ProtoKinetix, Inc. 10-K

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is currently quoted on OTCQB tier of the OTC Markets under the symbol “PKTX”. The table below sets forth the high and low bid prices of the Company’s common stock during the periods indicated as reported on OTC Markets Inc. (www.otcmarkets.com). The quotations are inter-dealer prices without retail markups, markdowns or commissions, and may not necessarily represent actual transactions. 2020 Low High First Quarter $ 0.100 $ 0.213 Second Quarter 0.058 0.319 Third Quarter 0.080 0.289 Fourth Quarter 0.081 0.143 2019 Low High First Quarter $ 0.050 $ 0.088 Second Quarter 0.058 0.319 Third Quarter 0.080 0.289 Fourth Quarter 0.081 0.143 Holders As of March 5, 2021, there were approximately 103 shareholders of record of the Company’s common stock. This does not include an indeterminate number of persons who hold our Common Stock in brokerage accounts and otherwise in “street name.” Dividends We have never paid cash dividends and have no plans to do so in the foreseeable future. Our future dividend policy will be determined by our board of directors and will depend upon a number of factors, including our financial condition and performance, our cash needs and expansion plans, income tax consequences, and the restrictions that applicable laws, our current preferred stock instruments, and our future credit arrangements may then impose. Adoption of the 2015 Stock Option and Stock Bonus Plan On July 1, 2015, the Board of Directors of the Company adopted the 2015 Stock Option and Stock Bonus Plan (the “2015 Plan”). All awards granted under the 2015 Plan will continue forward under the 2015 Plan until expired or exercised pursuant to the terms of each individual award agreement, however, no new awards shall be granted under the 2015 Plan. As of both December 31, 2020 and March 5, 2021, no options and 2,000,000 shares of fully vested common stock remained as granted under the 2015 Plan. 12 Adoption and Amendment of the 2017 Stock Option and Stock Bonus Plan On December 30, 2016, the Board of Directors of the Company the (“Board”) adopted the 2017 Stock Option and Stock Bonus Plan (the "“2017 Plan”). The Board 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. On November 9, 2018, the Board amended the 2017 Stock Option and Stock Bonus Plan to increase the aggregate number of shares that may be issued under the 2017 Plan from 30,000,000 to 50,000,000 shares subject to adjustment as provided therein to continue to incentivize contractors and future employees (if any) of the Company (the amended 2017 Plan is hereinafter referred to as the “Amended 2017 Plan”). On July 15, 2019, the Board again amended the Amended 2017 Plan to increase the aggregate number of shares that may be issued under the 2017 Plan from 50,000,000 to 89,700,000 shares. On April 6, 2020, the Board approved an amendment to the 2017 Plan to reduce the number of shares of common stock of the Company available for issuance pursuant to the 2017 Plan from 89,700,000 shares to 85,700,000 shares. The Amended 2017 Plan also provides for the ability of the Board to extend the exercise period of an option and provides for flexibility in the event of a change in control of the Company or consolidation or merger. The Amended 2017 Plan is administered by the Board, or a committee appointed by the Board. In addition to determining who will be granted options or 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 Amended 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 Amended 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 Amended 2017 Plan. 13 The committee also has the power to interpret the Amended 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 Amended 2017 Plan may be selected by the committee from employees, officers, consultants and advisors (including board members) of ProtoKinetix. The committee may take into account the duties of persons selected, their present and potential contributions to the success of ProtoKinetix and such other considerations as the committee deems relevant to the purposes of the Amended 2017 Plan. In the event of 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 ProtoKinetix, a corporate separation or division or the merger or consolidation of ProtoKinetix, 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 Amended 2017 Plan must be no less than 100% of the “fair market value” of ProtoKinetix’s common stock on the date of grant. Any incentive stock option granted under the Amended 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 ProtoKinetix 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. As of both December 31, 2020 and March 5, 2021, 81,050,000 options remain as granted under the Amended 2017 Plan. 14 Securities Authorized for Issuance Under Equity Compensation Plans The following table sets forth securities authorized for issuance under equity compensation plans, including but not limited to the the Amended 2017 Plan and individual compensation arrangements as of December 31, 2020: Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (a) (b) (c) Equity compensation plans approved by security holders — — — Equity compensation plans not approved by security holders 82,650,000 $ 0.15 250,000 Total 82,650,000 $ 0.15 250,000 During the year ended December 31, 2020, warrants to purchase 10,326,857 shares of common stock of the Company were outstanding (see Note 8 of the notes to the financial statements). As of the year ended December 31, 2020, there were warrants and options outstanding representing a total of 10,326,857 and 82,650,000 shares of common stock respectively to be issued upon exercise, of which: (i) options to purchase no shares of common stock were outstanding under the 2015 Plan; (ii) options to purchase 82,650,000 shares of common stock were outstanding under the Amended 2017 Plan; and (iii) warrants outstanding to purchase 10,326,857 shares of common stock not pursuant to any plan. To management’s knowledge, there are no outstanding options, warrants or other rights to acquire the common stock of the Company that were issued pursuant to the Company’s 2003, 2004 or 2005 Stock Incentive Plans (the “Old Plans”) for the year ended December 31, 2020. To management’s knowledge, the Old Plans have expired and terminated. Recent Sales of Unregistered Securities and Use of Proceeds On February 25, 2020, an option to purchase 2,000,000 shares of the Company’s common stock held by a former officer of the Company expired. This option was not granted pursuant to any stock option plan. On March 25, 2020, the Board cancelled 