ProtoKinetix, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the 1934 Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the 1934 Act is accumulated and communicated to management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Our management, under the direction of our Chief Executive Officer (who is our principal executive officer), and Chief Financial Officer (who is our principal accounting officer) has evaluated the effectiveness of our disclosure controls and procedures as required by 1934 Act Rule 13a-15(b) as of December 31, 2020 (the end of the period covered by this report). Based on that evaluation, our principal executive officer and our principal accounting officer concluded that these disclosure controls and procedures are not effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the 1934 Act is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosure and are not effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms. The Company, including its Chief Executive Officer and Chief Financial Officer, does not expect that its internal controls and procedures will prevent or detect all error and all fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Management’s Annual Report on Internal Control Over Financial Reporting In accordance with Item 308 of SEC Regulation S-K, management is required to provide an annual report regarding internal controls over our financial reporting. This report, which includes management’s assessment of the effectiveness of our internal controls over financial reporting, is found below. Inasmuch as the Company is neither an accelerated filer nor a large accelerated filer, the Company is not obligated to provide an attestation report on the Company’s internal control over financial reporting by the Company’s registered public accounting firm. Internal Control Over Financial Reporting Our management is also responsible for establishing and maintaining adequate internal control over financial reporting (“ICFR”) as defined in Rules 13a-15(f) and 15d-15(f) under the 1934 Act. Our ICFR are intended to be designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our ICFR are expected to include those policies and procedures that management believes are necessary that: (1) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the Company are being made only in accordance with proper authorizations of management and our directors; and (3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. 21 Management recognizes that there are inherent limitations in the effectiveness of any system of internal control, and accordingly, even effective internal control can provide only reasonable assurance with respect of financial statement preparation and may not prevent or detect misstatements. In addition, effective internal control at a point in time may become ineffective in future periods because of changes in conditions or due to deterioration in the degree of compliance with our established policies and procedures. As of December 31, 2020, management (with the participation of the Chief Executive Officer and the Chief Financial Officer) conducted an evaluation of the effectiveness of the Company’s ICFR based on the framework set forth in Internal Control--Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and SEC guidance on conducting such assessments by smaller reporting companies and non-accelerated filers. Based on that assessment, management (with the participation of the Chief Executive Officer and the Chief Financial Officer) concluded that, during the period covered by this report, such internal controls and procedures were not effective as of December 31, 2020. Material Weaknesses Identified In connection with the preparation of our financial statements for the year ended December 31, 2020, certain significant deficiencies in internal control became evident to management that, in the aggregate, represent material weaknesses, which include the following: Insufficient segregation of duties in our finance and accounting functions due to limited personnel. During the year ended December 31, 2020, we used outside services to perform all aspects of our financial reporting process, including, but not limited to, access to the underlying accounting records and systems, the ability to post and record journal entries and responsibility for the preparation of the financial statements. This creates a lack of review over the financial reporting process that would likely result in a failure to detect errors in spreadsheets, calculations, or assumptions used to compile the financial statements and related disclosures as filed with the SEC. These control deficiencies could result in a material misstatement to our interim or annual financial statements that would not be prevented or detected. Insufficient corporate governance policies. Although we have a code of ethics which provides broad guidelines for corporate governance, our corporate governance activities and processes are not always formally documented. Specifically, decisions made by our Board of Directors to be carried out by management should be documented and communicated on a timely basis to reduce the likelihood of any misunderstandings regarding key decisions affecting our operations and management. Plan for Remediation of Material Weaknesses We intend to take appropriate and reasonable steps to make the necessary improvements to remediate these deficiencies provided that we have the resources to implement them. This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report is not subject to attestation by our registered public accounting firm. There was no change in our internal control over financial reporting that occurred during the year ended December 31, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION Between January 1, 2021 and March 5, 2021, the Company sold 3,528,572 Units (each Unit comprised of one common share and one warrant to purchase one common share at $0.07) for gross proceeds of $247,000 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 January 19, 2021 and an amended Form D was filed with the SEC on March 1, 2021. On January 14, 2021, the Board canceled 1,600,000 options issued to vendors pursuant to the 2017 Plan. 22 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CORPORATE GOVERNANCE As of March 5, 2021, the Company’s current officers and directors consist of the following persons: Name Age Title Year Appointed Clarence E. Smith 57 Chairman, Chief Executive Officer, President February 2015 Director June 2014 Michael R Guzzetta 63 Chief Financial Officer November 2017 Edward P. McDonough 68 Director July 2015 Clarence E. Smith was appointed President and Chief Executive Officer for the Company on February 19, 2015 and was previously appointed a member of the Board of Directors of the Company on June 1, 2014. Prior to joining the Company as President and CEO, Mr. Smith served and continues to serve as managing member of Tombstone Resources and Smith Equipment, LLC, a privately held company that holds operating oil and gas wells and Smith Equipment Company, a privately held company that leases out construction equipment. In 1981, Mr. Smith started Arvilla Well Service in West Virginia which provided construction services to oil and gas