |                                | 
|Outstanding December 31, 2018     |  |        | 3,846,299 |  |                      | $ | 1.36 |                                | 
|Granted                           |  |        | 101,567   |  |                      | $ | 1.00 |                                | 
|Expired                           |  |        | -         |  |                      |   |      |                                | 
|Outstanding March
    31, 2019    |  |        | 3,947,866 |  |                      | $ | 1.36 |                                | 



13







A
summary of the status of the Company’s nonvested option as of March 31, 2019, and changes during the three months
ended March 31, 2019, is presented below:



|Nonvested
    Options              |  | Options |           |   | Weighted-
    AverageExercise
    Price |  
|---------------------------------- |  | ------- | --------- | - | --------------------------------------- | -
|Nonvested at December 31,
    2017 |  |         | 1,492,861 |   |                                         | $
|Granted                            |  |         | 280,000   |   |                                         | $
|Vested                             |  |         | (972,651  | ) |                                         | $
|Forfeited                          |  |         | -         |   |                                         |  
|Nonvested at December 31, 2018     |  |         | 800,210   |   |                                         | $
|Granted                            |  |         | 101,567   |   |                                         | $
|Vested                             |  |         | (327,551  | ) |                                         | $
|Forfeited                          |  |         | -         |   |                                         |  
|Nonvested at March
    31, 2019    |  |         | 574,226   |   |                                         | $



As
of March 31, 2019, the Company had 3,947,866 shares issuable under options outstanding at a weighted average exercise price of
$1.36 and an intrinsic value of $2,546,041.



The
total number of options granted during the three months ended March 31, 2019 and 2018 was 101,567 and 280,000, respectively. The
exercise price for these options was $1.00 per share or $1.25 per share.



The
Company recognized compensation expense related to options issued of $451,141 and $344,647 during the three months ended March
31, 2019 and 2018, respectively, which is included in general and administrative expenses and research and development expenses.
For the three months ended March 31, 2019, $335,562 of the stock compensation was related to employees and $115,579 was related
to non-employees.



As
of March 31, 2019, the unamortized stock option expense was $871,485 with $409,055 being related to employees and $462,430 being
related to non-employees. As of March 31, 2019, the weighted average period for the unamortized stock compensation to be recognized
is 3.18 years.



On
February 25, 2019, the Company granted 101,567 options with an exercise price of $1.00 and a ten year term. 59,900 of these options
vest immediately and 41,667 vest bi-weekly over two months. These options have a Black-Scholes value of $199,807.



Warrants:



In
connection with the Merger, all of the issued and outstanding warrants to purchase shares of Prior Protagenic common stock, converted,
on a 1 for 1 basis, into new warrants (the “New Warrants”) to purchase shares of our Series B Preferred Stock.



Simultaneous
with the Merger and the Private Offering, New Warrants to purchase 3,403,367 shares of Series B Preferred Stock at an average
exercise price of approximately $1.05 per share were issued to holders of Prior Protagenic warrants; additionally, the holder
of $665,000 of our debt and $35,000 of accrued interest exchanged such debt for five-year warrants to purchase 295,945 shares
of Series B Preferred Stock at $1.25 per share. Placement Agent Warrants to purchase 127,346 shares of Series B Preferred Stock
at an exercise price of $1.25 per share were issued in connection with the Private offering. These warrants to purchase 423,291
shares of Series B Preferred Stock have been recorded as derivative liabilities. All of these warrants automatically converted
into warrants to purchase our common stock upon the effectiveness of our reverse stock split in July 2016. See Note 5.



14







A
summary of warrant issuances are as follows:



|                                  |  |        |           |  | Weighted
    Average |   |      | Weighted
    Average Remaining | 
|--------------------------------- |  | ------ | --------- |  | -------------------- | - | ---- | ------------------------------ | 
|                                  |  | Number |           |  | Exercise
    Price   |   |      | Life                           | 
|Warrants                          |  |        |           |  |                      |   |      |                                | 
|                                  |  |        |           |  |                      |   |      |                                | 
|Outstanding December 31,
    2017 |  |        | 3,826,658 |  |                      | $ | 1.05 |                                | 
|Granted                           |  |        | -         |  |                      |   | -    |                                | 
|Outstanding December 31, 2018     |  |        | 3,826,658 |  |                      | $ | 1.05 |                                | 
|Granted                           |  |        | -         |  |                      |   | -    |                                | 
|Outstanding March
    31, 2019    |  |        | 3,826,658 |  |                      | $ | 1.05 |                                | 



As
of March 31, 2019, the Company had 3,826,658 shares issuable under warrants outstanding at a weighted average exercise price of
$1.05 and an intrinsic value of $3,633,335.



