v3.26.1
REVERSE MERGER
 3 Months Ended
Jun. 30, 2026
Business Combination, Asset Acquisition, Transaction between Entities under Common Control, and Joint Venture Formation [Abstract]  
REVERSE MERGER

NOTE 4 - REVERSE MERGER

 

The acquisition of Phytanix Bio was considered a reverse merger. In accordance with ASC 805-40-45-1, the consolidated financial statements prepared following a reverse acquisition are issued under the name of the legal parent (Protagenic Therapeutics, Inc.) but described in the notes to the financial statements as a continuation of the financial statements of the legal subsidiary (Phytanix Bio), with one adjustment, which is to retroactively adjust the accounting acquirer’s legal capital to reflect the legal capital of the accounting acquiree (Protagenic Therapeutics, Inc.). That adjustment is required to reflect the capital of the legal parent. Comparative information presented in the consolidated financial statements also is retroactively adjusted to reflect the legal capital of the legal parent.

 

Under ASC 805-40-45-2, the consolidated financial statements represent the continuation of the legal subsidiary except for the capital structure, as follows:

 

  (a) The assets and liabilities of the legal subsidiary recognized and measured at their precombination carrying amounts;
  (b) The assets and liabilities of the legal parent recognized and measured in accordance with the guidance in this topic applicable to business combinations (ASC 805);
  (c) The retained earnings and other equity balances of the legal subsidiary before the business combination;
  (d) The amount recognized as issued equity interests in the consolidated financial statements determined by adding the issued equity interest of the legal subsidiary outstanding immediately before the business combination to the fair value of the legal parent determined in accordance with the guidance in ASC 805 applicable to business combinations. However, the equity structure reflects the equity structure of the legal parent, including the equity interests the legal parent issued to effect the combination. Accordingly, the equity structure of the legal subsidiary is restated using the exchange ratio established in the acquisition agreement to reflect the number of shares of the legal parent issued in the reverse acquisition.

 

 

The Company reverse merged with Phytanix Bio for an aggregate of (A) 117,690 shares of the Company’s common stock, par value $0.0001 per share (“Common Stock”), which shares shall represent a number of shares equal to no more than 19.99% of the outstanding shares of Common Stock as of immediately before the Effective Time, (B) 5,705 shares of the Company’s Series C Convertible Preferred Stock, par value $0.000001 per share (the “Series C Preferred Stock”), and (C) 950,000 shares of the Company’s Series C-1 Convertible Preferred Stock, par value $0.000001 per share (the “Series C-1 Preferred Stock”, and together with the Series C Preferred Stock, the “Preferred Stock Payment Shares”). In addition, in exchange for all of the outstanding Preferred Shares of Phytanix Bio at the Effective Time, Protagenic Therapeutics, Inc. issued to the Preferred Stockholders, in accordance with their Preferred Pro Rata Portion, (A) an aggregate of 20,000 shares (the “Series D Payment Shares” of Series D Preferred Stock, par value $0.000001 per share of Protagenic Therapeutics, Inc. (the “Series D Preferred Stock”), and (b) common stock purchase warrants to purchase up to 715,493 shares of common stock. The issuance of the shares of Common Stock, Preferred Stock Payment Shares and Series D Payment Shares occurred on May 16, 2025. Each share of Preferred Stock Payment Shares is convertible into one of Common Stock, subject to certain conditions described in the Exchange Agreement. Each share of Series D Payment Shares is convertible into one of Common Stock, subject to certain conditions described in the Exchange Agreement. The combination is treated as a taxable exchange for U.S. federal income tax purposes.

 

On May 15, 2025, the Company completed its acquisition of Phytanix Bio. As a result of this transaction, which is accounted for as a reverse merger, Phytanix Bio is a wholly owned subsidiary of the Company (the “Merger”). This exchange of shares and the resulting controlling ownership of Phytanix Bio constitutes a reverse acquisition resulting in a recapitalization of Phytanix Bio and purchase accounting being applied to Protagenic Therapeutics, Inc. under ASC 805 due to Phytanix Bio being the accounting acquirer and Protagenic Therapeutics, Inc., being deemed an acquired business. This requires financial reporting from the Merger close date forward to reflect only the historic consolidated results of Phytanix Bio and to include the consolidated results for Protagenic Therapeutics, Inc. and subsidiaries from May 15, 2025 forward.

 

The primary reasons Phytanix Bio consummated the merger with Protagenic Therapeutics, Inc. were the opportunity to immediately become a public company without the process of doing its own initial public offering, thereby affording it the opportunity to more quickly raise capital and provide liquidity options to its stockholders, and at the same time acquiring the infrastructure required of a public company run by people experienced in investor relations and the public company regulatory compliance.

 

The allocation of the purchase price of the assets acquired and liabilities assumed for the acquisition by Phytanix Bio of Protagenic Therapeutics, Inc. via the reverse acquisition are set forth below:

 

Purchase Price Allocation of Protagenic Therapeutics, Inc.