companies in the Appalachian Basin. After merging Arvilla Well Service into Arvilla Pipeline Construction Co., Inc., Mr. Smith sold the company in 2008. Mr. Smith also purchased Arrow Oilfield Services in 2004, which was renamed Arvilla Oilfield Services, LLC and subsequently merged with Trans Energy, a publicly traded company in 2004. Mr. Smith served as Chairman of the Board and CEO of Trans Energy, Inc. from 2005 to 2006. Mr. Smith graduated from St. Marys High School in West Virginia in 1981. Michael R. Guzzetta was appointed Chief Financial Officer of the Company on November 14, 2017. Mr. Guzzetta is a Certified Public Accountant with a practice located in Central & Northeast Ohio providing services including business and individual taxation, non-profit accounting, corporate policy and procedure development, business organization and consulting. Prior to opening his practice, he spent 20 years in corporate management in the communications and energy industries. Between 2014 and 2015, Mr. Guzzetta served as Treasurer and principal financial officer of Trans Energy Inc., a publicly traded energy company, where his responsibilities included corporate banking, risk management, maintaining fiscal control, budgeting, taxation and SEC reporting. His prior positions include Midwest Region Business Manager for a Fortune 100 company and Controller for an energy marketing company. Mr. Guzzetta also served as an Adjunct Professor at Stark State College and taught courses in accounting, finance, business management, and economics. He is a graduate of Walsh University where he graduated Magna Cum Laude with a BA in Accounting. He earned his MBA from Capital University in Columbus, Ohio. Mr. Guzzetta has been a past member of both the Ohio Society of Certified Public Accountants and the American Institute of Certified Public Accountants. He has served on the boards of the Canton Ballet, the ALS CARE Project and the Finance Committee of Stark County Board of Developmental Disabilities. Edward P. McDonough was appointed as a member of the Board of Directors of the Company on July 1, 2015. In addition to serving as a director of the Company, Mr. McDonough is a managing shareholder and President of McDonough, Eddy, Parsons & Baylous, A.C., a certified public accountant firm in Parkersburg, West Virginia since 1985. The firm originated in the early 1950s, employs 15 professional certified public accountants and accountants, and serves as certified public accountants for approximately 400 private corporations, firms, and individuals in various commercial, business, professional, and industrial fields. Mr. McDonough became a Certified Public Accountant in 1978, a Certified Valuation Analyst in 1996, and a Chartered Global Management Accountant in 2012. Since 1986, Mr. McDonough has served as a Director and Chairman of the Board of Community Bank of Parkersburg, held by Community Bankshares, Inc. He is also a Member of the American Institute of Certified Public Accountants (AICPA), has served as a Past President and Member of the West Virginia Board of Accountancy, is a Life Member, Past Director and Past President of the West Virginia Society of Certified Public Accountants and is a Member and Past President of the Parkersburg Chapter of the West Virginia Society of CPAs. Mr. McDonough acquired his Bachelor of Science in Business Administration with a Major in Accounting at West Virginia University in Morgantown, West Virginia in 1973. 23 Family Relationships There are no family relationships among any of our executive officers and directors. Term of Office Each director shall hold office until the next annual meeting of shareholders or until his successor shall have been elected and qualified, or until there is a decrease in the number of directors. Involvement in Legal Proceedings See Item 3—Legal Proceedings. Corporate Governance Code of Ethics On July 8, 2019, the Board adopted a new Code of Business Conduct and Ethics and Whistleblower Policy (“Code of Ethics”) which replaced in its entirety the Company’s prior code of ethics. The Code of Ethics applies to all directors, officers, employees and consultants of the Company and amends and restates the Company’s prior code of ethics to update certain provisions for business and regulatory developments and to provide additional guidance and greater detail on certain issues such as conflicts of interest, reporting illegal or unethical behavior, confidentiality and use of the Company’s assets, and hedging of Company securities. The Board also approved an insider trading policy, related party transactions policy, and policy on trading blackout periods, benefit plans and SEC reporting. Committees of the Board of Directors The Company does not currently have a separately designated audit committee. Instead, the Board of Directors as a whole acts as the Company’s audit committee. Consequently, the Company does not currently have a designated audit committee financial expert. The Company also does not have a separately designated compensation committee. To date, the Company has not retained an independent compensation advisor to assist the Company review and analyze the structure and terms of the Company’s executive officers. Independent Directors The Board of Directors has determined that Mr. McDonough is the only independent member of the Board of Directors of the Company pursuant to SEC Rule 10A-3(b)(1). Business and Scientific Advisory Board Our Business and Scientific Advisory Board exists to assist the Board of Directors with understanding both the regulatory and business aspects of the biopharmaceutical industry are particularly valuable for the expansion and commercialization of AAGP ® applications. The members on the board are: · Dr. Julia Levy, PhD, Chairman, Business and Scientific Advisory Board. Dr. Levy is a founder, former President and former Chief Scientific Officer of QLT, Inc., where she and her colleagues developed the first medical treatment for macular degeneration, a leading cause of blindness among the elderly. She has received numerous awards and honorary degrees. In her honor the Julia Levy B.C. Leadership Chair in Macular Research at the University of British Columbia was established. · Mr. Peter Jensen, former director of the Company. 