ProtoKinetix, Inc. 10-K

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, 2021 and 2020, 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 2021 2020 Operating Expenses Amortization $ 3,000 $ 3,000 General and Administrative 316,995 208,967 Professional Fees 160,388 164,489 Research and Development 435,872 527,291 Share-Based Compensation 1,413,055 6,740,743 Total operating expenses 2,329,310 7,644,490 Loss from Operations (2,329,310 ) (7,644,490 ) Other Income Gain on Settlement of Short-Term Loans — — Total other income — — Net Loss $ (2,329,310 ) $ (7,644,490 ) Revenues We had no revenues for the years ended December 31, 2021 and 2020. 16 Gross profit and expenses The Company’s net loss was $2,329,310 for the year ending December 31, 2021 compared to $7,644,490 for the year ending December 31, 2020. 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 decreased by $4,101, year over year going to $160,388 from $164,489 as legal and auditing fees each contributed to a small decrease, while accounting activity remained unchanged over prior year totals. · Share-based compensation decreased sharply by $5,327,688 from $6,740,743 to $1,413,055 primarily as a result of the decrease of stock price at grant date of certain options and a decrease in the number of options granted. In 2020 the Company adopted a change in accounting based on new FASB guidance for valuation of share-based payments to non-employees. · Research and development decreased by $91,419 from $527,291 to $435,872 primarily as a result of management’s targeted investment in further testing and development of the AAGP ® molecule and longer timeline for research results. In 2020 new studies included pilot tolerability test for topical ocular application and dose and time-dependent effect studies for dry-eye disease. This focus continues through 2021 and the foreseeable part of the current year. · General and administrative expenses increased by $108,028 from $208,967 to $316,995 due to the significant increase in spending on marketing, press releases and social media exposure. This accounted for eighty percent of the change. Our expenses in 2021 were $2,329,310 which included $160,388 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 $1,413,055 in share-based compensation recognized based on the fair value of equity instruments granted as compensation. These professional consulting services are related to marketing, accounting, merger opportunities as well as research development services. The Company also incurred total research and development expenses of $435,872 and general and administrative costs of $316,995 during the year ended December 31, 2021. Liquidity and Capital Resources As at December 31, 2021 2020 Cash $ 57,568 $ 193,445 Working Capital $ (9,705 ) $ 149,536 At December 31, 2021, we had $57,568 in cash and $83,563 in total current assets. As of December 31, 2021, we had a working capital equity deficit position of $9,705. 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. 17 Sources and Uses of Cash for the Years ended December 31, 2021 and 2020 Net Cash Used in Operating Activities During the year ended December 31, 2021, net cash used in operating activities increased $8,583 from $881,308 to $889,892 for the years ended December 31, 2020 and 2021, respectively. This increase was predominantly due to the increased spending on web marketing, news releases, and social media. This increase overcame the reduction in research and development spending. Net Cash Used in Investing Activities During the year ended December 31, 2020, net cash used in investing activities increased by $20,807 primarily from the increase in patent application spending due to expansion of patent family. Net cash from investing activities for the year ended December 31, 2020 was $70,178. Net cash used for investing activities for the year ended December 31, 2021 was $90,985. Net Cash Provided by Financing Activities During the year ended December 31, 2021, net cash provided by financing activities increased by $77,419 from $767,581 to $845,000 for the years ended December 31, 2020 and 2021 respectively. This increase was predominantly due to an increase 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. 18 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, 2021, 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, 2021. 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, 2021. 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. 19 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.