27,000,000 options issued pursuant to the 2017 Plan, of which 15,000,000 were held by the Company’s CEO, 2,000,000 held by a director of the Company, and 10,000,000 held by a consultant. On March 26, 2020, the Board granted 22,000,000 new stock options (10,000,000 to the Company’s CEO, 2,000,000 to one of the directors, and 10,000,0000 to the consultant) with a term of six years and exercisable at a price of $0.14 per share, expiring on March 25, 2026. Between April 13, 2020 and May 29, 2020, the Company issued 2,222,222 shares of common stock at a price of $0.09 per share for gross proceeds of $200,000 to accredited investors (one of which was Clarence E. Smith, CEO of the Company) No solicitation was used in this offering. For both sales of securities, the Company relied on the exemption from registration available under Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated under the Securities Act with respect to transactions by an issuer not involving any public offering. No commissions were paid in connection with this issuance of securities. A Form D was filed on April 23, 2020 and a second Form D was filed on June 2, 2020. Between July 20, 2020 and July 27, 2020, the Company sold 320,513 shares of common stock at a price per share of $0.078 for gross proceeds of $25,000 to accredited investors in a private placement. No solicitation was used in the offering. The Company relied on the exemption from registration available under Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated under the Securities Act with respect to transactions by an issuer not involving any public offering. No commissions were paid in connection with these issuances of securities. A Form D was filed on August 4, 2020. 15 Between August 4, 2020 and September 9, 2020, the Company sold 3,653,077 shares of common stock of the Company at a price per share of $0.065 for gross proceeds of $237,450 to accredited investors in a private placement, of which the Company’s President and CEO purchased 1,000,000 shares for gross proceeds of $65,000. No solicitation was used in the offering. The Company relied on the exemption from registration available under Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated under the Securities Act with respect to transactions by an issuer not involving any public offering. No commissions were paid in connection with these issuances of securities. A Form D was filed on August 13, 2020 and an amended Form D was filed on September 1, 2020. Between November 5, 2020 and December 4, 2020, the Company sold 2,532,143 shares of common stock at $0.07 per share for gross proceeds of $177,250 to accredited investors (one of which was the Company’s President & CEO, Clarence E. Smith) in a private placement. No solicitation was used in the offering. The Company relied on the exemption from registration available under Section 4(a)(2) of the 1933 Act and Rule 506(b) of Regulation D promulgated under the 1933 Act with respect to transactions by an issuer not involving any public offering. No commissions were paid in connection with these issuances of securities. A Form D was filed on November 27, 2020, an amended Form D was filed on each of December 14, 2020. Between December 23, 2020 and December 30, 2020, the Company sold 1,826,857 Units (each Unit comprised of one common share and one warrant to purchase one common share at $0.07) for gross proceeds of $127,880 to accredited investors in a private placement. The warrants were immediately vested and expire one year from the date of issuance. No solicitation was used in the offering. The Company relied on the exemption from registration available under Section 4(a)(2) of the 1933 Act and Rule 506(b) of Regulation D promulgated under the 1933 Act with respect to transactions by an issuer not involving any public offering. No commissions were paid in connection with these issuances of securities. A Form D was filed on November 27, 2020, and an amended Form D was filed on December 14, 2020. 16 ITEM 6. SELECTED FINANCIAL DATA As a smaller reporting company, we are not required to provide the information required by this item. ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion provides information regarding the results of operations for the years ended December 31, 2020 and 2019, and our financial condition, liquidity and capital resources as of December 31, 2020 and 2019. The financial statements and the notes thereto contain detailed information that should be referred to in conjunction with this discussion. The following discussion and analysis should be read in conjunction with and our historical financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K, as well as the Risk Factors and the Cautionary Note Regarding Forward-Looking Statements included above. Results of Operations For the Years Ended 2020 2019 Operating Expenses Amortization $ 3,000 $ 3,000 General and Administrative 208,967 280,438 Professional Fees 164,489 149,619 Research and Development 527,291 369,520 Share-Based Compensation 6,740,743 3,395,319 Total operating expenses 7,644,490 4,197,897 Loss from Operations (7,644,490 ) (4,197,897 ) Other Income Gain on Settlement of Short-Term Loans — — Total other income — — Net Loss $ (7,644,490 ) $ (4,197,897 ) Revenues We had no revenues for the years ended December 31, 2020 and 2019. 17 Gross profit and expenses The Company’s net loss was $7,644,490 for the year ending December 31, 2020 compared to $4,197,897 for the year ending December 31, 2019. These expenses were primarily incurred for professional fees, share-based compensation related to the operations of the Company’s business, research and development and other general and administrative expenses. Significant changes from the prior year include: · Professional fees increased by $14,870, year over year going to $164,489 from $149,619 as legal and auditing fees each contributed to the increase, while accounting activity remained unchanged over prior year totals. · Share-based compensation increased sharply by $3,345,424 from $3,395,319 to $6,740,743 primarily as a result of the sharp increase of stock price at grant date of certain options and a change in accounting based on new FASB guidance for valuation of share-based payments to non-employees. Additionally, stock options were granted to two additional consultants in the last quarter of 2020. · Research and development increased by $157,771 from $369,520 to $527,291 primarily as a result of management’s current year investment in further testing and development of the AAGP ® molecule and expanded study lines. In 2020 new studies included