24 Delinquent Section 16(a) Reports Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires the Company’s directors, executive officers and holders of more than 10% of the Company’s common stock to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. To our knowledge, based solely on a review of copies of Forms 3, 4 and 5 and any amendments thereto filed with the Securities and Exchange Commission and stockholder reports from our transfer agent and written representations that no other reports were required, during the fiscal year ended December 31, 2020 our officers, directors and 10% or more stockholders complied with all Section 16(a) filing requirements applicable to them except that: Mr. Smith filed one Form 4 late representing one transaction not reported on a timely basis. ITEM 11. EXECUTIVE COMPENSATION The following table summarizes the annual compensation paid to ProtoKinetix’s named executive officers for the two years ended December 31, 2020 and 2019: Summary Compensation Table for Executive Officers Name and Principal Position Fiscal Year Salary ($) Bonus ($) Stock Awards ($) Option Awards(1) ($) Non-equity Incentive Plan Compensation ($) Nonqualified Deferred Compensation Earnings ($) All Other Compensation ($) Total ($) Clarence E. Smith President & CEO 2020 - - - 1,920,866 - - - 1,920,866 2019 - - - 941,688 - - - 941,688 Michael R Guzzetta Chief Financial Officer 2020 60,000 - - 871,461 - - - 931,461 2019 60,000 - - 515,147 - - - 575,147 (1) Represents the grant date full fair value of compensation costs of stock options granted during the respective year for financial statement reporting purposes, using the Black-Scholes option pricing model. Assumptions used in the calculation of these amounts are included in the Company’s consolidated financial statements. Refer to the Outstanding Equity Awards at Fiscal Year End schedule regarding option details on an award-by-award basis. Consulting Agreements We have entered into consulting agreements with certain Company officers as set forth below. Clarence E. Smith – Mr. Smith is Chief Executive Officer and President of the Company. He entered into a consulting agreement with the Company dated December 30, 2016 (effective January 1, 2017) (the “2017 Smith Agreement”). 25 The 2017 Smith Agreement provides for a one-year term through December 31, 2017 and for an annual salary of $1.00. Mr. Smith is entitled to receive a bonus payment equal to 2.5% of the aggregate value of any application sale or license of any patent rights or products effected during the term of the 2017 Smith Agreement. Mr. Smith is also entitled to a termination fee if the agreement is terminated for the following two reasons: · A termination without cause: If Mr. Smith is terminated without cause he will be entitled to a termination fee of $100,000 per year of service (including the pro-rata amount for partial years of service); · A termination upon a change of control event: Following a change of control event he will be entitled to a termination fee equal to $100,000 per year of service (including the pro-rata amount for partial years of service) plus 2.5% of the aggregate transaction value of the change of control. In connection with the 2017 Smith Agreement, the Company issued Mr. Smith an option pursuant to the Amended 2017 Plan to purchase 5,000,000 shares of common stock of the Company at a price of $0.05 per share with 1,250,000 shares vesting every three months starting March 31, 2017. On September 1, 2017, Mr. Smith and the Company entered into an amendment to the 2017 Smith Agreement (the “September Amendment”), whereby the term of the agreement was extended from December 31, 2017 to December 31, 2018 and automatically renews for one-year increments under the same terms and conditions of the 2017 Smith Agreement, unless either party gives written notice to the other party at least 30 days prior to the end of such calendar year. In connection with the September Amendment, the Company issued Mr. Smith an option pursuant to the Company’s Amended 2017 Plan to purchase 5,000,000 shares of common stock of the Company at a price of $0.06 per share, with 1,250,000 shares vesting every three months starting December 31, 2017. In connection with Mr. Smith’s continued service to the Company, on November 9, 2018, the Company issued options pursuant to the Amended 2017 Plan to acquire 5,000,000 shares of common stock of the Company at an exercise price of $0.09 per share with 1,250,000 shares vesting every three months starting March 31, 2019. Prior to a change in control of the Company, the vesting schedule of the option shall immediately accelerate so that the option is fully vested and available for exercise by Mr. Smith. Please refer to “Recent Sales of Unregistered Securities and Use of Proceeds” for a description of the option grants canceled and issued to Mr. Smith during 2020. Michael R. Guzzetta – Mr. Guzzetta is Chief Financial Officer of the Company. He entered into a consulting agreement with the Company dated November 14, 2017. The consulting agreement term is from November 14, 2017 to December 1, 2018, with automatic renewal in one-year increments with both parties having a right to terminate by giving either party notice 30 days prior to the end of the term. It also provides for a monthly consulting fee of $5,000. In 2019, the Company paid Mr. Guzzetta $60,000 in consulting fees, and reimbursed The Guzzetta Company LLC $12,600 in office rent. In 2018, he received $60,000 in consulting fees and The Guzzetta Company LLC was reimbursed $12,600 for office rent of $1,050 monthly. In connection with the consulting agreement, the Company issued Mr. Guzzetta an option pursuant to the Amended 2017 Plan to purchase 1,000,000 shares of common stock of the Company at a price of $0.07 per share with 250,000 shares vesting every three months starting February 14, 2018. On November 9, 2018, in connection with Mr. Guzzetta’s continued service to the Company, the Company issued options pursuant to the Amended 2017 Plan to acquire 4,000,000 shares of common stock of the Company at an exercise price of $0.09 per share with 1,000,000 shares vesting every three months starting March 31, 2019. Prior to a change in control of the Company, the vesting schedule of the option shall immediately accelerate so that the option is fully vested and available for exercise by Mr. Guzzetta. Please refer to “Recent Sales of Unregistered Securities and Use of Proceeds” for a description of the option grants canceled and issued to Mr. Guzzetta during 2020. 26 Outstanding Equity Awards at Fiscal Year-End The following table provides information as to option awards held by each of the named executive officers of ProtoKinetix as of December 31, 2020. Name Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Option Exercise Price ($) Option Expiration Date Clarence E. Smith 5,000,000 (1) — 0.09 11/08/2023 5,000,000 (2) — 0.26 07/14/2024 5,000,000 (3) — 0.11 11/17/2024 5,000,000 (4) — 0.14 03/25/2026 5,000,000 — 0.14 03/25/2026 Michael R. Guzzetta 750,000 (6) — 0.07 11/14/2021 4,000,000 (7) — 0.09 11/08/2023 4,000,000 (8) — 0.11 11/17/2024 3,500,000 — 0.12 06/11/2026 (1) Represents options granted pursuant to the Amended 2017 Plan on November 9, 2018 at $0.09 per share with 1,250,000 vesting every three months beginning March 31, 2019. (2) Represents options granted pursuant to the Amended 2017 Plan on July 15, 2019 at $0.26 per share with 1,250,000 vesting every three months beginning October 13, 2019. (3) Represents options granted pursuant to the Amended 2017 Plan on November 18, 2018 at $0.11 per share with 1,250,000 vesting every three months beginning February 18, 2020. (4) Represents options granted pursuant to the Amended 2017 Plan on March 25, 2020 at $0.14 per share issued fully vested. (5) Represents options granted pursuant to the Amended 2017 Plan on March 25, 2020 at $0.14 per share issued fully vested. (6) Represents options granted pursuant to the Amended 2017 Plan on November 14, 2017 at $0.07 per share with 250,000 vesting every three months beginning February 14, 2018. (7) Represents options granted pursuant to the Amended 2017 Plan on September 1, 2017 at $0.09 per share with 1,000,000 vesting every three months beginning March 31, 2019. (8) Represents options granted pursuant to the Amended 2017 Plan on November 18, 2020 at $0.11 per share issued fully vested. (9) Represents options granted pursuant to the Amended 2017 Plan on June 12, 2020 at $0.12 per share issued fully vested. 