SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q and other written and oral statements we make from time to time contain certain "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). You can identify these forward-looking statements by the fact they use words such as "could," "expect," "anticipate," "estimate," "target," "may," "project," "guidance," "intend," "plan," "believe," "will," "potential," "opportunity," "future" and other words and terms of similar meaning and expression in connection with any discussion of future operating or financial performance. You can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. Such forward-looking statements are based on current expectations and involve inherent risks and uncertainties, including factors that could delay, divert or change any of them, and could cause actual outcomes to differ materially from current expectations. These statements relate to, among other things, our business strategy, our research and development, our product development efforts, our ability to commercialize our product candidates, the activities of our licensees, our prospects for initiating partnerships or collaborations, the timing of the introduction of products, the effect of new accounting pronouncements, uncertainty regarding our future operating results and our profitability, anticipated sources of funds as well as our plans, objectives, expectations, and intentions.

We have included more detailed descriptions of these risks and uncertainties and other risks and uncertainties applicable to our business that we believe could cause actual results to differ materially from any forward-looking statements in Part II-Item 1A "Risk Factors" of this Quarterly Report on Form 10-Q. We encourage you to read those descriptions carefully. Although we believe we have been prudent in our plans and assumptions, no assurance can be given that any goal or plan set forth in forward-looking statements can be achieved. We caution investors not to place significant reliance on forward-looking statements contained in this document; such statements need to be evaluated in light of all the information contained in this document. Furthermore, the statements speak only as of the date of this document, and we undertake no obligation to update or revise these statements.

The discussion and analysis of our financial condition and results of operations are based on our financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate such estimates and judgments, including those described in greater detail below. We base these estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We expect to continue to incur significant expenses and minimal positive net cash flows from operations or negative net cash flows from operations for the foreseeable future, and those expenses and losses may fluctuate significantly from quarter-to-quarter and year-to-year. We anticipate that our expenses will fluctuate substantially as we:





  ? continue our ongoing preclinical studies, clinical trials and our product
    development activities for our pipeline of product candidates;

  ? seek regulatory approvals for any product candidates that successfully
    complete clinical trials;

  ? continue research and preclinical development and initiate clinical trials of
    our other product candidates;

  ? seek to discover and develop additional product candidates either internally
    or in partnership with other pharmaceutical companies;

  ? adapt our regulatory compliance efforts to incorporate requirements applicable
    to marketed products;

  ? maintain, expand and protect our intellectual property portfolio; and

  ? incur additional legal, accounting and other expenses in operating as a public
    company.




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Overview

Our proprietary, patent-protected, first-in-class lead compound, PT00114, is a synthetic form of Teneurin Carboxy-terminal Associated Peptide ("TCAP"), an endogenous brain signaling peptide that can dampen overactive stress responses. Our preclinical models have demonstrated efficacy of PT00114 in animal models of depression, anxiety, substance abuse & addiction, and PTSD.

PT00114 leverages a completely novel mechanism of action. Protagenic owns exclusive, worldwide rights to PT00114 through its license agreement with the University of Toronto and has an exclusive right to license additional intellectual property generated by Dr. David Lovejoy's lab at University of Toronto. Additionally, the company is engaged in the research & development of follow-on compounds in the TCAP family. Extensive publications in peer-reviewed scientific journals underline the central role stress plays in the onset and proliferation of neuropsychiatric disorders like depression, anxiety, substance abuse & addiction, and PTSD. The mechanism of action of TCAP suggests that it counterbalances stress overdrive at the cellular level within the brain's stress response cascade. TCAP works to alleviate the harmful behavioral, biochemical, and physiological effects of these disorders, while simultaneously restoring brain health. This mechanism has been corroborated in preclinical animal models of the psychiatric disorders listed above. Preclinical experiments required for IND filing have been completed. The Company is in the process of answering regulatory questions in the US and Germany. Based on its interactions to date, the Company anticipates commencing a Phase I/IIa trial in either one or more sites in the US or at a major CRO site in Germany in the fourth quarter of 2022.





Results of Operations

We are a development stage company currently performing clinical trials to obtain Food and Drug Administration ("FDA") approval and commercialization of our product.

During the three months ended September 30, 2022, we incurred a loss from operations of $924,060 as compared to $764,171 for the three months ended September 30, 2021. The increase in the loss is from an increase in research and development expense of $244,087 from $257,279 for the three months ended September 30, 2021 to $501,366 for the three months ended September 30, 2022, offset by a decrease in general and administrative expenses of $84,198 from $506,892 for the three months ended September 30, 2021 to $422,694 for the three months ended September 30, 2022.

During the nine months ended September 30, 2022, we incurred a loss from operations of $2,902,010 as compared to $3,279,194 for the nine months ended September 30, 2021. The increase in the loss is from an increase in research and development expense of $341,497 from $990,222 for the nine months ended September 30, 2021 to $1,331,719 for the nine months ended September 30, 2022, offset by a decrease in general and administrative expenses of $718,681 from $2,288,972 for the nine months ended September 30, 2021 to $1,570,291 for the nine months ended September 30, 2022





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 and peptide synthesizer companies. These expenses could also capital expenditures, and new drug development working capital requirements. As of September 30, 2022, we had cash of $158,323 and working capital of $7,700,816. We anticipate further losses from the development of our business. Based on its cash resources as of September 30, 2022, the Company has sufficient resources to fund its operations at least until the end of the third quarter of 2024. 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 third quarter of 2024. Because of these factors, the Company believes that this alleviates the substantial doubt in connection with the Company's ability to continue as a going concern.

Operating activities used $1,812,878 and $2,393,525 in cash for the nine months ended September 30, 2022 and 2021, respectively. The use of cash in operating activities during the nine months ended September 30, 2022, primarily comprised of $2,954,131 net loss, $665,993 in stock compensation expense, an increase in prepaid expenses of $587,084, and a $237,153 decrease of accounts payable and accrued expenses, which included payments to legal and accounting professionals, payments to consultants, and other administrative expenses.





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Investing activities provided $1,435,208 and used $10,395,547 in cash for the nine months ended September 30, 2022 and 2021, respectively. Net cash provided by investing activities was due to the sale of marketable securities of $1,538,567 offset by the purchase of marketable securities of $103,359 during the nine months ended September 30, 2022.

Financing activities provided $0 and $12,577,664 in cash during the nine months ended September 30, 2022 and 2021, respectively.

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