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, 2021 (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. 20 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, 2021, 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, 2021. Material Weaknesses Identified In connection with the preparation of our financial statements for the year ended December 31, 2021, 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, 2021, 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 3, 2022 and February 8, 2022, the Company issued 2,136,666 shares of common stock to accredited investors in a private placement for gross proceeds of $128,200. 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. On December 10, 2021 a Form D was filed. On December 28, 2021 a Form D was filed and an amended Form D was filed on January 12, 2022. On February 11, 2022, the Company held its first annual stockholder meeting. The meeting was held solely by means of remote communication due to COVID-19 concerns. At the meeting, the Company: (i) elected Clarence Smith and Ed McDonough as directors of the Company; (ii) approved the amendment and restatement of the Company’s Articles of Incorporation to, among other things, increase the number of authorized shares of common stock to 500,000,000; (iii) voted, in an advisory vote, to approve the compensation of the Company’s named executive officers; (iv) voted, in an advisory vote, to conduct an advisory vote on compensation of the Company’s named executive officers every three years; and (v) approved the appointment of Davidson & Company LLP, Chartered Professional Accountants, as the Company’s independent accounting firm for the 2022 fiscal year. 21 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 58 Chairman, Chief Executive Officer, President February 2015 Director June 2014 Michael R Guzzetta 64 Chief Financial Officer November 2017 Edward P. McDonough 69 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. 22 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 stockholders 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. 23 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. Guzzetta filed two Forms 4 late representing eight transactions not reported on a timely basis, and Mr. Smith filed two Forms 4 late representing three transactions 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, 2021 and 2020: 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 2021 — — — 131,494 — — — 131,494 2020 — — — 1,920,866 — — — 1,920,866 Michael R. Guzzetta Chief Financial Officer 2021 60,000 — — 13,149 — — — 73,149 2020 60,000 — — 871,461 — — — 931,461 (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”). 24 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. 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. On August 4, 2021, in connection with Mr. Smith’s continued service to the Company, the Company cancelled, and concurrently replaced 25,000,000 stock options previously issued to Mr. Smith pursuant to the Company’s Amended 2017 Plan between 2018 to 2020 at various exercise prices between $0.09 and $0.26 per share. The replacement options have a term of 6 years, exercisable at a price of $0.11 per share, expiring on August 3, 2028. In addition, the Company granted Mr. Smith an option to purchase 2,600,000 shares of common stock under the Amended 2017 Plan with the same terms as the replacement options. Prior to a change in control of the Company, the vesting schedule of the options shall immediately accelerate so that the options are fully vested and available for exercise by Mr. Smith. Please refer to “Outstanding Equity Awards at Fiscal Year-End” for a description of the option grants issued to Mr. Smith during 2021. 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 2021, the Company paid Mr. