UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 2019

 

OR

☐  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____________ to ___________________.

 

Commission file number: 000-32917

 

 

PROTOKINETIX, INCORPORATED

(Exact name of registrant as specified in its charter) 

 

 

Nevada   94-3355026
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

 

 

412 Mulberry St.

Marietta, Ohio 45750

 
  (Address of principal executive offices)  

 

  304-299-5070  
  (Registrant’s telephone number, including area code)  

 

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

 

Title of each class   Trading Symbol   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 ☒ 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 ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer , or a smaller reporting 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 12b-2 of the Exchange Act).        Yes ☐ No ☒

 

As of October ____, 2019, there were 272,900,259 shares of ProtoKinetix, Incorporated common stock that were issued and outstanding.

 

 

 
 
 

 

 

 

PROTOKINETIX, INCORPORATED

TABLE OF CONTENTS

 

 

PART I      
       
FINANCIAL INFORMATION      
       
Item 1. Financial Statements     3  
         
Unaudited Condensed Balance Sheets     3  
         
Unaudited Condensed Statements of Operations     4  
         
Unaudited Condensed Statement of Stockholders’ Equity     5  
         
Unaudited Condensed Statements of Cash Flows     6  
         
Notes to Unaudited Condensed Financial Statements     7  
         
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations     23  
         
         
Item 3. Quantitative and Qualitative Disclosures About Market Risk     27  
         
Item 4. Controls and Procedures     28  
         
PART II        
         
OTHER INFORMATION        
         
Item 1. Legal Proceedings     29  
         
Item 1A. Risk Factors     29  
         
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds     29  
         
Item 3. Defaults Upon Senior Securities     29  
         
Item 4. Mine Safety Disclosure     29  
         
Item 5. Other Information     29  
         
Item 6. Exhibits     30  
         
Signatures     31  
         

3 
 
 

 

 

PROTOKINETIX, INCORPORATED

(A Development Stage Company)

BALANCE SHEETS

(Unaudited)

 

    September 30,      2019   December 31, 2018
ASSETS                
Current Assets                
Cash   $ 289,859     $ 136,029  
Prepaid expenses and deposits (Note 3)     10,590       1,050  
Total current assets     300,449       137,079  
                 
Intangible assets (Note 4)     191,939       187,771  
                 
Total assets   $ 492,388     $ 324,850  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current Liabilities                
Accounts payable and accrued liabilities   $ 5,421     $ 78,885  
Total current liabilities     5,421       78,885  
Stockholders’ Equity                
Common stock, $0.0000053 par value; 400,000,000 common shares authorized; 272,900,259 and 259,785,766 shares issued and outstanding as at September 30, 2019 and December 31, 2018 respectively (Note 7)     1,459       1,389  
Additional paid-in capital     33,579,381       31,594,822  
Accumulated deficit     (33,093,873 )     (31,350,246 )
Total stockholders’ equity     486,967       245,965  
Total liabilities and stockholders’ equity   $ 492,388     $ 324,850  

Basis of Presentation – Going Concern Uncertainties (Note 1)

Commitments and Contingency (Note 9)

 

 

 

 

 

 

See Notes to Financial Statements

 

4 
 
 

 

 

PROTOKINETIX, INCORPORATED

(A Development Stage Company)

STATEMENTS OF OPERATIONS

(Unaudited)

For the Three and Nine Months Ended September 30, 2019 and 2018

 

    Three months ended
September 30, 2019 		  Three months ended
September 30, 2018 		  Nine months ended
September 30, 2019 		  Nine months ended
September 30, 2018
                 
EXPENSES                                
Amortization – intangible assets (Note 4)   $ 750     $ 750     $ 2,250     $ 2,250  
General and administrative     76,905       13,723       202,238       56,757  
Professional fees (Note 8)     31,032       30,001       92,315       98,274  
Research and development     140,933       92,823       279,089       247,896  
Share-based compensation (Notes 5 and 8)     342,218       234,476       1,167,629       614,427  
                                 
      (591,838 )     (371,773 )     (1,743,521 )     (1,019,604 )
                                 
OTHER ITEM                                
Foreign exchange loss     (90 )     (2 )     (106 )     (3,073 )
                                 
Net Loss for the period   $ (591,928 )   $ (371,775 )   $ (1,743,627 )   $ (1,022,677 )
                                 
Net Loss per common share (basic and diluted)   $ (0.00 )   $ (0.00 )   $ (0.01 )   $ (0.00 )
                                 
Weighted average number of common shares outstanding (basic and diluted)     272,816,256       257,952,433       267,232,714       255,722,222  

 

 

 

 

 

 

 

See Notes to Financial Statements

 

5 
 
 

 

PROTOKINETIX, INCORPORATED

STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

For the Period from December 31, 2018 to September 30, 2019

 

 

    Common Stock   Additional
Paid-in 		  Accumulated    
    Shares   Amount   capital   deficit   Total
Balance, December 31, 2018     259,785,766     $ 1,389     $ 31,594,822       (31,350,246 )   $ 245,965  
                                         
Issuance of common stock pursuant to private placement offering     13,016,667       69       816,931       —         817,000  
Issuance of common stock pursuant to cashless option exercise     97,826       1       (1 )     —         —    
Fair value of share-based compensation     —         —         1,167,629       —         1,167,629  
                                         
Net Loss for the period     —         —         —         (1,743,627 )     (1,743,627 )
                                         
Balance, September 30, 2019     272,900,259     $ 1,459     $ 33,579,381       (33,093,873     $ 486,967  
                                         
                                         
Balance, June 30, 2019     272,802,433     $ 1,458     $ 33,237,164     $ (32,501,945 )   $ 736,677  
                                         
Issuance of common stock pursuant to cashless option exercise     97,826       1       (1 )     —         —    
Fair value of share-based compensation     —         —         342,218       —         342,218  
                                         
Net Loss for the period     —         —         —         (591,928 )     (591,928 )
                                         
Balance, September 30, 2019     272,900,259     $ 1,459     $ 33,579,381     $ (33,093,873 )   $ 486,967  

 

 

 

 

6 
 
 

 

 

 

PROTOKINETIX, INCORPORATED

STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

For the Period from December 31, 2018 to September 30, 2019

 

 

    Common Stock   Additional
Paid-in 		  Accumulated    
    Shares   Amount   capital   deficit   Total
Balance, December 31, 2017     251,352,433     $ 1,344     $ 30,506,094     $ (30,133,903 )   $ 373,535  
                                         
Issuance of common stock pursuant to private placement offering     4,240,760       22       212,016       —         212,038  
Issuance of common stock pursuant to settlement of promissory notes     2,359,240       13       117,949       —         117,962  
Fair value of share-based compensation     —         —         614,427       —         614,427  
                                         
