PROTOKINETIX, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2019
and 2018
|
|
2019
|
|
2018
|
|
|
|
|
|
CASH FLOWS USED IN OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss for the year
|
|
$
|
(4,197,897
|
)
|
|
$
|
(1,216,343
|
)
|
Adjustments to reconcile net loss to cash used in operating activities:
|
|
|
|
|
|
|
|
|
Amortization – intangible assets
|
|
|
3,000
|
|
|
|
3,000
|
|
Fair value of compensatory options granted
|
|
|
3,395,319
|
|
|
|
648,773
|
|
Accrued interest expense
|
|
|
—
|
|
|
|
306
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses and deposits
|
|
|
—
|
|
|
|
61,077
|
|
Accounts payable and accrued liabilities
|
|
|
(51,080
|
)
|
|
|
49,694
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(850,658
|
)
|
|
|
(453,493
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchase of intangible assets
|
|
|
(25,022
|
)
|
|
|
(35,458
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(25,022
|
)
|
|
|
(35,458
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Issuance of common stock for cash
|
|
|
1,117,000
|
|
|
|
322,038
|
|
|
|
|
|
|
|
|
|
|
Net cash from financing activities
|
|
|
1,117,000
|
|
|
|
322,038
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
241,320
|
|
|
|
(166,913
|
)
|
|
|
|
|
|
|
|
|
|
Cash, beginning of year
|
|
|
136,029
|
|
|
|
302,942
|
|
|
|
|
|
|
|
|
|
|
Cash, end of year
|
|
$
|
377,349
|
|
|
$
|
136,029
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
Supplementary information – non-cash transactions:
|
|
|
|
|
|
|
|
|
Intangible asset costs included in accounts payable and accrued liabilities
|
|
$
|
—
|
|
|
$
|
2,285
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements
PROTOKINETIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2019
Note 1. Basis of Presentation –
Going Concern Uncertainties
ProtoKinetix, Inc. (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 December 31, 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 financial statements have
been prepared by the Company in accordance with accounting principles generally accepted in the United States of America ("US
GAAP") and are expressed in United States dollars.
PROTOKINETIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 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,
accounts payable and accrued liabilities are carried at amortized 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
December 31, 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.
PROTOKINETIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 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 December 31, 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 at December 31, 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 91,450,000 stock options (December 31, 2018 – 58,600,000) and 8,500,000 warrants
(December 31, 2018 – 6,000,000) 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.
PROTOKINETIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2019
Note 2. Summary of Significant Accounting
Policies (cont'd)
Share-Based Compensation (cont'd)
Share-based compensation for non-employees
in exchange for goods and services used or consumed in an entity’s own operations are also recorded at fair value on the
measurement date and accounted for in accordance with ASC 718. 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 ASU 2016-02,
Leases (Topic 842), or “ASU 2016-02”, to increase transparency and comparability among organizations by requiring
the recognition of 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.
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,
or “ASU 2018-11" 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 or "ASU 2018-20", 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.
The Company adopted this standard on January
1, 2019. The adoption did not have any impact on the Company’s financial statements.
PROTOKINETIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2019
Note 3. Prepaid Expenses and Deposits
The following summarizes the Company's prepaid
expenses and deposits outstanding as at December 31, 2019 and 2018:
|
|
2019
|
|
2018
|
|
|
|
|
|
Rental deposit
|
|
$
|
1,050
|
|
|
$
|
1,050
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,050
|
|
|
$
|
1,050
|
|
PROTOKINETIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 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
|
|
|
—
|
|
|
|
22,737
|
|
|
|
22,737
|
|
Balance, December 31, 2019
|
|
$
|
30,000
|
|
|
$
|
191,008
|
|
|
$
|
221,008
|
|
Accumulated amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017
|
|
$
|
7,500
|
|
|
$
|
—
|
|
|
$
|
7,500
|
|
Amortization
|
|
|
3,000
|
|
|
|
—
|
|
|
|
3,000
|
|
Balance, December 31, 2018
|
|
$
|
10,500
|
|
|
$
|
—
|
|
|
$
|
10,500
|
|
Amortization
|
|
|
3,000
|
|
|
|
—
|
|
|
|
3,000
|
|
Balance, December 31, 2019
|
|
$
|
13,500
|
|
|
$
|
—
|
|
|
$
|
13,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
$
|
22,500
|
|
|
$
|
130,528
|
|
|
$
|
153,028
|
|
December 31, 2018
|
|
$
|
19,500
|
|
|
$
|
168,271
|
|
|
$
|
187,771
|
|
December 31, 2019
|
|
$
|
16,500
|
|
|
$
|
191,008
|
|
|
$
|
207,508
|
|
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 (25,000 Euros) (paid). During the year ended December 31, 2019, the Company recorded $3,000
(2018 - $3,000) in amortization expense associated with the Patents based on a 10-year useful life.