NOTE
8 - COLLABORATIVE AGREEMENTS



The
Company and the University of Toronto, a stockholder of the Company (the “University”) entered into an agreement effective
December 14, 2004 (the “Research Agreement”) for the performance of a research project titled “Evidence for
existence of TCAP receptors in neurons” (the “Project”). The Research Agreement expired on March 31, 2013.



The
Company and the University entered into an agreement effective April 1, 2014 (the “New Research Agreement”) for the
performance of a research project titled “Teneurin C-terminal Associated Peptide (“TCAP”) mediated stress attenuation
in vertebrates: Establishing the role of organismal and intracellular energy and glucose regulation and metabolism” (the
“New Project”). The New Project is to perform research related to work done by Dr. David A. Lovejoy, a professor at
the University and stockholder of the Company, in regard to TCAP mediated stress attenuation in vertebrates: Establishing the
role of organismal and intracellular energy and glucose regulation and metabolism. In addition to the New Research Agreement,
Dr. Lovejoy entered into an agreement with the University in order to commercialize certain technologies. The New Research Agreement
expired on March 30, 2016. In February 2017, the New Research Agreement was extended to December 31, 2016 which allows for further
development of the technologies and use of their applications. Upon expiration of the agreement, payments to the University and
research support from the University will suspend until an agreement can be made. This agreement was extended to December 31,
2023.



Prior
to January 1, 2016, the University has been granted 25,000 stock options which are fully vested at the exercise price of $1.00
exercisable over a ten year period which ends on April 1, 2022. As of March 31, 2019, Dr. Lovejoy has been granted 533,299 stock
options, of which 478,384 are fully vested. These have an exercise price of $1.00, $1.25 or 1.75 and are exercisable
over ten or thirteen year periods which end either on March 30, 2021, December 1, 2022, April 15, 2026, March 1, 2027 or on October
16, 2027.



The
sponsorship research and development expenses pertaining to the Research Agreements were $48,734 and $0 for the three months ended
March 31, 2019 and 2018, respectively.



NOTE
9 - LICENSING AGREEMENTS



On
July 31, 2005, the Company had entered into a Technology License Agreement (“License Agreement”) with the University
pursuant to which the University agreed to license to the Company patent rights and other intellectual property, among other things
(the “Technologies”). The Technology License Agreement was amended on February 18, 2015 and currently does not provide
for an expiration date.



15







Pursuant
to the License Agreement and its amendment, the Company obtained an exclusive worldwide license to make, have made, use, sell
and import products based upon the Technologies, or to sublicense the Technologies in accordance with the terms of the License
Agreement and amendment. In consideration, the Company agreed to pay to the University a royalty payment of 2.5% of net sales
of any product based on the Technologies. If the Company elects to sublicense any rights under the License Agreement and amendment,
the Company agrees to pay to the University 10% of any up-front sub-license fees for any sub-licenses that occurred on or after
September 9, 2006, and, on behalf of the sub-licensee, 2.5% of net sales by the sub-licensee of all products based on the Technologies.
The Company had no sales revenue for the three months ended March 31, 2019 and 2018 and therefore was not subject to paying any
royalties.



In
the event the Company fails to provide the University with semi-annual reports on the progress or fails to continue to make reasonable
commercial efforts towards obtaining regulatory approval for products based on the Technologies, the University may convert our
exclusive license into a non-exclusive arrangement. Interest on any amounts owed under the License Agreement and amendment will
be at 3% per annum. All intellectual property rights resulting from the Technologies or improvements thereon will remain the property
of the other inventors and/or Dr. Lovejoy, and/or the University, as the case may be. The Company has agreed to pay all out-of-
pocket filing, prosecution and maintenance expenses in connection with any patents relating to the Technologies. In the case of
infringement upon any patents relating to the Technologies, the Company may elect, at its own expense, to bring a cause of action
asserting such infringement. In such a case, after deducting any legal expenses the Company may incur, any settlement proceeds
will be subject to the 2.5% royalty payment owed to the University under the License Agreement and amendment.



The
patent applications were made in the name of Dr. Lovejoy and other inventors, but the Company’s exclusive, worldwide rights
to such patent applications are included in the License Agreement and its amendment with the University. The Company maintains
exclusive licensing agreements and it currently controls the six intellectual patent properties.



Legal
Proceedings



From
time to time we may be named in claims arising in the ordinary course of business. Currently, no legal proceedings, government
actions, administrative actions, investigations or claims are pending against us or involve us that, in the opinion of our management,
could reasonably be expected to have a material adverse effect on our business and financial condition.