Net Loss for the period     —         —         —         (1,022,902 )     (1,022,902 )
                                         
Balance, September 30, 2018     257,952,433     $ 1,379     $ 31,450,486     $ (31,156,580 )   $ 295,285  
                                         
Balance, June 30, 2018     257,952,433     $ 1,379     $ 31,216,009     $ (30,784,805 )   $ 432,583  
                                         
Fair value of share-based compensation     —         —         234,477       —         234,477  
                                         
Net Loss for the period     —         —         —         (371,775 )     (371,775 )
                                         
Balance, September 30, 2018     257,952,433     $ 1,379     $ 31,450,486     $ (31,156,580 )   $ 295,285  

 

 

 

 

See Notes to Financial Statements

 

7 
 
 

 

PROTOKINETIX, INCORPORATED

(A Development Stage Company)

STATEMENTS OF CASH FLOWS

(Unaudited)

For the Nine Months Ended September 30, 2019 and 2018

 

    Nine Months ended
September 30, 2019 		  Nine Months ended
September 30, 2018
         
CASH FLOWS USED IN OPERATING ACTIVITIES                
Net loss for the period   $ (1,743,627 )   $ (1,022,677 )
Adjustments to reconcile net loss to cash used in operating activities:                
Amortization – intangible assets     2,250       2,250  
Fair value of share-based compensation     1,167,629       614,427  
            Interest accrued     —         306  
Changes in operating assets and liabilities:                
Prepaid expenses and deposits     (9,540 )     (51,043 )
Accounts payable and accrued liabilities     (73,464 )     (21,886 )
                 
Net cash used in operating activities     (656,752 )     (376,537 )
                 
CASH FLOWS USED IN INVESTING ACTIVITIES                
Purchase of intangible assets     (6,418 )     (27,946 )
                 
Net cash used in investing activities     (6,418 )     (27,946 )
                 
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Issuance of common stock for cash     817,000       212,038  
                 
Net cash from financing activities     817,000       212,038  
                 
Net change in cash     153,830       (192,445 )
                 
Cash, beginning of period     136,029       302,942  
                 
Cash, end of period   $ 289,859     $ 110,497  
                 
Cash paid for interest   $ —       $ —    
                 
Cash paid for income taxes   $ —       $ —    
 Supplementary information – non-cash transactions:                
Common stock issued to settle promissory notes   $ —       $ 117,962  

 

 

See Notes to Financial Statements

 

8 
 
 

 

 

PROTOKINETIX, INCORPORATED

(A Development Stage Company)

 

NOTES TO FINANCIAL STATEMENTS

September 30, 2019

 

Note 1.  Basis of Presentation – Going Concern Uncertainties

 

ProtoKinetix, Incorporated (the “Company”), a development stage company, was incorporated under the laws of the State of Nevada on December 23, 1999.  The Company is a medical research company whose mission is the advancement of human health care.

 

The Company is currently researching the benefits and feasibility of synthesized Antifreeze Glycoproteins (“AFGP”) or anti-aging glycoproteins, trademarked AAGP.  During the year ended December 31, 2015, the Company acquired certain patents and rights for cash consideration of $30,000 (25,000 Euros), as well as additional patent applications for cash consideration of $10,000 and 6,000,000 share purchase warrants with a fair value of $25,000 (Note 4).

 

The Company’s financial statements are prepared consistent with accounting principles generally accepted in the United States applicable to a going concern.

 

The Company has not developed a commercially viable product, has not generated any significant revenue to date, and has incurred losses since inception, resulting in a net accumulated deficit at September 30, 2019.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The Company needs additional working capital to continue its medical research or to be successful in any future business activities and continue to pay its liabilities.  Therefore, continuation of the Company as a going concern is dependent upon obtaining the additional working capital necessary to accomplish its objective.  Management is presently engaged in seeking additional working capital through equity financing or related party loans.

 

The accompanying financial statements do not include any adjustments to the recorded assets or liabilities that might be necessary should the Company fail in any of the above objectives and is unable to operate for the coming year.

 

Note 2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited financial statements have been prepared by the Company in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) applicable to interim financial information and with the rules and regulations of the United States Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed, or omitted, pursuant to such rules and regulations. In the opinion of management, the unaudited interim financial statements include all adjustments necessary for the fair presentation of the results of the interim periods presented. All adjustments are of a normal recurring nature, except as otherwise noted below. These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2018, included in the Company’s Annual Report on Form 10-K, filed March 12, 2019, with the Securities and Exchange Commission. The results of operations for the interim periods are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year.

 

 

 

9 
 
 


PROTOKINETIX, INCORPORATED

(A Development Stage Company)

 

NOTES TO FINANCIAL STATEMENTS

September 30, 2019

 

Note 2. Summary of Significant Accounting Policies (cont’d)

 

Use of Estimates

 

Preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period.  Actual results could differ from those estimates.  The more significant accounting estimates inherent in the preparation of the Company’s financial statements include estimates as to valuation of equity related instruments issued, deferred income taxes, and the useful life and impairment of intangible assets.

 

Cash

 

Cash consists of funds held in checking accounts.  Cash balances may exceed federally insured limits from time to time.

 

Fair Value of Financial Instruments

 

Financial instruments, which includes cash and accounts payable and accrued liabilities, are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments.

 

The Company measures the fair value of financial assets and liabilities pursuant to ASC 820 “Fair Value Measurements and Disclosures” which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The policy describes three levels of inputs that may be used to measure fair value:

 

Level 1 – quoted prices in active markets for identical assets or liabilities

Level 2 – quoted prices for similar assets and liabilities in active markets or inputs that are observable

Level 3 – inputs that are unobservable (for example cash flow modeling inputs based on assumptions)

 

Level 1 inputs are used to measure cash. At September 30, 2019, there were no other assets or liabilities subject to additional disclosure.

 

Income Taxes

 

The Company accounts for income taxes following the assets and liability method in accordance with the ASC 740 “Income Taxes.”  Under such method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  The Company applies the accounting guidance issued to address the accounting for uncertain tax positions.  This guidance clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements as well as provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years that the asset is expected to be recovered or the liability settled.

 

10 
 
 


 

PROTOKINETIX, INCORPORATED

(A Development Stage Company)

 

NOTES TO FINANCIAL STATEMENTS

September 30, 2019

 

Note 2. Summary of Significant Accounting Policies (cont’d)

 

Intangible assets – patent and patent application costs

 

The Company owns intangible assets consisting of certain patents and patent applications. Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which they relate. All other expenditures are recognized in profit or loss as incurred.

 

As at September 30, 2019, the Company does not hold any intangible assets with indefinite lives.

 

Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization method and amortization period of an intangible asset with a finite life is reviewed at least annually.

 

Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates.

 

Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of the Company’s patents, whereas no amortization has been recognized on the patent application costs as at September 30, 2019.

 

Research and Development Costs

 

Research and development costs are expensed as incurred.

 

Loss per Share and Potentially Dilutive Securities

 

Basic loss per share is computed by dividing the net loss available to common stockholders by the weighted average number of common shares outstanding in the period.  Diluted loss per share takes into consideration common shares outstanding (computed under basic earnings per share) and potentially dilutive securities.  The effect of 76,450,000 stock options (September 30, 2018 – 43,900,000), and 6,000,000 warrants (September 30, 2018 – 6,500,000) were not included in the computation of diluted earnings per share for all periods presented because it was anti-dilutive due to the Company’s losses.

 

Share-Based Compensation

 

The Company has granted warrants and options to purchase shares of the Company’s common stock to various parties for consulting services.  The fair values of the warrants and options issued have been estimated using the Black-Scholes Option Pricing Model.

 

The Company accounts for stock compensation with persons classified as employees for accounting purposes in accordance with ASC 718 “Compensation – Stock Compensation”, which recognizes awards at fair value on the date of grant and recognition of compensation over the service period for awards expected to vest. Cliff Vesting is used and awards vest on the last day of the vesting period. The fair value of stock options is determined using the Black-Scholes Option Pricing Model. The fair value of common shares issued for services is determined based on the Company’s stock price on the date of issuance.

 

 

11 
 
 


PROTOKINETIX, INCORPORATED

(A Development Stage Company)

 

NOTES TO FINANCIAL STATEMENTS

September 30, 2019

 

Note 2. Summary of Significant Accounting Policies (cont’d)

 

Share-Based Compensation (cont’d)

 

The Company accounts for stock compensation arrangements with persons classified as non-employees for accounting purposes in accordance with ASC 505-50 “Stock-Based Transactions with Nonemployees”, which requires that such equity instruments are recorded at their fair value on the measurement date. The measurement of share-based compensation is subject to periodic adjustment as the underlying instruments vest. The fair value of stock options is estimated using the Black-Scholes Option Pricing Model and the compensation charges are amortized over the vesting period.

 

Common stock

 

Common stock issued for non-monetary consideration are recorded at their fair value on the measurement date and classified as equity. The measurement date is defined as the earliest of the date at which the commitment for performance by the counterparty to earn the common shares is reached or the date at which the counterparty’s performance is complete.

 

Transaction costs directly attributable to the issuance of common stock, units and stock options are recognized as a deduction from equity, net of any tax effects.

 

Related Party Transactions

 

A related party is generally defined as (i) any person that holds 10% or more of the Company’s securities and their immediate families, (ii) the Company’s management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) anyone who can significantly influence the financial and operating decisions of the Company.  A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.

 

Recent Accounting Pronouncements

 

In February 2016, the FASB issued No. ASU 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by requiring the recognition of a right-of-use assets and lease liabilities for most lease arrangements on the balance sheet. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.

 

The new standard is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The standard permits two transition methods, (1) to apply the new lease requirements at the beginning of the earliest period presented, or (2) to apply the new lease requirements at the effective date. Under both transition methods, there is a cumulative effect adjustment.

 

ASU 2016-02 was originally required to be adopted on a modified retrospective basis, meaning the new leasing model would need to be applied to the earliest year presented in the financial statements and thereafter. However, in July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which permits companies to apply the transition provisions of the lease accounting standard at its effective date (i.e. comparative financial statements are not required). Furthermore, in December 2018, the FASB issued ASU No. 2018-20, Leases (Topic 842): Narrow Scope Improvements for Lessors, which clarifies that lessor costs, paid directly to a third-party by a lessee on behalf of the lessor, are no longer required to be recognized in the lessor's financial statements.

12 
 
 

 

PROTOKINETIX, INCORPORATED

(A Development Stage Company)

 

NOTES TO FINANCIAL STATEMENTS

September 30, 2019

 

Note 2. Summary of Significant Accounting Policies (cont’d)

 

 

Recent Accounting Pronouncements (cont’d)

The Company adopted the new lease requirements on January 1, 2019, electing to use the practical expedients permitted under the transition guidance within the new standard. The adoption of this standard did not have a material impact on the Company’s financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, requiring certain changes to the recognition and measurement as well as disclosure of incurred and expected credit losses. The standard will become effective for the Company beginning January 1, 2020. In November 2018, the FASB issued ASU 2018-19 to clarify certain aspects of the new current expected credit losses impairment model in ASU 2016-13. ASU 2018-19 points out that operating lease receivables are within the scope of ASC 842 rather than ASC 326. The Company is currently evaluating the impact of the adoption of this standard on the financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee ShareBased Payment Accounting, or “ASU 2018-07”. The guidance in this ASU expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The new standard is effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within each annual reporting period. The Company is currently evaluating the impact of the adoption of this ASU on the financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which changes the fair value measurement disclosure requirements of ASC 820. The amendments in this ASU are the result of a broader disclosure project called FASB Concepts Statement, Conceptual Framework for Financial Reporting — Chapter 8: Notes to Financial Statements. The amendments are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption of this standard on the financial statements.

Other than the above, the Company has determined that other significant newly issued accounting pronouncements are either not applicable to the Company’s business or that no material effect is expected on the financial statements as a result of future adoption.

 

13 
 
 

 

PROTOKINETIX, INCORPORATED

(A Development Stage Company)

 

NOTES TO FINANCIAL STATEMENTS

September 30, 2019

 

 

Note 3.   Prepaid Expenses and Deposits

 

The following summarizes the Company’s prepaid expenses and deposits outstanding as at September 30, 2019 and December 31, 2018:

 

    September 30,
 2019 		  December 31,
  2018
         
Deposit on research agreements (Note 9)   $ 9,540     $ —    
Other prepaid expenses     1,050       1,050  
                 
    $ 10,590     $ 1,050  

 

 

 

 

 

14 
 
 


 

PROTOKINETIX, INCORPORATED

(A Development Stage Company)

 

NOTES TO FINANCIAL STATEMENTS

September 30, 2019

 

Note 4.   Intangible Assets

 

Intangible asset transactions are summarized as follows:

 

    Patent Rights   Patent Application Rights   Total
Cost                        
Balance, December 31, 2017   $ 30,000     $ 130,528     $ 160,528  
Additions     —         37,743       37,743  
Balance, December 31, 2018   $ 30,000     $ 168,271     $ 198,271  
Additions     —         6,418       6,418  
Balance, September 30, 2019   $ 30,000     $ 174,689     $ 204,689  
                         