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 incurred an additional $156,008 in direct costs relating to the Patent Application Rights,
$22,737 of which were incurred during the year ended December 31, 2019.
PROTOKINETIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2019
Note 4. Intangible Assets (cont’d)
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.
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 or the New Patent Application Rights to December 31, 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", as amended on November 9, 2018).
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 December 31, 2019, there are 89,450,000
options and no shares of common stock granted and outstanding under the 2017 Plan.
PROTOKINETIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2019
Note 5. Stock Options (cont'd)
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 and determine the fair market value per share. 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.
The committee also has the power to interpret
the 2017 Plan, and the provisions in the instruments evidencing grants made under it and is empowered to make all other determinations
deemed necessary or advisable for the administration of it.
Participants in the 2017 Plan may be selected
by the committee from employees, officers, consultants and advisors (including board members) of the Company. The committee
may take into account the duties of persons selected, their present and potential contributions to the success of the Company and
such other considerations as the committee deems relevant to the purposes 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.
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.
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.
The exercise price of an option may be paid
in cash, in shares of the Company's common stock or other property having a fair market value equal to the exercise price of the
option, or in a combination of cash, shares, other securities and property. The committee determines whether or not property
other than cash or common stock may be used to purchase the shares underlying an option and shall determine the value of the property
received.
PROTOKINETIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2019
Note 5. Stock Options (cont'd)
Stock option transactions are summarized as
follows:
|
|
Number of
Stock Options
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Life
|
|
|
|
|
$
|
|
(Years)
|
Outstanding, December 31, 2018
|
|
|
58,600,000
|
|
|
|
0.07
|
|
|
|
|
|
Options cancelled
|
|
|
(16,000,000
|
)
|
|
|
0.07
|
|
|
|
|
|
Options exercised
|
|
|
(250,000
|
)
|
|
|
0.07
|
|
|
|
|
|
Options granted
|
|
|
49,100,000
|
|
|
|
0.21
|
|
|
|
|
|
Outstanding, December 31, 2019
|
|
|
91,450,000
|
|
|
|
0.14
|
|
|
|
3.51
|
|
|
|
Number of
Stock Options
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Life
|
|
|
|
|
$
|
|
(Years)
|
Outstanding, December 31, 2017
|
|
|
44,100,000
|
|
|
|
0.06
|
|
|
|
|
|
Options granted
|
|
|
16,400,000
|
|
|
|
0.05
|
|
|
|
|
|
Options expired
|
|
|
(1,900,000
|
)
|
|
|
0.10
|
|
|
|
|
|
Outstanding, December 31, 2018
|
|
|
58,600,000
|
|
|
|
0.07
|
|
|
|
2.60
|
|
Total share-based compensation for stock options
granted during the year ended December 31, 2019 was $3,156,694 (2018 - $648,773). The fair values of the stock options granted
during the years ended December 31, 2019 and 2018 were estimated using the Black-Scholes Option Pricing Model. The weighted
average assumptions used in the pricing model for these options are as follows:
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Risk-free interest rate
|
|
2.42
|
%
|
|
|
1.50
|
%
|
Dividend yield
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected stock price volatility
|
|
140.21
|
%
|
|
|
125.00
|
%
|
Expected forfeiture rate
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected life
|
4.95 years
|
3.45 years
|
The following non-qualified stock options were
outstanding and exercisable at December 31, 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 08, 2023
|
|
|
0.09
|
|
|
|
15,000,000
|
|
|
|
15,000,000
|
|
May 2, 2023
|
|
|
0.13
|
|
|
|
1,600,000
|
|
|
|
1,600,000
|
|
July 14, 2024
|
|
|
0.26
|
|
|
|
32,500,000
|
|
|
|
8,250,000
|
|
November 17, 2024
|
|
|
0.11
|
|
|
|
15,000,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
91,450,000
|
|
|
|
50,200,000
|
|
PROTOKINETIX
, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2019
Note 5. Stock Options (cont'd)
As at December 31, 2019, the aggregate intrinsic
value of the Company's stock options is $1,005,350 (December 31, 2018 – $572,000). The weighted average fair value of stock
options granted during the year ended December 31, 2019 is $0.18 (2018 - $0.07), and the weighted average exercise price of exercisable
stock options is $0.10 (2018 - $0.06).