27 Director Compensation The following table sets forth a summary of the compensation earned by each non-employee director who served on the Board during the fiscal year ended December 31, 2020: Director Compensation Fees Earned or Paid in Cash Bonus Stock Awards (1) Option Awards (2) Nonequity Incentive Plan Compensation Nonqualified Deferred Compensation Earnings All Other Compensation Total ($) ($) ($) ($) ($) ($) ($) ($) Edward P. McDonough - - - 682,091 (3) - - - 682,091 (1) The aggregate grant date fair value of these stock awards was computed in accordance with ASC 718. (2) Represents the grant date full fair value of compensation costs of stock options granted during the respective year for financial statement reporting purposes, using the Black-Scholes Option Pricing Model. Assumptions used in the calculation of these amounts are included in the Company’s audited financial statements. (3) As of December 31, 2020, Mr. McDonough held options to acquire 7,000,000 shares of the Company’s common stock, all of which were vested and exercisable. On or about December 30, 2016, the Company entered into a new consulting agreement with Mr. McDonough, effective January 1, 2017 (the “2017 McDonough Agreement”). The 2017 McDonough Agreement is for a one-year term through December 31, 2017. In connection with the 2017 McDonough Agreement, the Company issued Mr. McDonough an option pursuant to the Amended 2017 Plan to purchase 1,000,000 shares of common stock of the Company at a price of $0.05 per share with 250,000 shares vesting every three months starting March 31, 2017. On September 1, 2017, the Company entered into an amendment to the 2017 McDonough Agreement, effective immediately. This new agreement is effective through December 31, 2018, but shall automatically renew for one-year increments under the same terms and conditions of the 2017 McDonough Agreement unless by stockholder vote or 30 days prior to the end of such calendar year written notice is given by either party to the other notifying them of a desire to terminate. In connection with the amendment to the 2017 McDonough Agreement, the Company granted Mr. McDonough options pursuant to the Amended 2017 Plan to purchase 1,000,000 shares of common stock of the Company at an exercise price of $0.06 per share with 250,000 shares vesting every three months starting December 31, 2017. On November 9, 2018, in connection with continued service to the Company, the Company granted Mr. McDonough options pursuant to the Amended 2017 Plan to purchase 1,000,000 shares of common stock of the Company at an exercise price of $0.09 per share with 250,000 shares vesting every three months starting March 31, 2019. Prior to a change in control of the Company, the vesting schedule of the option shall immediately accelerate so that the option is fully vested and available for exercise by Mr. McDonough. Please refer to “Recent Sales of Unregistered Securities and Use of Proceeds” for a description of the option grants canceled and issued to Mr. McDonough during 2020. 28 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table sets forth certain information regarding our shares of common stock beneficially owned as of March 5, 2021, for (i) each stockholder known to be the beneficial owner of more than 5% of our outstanding shares of common stock (ii) each named executive officer and director, and (iii) all executive officers and directors as a group. A person is considered to beneficially own any shares: (a) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (b) of which such person has the right to acquire beneficial ownership at any time within 60 days through an exercise of stock options, warrants or convertible debt. Shares underlying such options, warrants, and convertible promissory notes, however, are only considered outstanding for the purpose of computing the percentage ownership of that person and are not considered outstanding when computing the percentage ownership of any other person. Unless otherwise indicated, voting and investment power relating to the shares shown in the table for our directors and executive officers is exercised solely by the beneficial owner or shared by the owner and the owner’s spouse or children. Name & Address of Beneficial Owner Amount and Nature of Beneficial Ownership Beneficial Ownership Percentage as of March 5, 2021 (1) More than 5% Stockholders Grant Young (2) 50,646,850 15.4% Alexandra Smith (3) 27,500,000 9.5% Directors and Named Executive Officers Clarence E. Smith(4) 69,605,753 22.1% Michael R. Guzzetta(5) 12,423,313 4.1% Edward P. McDonough(6) 7,000,000 2.4% All directors and executive officers as a group: 89,029,066 28.6% (1) Based on 289,483,643 shares of common stock outstanding on March 5, 2021, and, with respect to each individual holder, rights to acquire common stock exercisable within 60 days of March 5, 2021. (2) Consists of 10,021,250 shares of common stock owned by Mr. Young directly; 1,125,600 shares held by Mr. Young’s wife; the right to acquire 6,000,000 shares of common stock upon warrant exercise; and the right to acquire 33,500,000 shares of common stock upon option exercise. The principal address of Mr. Young is 6438 Rosebery Ave, West Vancouver, BC, V7W 2C6, Canada. (3) Consists of 27,500,000 shares of common stock owned by Alexandra Smith directly. The principal address of Ms. Smith is 1413 Peachtree Road, Daytona Beach, FL 32114. (4) Consists of 29,018,253 shares of common stock owned by Mr. Smith directly, 13,377,997 held by Mr. Smith’s trusts, 1,850,000 held by Mr. Smith’s retirement account, the right to acquire 25,000,000 shares of common stock upon option exercise, and the right to acquire 359,503 shares upon warrant exercise. The principal address of Mr. Smith is 1845 County Road #214, St. Augustine, FL 32084. (5) Consists of 173,313 shares of common stock owned by Mr. Guzzetta directly, and 12,250,000 shares of common stock issuable upon the exercise of stock options. The principal address of Mr. Guzzetta is 7187 Steel Dust Dr, New Albany, OH 43054. (6) Consists of 7,000,000 shares of common stock issuable upon the exercise of stock options. The principal business address of Mr. McDonough is 1226 Washington Avenue, Parkersburg, WV 26101. 29 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE The following is a description of transactions during the last fiscal year in which the transaction involved a material dollar amount and in which any of the Company’s directors, executive officers or holders of more than 5% of the Company’s common stock had or will have a direct or indirect material interest, other than compensation which is described under “Executive Compensation.” Management believes the terms obtained or consideration that was paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arms’ length transactions: As at December 31, 2020, there is no amount due to or due from a related party. Please refer to “Recent Sales of Unregistered Securities and Use of Proceeds” for a description of the option grants canceled and issued to Mr. Smith during 2020 as well as securities purchased by Mr. Smith directly from the Company. Please refer to “Recent Sales of Unregistered Securities and Use of Proceeds” for a description of the option grants canceled and issued to Mr. Guzzetta, Mr. McDonough, and Mr. Young during 2020. See also Item 11 for a description of the consulting agreements with the officers and directors of the Company. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Audit Fees For the years ended December 31, 2020 and 2019, Davidson & Company LLP, Chartered Professional Accountants (“Davidson”) the Company’s principal accountants billed the Company $27,329 and $25,000, respectively for fees for the audit of the Company’s annual financial statements. All amounts are in U.S. dollars. Audit-Related Fees For the years ended December 31, 2020 and 2019, Davidson did not provide the Company with any assurances or related services reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported above under “Audit Fees.” 30 Tax Fees For the years ended December 31, 2020 and 2019, Davidson billed $3,500 in 2020 and $3,500 in 2019 for professional services for tax compliance, tax advice, and tax planning. All Other Fees For the years ended December 31, 2020 and 2019, Davidson did not bill the Company for fees associated with the preparation and filing of the Company’s registration statements, the creation of pro forma financial statements and other related matters. For the years ended December 31, 2020 and 2019, Davidson billed the Company $23,837 and $19,282 for fees for the review of the Company’s quarterly financial statements. All amounts are in U.S. dollars. Audit Committee Pre-Approval Policies The Company currently does not have a formal audit committee. The Company’s Board of Directors currently approves in advance all audit and non-audit related services performed by the Company’s principal accountants and appointed Ed McDonough as the responsible director to review all financial information of the Company and correspond with the independent auditors regarding the same. 31 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULE EXHIBIT INDEX The following documents are being filed with the Commission as exhibits to this Annual Report on Form 10-K. Exhibit Description 3.1 Certificate of Incorporation(1) 3.2 Bylaws(1) 4.2 Amended 2017 Stock Option and Stock Bonus Plan(2) 4.3 Amendment to Amended 2017 Stock Option and Stock Bonus Plan as approved on July 15, 2019(5) 10.1 Royalty Agreement between the Company and The Governors of the University of Alberta, dated April 8, 2015(3) 10.2 Collaborative Research Agreement between the Company and the University of British Columbia, dated May 31, 2016(4) 10.3 Consulting Agreement between the Company and Clarence E. Smith, dated December 30, 2016(2) 10.4 Director Consulting Agreement between the Company and Edward P. McDonough, dated December 30, 2016(2) 10.5 Consulting Agreement between the Company and Grant Young, dated December 30, 2016(8) 10.6 First Amendment to Consulting Agreement between Clarence E. Smith and the Company dated September 1, 2017(7) 10.7 First Amendment to Consulting Agreement between Grant Young and the Company dated September 1, 2017(7) 10.8 First Amendment to Consulting Agreement between Edward P. McDonough and the Company dated September 1, 2017(7) 10.9 Consulting Agreement between ProtoKinetix Incorporated and Michael Guzzetta, dated November 14, 2017(6) 14.1 Code of Business Conduct and Ethics and Whistleblower Policy as approved on July 8, 2019(5) 31.1 Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* 31.2 Certification of the Principal Financial Officer and Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* 32.1 Certification of the Principal Executive Officer and the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002** 101.INS XBRL Instance Document 101.SCH XBRL Schema Document 101.CAL XBRL Calculation Linkbase Document 101.DEF XBRL Definition Linkbase Document 101.LAB XBRL Label Linkbase Document 101.PRE XBRL Presentation Linkbase Document 32 1. Incorporated by reference from the Company’s registration statement on Form 10-SB filed on June 22, 2001 with the SEC. 2. Incorporated by reference from the Company’s Current Report on Form 8-K filed on November 13, 2018 with the SEC. 3. Incorporated by reference from the Company’s Annual Report on Form 10-K filed on April 14, 2015 with the SEC. 4. Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on August 15, 2016 with the SEC. 5. Incorporated by reference from the Company’s Current Report on Form 8-K filed on July 17, 2019 with the SEC. 6. Incorporated by reference from the Company’s Annual Report on Form 10-K filed on February 21, 2017 with the SEC. 7. Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on November 13, 2017 with the SEC. 8. Incorporated by reference from the Company’s amended Current Report on Form 8-K filed on September 12, 2017 with the SEC. 9. Incorporated by reference from the Company’s Current Report on Form 8-K filed on April 10, 2020 with the SEC. 10. Incorporated by reference from the Company’s Current Report on Form 8-K filed on November 15, 2017 with the SEC. 11. Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on July 10, 2020 with the SEC. * Filed herewith. ** Furnished, not filed herewith. ITEM 16. Form 10-K Summary This Item is optional and the registrant is not required to furnish this information. 33 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. PROTOKINETIX, INCORPORATED Dated: March 5, 2021 By: /s/ Clarence E. Smith Clarence E. Smith Principal Executive Officer Dated: March 5, 2021 By: /s/ Michael R. Guzzetta Michael R. Guzzetta Principal Financial Officer & Principal Accounting Officer Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Dated: March 5, 2021 By: /s/ Clarence E. Smith Clarence E. Smith Chief Executive Officer (principal executive officer) & Chairman of the Board Dated: March 5, 2021 By: /s/ Edward P. McDonough Edward P. McDonough Director 34 PROTOKINETIX, INC. (A Development Stage Company) FINANCIAL STATEMENTS December 31, 2020 (Stated in US Dollars) C O N T E N T S REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-2 FINANCIAL STATEMENTS BALANCE SHEETS F-4 STATEMENTS OF OPERATIONS F-5 STATEMENT OF STOCKHOLDERS' EQUITY F-6 STATEMENTS OF CASH FLOWS F-8 NOTES TO FINANCIAL STATEMENTS F-9 F- 1 Report of Independent Registered Public Accounting Firm To the Shareholders and Directors of Protokinetix, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of Protokinetix, Inc. (the “Company”) as of December 31, 2020 and 2019, and the related statements of operations, stockholder’s equity, and cash flows for the years ended December 31, 2020, and 2019, and the related notes and schedules (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years ended December 31, 2020 and 2019, in conformity with accounting principles generally accepted in the United States of America. Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the entity has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. F- 2 Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Fair value of intangible assets As discussed in Note 4 to the financial statements, the Company held intangible assets of $274,686 relating to patent and patent application rights. We identified the estimation of the fair value of intangible assets as a critical audit matter. Subjective auditor judgment was required to evaluate management’s estimates and assumptions used to determine the fair value of the intangible assets, including the economic useful life over which the patent rights are being amortized and whether indicators of impairment were present. The following are the primary procedures we performed to address this critical audit matter. We obtained management’s impairment analysis of intangible assets and assessment of impairment triggers. We assessed the consistency and reasonableness of the assumptions used by management in performing the impairment test and whether there were any changes in the expected useful life as compared to prior years. We discussed with management the plans and intent for the patents and patent applications. We reviewed the Company’s ability to fund future activities, and reviewed any available budgets for future periods. We confirmed title to ensure patent rights and patent application rights remain in good standing. We have served as the Company’s auditor since 2008. /s/ DAVIDSON & COMPANY LLP Vancouver, Canada Chartered Professional Accountants March 5, 2021 F- 3 PROTOKINETIX, INC. (A Development Stage Company) BALANCE SHEETS As of December 31, 2020 2020 2019 ASSETS Current Assets Cash $ 193,445 $ 377,349 Prepaid expenses and deposits (Note 3) 1,050 1,050 Total current assets 194,495 378,399 Intangible assets (Note 4) 274,686 207,508 Total assets $ 469,181 $ 585,907 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities 17,959 — Accounts payable and accrued liabilities $ 27,000 $ 25,520 Total current liabilities 44,959 25,520 Stockholders' Equity Common stock, $0.0000053 par value; 400,000,000 common shares authorized; 285,955,071 and 275,400,259 shares issued and outstanding for 2020 and 2019 respectively (Note 7) 1,531 1,472 Additional paid-in capital 43,615,323 36,107,058 Accumulated deficit (43,192,633 ) (35,548,143 ) Total stockholders' equity 424,221 560,387 Total liabilities and stockholders' equity $ 469,181 $ 585,907 Basis of Presentation – Going Concern Uncertainties (Note 1) Commitments and Contingency (Note 9) Subsequent Events (Note 11) See Notes to Financial Statements F- 4 PROTOKINETIX, INC. (A Development Stage Company) STATEMENTS OF OPERATIONS For the Years Ended December 31, 2020 and 2019 2020 2019 EXPENSES Amortization – intangible assets (Note 4) $ 3,000 $ 3,000 General and administrative 208,967 280,438 Professional fees (Note 8) 164,489 149,619 Research and development 527,291 369,520 Share-based compensation (Notes 5 and 8) 6,740,743 3,395,319 (7,644,490 ) (4,197,897 ) Net loss for the year $ (7,644,490 ) $ (4,197,897 ) Net loss per common share (basic and diluted) $ (0.03 ) $ (0.02 ) Weighted average number of common shares outstanding (basic and diluted) 278,598,615 268,984,776 See Notes to Financial Statements F- 5 PROTOKINETIX, INC. (A Development Stage Company) STATEMENT OF STOCKHOLDERS' EQUITY For the Years Ended December 31, 2020 and 2019 Common Stock Additional paid-in Accumulated Shares Amount capital deficit Total Balance, December 31, 2018 259,785,766 $ 1,389 $ 31,594,822 $ (31,350,246 ) $ 245,965 Fair value of share-based compensation — — 3,395,319 — 3,395,319 Issuance of common stock pursuant to cashless option exercise 97,826 1 (1 ) — — Issuance of common stock pursuant to private placement offering 15,516,667 82 1,116,918 — 1,117,000 Net loss for the year — — — (4,197,897 ) (4,197,897 ) Balance, December 31, 2019 275,400,259 $ 1,472 $ 36,107,058 $ (35,548,143 ) $ 560,387 See Notes to Financial Statements F- 6 PROTOKINETIX, INC. (A Development Stage Company) STATEMENT OF STOCKHOLDERS' EQUITY For the Years Ended December 31, 2020 and 2019 Common Stock Additional paid-in Accumulated Shares Amount capital deficit Total Balance, December 31, 2019 275,400,259 $ 1,472 $ 36,107,058 $ (35,548,143 ) $ 560,387 Fair value of share-based compensation — — 6,740,743 — 6,740,743 Issuance of common stock pursuant to private placement offering 10,554,812 59 767,522 — 767,581 Net loss for the year — — — (7,644,490 ) (7,644,490 ) Balance, December 31, 2020 285,955,071 $ 1,531 $ 43,615,323 $ (43,192,633 ) $ 424,221 See Notes to Financial Statements F- 7 PROTOKINETIX, INC. (A Development Stage Company) STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2020 and 2019 2020 2019 CASH FLOWS USED IN OPERATING ACTIVITIES Net loss for the year $ (7,644,490 ) $ (4,197,897 ) Adjustments to reconcile net loss to cash used in operating activities: Amortization – intangible assets 3,000 3,000 Fair value of compensatory options granted 6,740,743 3,395,319 Changes in operating assets and liabilities: Accounts payable and accrued liabilities 19,439 (51,080 ) Net cash used in operating activities (881,308 ) (850,658 ) CASH FLOWS USED IN INVESTING ACTIVITIES Purchase of intangible assets (70,178 ) (25,022 ) Net cash used in investing activities (70,178 ) (25,022 ) CASH FLOWS FROM FINANCING ACTIVITIES Issuance of common stock for cash 767,581 1,117,000 Net cash from financing activities 767,581 1,117,000 Net change in cash (183,905 ) 241,320 Cash, beginning of year 377,350 136,029 Cash, end of year $ 193,445 $ 377,349 Cash paid for interest $ — $ — Cash paid for income taxes $ — $ — Supplementary information – non-cash transactions: There were no non-cash financing or investing activities during the years presented. $ — $ — See Notes to Financial Statements F- 8 PROTOKINETIX, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS December 31, 2020 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, 2020. 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. In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or ability to raise funds. 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. F- 9 PROTOKINETIX, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS December 31, 2020 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). At December 31, 2020, 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. F- 10 PROTOKINETIX, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS December 31, 2020 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. The Company capitalizes 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 at December 31, 2020. 