Accumulated amortization                        
Balance, December 31, 2017   $ 7,500     $ —       $ 7,500  
Amortization     3,000       —         3,000  
Balance, December 31, 2018   $ 10,500     $ —       $ 10,500  
Amortization     2,250       —         2,250  
Balance, September 30, 2019   $ 12,750     $ —       $ 12,750  
                         
Net carrying amounts                        
December 31, 2018   $ 19,500     $ 168,271     $ 187,771  
September 30, 2019   $ 17,250     $ 174,689     $ 191,939  

 

During the year ended December 31, 2015, the Company entered into an Assignment of Patents and Patent Application (effective January 1, 2015) (the “Patent Assignment”) with the Institut National des Sciences Appliquees de Rouen (“INSA”) for the assignment of certain patents and all rights associated therewith (the “Patents”). The Company and INSA had previously entered into a licensing agreement for the Patents in August 2004. The Patent Assignment transfers all of the Patents and rights associated therewith to the Company upon payment to INSA in the sum of $30,000. During the nine month period ended September 30, 2019, the Company recorded $2,250 (2018 - $2,250) in amortization expense associated with the Patents.

 

During the year ended December 31, 2015, the Company entered into a Technology Transfer Agreement with Grant Young for the assignment of his 50% ownership of certain patents and all rights associated therewith (the “Patent Application Rights”).  In exchange for the Patent Application Rights, the Company agreed to pay $10,000 (paid) and to issue 6,000,000 warrants (issued) to purchase shares of the Company’s common stock at an exercise price of $0.10 per share for a period of five years. The Patent Application Rights had a total fair value of $35,000, which was allocated as $10,000 to the cash consideration paid, with the remaining $25,000 being allocated to the warrant component of the overall consideration. The Company has incurred $139,689 in direct costs relating to the Patent Application Rights, $6,418 of which were incurred during the nine month period ended September 30, 2019.

 

The remaining 50% ownership of the Patent Application Rights was acquired from the Governors of the University of Alberta in exchange for a future gross revenue royalty.

 

15 
 
 

 

PROTOKINETIX, INCORPORATED

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

September 30, 2019

 

Note 4.  Intangible Assets (cont’d)

 

During the year ended December 31, 2016, the Company entered into a Universal Assignment with Grant Young for the assignment of his ownership of certain new and useful improvements in an invention entitled “Use of Anti-Aging Glycoprotein for Enhancing Survival of Neurosensory Precursor Cells” (the “New Patent Application Rights”).  In exchange for the New Patent Application Rights, the Company agreed to pay $1 (paid).  The Company incurred $2,415 in direct costs relating to the New Patent Application Rights during the year ended December 31, 2016. No amortization was recorded on the Patent Application Rights to September 30, 2019.

 

Note 5.  Stock Options

 

On December 30, 2016, the Board of Directors of the Company adopted the 2017 Stock Option and Stock Bonus Plan (the “2017 Plan”).  The Board of Directors adopted the 2017 Plan as it anticipates utilizing equity compensation as part of its ongoing standard corporate operations and in connection with its contemplated activities going forward.

The aggregate number of shares that may be issued under the 2017 Plan is 89,700,000 shares subject to adjustment as provided therein.  The 2017 Plan includes two types of options.  Options intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended are referred to as incentive options.  Options which are not intended to qualify as incentive options are referred to as non-qualified options.

 

As of September 30, 2019, 74,450,000 options and no shares of common stock have been granted and are outstanding under the 2017 Plan.

 

The 2017 Plan is administered by the Board of Directors, or a committee appointed by the Board of Directors.  In addition to determining who will be granted options or stock bonuses, the committee has the authority and discretion to determine when options and bonuses will be granted and the number of options and bonuses to be granted.  The committee also may determine a vesting and/or forfeiture schedule for bonuses and/or options granted, the time or times when each option becomes exercisable, the duration of the exercise period for options and the form or forms of the agreements, certificates or other instruments evidencing grants made under the 2017 Plan.  The committee may determine the purchase price of the shares of common stock covered by each option.  The committee also may impose additional conditions or restrictions not inconsistent with the provisions of the 2017 Plan.  The committee may adopt, amend and rescind such rules and regulations as in its opinion may be advisable for the administration of the 2017 Plan. 

 

In the event that a change, such as a stock split, is made in the Company’s capitalization which results in an exchange or other adjustment of each share of common stock for or into a greater or lesser number of shares, appropriate adjustments will be made to unvested bonuses and in the exercise price and in the number of shares subject to each outstanding option.  The committee also may make provisions for adjusting the number of bonuses or underlying outstanding options in the event the Company effects one or more reorganizations, recapitalizations, rights offerings, or other increases or reductions of shares of its outstanding common stock.  Options and bonuses may provide that in the event of the dissolution or liquidation of the Company, a corporate separation or division or the merger or consolidation of the Company, the holder may exercise the option on such terms as it may have been exercised immediately prior to such dissolution, corporate separation or division or merger or consolidation; or in the alternative, the committee may provide that each option granted under the 2017 Plan shall terminate as of a date fixed by the committee.

 

16 
 
 


PROTOKINETIX, INCORPORATED

(A Development Stage Company)

 

NOTES TO FINANCIAL STATEMENTS

September 30, 2019

 

 

Note 5.  Stock Options (cont’d)

 

The exercise price of any option granted under the 2017 Plan must be no less than 100% of the “fair market value” of the Company’s common stock on the date of grant.  The exercise period of any option shall not exceed ten years from the date of grant of the option. Any incentive stock option granted under the 2017 Plan to a person owning more than 10% of the total combined voting power of the common stock must be at a price of no less than 110% of the fair market value per share on the date of grant and the term shall be for no more than five years. 