Note 6. Warrants
On July 15, 2019, the Company cancelled and
concurrently replaced 6,000,000 warrants previously issued to a consultant in 2015. The replacement warrants granted have a term
of 5 years and are exercisable at a price of $0.26 per share, expiring July 15, 2024.
In accordance with ASC 718, the 6,000,000 replacement
warrants were accounted for as a modification of the terms of the cancelled award, with the incremental cost being measured as
the excess of the fair value of the replacement warrants over the fair value of the cancelled warrants at the cancellation date.
Total share-based compensation of $238,625 was recorded in connection with the warrant modification, based on the following assumptions
used in the Black-Scholes Option Pricing Model:
|
Warrants on cancellation
|
|
|
Warrants replaced
|
|
Risk-free interest rate
|
|
2.41
|
%
|
|
|
2.41
|
%
|
Dividend yield
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected stock price volatility
|
|
170.47
|
%
|
|
|
143.71
|
%
|
Expected forfeiture rate
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected life
|
0.77 years
|
5 years
|
Warrant transactions are summarized as follows:
|
|
Number of
Warrants
|
|
Weighted Average Exercise Price
|
|
|
|
|
$
|
Outstanding, December 31, 2017
|
|
|
6,500,000
|
|
|
|
0.11
|
|
Warrants expired
|
|
|
(500,000
|
)
|
|
|
0.25
|
|
Outstanding, December 31, 2018
|
|
|
6,000,000
|
|
|
|
0.10
|
|
Warrants cancelled
|
|
|
(6,000,000
|
)
|
|
|
0.10
|
|
Warrants granted
|
|
|
8,500,000
|
|
|
|
0.22
|
|
Outstanding, December 31, 2019
|
|
|
8,500,000
|
|
|
|
0.22
|
|
The following warrants were outstanding
and exercisable as at December 31, 2019:
Number of Warrants
|
|
Exercise Price ($)
|
|
Expiry Date
|
|
6,000,000
|
|
|
|
0.26
|
|
|
July 14, 2024
|
|
833,333
|
|
|
|
0.12
|
|
|
October 15, 2022
|
|
250,000
|
|
|
|
0.12
|
|
|
October 21, 2022
|
|
116,667
|
|
|
|
0.12
|
|
|
November 1, 2022
|
|
83,334
|
|
|
|
0.12
|
|
|
November 12, 2022
|
|
833,333
|
|
|
|
0.12
|
|
|
December 1 , 2022
|
|
166,667
|
|
|
|
0.12
|
|
|
December 18, 2022
|
|
216,666
|
|
|
|
0.12
|
|
|
December 18, 2022
|
|
8,500,000
|
|
|
|
0.22
|
|
|
|
PROTOKINETIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2019
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 December
31, 2019 (December 31, 2018 - $nil).