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 82,650,000 stock options (December 31, 2019 – 91,450,000) and 10,326,857 warrants (December 31, 2019 – 8,500,000) 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. F- 11 PROTOKINETIX, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS December 31, 2020 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 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 has assessed the impact of this statement and determined it has no significant impact. F- 12 PROTOKINETIX, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS December 31, 2020 Note 2. Summary of Significant Accounting Policies (cont'd) Recent Accounting Pronouncements (cont'd) In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes by removing certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new ASU also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates. These changes aim to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing the disclosures. The guidance is effective for the Company beginning on January 1, 2021 and prescribes different transition methods for the various provisions. The Company does not expect the adoption of ASU 2019-12 to have a material impact on its financial statements and related disclosures. Other than the above, the Company has determined that other significant newly issued accounting pronouncements are either not applicable to the Company’s business or that no material effect is expected on the financial statements as a result of future adoption. Note 3. Prepaid Expenses and Deposits The following summarizes the Company's prepaid expenses and deposits outstanding as at December 31, 2020 and 2019: 2020 2019 Rental deposit $ 1,050 $ 1,050 $ 1,050 $ 1,050 F- 13 PROTOKINETIX, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS December 31, 2020 Note 4. Intangible Assets Intangible asset transactions are summarized as follows: Patent Rights Patent Application Rights Total Cost 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 Additions — 70,178 70,178 Balance, December 31, 2020 $ 30,000 $ 261,186 $ 291,186 Accumulated amortization Balance, December 31, 2018 $ 10,500 $ — $ 10,500 Amortization 3,000 — 3,000 Balance, December 31, 2019 $ 13,500 $ — $ 13,500 Amortization 3,000 — 3,000 Balance, December 31, 2020 $ 16,500 $ — $ 16,500 Net carrying amounts December 31, 2018 $ 19,500 $ 168,271 $ 187,771 December 31, 2019 $ 16,500 $ 191,008 $ 207,508 December 31, 2020 $ 13,500 $ 261,186 $ 274,686 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, 2020, the Company recorded $3,000 (2019 - $3,000) in amortization expense associated with the Patents Rights. 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 $226,186 in direct costs relating to the Patent Application Rights, $70,178 of which were incurred during the year ended December 31, 2020. F- 14 PROTOKINETIX, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS December 31, 2020 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, 2020. Note 5. Stock Options Pursuant to an amendment on April 6, 2020, the aggregate number of shares that may be issued under the 2017 Stock Option and Stock Bonus Plan (the “2017 Plan”) is 85,700,000 shares, subject to adjustment as provided therein. The 2017 Plan is administered by the Company’s Board of Directors, or a committee appointed by the Board of Directors, and 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 that are not intended to qualify as incentive options are referred to as non-qualified options. 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. As of December 31, 2020, there are 82,650,000 options granted and outstanding under the 2017 Plan. F- 15 PROTOKINETIX, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS December 31, 2020 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, 2019 91,450,000 0.14 Options cancelled (36,000,000 ) 0.13 Options expired (3,200,000 ) 0.04 Options granted 30,400,000 0.13 Outstanding, December 31, 2020 82,650,000 0.15 4.06 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 During the year ended December 31, 2020, the Company granted the following stock options: a) On May 6, 2020, the Company granted 650,000 stock options to a research and development, and a business development consultant of the Company. The options are exercisable at $0.11 per share for a period of six years and expire on May 5, 2026. The options vest in equal installments starting on the date of grant with the remaining options vesting on a quarterly basis beginning on June 30, 2020. b) On March 26, 2020 and June 12, 2020, the Company granted 22,000,000 replacement options and 7,000,000 replacement options, respectively, to certain key management (Note 8) and a consultant (Note 9) of the Company. c) On October 26, 2020, the Company granted 500,000 stock options to a consultant of the Company. The options are exercisable at $0.10 per share for a period of six years and expire on October 26, 2026. The options vest in equal installments starting on the date of grant with the remaining options vesting on a quarterly basis beginning on January 26, 2021. d) On November 27, 2020, the Company granted 250,000 stock options to a consultant of the Company. The options are exercisable at $0.10 per share for a period of six years and expire on November 27, 2026. The options vest in equal installments starting on the date of grant with the remaining options vesting on a quarterly basis beginning on December 31, 2020. F- 16 PROTOKINETIX, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS December 31, 2020 Total share-based compensation for the 30,400,000 stock options granted (2019 - 49,100,000) and vested during the year ended December 31, 2020 was $6,740,743 (2019 - $3,395,319). The fair values of the stock options granted were estimated using the Black-Scholes Option Pricing Model, based on the following weighted average assumptions: December 31, 2020 December 31, 2019 Risk-free interest rate 2.55 % 2.42 % Dividend yield 0.00 % 0.00 % Expected stock price volatility 143.56 % 140.21 % Expected forfeiture rate 0.00 % 0.00 % Expected life 5.09 years 4.95 years Weighted average fair value $0.20 $0.18 The following non-qualified stock options were outstanding and exercisable at December 31, 2020: Expiry date Exercise Price Number of Options Outstanding Number of Options Exercisable $ November 14, 2021 0.07 750,000 750,000 December 31, 2022 0.06 800,000 800,000 August 31, 2023 0.08 600,000 600,000 November 8, 2023 0.09 15,000,000 15,000,000 May 5, 2023 0.13 1,600,000 1,600,000 July 14, 2024 0.26 18,500,000 18,500,000 November 17, 2024 0.11 15,000,000 15,000,000 March 26, 2026 0.14 22,000,000 22,000,000 May 5, 2026 0.11 650,000 650,000 June 11, 2026 0.12 7,000,000 7,000,000 October 26, 2026 0.10 500,000 125,000 November 27, 2026 0.10 250,000 125,000 82,650,000 82,150,000 As at December 31, 2020, the aggregate intrinsic value of the Company's stock options is $393,710 (December 31, 2019 – $1,005,350). F- 17 PROTOKINETIX, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS December 31, 2020 Note 6. Warrants Warrant transactions are summarized as follows: Number of Warrants Weighted Average Exercise Price $ Outstanding, December 31, 2018 6,000,000 0.11 Warrants cancelled (6,000,000 ) 0.25 Warrants granted 8,500,000 Outstanding, December 31, 2019 8,500,000 0.22 Warrants cancelled — — Warrants granted 1,826,857 0.07 Outstanding, December 31, 2020 10,326,857 0.19 The following warrants were outstanding and exercisable as at December 31, 2020: 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 325,000 0.07 December 23, 2021 142,571 0.07 December 29, 2021 1,359,286 0.07 December 31, 2021 10,326,857 0.19 F- 18 PROTOKINETIX, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS December 31, 2020 Note 7. Stockholders' Equity The Company is authorized to issue 400,000,000 (December 31, 2019 – 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, 2020 (December 31, 2019 - $nil). During the year ended December 2020, the Company: a) Issued 2,222,222 shares of common stock to investors at $0.09 per share for gross proceeds of $200,000. b) Issued 320,513 shares of common stock to investors at $0.078 per