Stock option transactions are summarized as follows:

    Number of
Stock Options 		  Weighted Average Exercise Price   Weighted Average Fair Value   Weighted Average Remaining Life
        $   $   (Years)
Outstanding, December 31, 2018     58,600,000       0.07       0.05          
      Options cancelled     (16,000,000 )     0.07       0.04          
      Options exercised     (250,000 )     0.07       0.07          
      Options granted     34,100,000       0.25       0.18          
Outstanding, September 30, 2019     76,450,000       0.15       0.07       3.48  

 

    Number of
Stock Options 		  Weighted Average Exercise Price   Weighted Average Fair Value   Weighted Average Remaining Life
        $   $   (Years)
Outstanding, December 31, 2017     44,100,000       0.06       0.05          
      Options expired     (1,600,000 )     0.07       0.03          
      Options granted     1,400,000       0.07       0.09          
Outstanding, September 30, 2018     43,900,000       0.06       0.05       2.05  

 

 

 

 

17 
 
 

 

PROTOKINETIX, INCORPORATED

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

September 30, 2019

 

Note 5.  Stock Options (cont’d)

 

The $1,167,629 (September 30, 2018- $614,427) fair value of stock options granted during the nine month period ended September 30, 2019 was estimated using the Black-Scholes Option Pricing Model.  The weighted average assumptions used in the pricing model for these options are as follows:

 

    September 30, 2019   September 30, 2018
Risk-free interest rate     2.41 %     1.51 %
Dividend yield     0.00 %     0.00 %
Expected stock price volatility     125.00 %     125.00 %
Expected forfeiture rate     0.00 %     0.00 %
Expected life     4.60 years     3.61 years  

 

The following non-qualified stock options were outstanding and exercisable at September 30, 2019:

 

Expiry date   Exercise Price   Number of Options
Outstanding 		  Number of
Options
Exercisable
    $        
February 25, 2020     0.04       2,000,000       —    
December 31, 2020     0.05       12,200,000       12,200,000  
August 31, 2021     0.06       11,000,000       11,000,000  
November 14, 2021     0.07       750,000       750,000  
December 31, 2022     0.06       800,000       800,000  
August 31, 2023     0.08       600,000       600,000  
November 8, 2023     0.09       15,000,000       11,250,000  
May 5, 2023     0.13       1,600,000       1,600,000  
July 14, 2024     0.26       32,500,000       —    
                         
              76,450,000       38,200,000  

 

As at September 30, 2019, the aggregate intrinsic value of the Company’s stock options is $1,386,500 (December 31, 2018 – $572,000). The weighted average fair value of stock options granted during the nine month period ended September 30, 2019 is $0.07 (2018 - $0.08).

 

Note 6.  Warrants

 

Warrant transactions for the three months ended September 30, 2019 are summarized as follows:

 

    Number of
Warrants 		  Weighted
Average Exercise
Price
         
  Balance, December 31, 2017 and  September 30, 2018       6,500,000     $ 0.11  
  Balance, December 31, 2018 and  September  30, 2019       6,000,000     $ 0.26  

 

 

 

18 
 
 

 

PROTOKINETIX, INCORPORATED

(A Development Stage Company)

 

NOTES TO FINANCIAL STATEMENTS

September 30, 2019

 

Note 6.  Warrants (cont’d)

 

The following warrants were outstanding and exercisable as at September 30, 2019:

 

Number of Warrants   Exercise Price ($)   Expiry Date
  6,000,000       0.26     July 14, 2024

 

 

Note 7.  Stockholders’ Equity

 

The Company is authorized to issue 400,000,000 (December 31, 2018 – 400,000,000) shares of $0.0000053 par value common stock. Each holder of common stock has the right to one vote but does not have cumulative voting rights. Shares of common stock are not subject to any redemption or sinking fund provisions, nor do they have any preemptive, subscription or conversion rights. Holders of common stock are entitled to receive dividends whenever funds are legally available and when declared by the board of directors, subject to the prior rights of holders of all classes of stock outstanding having priority rights as to dividends. No dividends have been declared or paid as of September 30, 2019 (December 31, 2018 - $nil).

 

During the nine month period ended September 30, 2018, the Company:

 

a) Issued 4,240,760 shares of common stock to investors at $0.05 for gross proceeds of $212,038.
b) Issued 2,359,240 shares of common stock to the Company’s President and CEO to settle two promissory notes (plus accrued interest) totaling $117,962.

 

During the nine month period ended September 30, 2019, the Company:

 

a) Issued 750,000 shares of common stock to investors at $0.06 for gross proceeds of $45,000.
b) Issued 10,000,000 shares of common stock to investors at $0.05 for gross proceeds of $500,000.
c) Issued 2,266,667 shares of common stock to investors at $0.12 for gross proceeds of $272,000.
d) Issued 97,826 shares of common stock to the CFO pursuant to a cashless exercise of 250,000 stock options.

 

Note 8. Related Party Transactions and Balances

 

During the nine month period ended September 30, 2019 and 2018, the Company entered into the following related party transactions:

a) Pursuant to a consulting agreement with an effective date of November 14, 2017, a total of $45,000 (2018 - $45,000) was paid or accrued to the Company's CFO. Pursuant to the agreement, he was also granted 1,000,000 stock options exercisable into common shares of the Company until November 14, 2021 at a price of $0.07 per share (Note 5). The options vested in equal installments on a quarterly basis beginning February 14, 2018. On November 9, 2018, the CFO was granted an additional 4,000,000 stock options for continued service. The options are exercisable until November 8, 2023 at a price of $0.09 per stock option (Note 5) and vest quarterly in equal installments beginning March 31, 2019. On July 15, 2019, the CFO was granted 4,000,000 for continued service. The options are exercisable until July 14, 2024 at a price of $0.26 per share. During the nine months ended September 30, 2019, the Company reimbursed a company controlled by the CFO a total of $9,450 (2018 - $9,450) in office rent.

19 
 
 

 

 

PROTOKINETIX, INCORPORATED

(A Development Stage Company)

 

NOTES TO FINANCIAL STATEMENTS

September 30, 2019

 

 

Note 8. Related Party Transactions and Balances (cont’d)

 

b) The Company recognized $502,795 (2018 - $297,044) in share-based compensation associated with stock options granted to key management personnel.

 

c) During the nine month period ended September 30, 2018, the Company issued a total of 2,359,240 shares of common stock to its President and CEO as settlement of principal and interest owing on two promissory notes.

As at September 30, 2019 and December 31, 2018, there were $nil balances owing to related parties.

 

 

 

 

 

 

 

20 
 
 

 

 

PROTOKINETIX, INCORPORATED

(A Development Stage Company)

 

NOTES TO FINANCIAL STATEMENTS

September 30, 2019

 

Note 9.  Commitments and Contingency

 

As at September 30, 2019, the Company has the following commitments:

 

a) Entered into a consulting agreement with an effective date of January 1, 2017 whereby the Company would pay the consultant $7,000 per month for providing research and development services. Pursuant to the agreement, the consultant was also granted 5,000,000 stock options exercisable into common shares of the Company until December 31, 2020 at a price of $0.05 per share (Note 5). The options vested in equal instalments on a quarterly basis beginning March 31, 2017. On September 1, 2017, the consulting agreement was amended to continue the term of the agreement until December 31, 2018 and thereafter to automatically renew. The consulting agreement was also amended to grant an additional 5,000,000 stock options exercisable into common shares of the Company until August 31, 2021 at a price of $0.06 per share (Note 5). The options vested quarterly in equal installments beginning December 31, 2017. On November 9, 2018, the consultant was granted an additional 5,000,000 stock options for continued service. The options are exercisable until November 8, 2023 at a price of $0.09 per share (Note 5) and vest quarterly in equal installments beginning March 31, 2019.