During the year ended December 31, 2019, the Company:
a)
|
Issued 750,000 shares of common stock to investors at $0.06 per share for gross proceeds of $45,000.
|
b)
|
Issued 10,000,000 shares of common stock to investors at $0.05 per share for gross proceeds of $500,000.
|
c)
|
Issued 2,266,667 shares of common stock to investors at $0.12 per share for gross proceeds of $272,000.
|
d)
|
Issued 97,826 shares of common stock to its CFO pursuant to a cashless exercise of 250,000 stock options.
|
e)
|
Issued 2,500,000 shares of common
stock to investors (one of which was the President and CEO of the Company)
at $0.12 per share for gross proceeds
of $300,000 and warrants to purchase 2,500,000 shares of common stock exercisable at $0.12 per share for three years.
|
During the year ended December 31, 2018, the Company:
a)
|
Issued 2,359,240 shares of common stock to the President and CEO of the Company at $0.05 per share in exchange for debt to the President and CEO of $117,962.
|
b)
|
Issued 1,000,000 shares of common stock to investors at $0.05 per share for gross proceeds of $50,000.
|
c)
|
Issued 3,240,760 shares of common stock to investors (one of which was the President and CEO of the Company) at $0.05 per share for gross proceeds of $162,038.
|
d)
|
Issued 1,833,333 shares of common
stock to investors (one of which was the President and CEO of the Company)
at $0.06 per share for gross proceeds
of $110,000.
|
PROTOKINETIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2019
Note 8. Related Party Transactions and Balances
During the year ended December 31, 2019, the Company:
|
|
a)
|
Entered into a consulting agreement
with an effective date of January 1, 2017 with the Company's President and CEO whereby he will be compensated at a nominal amount
of $1 for services. The agreement also stipulates a termination fee that would pay the Company's President and CEO $100,000 per
year of service if terminated without cause or, in the case of termination upon a change of control event, the termination fee
would be equal to $100,000 per year of service plus 2.5% of the aggregate transaction value of the change of control. In addition,
the agreement stipulates that he would be entitled to a bonus payment equal to 2.5% of the aggregate transaction value of a sale
or license of any Patent Rights, Patent Application Rights or products effected during the term of his agreement. On November 9,
2018, the President and CEO 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 CEO’s vested options for 5,000,000 shares at $0.08 per share, expiring December 31, 2019, were cancelled.
New stock options were granted for 5,000,000 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 October 13, 2019. On July 15, 2019, the CEO was also granted stock options
for continued service for 5,000,000 shares of common stock at a price of $0.26 per share, expiring July 14, 2024. The options vest
in equal installments quarterly starting October 13, 2019. On November 18, 2019, the CEO was granted additional stock options for
5,000,000 stock options at a price of $0.11 per share, expiring November 17, 2024. The options vest in equal installments quarterly
starting February 18, 2020.
|
b)
|
Pursuant to a consulting agreement
with an effective date of November 14, 2017, a total of $60,000 (2018 - $60,000) was paid or accrued to the Company's CFO. On November
9, 2018, the CFO was granted 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 an additional 4,000,000 stock options for continued service. The options are exercisable until July 14, 2024
at a price of $0.26 per share. On November 18, 2019, the CFO was granted 4,000,000 stock options at a price of $0.11 per share,
expiring November 17, 2024. The options vest in equal installments quarterly starting February 18, 2020. During the year ending
December 31, 2019, the Company reimbursed a company controlled by the CFO a total of $12,600 (2018 - $12,600) in office rent.
|
c)
|
Entered into a directorship agreement
with an effective date of January 1, 2017 with a director of the Company. On November 9, 2018, the director was granted 1,000,000
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 director’s vested options for 1,000,000 shares at $0.08 per share, expiring December 31, 2019, were cancelled.