16







Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operation



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS



This report on Form 10-Q contains forward-looking
statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions,
estimates, intentions and future performance, and involve known and unknown risks, uncertainties and other factors, which may
be beyond our control, and which may cause our actual results, performance or achievements to be materially different from future
results, performance or achievements expressed or implied by such forward-looking statements. All statements other than statements
of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements
through our use of words such as “may,” “can,” “anticipate,” “assume,” “should,”
“indicate,” “would,” “believe,” “contemplate,” “expect,” “seek,”
“estimate,” “continue,” “plan,” “point to,” “project,” “predict,”
“could,” “intend,” “target,” “potential” and other similar words and expressions
of the future. The matters discussed in these forward-looking statements are subject to risks, uncertainties and other factors
that could cause our actual results to differ materially from those projected, anticipated or implied in the forward-looking statements.
As a result, you should not place undue reliance on any forward-looking statements. Except to the limited extent required by applicable
law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future
events or otherwise.



Historical
Background



Protagenic
Therapeutics, Inc. (“we,” “our,” “Protagenic” or the “Company”) is a Delaware
corporation with one subsidiary named Protagenic Therapeutics Canada (2006) Inc. (“PTI Canada”), which is a corporation
formed in 2006 under the laws of the Province of Ontario, Canada.



The
Company was formerly known as Atrinsic, Inc., a company that, in 2013, reorganized under Chapter 11 of the United States Bankruptcy
Code and emerged from bankruptcy. On February 12, 2016, the Company acquired Protagenic Therapeutics, Inc. (“Prior Protagenic”)
through a reverse merger. On June 17, 2016, Protagenic Therapeutics, Inc. (the then wholly-owned subsidiary of Atrinsic, Inc.)
was merged with and into Atrinsic, Inc. Atrinsic, Inc. was the surviving corporation in this merger and changed its name from
Atrinsic, Inc. to Protagenic Therapeutics, Inc.



Results
of Operations



We
are a development stage company currently performing clinical trials to obtain FDA approval and commercialization of our product.



During
the three months ended March 31, 2019, we incurred a loss from operations of $654,015 as compared to $606,684 for the three months
ended March 31, 2018. The decrease in the loss is due to a decrease in research and development expense of $55,003 from $190,414
for the three months ended March 31, 2018 to $135,411 for the three months ended March 31, 2019, and an increase in general and
administrative expenses of $102,334 from $416,270 for the three months ended March 31, 2018 to $518,604 for the three months ended
March 31, 2019 due to an increase in stock compensation expense.



Liquidity
and Going Concern



We
continually project anticipated cash requirements, predominantly from the ongoing funding requirements of our neuropeptide drug
development program. The majority of these expenses relate to paying external vendors such as Contract Research Organizations
(CROs) and peptide synthesizer companies. These expenses could also include business combinations, capital expenditures,
and new drug development working capital requirements. As of March 31, 2019, we had cash of $419,334 and working capital deficit
of $362,360. The Company currently has a derivative liability on the books in the amount of $626,677 and we don’t expect
to settle this liability in cash. Removing the derivative liability from the working capital calculation would increase our working
capital to $264,317. We anticipate further losses from the development of our business. Based on its current forecast and
budget, management believes that the Company’s cash resources will be sufficient to fund its operations at
least until the end of the third quarter of 2019. Absent generation of sufficient revenue from the execution of the Company’s
business plan, the Company will need to obtain debt or equity financing by the fourth quarter of 2019.



Operating
activities used $196,015 and $259,009 in cash for the three months ended March 31, 2019 and 2018, respectively. The use of cash
in operating activities during the three months ended March 31, 2019, primarily comprised of $599,232 net loss, $451,141 in stock
compensation expense, $49,402 of change in the fair value of the derivative liability since December 31, 2018, an decrease in
prepaid expenses of $38,492, $4,435 from a gain on the sale of marketable securities, and a $32,664 decrease of accounts payable
and accrued expenses, which included payments to tax penalties, legal and accounting professionals, payments to consultants, and
other administrative expenses.



Investing
activities provided $250,000 and $205,332 in cash for the three months ended March 31, 2019 and 2018, respectively. The cash provided
by investing activities consisted of $250,000 from the sale of marketable securities. The cash used in investing activities during
the three months ended March 31, 2018 consisted of the sale of marketable securities of $1,635,000 and the purchase of marketable
securities of $1,429,668.



We
did not have any financing activities for the three months ended March 31, 2019 and 2018.



17







Item
3. Quantitative and Qualitative Disclosures about Market Risk.



Not
applicable.



