PROTOKINETIX, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2018 and 2017
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
CASH FLOWS USED IN OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net loss for the year
|
|
$
|
(1,216,343
|
)
|
|
$
|
(1,513,634
|
)
|
Adjustments to reconcile net loss to cash used in operating activities:
|
|
|
|
|
|
|
|
|
Amortization – intangible assets
|
|
|
3,000
|
|
|
|
3,000
|
|
Fair value of compensatory options granted
|
|
|
648,773
|
|
|
|
910,370
|
|
Accrued interest expense
|
|
|
306
|
|
|
|
1,656
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses and deposits
|
|
|
61,077
|
|
|
|
8,257
|
|
Accounts payable and accrued liabilities
|
|
|
49,694
|
|
|
|
(14,758
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(453,493
|
)
|
|
|
(605,109
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Promissory notes received
|
|
|
-
|
|
|
|
116,000
|
|
Purchase of intangible assets
|
|
|
(35,458
|
)
|
|
|
(58,978
|
)
|
|
|
|
|
|
|
|
|
|
Net cash from (used in) investing activities
|
|
|
(35,458
|
)
|
|
|
57,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Repurchase of compensatory options
|
|
|
-
|
|
|
|
(110,000
|
)
|
Issuance of common stock for cash
|
|
|
322,038
|
|
|
|
590,000
|
|
|
|
|
|
|
|
|
|
|
Net cash from financing activities
|
|
|
322,038
|
|
|
|
480,000
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
(166,913
|
)
|
|
|
(68,087
|
)
|
|
|
|
|
|
|
|
|
|
Cash, beginning of year
|
|
|
302,942
|
|
|
|
371,029
|
|
|
|
|
|
|
|
|
|
|
Cash, end of year
|
|
$
|
136,029
|
|
|
$
|
302,942
|
|
|
|
|
|
|
|
|
|
|
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, 2018
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, 2018. 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, 2018
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 and promissory notes payable, 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, 2018, 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, 2018
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, 2018, 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, 2018.
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 58,600,000 stock options (December 31, 2017 – 44,100,000) and 6,000,000 warrants (December 31, 2017 – 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.
PROTOKINETIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
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 ASU 2016-02,
Leases (Topic 842)
, or “ASU 2016-02”, 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
("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
("ASU 2018-20"). ASU 2018-20 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 intends to apply the new lease requirements at the effective date. It also intends to elect the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allows us to carry forward the historical lease classification. Additionally, the right-of-use asset is subject to an impairment analysis under ASC 360,
Property, Plant, and Equipment
, at each reporting period, to evaluate asset recoverability. The Company does not expect the adoption of this ASU to have a material impact on the Company’s financial statements.
PROTOKINETIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Note 2. Summary of Significant Accounting Policies
(cont'd)
Recent Accounting Pronouncements
(cont'd)
In August 2016, the FASB issued ASU No. 2016-15,
Classification of Certain Cash Receipts and Cash Payments
,
a Consensus of the FASB Emerging Issues Task Force,
or “ASU 2016-15”, to address how certain cash receipts and cash payments are presented and classified in the statement of cash flows, in an effort to reduce existing diversity in practice. The update includes eight specific cash flow issues and provides guidance on the appropriate cash flow presentation for each. ASU 2016-15 is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within each annual reporting period. The Company adopted this standard on January 1, 2018. The adoption did not have any impact on the Company’s financial statements.
In May 2017, the FASB issued ASU No. 2017-09,
Compensation—Stock Compensation
(Topic 718):
Scope of Modification Accounting
, or “ASU 2017-09”, to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under this new guidance, modification accounting is required if the fair value, vesting conditions, or classification of the award changes due to a change in terms or conditions. ASU 2017-09 is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within each annual reporting period. The Company adopted this standard on January 1, 2018. The adoption did not have any impact on the Company’s financial statements.
In June 2018, the FASB issued ASU No. 2018-07,
Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based 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. 2018-03,
Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
, or “ASU 2018-03”. The guidance in this ASU modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. Under the new guidance, transfers between asset classes and the valuation related to level 3 assets is modified. 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.
Note 3. Prepaid Expenses and Deposits
The following summarizes the Company's prepaid expenses and deposits outstanding as at December 31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Deposit on research agreement (Note 9(c)), (RP Note 8)
|
|
$
|
-
|
|
|
$
|
61,077
|
|
Other prepaid expenses and deposits
|
|
|
1,050
|
|
|
|
1,050
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,050
|
|
|
$
|
62,127
|
|
PROTOKINETIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Note 4.