 

On July 15, 2019 pursuant to a mutual agreement, the consultant’s vested options for 5,000,000 shares at $0.04 per share, expiring February 28, 2020, and vested options for 5,000,000 shares at $0.08 per share, expiring December 31, 2019 were cancelled. New stock options were granted for 10,000,000 shares of common stock at a price of $0.26 per share and expiring July 14, 2024. The options vest in equal installments quarterly starting Oct 13, 2019. On July 15, 2019 the consultant was also granted stock options for continued service for 5,000,000 shares of common stock at a price of $0.26, expiring July 14, 2024. The options vest in equal installments quarterly starting Oct 13, 2019.


b) Entered into a consulting agreement for research and investor relation consulting services effective January 1, 2018. The consultant was granted 400,000 stock options exercisable into common shares of the Company at a price of $0.06 per share until December 31, 2022 (Note 5). The options vest in equal instalments on a quarterly basis beginning March 31, 2018. On September 1, 2018, the consultant was granted an additional 600,000 stock options exercisable into common shares of the Company at a price of $0.08 per share until August 31, 2023. The options vest in equal instalments on a quarterly basis beginning December 31, 2018.

 

c) Entered into a Collaborative Research Agreement (the “CREA”) effective May 31, 2016 with the University of British Columbia (“UBC”) for a term of 2 years. Pursuant to the CREA, the Company paid a total of CAD $169,000 ($131,448) in advance for services to be provided by UBC in the first year, and an additional CAD $201,500 ($146,585) which was due within 12 months from the effective date of the CREA in advance of services to be provided by UBC in the second year. On June 29, 2018, the Company entered into an amendment to the CREA, requiring two additional instalments of CAD $54,600 ($41,369 paid) on June 30, 2018 and CAD $54,600 ($41,392 paid on January 2, 2019) on December 1, 2018. The CREA can be terminated by either party with 30 days’ written notice. As of September 30, 2019, a total of $nil is included in prepaid expenses and deposits (December 31, 2018 - $nil) pertaining to the CREA.

 

On January 4, 2018, the Company entered into an additional agreement with UBC, making a payment of CAD $50,001 ($40,140) for research services to be provided over a term of 1 year.

 

d) Entered into a consulting agreement effective January 1, 2018, whereby the Company would pay the consultant $1,000 per month for a term of 1 year for providing public relations services, unless otherwise terminated by either party with at least 30 days’ notice. The consultant was also granted 400,000 stock options exercisable into common shares of the Company until December 31, 2022 at a price of $0.06 per share (Note 5). The options vest quarterly in equal installments beginning March 31, 2018.

 

21 
 
 

 

 

PROTOKINETIX, INCORPORATED

(A Development Stage Company)

 

NOTES TO FINANCIAL STATEMENTS

September 30, 2019

 

 

Note 9.  Commitments and Contingency(cont’d)

 

e) On May 1, 2019, entered into consulting agreements for investor relation consulting services with two firms. The consultants were granted 800,000 stock options each (for a total of 1,600,000) exercisable into common shares of the Company at a price of $0.13 per share until May 6, 2023. (Note 5). The options vest 400,000 shares to each of the two consultants on May 6, 2019 and 400,000 each, one on July 17, 2019 and one on August 1, 2019. The agreements also call for monthly payments of $5,000 to each of the two consultants over a term of 1 year. The agreements can be cancelled at any time with 30 days’ notice.

 

f ) Entered into a consulting agreement effective April 1, 2019, whereby the Company would pay the consultant $1,500 per month minimum plus travel expenses for a term of 1 year for providing research consulting services, unless otherwise terminated by either party with at least 30 days’ notice. On July 15, 2019 the consultant was also granted 500,000 stock options exercisable into common shares of the Company until July 14, 2024 at a price of $0.26 per share. The options vest quarterly in equal installments beginning October 13, 2019.

 

g ) Entered into a Collaborative Research Agreement (the “CREA”) on February 20, 2019 with the University of Dalhousie until March 31, 2020. Pursuant to the CREA, the Company will pay a total of CAD $112,000. Dalhousie agrees to invoice the Company in four installments of CAD $28,000 ($20,982 paid) as research services progress. The CREA can be terminated by either party with 30 days’ written notice. As of September 30, 2019, a total of $nil is included in prepaid expenses and deposits (December 31, 2018 - $nil) pertaining to the CREA.

 

Contingency

 

The Company was delinquent in filing certain income tax returns with the U.S. Internal Revenue Service and reports disclosing its interest in foreign bank accounts on form TDF 90-22.1, "Report of Foreign Bank and Financial Accounts" ("FBARs"). In September 2015, the Company filed the delinquent income tax returns and has sought waivers of any penalties under the IRS Offshore Voluntary Disclosure Program for late filing of the returns and FBARs. Under the program, the IRS has indicated that it will not impose a penalty for the failure to file delinquent income tax returns if there are no under reported tax liabilities. On November 30, 2017, the Company received a letter from the IRS concluding their review of the Company's tax returns under the program and accepting the returns as filed. No penalties have been assessed by the IRS to date, and management does not believe that the Company will incur any penalties relating to the tax years submitted under the program.

 

 

 

22 
 
 

 

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Unless the context requires otherwise, references in this document to “ProtoKinetix”, “we”, “our”, “us” or the “Company” are to ProtoKinetix, Incorporated.

 

The following discussion provides information regarding the results of operations for the nine month period ended September 30, 2019 and 2018, and our financial condition, liquidity and capital resources as of September 30, 2019, and December 31, 2018.  The financial statements and the notes thereto contain detailed information that should be referred to in conjunction with this discussion.

 

Cautionary Note Regarding Forward-Looking Statements

The information discussed in this Quarterly Report on Form 10-Q include “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”).  All statements, other than statements of historical facts, included herein and therein concerning, among other things, planned capital expenditures, future cash flows and borrowings, pursuit of potential acquisition opportunities, our financial position, business strategy and other plans and objectives for future operations, are forward looking statements. These forward looking statements are identified by their use of terms and phrases such as “may,” “expect,” “estimate,” “project,” “plan,” “believe,” “intend,” “achievable,” “anticipate,” “will,” “continue,” “potential,” “should,” “could,” and similar terms and phrases.  Although we believe that the expectations reflected in these forward looking statements are reasonable, they do involve certain assumptions, risks and uncertainties and are not (and should not considered to be) guarantees of future performance. Our results could differ materially from those anticipated in these forward looking statements as a result of certain factors, including, among others:

 

• Our capital requirements and the uncertainty of being able to obtain additional funding on terms acceptable to us;
• Our plans to develop and commercialize products from the AAGP® molecule;
• Ongoing testing of the AAGP® molecule;
• Our intellectual property position;
• Our commercialization, marketing and manufacturing capabilities and strategy;
• Our ability to retain key members of our senior management and key scientific consultants;
• The effects of competition;
• Our potential tax liabilities resulting from conducting business in the United States and Canada;
• The effect of further sales or issuances of our common stock and the price and volume volatility of our common stock; and
• Our common stock’s limited trading history.