 

      
Current assets – cash and prepaid  $1,029,985 
Intangible assets – in process research and development and assembled workforce   2,093,228 
Fixed assets   76,550 
Accounts payable and accrued expenses   (857,504)
Purchase price  $2,342,259 

 

This allocation is based on an independent valuation received by the Company. The value was derived based off the share price of Protagenic Therapeutics, Inc. at the time of the merger. The Company accounted for this transaction as a reverse merger. From May 15, 2025 through March 31, 2026, there are no indications of impairment of the long-lived assets. For the period ended June 30, 2026, the Company recognized $13,337 in impairment losses on the intangible assets.

 

 

Settlement regarding lawsuit against Phytanix

 

On February 17, 2026, the Company entered into a Settlement Agreement (the “Settlement Agreement”) with Alterola Biotech Inc., EMC2 Capital LLC, and the former stockholders of Phytanix Bio (collectively, the “Former Phytanix Stockholders”), in connection with the litigation styled Protagenic Therapeutics, Inc. v. Alterola Biotech Inc., et al., Case No. 2025-1238-KMM, pending in the Court of Chancery of the State of Delaware (the “Litigation”). The Settlement Agreement provides for, among other things, the dismissal of the Litigation and the execution of an agreement to terminate, and unwind the transactions contemplated by, the Share Exchange Agreement dated May 15, 2025 (the “SEA”). Pursuant to the SEA, the Company had previously reverse merged with Phytanix Bio, which transaction was disclosed in the Company’s Current Reports on Form 8-K filed with the Securities and Exchange Commission on May 19, 2025 and August 28, 2025.

 

On October 28, 2025, the Company filed a Verified Complaint in the Court of Chancery of the State of Delaware seeking rescission of the Share Exchange Agreement dated May 15, 2025 by which the Company acquired Phytanix Bio, Inc. or, in the alternative, damages and an order compelling delivery of audited financial statements as required by that agreement.

 

Unwind, Termination and Share Exchange Agreement

 

On February 17, 2026, the Company entered into an Unwind, Termination and Share Exchange Agreement (the “Unwind Agreement”) with Phytanix Bio, Alterola Biotech Inc., EMC2 Capital LLC, the Former Phytanix Stockholders, and Colin Stott, as Sellers’ Representative (as defined therein). The Company, Phytanix Bio, Alterola Biotech Inc., EMC2 Capital LLC, the Former Phytanix Stockholders and Sellers’ Representative are collectively referred to herein as the “Parties”. The closing of the unwind transactions (the “Closing”) occurred simultaneously with the execution of the Unwind Agreement on February 17, 2026.

 

Pursuant to the Unwind Agreement:

 

  ● The SEA was terminated.
     
  ● The Parties agreed to unwind the transactions contemplated by the SEA.
     
  ● The Former Phytanix Stockholders forfeited and returned to the Company all shares of the Company’s common stock and preferred stock that had been issued to them as closing consideration under the SEA.
     
  ● PTIX transferred back to the Former Phytanix Stockholders 100% of the outstanding capital stock of Phytanix Bio.
     
  ● Upon Closing, the Former Phytanix Stockholders re-acquired full ownership of Phytanix Bio, and the Company relinquished all ownership and related rights in Phytanix Bio.
     
  ● Phytanix Bio will continue to own its pre-merger assets and retain its liabilities as reflected on its balance sheet as of the date of the Unwind Agreement.
     
  ● PTIX agreed to pay Phytanix Bio $300,000 at Closing and an additional $10,000 following receipt of specified financial information, in accordance with the terms of the Unwind Agreement.

 

The Unwind Agreement also includes:

 

  ● Mutual releases between the Company and the Former Phytanix Stockholders.
     
  ● Termination of related agreements between the Parties.
     
  ● Acknowledgement of resignations of Former Phytanix Stockholders and their affiliates from any positions with the Company.

 

 

  ● Mutual releases between the Parties.
     
  ● Indemnification provisions in favor of the Company relating to liabilities associated with the SEA and Phytanix Bio. Indemnification provisions in favor of Phytanix Bio for any third party claims relating to any action taken by, or on behalf of, Phytanix Bio outside the ordinary course of business during the period between the closing of the transactions under the SEA and the closing of the transactions under the Unwind Agreement that are not otherwise reflected on the balance sheet of Phytanix Bio as of the date of the Unwind Agreement.

 

Consideration Received Calculation

 SCHEDULE OF BUSINESS COMBINATION CONTINGENT CONSIDERATION

   Amount 
Cash  $310,000 
Receipt of Company shares   (41,192)
Total Consideration (Fair Value)  $268,808 

 

Net assets calculation

 

   Amount 
Total Assets of Phytanix  $62,103 
Less: Total Liabilities of Phytanix   7,641,630 
Net Liabilities Deconsolidated  $(7,579,527)

 

Gain/(loss) calculation

 

   Amount 
Total Consideration  $268,808 
Less: Net Assets Deconsolidated   7,579,527 
Gain on disposal of subsidiary  $(7,310,719)

 

During the year ended March 31, 2026, the Company recognized a $7,310,719 gain on the unwind of the Phytanix Bio merger.