Intangible Assets
Intangible asset transactions are summarized as follows:
|
|
Patent Rights
|
|
|
Patent Application
Rights
|
|
|
Total
|
|
Cost
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
|
$
|
30,000
|
|
|
$
|
75,181
|
|
|
$
|
105,181
|
|
Additions
|
|
|
-
|
|
|
|
55,347
|
|
|
|
55,347
|
|
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
|
|
Accumulated amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
|
$
|
4,500
|
|
|
$
|
-
|
|
|
$
|
4,500
|
|
Amortization
|
|
|
3,000
|
|
|
|
-
|
|
|
|
3,000
|
|
Balance, December 31, 2017
|
|
$
|
7,500
|
|
|
$
|
-
|
|
|
$
|
7,500
|
|
Amortization
|
|
|
3,000
|
|
|
|
-
|
|
|
|
3,000
|
|
Balance, December 31, 2018
|
|
$
|
10,500
|
|
|
$
|
-
|
|
|
$
|
10,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
$
|
25,500
|
|
|
$
|
75,181
|
|
|
$
|
100,681
|
|
December 31, 2017
|
|
$
|
22,500
|
|
|
$
|
130,528
|
|
|
$
|
153,028
|
|
December 31, 2018
|
|
$
|
19,500
|
|
|
$
|
168,271
|
|
|
$
|
187,771
|
|
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, 2018, the Company recorded $3,000 (2017 - $3,000) 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 incurred an additional $133,271 in direct costs relating to the Patent Application Rights, $37,743 of which were incurred during the year ended December 31, 2018.
F-13
PROTOKINETIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
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, 2018.
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 50,000,000 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, 2018, there are 40,600,000 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, 2018
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, 2018
Note 5. Stock Options
(cont'd)
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, 2016
|
|
|
28,900,000
|
|
|
|
0.06
|
|
|
|
0.04
|
|
|
Options granted
|
|
|
28,200,000
|
|
|
|
0.05
|
|
|
|
0.05
|
|
|
Options repurchased
|
|
|
(12,000,000
|
)
|
|
|
0.06
|
|
|
|
0.04
|
|
|
Options expired
|
|
|
(1,000,000
|
)
|
|
|
0.10
|
|
|
|
0.03
|
|
|
Outstanding, December 31, 2017
|
|
|
44,100,000
|
|
|
|
0.06
|
|
|
|
0.05
|
|
|
Options granted
|
|
|
16,400,000
|
|
|
|
0.09
|
|
|
|
0.07
|
|
|
Options expired
|
|
|
(1,900,000
|
)
|
|
|
0.07
|
|
|
|
0.03
|
|
|
Outstanding, December 31, 2018
|
|
|
58,600,000
|
|
|
|
0.07
|
|
|
|
0.05
|
|
2.60
|
The fair values of the stock options granted during the years ended December 31, 2018 and 2017 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, 2018
|
|
|
December 31, 2017
|
|
Risk-free interest rate
|
|
|
1.50
|
%
|
|
|
1.12
|
%
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected stock price volatility
|
|
|
125.00
|
%
|
|
|
125.00
|
%
|
Expected forfeiture rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected life
|
|
3.45 years
|
|
|
3.58 years
|
|
The following non-qualified stock options were outstanding and exercisable at December 31, 2018:
Expiry date
|
|
Exercise Price
|
|
|
Number of Options
Outstanding
|
|
|
Number of
Options
Exercisable
|
|
|
|
$
|
|
|
|
|
|
|
|
February 25, 2020
|
|
|
0.04
|
|
|
|
2,000,000
|
|
|
|
-
|
|
February 28, 2020
|
|
|
0.04
|
|
|
|
5,000,000
|
|
|
|
5,000,000
|
|
December 31, 2019
|
|
|
0.08
|
|
|
|
11,000,000
|
|
|
|
11,000,000
|
|
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
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
December 31, 2022
|
|
|
0.06
|
|
|
|
800,000
|
|
|
|
800,000
|
|
August 31, 2023
|
|
|
0.08
|
|
|
|
600,000
|
|
|
|
150,000
|
|
November 08, 2023
|
|
|
0.09
|
|
|
|
15,000,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
58,600,000
|
|
|
|
41,150,000
|
|
PROTOKINETIX
,
INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Note 5. Stock Options
(cont'd)
As at December 31, 2018, the aggregate intrinsic value of the Company's stock options is $572,000 (December 31, 2017 – $272,000). The weighted average fair value of stock options granted during the year ended December 31, 2018 is $0.07 (2017 - $0.05), and the weighted average exercise price of exercisable stock options is $0.06 (2017 - $0.06).
During the year ended December 31, 2017, the Company repurchased a total of 12,000,000 stock options from its former CFO for proceeds of $110,000. In accordance with ASC 718, the Company first calculated the fair value of the stock options as of the repurchase date ($604,350) in order to determine the appropriate allocation between equity and profit or loss. As the fair value of the stock options as of the repurchase date was in excess of the consideration paid, the full amount of the consideration was allocated against equity.
The fair values of the stock options repurchased during the year ended December 31, 2017 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, 2017
|
|
Risk-free interest rate
|
|
|
1.60
|
%
|
Dividend yield
|
|
|
0.00
|
%
|
Expected stock price volatility
|
|
|
125.00
|
%
|
Expected forfeiture rate
|
|
|
0.00
|
%
|
Expected life
|
|
2.54 years
|
|
Note 6. Warrants
Warrant transactions are summarized as follows:
|
|
Number of
Warrants
|
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
$
|
|
Outstanding, December 31, 2016 and 2017
|
|
|
6,500,000
|
|
|
|
0.11
|
|
Warrants expired
|
|
|
(500,000
|
)
|
|
|
0.25
|
|
Outstanding, December 31, 2018
|
|
|
6,000,000
|
|
|
|
0.10
|
|
The following warrants were outstanding and exercisable as at December 31, 2018:
Number of Warrants
|
|
|
Exercise Price ($)
|
|
Expiry Date
|
|
6,000,000
|
|
|
|
0.10
|
|
April 22, 2020
|
|
6,000,000
|
|
|
|
|
|
|
PROTOKINETIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Note 7. Stockholders' Equity
The Company is authorized to issue 400,000,000 (December 31, 2017 – 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, 2018 (December 31, 2017 - $nil).
During the year ended December 2018, the Company:
a)
|
Issued 1,000,000 shares of common stock to investors at $0.05 per share for gross proceeds of $50,000.
|
b)
|
Issued 2,359,240 shares of common stock to President and CEO of the Company at $0.05 per share in exchange for debt to President and CEO of $117,962.
|
c)
|
Issued 2,000,000 shares of common stock to investors at $0.05 per share for gross proceeds of $100,000.
|
d)
|
Issued 1,240,760 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 $62,038.
|
e)
|
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.
|
During the year ended December 31, 2017, the Company:
a)
|
Issued 8,000,000 shares of common stock to investors (which included both the President and CEO as well as the CFO of the Company) at $0.04 for gross proceeds of $320,000.
|
b)
|
Issued 4,400,000 shares of common stock to investors at $0.05 for gross proceeds of $220,000.
|
c)
|
Issued 1,000,000 shares of common stock to investors at $0.05 for gross proceeds of $50,000.
|
PROTOKINETIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Note 8. Related Party Transactions and Balances
During the year ended December 31, 2018, the Company:
a)
|
Settled two promissory notes on January 16, 2018 (the "Notes") with the Company's President and CEO for a total of $117,962. A total of $116,000 was loaned to the Company and the Notes bear interest at a rate of 8% per annum. As at the time of settlement, the Notes had accrued interest of $1,962. 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 the Notes. There was no gain or loss recorded on settlement.
|
b)
|
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 through to December 31, 2017. 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. Pursuant to the agreement, he 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. 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 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.
|
c)
|
Entered into a directorship agreement with an effective date of January 1, 2017 with a director of the Company. Pursuant to the agreement, the director was issued 1,000,000 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 installments 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 1,000,000 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 director was granted an additional 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.
|
d)
|
Entered into a consulting agreement with an effective date of November 14, 2017 with the Company's CFO whereby he will be compensated at a monthly fee of $5,000 for services through to November 30, 2018. 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 instalments 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 share (Note 5) and vest quarterly in equal installments beginning March 31, 2019. In 2018 the Company paid Mr. Guzzetta $60,000 in consulting fees, and reimbursed The Guzzetta Company LLC $12,600 in office rent. In 2017 he received $7,500 in consulting fees and The Guzzetta Company LLC was reimbursed $2,100 for a deposit of $1,050 on office space, and office rent of $1,050.
|
e)
|
Recognized $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, 2018
Note 8. Related Party Transactions and Balances
(cont'd)
During the year ended December 31, 2017, 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 through to December 31, 2017. 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. Pursuant to the agreement, he 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. The options vest 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 vest quarterly in equal installments beginning December 31, 2017.
|
b)
|
Entered into a consulting agreement with an effective date of January 1, 2017 with the Company's former CFO whereby she will be compensated at a monthly fee of $6,000 for services through to December 31, 2017. The agreement also stipulates a termination fee that would pay the Company's CFO $72,000 per years of service (including the pro-rata amount for partial years of service) if terminated without cause or upon termination due to a change of control event. Pursuant to the agreement, she was also granted 4,000,000 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 vest in equal instalments on a quarterly basis beginning March 31, 2017. A total of $72,000 was paid or accrued to the Company's former CFO during the year ended December 31, 2017 and is included in professional fees.
|
c)
|
Entered into a directorship agreement with an effective date of January 1, 2017 with a director of the Company. Pursuant to the agreement, the director was issued 1,000,000 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 vest in equal installments 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 1,000,000 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 vest quarterly in equal installments beginning December 31, 2017.
|
d)
|
Entered into two promissory notes (the "Notes") with the Company's President and CEO whereby a total of $116,000 was loaned to the Company. The Notes bear interest at a rate of 8% per annum, are unsecured and are repayable on demand. As at December 31, 2017, accrued interest totaled $1,656. The Notes were settled through the issuance of common stock of the Company subsequent to the year ended December 31, 2017.
|
e)
|
Entered into a settlement agreement with the Company's former CFO whereby she left her position as CFO effective upon the filing of the Company's quarterly report for the nine-month period ended September 30, 2017. Pursuant to the settlement agreement, the Company paid the former CFO $6,000 for December 2017 consulting services and $110,000 in exchange for the return of stock options to purchase up to 12,000,000 shares of the Company's common stock (Note 5), which were then cancelled.
|
PROTOKINETIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Note 8. Related Party Transactions and Balances
(cont'd)
f)
|
Entered into a consulting agreement with an effective date of November 14, 2017 with the Company's newly appointed CFO whereby he will be compensated at a monthly fee of $5,000 for services through to November 30, 2018. 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 vest in equal instalments on a quarterly basis beginning February 14, 2018. A total of $7,500 was paid or accrued to the Company's new CFO during the year ended December 31, 2017.
|
g)
|
Recognized $481,644 in share-based compensation associated with stock options granted to key management personnel.
|
As at December 31, 2018 and December 31, 2017, the following amounts are due to related parties:
|
|
December 31,
2018
|
|
December 31,
2017
|
|
Clarence Smith (CEO)
|
Promissory notes payable (and interest)
|
|
$
|
-
|
|
|
$
|
117,656
|
|
Amounts included in accounts payable and accrued liabilities are non-interest bearing, unsecured and repayable on demand.
Note 9.
Commitments and Contingency
Commitments
As at December 31, 2018, 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.
|
|
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 (Note 5). The options vest in equal instalments on a quarterly basis beginning December 31, 2018.
|
PROTOKINETIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Note 9.
Commitments and Contingency
(cont’d)
Commitments (cont’d)
|
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 (paid subsequently) on December 1, 2018. The CREA can be terminated by either party with 30 days’ written notice. As of December 31, 2018, a total of $nil is included in prepaid expenses and deposits (December 31, 2017 - $61,077) 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.
|
|
e)
|
Entered into a consulting agreement effective May 1, 2015, whereby the Company would pay the consultant $4,000 per month for providing research and development services for an initial term of 1 year, continued on a year-to-year basis thereafter unless otherwise terminated by either party with at least 30 days’ notice. During the year ended December 31, 2017, the contract was revised whereby the Company would pay the consultant CAD $4,000 per month retroactively beginning January 1, 2017.
|
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, 2018
Note 10. Income Taxes
As a Nevada corporation, the Company is liable for taxes in the United States. As of December 31, 2018, 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, 2017 – none).
The Company has tax losses of approximately $28,360,000 (December 31, 2017 - $27,800,000) 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 $6,000,000 (December 31, 2017 - $9,500,000). 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 Events
Subsequent to the year ended December 31, 2018, the Company:
|
On January 22, 2019 the Company entered into a private placement subscription agreement with an investor in the amount of $15,000. The subscription agreement allowed for the purchase of 250,000 shares of common stock at $.06 per share.
|