pilot tolerability test for topical ocular application and dose and time-dependent effect studies for dry-eye disease · General and administrative expenses decreased by $71,471 from $280,438 to $208,967 due to the disengagement of two investor relations firms and the reduction in spending on marketing firms. In 2019 significant spending went to website development and expanding digital marketing through social media applications. Our expenses in 2020 were $7,644,490 which included $164,489 in professional fees. We operate the Company by hiring outside consultants to assist us with management, strategic planning, organization and daily operations. This resulted in $6,740,743 in share-based compensation recognized based on the fair value of equity instruments granted as compensation. These professional consulting services related to marketing and accounting, capitalization and merger opportunities as well as research development services. The Company also incurred total research and development expenses of $527,291 and general and administrative costs of $208,967 during the year ended December 31, 2020. Liquidity and Capital Resources As at December 31, 2020 2019 Cash $ 193,445 $ 377,349 Working Capital $ 149,536 $ 352,879 At December 31, 2020, we had $193,445 in cash and $194,495 in total current assets. As of December 31, 2019, we had a working capital equity position of $352,879. Although as of the date of this Annual Report we believe we have sufficient capital to meet cash flow projections and carry forward our business objectives in the short-term, 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. There can be no assurance that in the future we will be able to raise capital from outside sources in sufficient amounts to fund our business. The failure to secure adequate outside funding would have an adverse effect on our plan of operation and results therefrom and a corresponding negative impact on stockholder liquidity. 18 Sources and Uses of Cash for the Years ended December 31, 2020 and 2019 Net Cash Used in Operating Activities During the year ended December 31, 2020, net cash used in operating activities increased $30,650 from $850,658 to $881,308 for the years ended December 31, 2019 and 2020, respectively. This increase was predominantly due to the increased spending on research and development. Additionally, a reduction to marketing and public relations spending year-over- year kept the change in operating expenses lower than in previous year’s operations. Net Cash Used in Investing Activities During the year ended December 31, 2020, net cash used in investing activities increased by $45,156 primarily due to the increase in patent application spending. Net cash from investing activities for the year ended December 31, 2019 was $25,022. Net cash used for investing activities for the year ended December 31, 2020 was $70,178. Net Cash Provided by Financing Activities During the year ended December 31, 2020, net cash provided by financing activities decreased by $349,419 from $1,117,000 to $767,581 for the years ended December 31, 2019 and 2020, respectively. This increase was predominantly due to a reduction in private placements completed. Going Concern The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”), which contemplate continuation of the Company as a going concern. The history of losses and the potential inability for the Company to make a profit from selling a good or service has raised substantial doubt about our ability to continue as a going concern. In spite of the fact that the current cash obligations of the Company are relatively minimal, given the cash position of the Company, we have very little cash to operate. We intend to fund the Company and attempt to meet corporate obligations by selling common stock. However, the Company’s common stock is at a low price and trading is not consistent. Off-Balance Sheet Arrangements None. Contractual Obligations As a smaller reporting company, we are not required to provide the information required by paragraph (a)(5) of this Item. Critical Accounting Policies The preparation of financial statements in conformity with U.S. GAAP requires management to make a variety of estimates and assumptions that affect (i) the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and (ii) the reported amounts of revenues and expenses during the reporting periods covered by the financial statements. Our management routinely makes judgments and estimates about the effect of matters that are inherently uncertain. As the number of variables and assumptions affecting the future resolution of the uncertainties increase, these judgments become even more subjective and complex. Although we believe that our estimates and assumptions are reasonable, actual results may differ significantly from these estimates. Changes in estimates and assumptions based upon actual results may have a material impact on our results of operation and/or financial condition. Our significant accounting policies are disclosed in Note 2 to the Financial Statements included in this Form 10-K. While all of the significant accounting policies are important to the Company’s financial statements, the following accounting policies and the estimates derived there from have been identified as being critical. 19 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. 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. 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. The Company capitalizes its patent application costs. All other expenditures are recognized in profit or loss as incurred. As at December 31, 2020, the Company does not hold any intangible assets with indefinite lives. Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization method and amortization period of an intangible asset with a finite life is reviewed at least annually. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of the Company’s patents, whereas no amortization has been recognized on the patent application costs as at December 31, 2020. Sales and Marketing The Company is currently not selling or marketing any products. Inflation Although management expects that our operations will be influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the year ending December 31, 2020. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, we are not required to provide the information required by this item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item begins on page F-1 of this Annual Report on Form 10-K and is incorporated into this part by reference. 20 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.