share for gross proceeds of $25,001. c) Issued 3,653,077 shares of common stock to investors at $0.065 per share for gross proceeds of $237,450. d) Issued 2,532,143 shares of common stock to investors (one of which was the President and CEO of the Company) at $0.07 per share for gross proceeds of $177,250. e) Issued 1,826,857 shares of common stock to investors at $0.07 per share for gross proceeds of $127,880 and the option to exercise a warrant for one additional share at $0.07, exercisable for one year. During the year ended December 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 the CFO pursuant to a cashless exercise of 250,000 of 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 the option to exercise a warrant for one additional share at $0.12, exercisable for three years. F- 19 PROTOKINETIX, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS December 31, 2020 Note 8. Related Party Transactions and Balances During the twelve month period ended December 31, 2020 and 2019, the Company entered into the following related party transactions: a) Pursuant to a consulting agreement with an effective date of November 14, 2017, a total of $60,000 (2019 - $60,000) was paid or accrued to the Company's CFO. During the twelve months ended December 31, 2020, the Company reimbursed a company controlled by the CFO a total of $12,600 (2019 - $12,600) in office rent. b) On March 25, 2020, the Company cancelled and concurrently approved for issuance on March 26, 2020 10,000,000 stock options and 2,000,000 stock options previously issued to the Company’s CEO and a Director of the Company in 2017, respectively. The 12,000,000 replacement options granted have a term of 6 years and are exercisable at a price of $0.14 per share, expiring on March 25, 2026. Also on March 25, 2020, the Company cancelled an additional 5,000,000 stock options previously issued to the Company’s CEO in 2019. There were no replacement options granted in connection with these cancelled options. In accordance with ASC 718, the 12,000,000 replacement options 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 options over the fair value of the cancelled options at the cancellation date. Total share-based compensation of $282,844 was recorded in connection with the option modification, based on the following assumptions used in the Black-Scholes Option Pricing Model: risk-free interest rate of 1.76%; dividend yield of 0.00%; stock price volatility of 144.40%; forfeiture rate of 0%; and an expected life of 6 years. c) On June 12, 2020, the Company cancelled 4,000,000 stock options previously issued in July 2019 to the Company’s CFO and replaced them with 3,500,000 stock options. The 3,500,000 replacement options granted have a term of 6 years and are exercisable at a price of $0.12 per share, expiring on June 11, 2026. The 3,500,000 replacement options 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 options over the fair value of the cancelled options at the cancellation date. Total share-based compensation of $5,704 was recorded in connection with the option modification, based on the following assumptions used in the Black-Scholes Option Pricing Model: risk-free interest rate of 1.76%; dividend yield of 0.00%; stock price volatility of 144.75%; forfeiture rate of 0%; and an expected life of 6 years. c) The Company recognized $3,474,418 (2019 - $1,704,723) in share-based compensation during the period associated with stock options granted to key management personnel. As at December 31, 2020 and December 31, 2019, there were $nil balances owing to related parties. F- 20 PROTOKINETIX, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS December 31, 2020 Note 9. Commitments and Contingency Commitments As at December 31, 2020, 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 March 25, 2020, the Company cancelled and concurrently approved for issuance on March 26, 2020, 10,000,000 stock options previously issued to the consultant in 2017. The 10,000,000 replacement options granted have a term of 6 years and are exercisable at a price of $0.14 per share, expiring on March 25, 2026. The 10,000,000 replacement options 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 options over the fair value of the cancelled options at the cancellation date. Total share-based compensation of $235,703 was recorded in connection with the option modification based on the following assumptions used in the Black-Scholes Option Pricing Model: risk-free interest rate of 0.81%; dividend yield of 0.00%; stock price volatility of 144.40%; forfeiture rate of 0%; and an expected life of 6 years. On June 12, 2020, the Company cancelled 4,000,000 stock options previously issued in July 2019 to the consultant and a replaced them with 3,500,000 stock options. The 3,500,000 replacement options granted have a term of 6 years and are exercisable at a price of $0.12 per share, expiring on June 11, 2026. There was no incremental cost recorded on the option modification based on the following assumptions used in the Black-Scholes Option Pricing Model: risk-free interest rate of 1.76%; dividend yield of 0.00%; stock price volatility of 144.75%; forfeiture rate of 0%; and an expected life of 6 years. b) 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. c) 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 May 6, 2020, the Company granted the consultant 500,000 stock options exercisable at a price of $0.11 per share, expiring on May 5, 2026 (Note 5). d) Entered into a consulting agreement effective September 1, 2020, whereby the Company would pay the consultant CAD $3,000 per month for a term of 1 year for providing technical expertise and public relations services, unless otherwise terminated by either party with at least 30 days’ notice. F- 21 PROTOKINETIX, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS December 31, 2020 Note 9. Commitments and Contingency (cont’d) 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. F- 22 PROTOKINETIX, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS December 31, 2020 Note 10. Income Taxes As a Nevada corporation, the Company is liable for taxes in the United States. As of December 31, 2020, 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, 2019 – none). A reconciliation of income taxes at statutory rates with the reported taxes is as follows: 2020 2019 Net loss for the year $ (7,644,490 ) $ (4,197,897 ) Expected income tax recovery $ (1,605,000 ) $ (882,000 ) Non-deductible expenses 1,416,000 713,000 Impact of change of future tax rate — — Adjustment to prior years provision versus statutory tax returns 89,000 69,000 Change in valuation allowance 100,000 100,000 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 $ 6,200,000 $ 6,100,000 Valuation allowance (6,200,000 ) (6,100,000 ) $ — $ — The Company has tax losses of approximately $29,500,000 (December 31, 2019 - $29,000,000) 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 $6,200,000 (December 31, 2019 - $6,100,000). 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, 2020, the Company: 1 Issued 3,528,572 shares of common stock to investors at $0.07 per share for gross proceeds of $247,000. 2 Cancelled 1,600,000 options for common shares exercisable at $0.13 per share, expiring at May 6, 2023. F- 23