 

Finally, our future results will depend upon various other risks and uncertainties, including, but not limited to, those detailed in our filings with the SEC under the Exchange Act and the Securities Act, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.  All forward looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere in this Quarterly Report. Other than as required under securities laws, we do not assume a duty to update these forward looking statements, whether as a result of new information, subsequent events or circumstances, changes in expectations or otherwise.

 

Business Overview

 

ProtoKinetix, Incorporated is a research and development stage bio-technology company focused on scientific medical research of AFGPs (Anti-Freeze Glycoproteins) or anti-aging glycoproteins, trademarked as AAGP®.  The Company has recently been in the process of directing major efforts to the practical side of commercial validation.  The commercial applications for AAGP® in large markets such as targeted health care solutions are numerous, and ProtoKinetix is currently working with researchers, business leaders and advisors and commercial entities to bring AAGP® to market.

 

23 
 
 


 

Results of Operations

 

The following table shows selected financial data and operating results for the periods noted.  Following the table, please see management’s discussion of significant changes.

 

    For the Nine Months Ended
    September 30,
    2019   2018
Revenues   $ —       $ —    
Cost of Sales     —         —    
Gross (Loss) Profit     —         —    
Operating Expenses                
Amortization   $ 2,250     $ 2,250  
General and Administrative     202,238       56,757  
Professional Fees     92,315       98,274  
Research and Development     279,089       247,896  
Share-Based Compensation     1,167,629       614,427  
Total Operating Expenses     1,167,629       1,019,604  
Loss from Operations     (1,743,521 )     (1,019,604 )
                 
Other Income                
Foreign Exchange Loss     (106 )     (3,073 )
Total Other Loss     (106 )     (3,073 )
Net Loss   $ (1,743,627 )     (1,022,677 )

 

Revenues

We had no revenues for the nine month periods ended September 30, 2019 and 2018.

 

Gross Profit and Expenses

The Company’s net loss was $1,743,627 for the nine month period ended September 30, 2019 compared to $1,022,677 for the nine month period ended September 30, 2018.  These expenses were primarily incurred for professional fees, consulting services related to the operations of the Company’s business, research and development and other general and administrative expenses.  Significant changes from the prior nine month period ended September 30, 2018 include:

 

General and Administrative fees increased by $145,481 from $56,757 to $202,238 primarily as a result of an increase in spending on advertising and investor relations, and the upgrade of company website.

 

Research and development increased slightly year over year with a change of $31,193 from $247,896 to $279,089 with the primary spending being testing of effects of glycopeptides on retinal cell transplants, stem cell engraftment and antibody production with the University of British Columbia (UBC). Added expenses from new research being done at the University of Dalhousie, and the order placement for additional production of our AAGP molecule to be delivered by year end.

 

Share-based compensation increased significantly by $553,202 from $614,427 to $1,167,629 primarily as a result of an increase in the value of management stock options for the current year, and the addition of stock option compensation to investor relations consultants.

 

Liquidity and Capital Resources

 

The following summarizes our statements of cash flows at September 30, 2019 and December 31, 2018:

 

    September 30, 2019   December 31, 2018
Cash   $ 289,859     $ 136,029  
                 
Working Capital   $ 295,029     $ 58,194  

 

 

24 
 
 

 

 

At September 30, 2019, we had $289,859 in cash and $300,449 in total current assets.  As of September 30, 2019, we had a positive working capital equity position of $295,029. Based upon our working capital equity as of September 30, 2019, we will require additional equity and/or debt financing in order to meet cash flow projections and carry forward our business objectives.  

 

There can be no assurance that in the future we will be able to raise capital from outside sources in sufficient amounts to fund our new business. The failure to secure adequate outside funding would have an adverse effect on our plan of operation and results therefrom and a corresponding negative impact on stockholder liquidity.

 

Sources and Uses of Cash

 

Net Cash Used in Operating Activities

 

Net cash used in operating activities increased by $280,215 from $376,537 to $656,752 for the nine months ended September 30, 2018 and 2019, respectively.  This increase was predominantly due to an increase in research spending.

 

Net Cash Used in Investing Activities

 

Net cash used in investing activities was $6,418 for the nine month period ended September 30, 2019 while the Company had net cash used in investing activities of $27,946 for the comparative period.  The difference is attributable to a decrease in the purchase of intangible assets.

 

Net Cash Provided by Financing Activities

 

Net cash provided by financing activities increased by $604,962 from $212,038 to $817,000 for the nine months ended September 30, 2018 and 2019, respectively due to an increase of funding from private placements.

 

Going Concern

 

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”), which contemplate continuation of the Company as a going concern.  The history of losses and the inability for the Company to make a profit from selling a good or service has raised substantial doubt about our ability to continue as a going concern. In spite of the fact that the current cash obligations of the Company are relatively minimal, given the cash position of the Company, we have very little cash to operate. We intend to fund the Company and attempt to meet corporate obligations by selling common stock.  However, the price and volume of the Company’s common stock is volatile.

 

Off-Balance Sheet Arrangements

 

None.

 

Contractual Obligations

 

As a smaller reporting company, we are not required to provide the information required by paragraph (a)(5) of this Item.

 

Critical Accounting Policies

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make a variety of estimates and assumptions that affect (i) the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and (ii) the reported amounts of revenues and expenses during the reporting periods covered by the financial statements.

 

 

25 
 
 

 

 

 

Our management routinely makes judgments and estimates about the effect of matters that are inherently uncertain. As the number of variables and assumptions affecting the future resolution of the uncertainties increase, these judgments become even more subjective and complex. Although we believe that our estimates and assumptions are reasonable, actual results may differ significantly from these estimates. Changes in estimates and assumptions based upon actual results may have a material impact on our results of operation and/or financial condition. Our significant accounting policies are disclosed in Note 2 to the Financial Statements included in this Form 10-Q.

 

While all of the significant accounting policies are important to the Company’s financial statements, the following accounting policies and the estimates derived there from have been identified as being critical.

 

Share-Based Compensation

 

On July 1, 2015, the Board of Directors of the Company adopted the 2015 Stock Option and Stock Bonus Plan (the “Plan”). The Company has granted warrants and options to purchase shares of the Company’s common stock to various parties for consulting services outside of the Plan, and beginning July 1, 2015 and ending December 31, 2016 pursuant to the Plan.  On December 30, 2016, the Board of Directors of the Company adopted the 2017 Stock Option and Stock Bonus Plan (the “2017 Plan”).

On November 9, 2018, the Board amended the 2017 Plan to increase the aggregate number of shares that may be issued under the 2017 Plan from 30,000,000 to 50,000,000 shares subject to adjustment as provided therein to continue to incentivize contractors and future employees (if any) of the Company.

On July 15, 2019 , the Board amended the 2017 Plan to increase the aggregate number of shares that may be issued under the 2017 Plan from 50,000,000 to 89,700,000 shares subject to adjustment as provided therein to continue to incentivize contractors and future employees (if any) of the Company

During the nine month period ended September 30, 2019, the Company granted 32,500,000 additional options pursuant to the 2017 Plan. The fair values of the warrants and options issued have been estimated using the Black-Scholes Option Pricing Model.

The Company accounts for stock compensation with persons classified as employees for accounting purposes in accordance with ASC 718 "Compensation – Stock Compensation", which recognizes awards at fair value on the date of grant and recognition of compensation over the service period for awards expected to vest. Cliff Vesting is used and awards vest on the last day of the vesting period. The fair value of stock options is determined using the Black-Scholes Option Pricing Model. The fair value of common shares issued for services is determined based on the Company's stock price on the date of issuance.

 

The Company accounts for stock compensation arrangements with persons classified as non-employees for accounting purposes in accordance with ASC 505-50 “Stock-Based Transactions with Nonemployees”, which requires that such equity instruments are recorded at their fair value on the measurement date. The measurement of share-based compensation is subject to periodic adjustment as the underlying instruments vest. The fair value of stock options is estimated using the Black-Scholes Option Pricing Model and the compensation charges are amortized over the vesting period.

 

Sales and Marketing

 

The Company is currently not selling or marketing any products.

 

Inflation

 

Although management expects that our operations will be influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the nine months ended September 30, 2019.

 

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Item 3. Quantitative and Qualitative Disclosure About Market Risk

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.

 

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Item 4: Controls and Procedures

 

Disclosure Controls and Procedures

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 (the “1934 Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the 1934 Act is accumulated and communicated to management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Our management, under the direction of our Chief Executive Officer (who is our principal executive officer), and Chief Financial Officer (who is our principal accounting officer) has evaluated the effectiveness of our disclosure controls and procedures as required by 1934 Act Rule 13a-15(b) as of September 30, 2019 (the end of the period covered by this report).  Based on that evaluation, our principal executive officer and our principal accounting officer concluded that these disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the 1934 Act is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.

 

The Company, including its Chief Executive Officer and Chief Financial Officer, does not expect that its internal controls and procedures will prevent or detect all error and all fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

 

Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated by the SEC under the 1934 Act) during the nine months ended September 30, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

Other than previously reported, the Company and its management are not aware of any regulatory or legal proceedings or investigations pending involving the Company, any of its subsidiaries or affiliates, or any of their respective officers, directors or employees.

 

Item 1A. Risk Factors

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.  However, our current risk factors are set forth in our Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the SEC on March 12, 2019, and such risk factors are incorporated herein by this reference.

 

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

 

On September 24, 2019, the Company’s CFO exercised an option to purchase 250,000 shares of common stock of the Company at $0.07 per share through a cashless exercise. The CFO received 97,826 shares and the Company received 152,174 as consideration for the exercise. The Company relied on the exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the “1933 Act”) and/or Rule 506(b) of Regulation D promulgated under the 1933 Act with respect to transactions not involving a public offering. No commissions were paid in connection with the issuance of these securities.

Other than previously reported, there have been no unregistered sales of equity securities during the nine month period ended September 30, 2019.

 

Item 3. Defaults upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosure

 

Not applicable.

 

Item 5. Other Information

 

Other than previously reported, there has been no other information to report during the nine month period ended September 30, 2019.

 

 

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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 INDEX

 

The following documents are being filed with the Commission as exhibits to this Quarterly Report on Form 10-Q.

 

 

Exhibit   Description
3.1   Certificate of Incorporation1
3.2   Bylaws1
4.1   Amended 2017 Stock Option and Stock Bonus Plan2
4.2   Amendment to Amended 2017 Stock Option and Stock Bonus Plan3
10.1   Royalty Agreement between the Company and The Governors of the University of Alberta, dated April 8, 20154
10.2   Collaborative Research Agreement between the Company and the University of British Columbia, dated May 31, 20165
10.3   Consulting Agreement between the Company and Clarence E. Smith, dated December 30, 20166
10.4   Director Consulting Agreement between the Company and Edward P. McDonough, dated December 30, 20166
10.5   Consulting Agreement between the Company and Grant Young, dated December 30, 20169
10.6   First Amendment to Consulting Agreement between Clarence E. Smith and the Company dated September 1, 20178
10.7   First Amendment to Consulting Agreement between Edward P. McDonough and the Company dated September 1, 20178
10.8   First Amendment to Consulting Agreement between Grant Young and the Company dated September 1, 20178
10.9   Consulting Agreement between ProtoKinetix Incorporated and Michael Guzzetta, dated November 14, 2017.7
14.1   Code of Ethics3
31.1   Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2   Certification of the Principal Financial Officer and Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1   Certification of the Principal Executive Officer and the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**

 

1. Incorporated by reference from the Company’s registration statement on Form 10-SB filed on June 22, 2001 with the SEC.
2. Incorporated by reference from the Company’s Current Report on Form 8-K filed on November 13, 2018 with the SEC.
3. Incorporated by reference from the Company’s Current Report on Form 8-K filed on July 17, 2019 with the SEC.
4. Incorporated by reference from the Company’s Annual Report on Form 10-K filed on April 14, 2015 with the SEC.
5. Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on August 15, 2016 with the SEC.
6. Incorporated by reference from the Company’s Annual Report on Form 10-K filed on February 21, 2017 with the SEC.
7. Incorporated by reference from the Company’s Quarterly Report on Form 8-K filed on November 15, 2017 with the SEC.
8. Incorporated by reference from the Company’s amended Current Report on Form 8-K filed on September 12, 2017 with the SEC.
9. Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on November 13, 2017 with the SEC.
*. Filed herewith.
** Furnished, not filed herewith.

 

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 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: October 25, 2019   PROTOKINETIX, INCORPORATED
     
    By: /s/ Clarence E. Smith
    Clarence E. Smith
    Chief Executive Officer
     
    By: /s/ Michael Guzzetta
    Michael Guzzetta
    Chief Financial Officer

 

 

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