Item
4. Controls and Procedures



Disclosure
Controls and Procedures



Evaluation
of disclosure controls and procedures



Under
the supervision and with the participation of our management, including our principal executive officer and principal financial
officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and
Rule 15d-15(e) promulgated under the Exchange Act, as of March 31, 2019. Based on this evaluation, we have identified a material
weakness in our internal control over financial reporting. Due to this material weakness, our principal executive officer and
principal financial officer concluded that our disclosure controls and procedures are not effective to ensure that information
required to be disclosed by us in the reports we file or submit under the Exchange Act, including this Quarterly Report on Form
10-Q, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and
that our disclosure and controls are not designed to ensure that information required to be disclosed by us in the reports that
we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive
and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required
disclosure.



Material
Weakness in Internal Control Over Financial Reporting



A
material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there
is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not
be prevented or detected on a timely basis.



The
material weakness we identified is described below:



| | 1) | We
    do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size
    and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However,
    to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be
    performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment
    of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material
    weakness.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



This
material weaknesses could result in a material misstatement to the annual or interim condensed consolidated financial statements
that would not be prevented or detected.



Remediation
Plan



To
address the material weakness described above the Company has engaged an independent third party to enhance our segregation of
duties.



We
believe the action described above will be sufficient to remediate the identified material weakness and strengthen our internal
control over financial reporting.



A
control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives
of the control system are met. The design of any system of controls is also based in part on certain assumptions regarding the
likelihood of certain events, and there can be no assurance that any design will succeed in achieving its stated goals under all
potential future conditions. Given these and other inherent limitations of control systems, these are only reasonable assurances
that our controls will succeed in achieving their stated goals under all potential future conditions.



18







Changes
in Internal Control over Financial Reporting



Other
than as discussed above, there were no changes in our internal controls over financial reporting that occurred during the quarter
covered by this Report that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.



Part
II: Other Information



Item
1. Legal Proceedings



From
time to time we may be named in claims arising in the ordinary course of business. Currently, no legal proceedings, government
actions, administrative actions, investigations or claims are pending against us or involve us that, in the opinion of our management,
could reasonably be expected to have a material adverse effect on our business and financial condition.



Item
1A. Risk Factors



Not
applicable.



Item
2. Unregistered Sale of Equity Securities and Use of Proceeds



None.



Item
3. Defaults upon Senior Securities



None.



Item
4. Mine Safety Disclosures



Not
applicable.



Item
5. Other Information



None.



Item
6. Exhibits



The
following is a complete list of exhibits filed as part of this Form 10-Q. Exhibit numbers correspond to the numbers in the Exhibit
Table of Item 601 of Regulation S-K.



|Exhibit |  | Description                                                                                                                                                        
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |  |                                                                                                                                                                    
|31.1    |  | Chief Executive Officer Certification as required under section 302 of the Sarbanes Oxley Act (€)                                                                  
|        |  |                                                                                                                                                                    
|31.2    |  | Chief Financial Officer Certification as required under section 302 of the Sarbanes Oxley Act (€)                                                                  
|        |  |                                                                                                                                                                    
|32.1    |  | Chief Executive Officer and Chief Financial Officer Certification pursuant to 18 U.S.C. section 1350 as adopted pursuant to section 906 of the Sarbanes Oxley Act *
|        |  |                                                                                                                                                                    
|101.INS |  | XBRL
    Instance Document (€)                                                                                                                                     
|        |  |                                                                                                                                                                    
|101.CAL |  | XBRL
    Taxonomy Extension Schema Document (€)                                                                                                                    
|        |  |                                                                                                                                                                    
|101.SCH |  | XBRL
    Taxonomy Extension Calculation Linkbase Document (€)                                                                                                      
|        |  |                                                                                                                                                                    
|101.LAB |  | XBRL
    Taxonomy Extension Label Linkbase Document (€)                                                                                                            
|        |  |                                                                                                                                                                    
|101.PRE |  | XBRL
    Taxonomy Extension Presentation Linkbase Document (€)                                                                                                     
|        |  |                                                                                                                                                                    
|101.DEF |  | XBRL
    Taxonomy Extension Definition Linkbase Document (€)                                                                                                       



|(€) | - Filed herewith.                                                                 
|--- | ----------------------------------------------------------------------------------
|(*) | - Furnished, not filed, in accordance with item
    601(32)(ii) of Regulation S-K.



19







SIGNATURES



Pursuant
to the requirements of Section 12 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.



|Date: May 15, 2019 | Protagenic
    Therapeutics, Inc.
|------------------ | ---------------------------------
|                   |                                  
|                   | By:                              
|                   |                                  



20