New stock options were granted for 1,000,000 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 October 13, 2019. On July 15, 2019, the director was also granted stock options
for continued service for 2,000,000 shares of common stock at a price of $0.26 per share, expiring July 14, 2024. The options vest
in equal installments quarterly starting October 13, 2019. On November 18, 2019, the director was granted additional stock options
for 1,000,000 stock options at a price of $0.11 per share, expiring November 17, 2024. The options vest in equal installments quarterly
starting February 18, 2020.
|
d)
|
The Company recognized $1,704,723 (2018 - $310,962)
in share-based compensation associated with stock options granted to key management personnel.
|
|
|
|
|
|
PROTOKINETIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2019
Note 9. Commitments and Contingency
Commitments
As at December 31, 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. 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 October 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 per share, expiring July 14, 2024. The options vest in equal installments
quarterly starting October 13, 2019. On November 18, 2019, the consultant was granted additional stock options for 5,000,000 stock
options at a price of $0.11 per share, expiring November 17, 2024.
|
|
|
b)
|
Entered into a consulting agreement
for research and investor relations 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)
|
On June 29, 2018, the Company entered
into an amendment to a Collaborative Research Agreement (the “CREA”) initially entered into with the University of
British Columbia during fiscal 2016 which required two additional instalments of CAD $54,600 ($41,369) due on June 30, 2018 and
CAD $54,600 ($41,392) due on December 1, 2018. The CREA can be terminated by either party with 30 days’ written notice. As
of December 31, 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 the University of British Columbia, making a payment of CAD $50,001 ($40,140) for research services
to be provided over a term of 1 year.
|
|
|
PROTOKINETIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2019
Note 9. Commitments and Contingency (cont’d)
Commitments (cont’d)
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.
|
e)
|
On May 1, 2019, entered into consulting agreements for investor relations 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 USD) as research services progress. The CREA can be terminated by either party with 30 days’ written notice. As of December 31, 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.
PROTOKINETIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2019
Note 10. Income Taxes
As a Nevada corporation,
the Company is liable for taxes in the United States. As of December 31, 2019, the Company did not have any income for tax
purposes and therefore, no tax liability or expense has been recorded in these financial statements (December 31, 2018 –
none).
A reconciliation
of income taxes at statutory rates with the reported taxes is as follows:
|
|
2019
|
|
2018
|
Net loss for the year
|
|
$
|
(4,197,897
|
)
|
|
$
|
(1,216,343
|
)
|
|
|
|
|
|
|
|
|
|
Expected income tax recovery
|
|
$
|
(882,000
|
)
|
|
$
|
(255,000
|
)
|
Non-deductible expenses
|
|
|
713,000
|
|
|
|
136,000
|
|
Impact of change of future tax rate
|
|
|
—
|
|
|
|
3,632,000
|
|
Adjustment to prior years provision versus statutory tax returns
|
|
|
69,000
|
|
|
|
(13,000
|
)
|
Change in valuation allowance
|
|
|
100,000
|
|
|
|
(3,500,000
|
)
|
Total income tax expense (recovery)
|
|
$
|
—
|
|
|
$
|
—
|
|
The Company’s deferred tax assets that have not been recognized are as follows:
|
|
|
|
|
|
|
|
|
Tax benefit of net operating loss carry forward
|
|
|
6,100,000
|
|
|
|
6,000,000
|
|
Valuation allowance
|
|
|
(6,100,000
|
)
|
|
|
(6,000,000
|
)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The Company has tax
losses of approximately $29,000,000 (December 31, 2018 - $28,360,000) to reduce future taxable income. The tax losses expire
in years starting from 2028.
The deferred tax asset
associated with the tax loss carry forward is approximately $6,100,000 (December 31, 2018 - $6,000,000). The Company has
provided a full valuation allowance against the deferred tax asset since it is more likely than not that the asset will not be
realized. The difference between the Company's statutory income tax rate of (21%) and its effective rate of zero is primarily
attributable to the valuation allowance provided on deferred taxes arising from net operating loss carry forwards.
Note 11. Subsequent Event
Entered into a
Clinical Supply Agreement (the “CSA”) on January 14, 2020 with Alberta Health Services and the Governors of the
University of Alberta (the “Institution”) and Dr. James Shapiro. The agreement requires Protokinetix to supply
PKX-001 free of charge and in sufficient quantity to conduct the clinical study by Dr. James Shapiro. The delivery date is
estimated to be late February 2020.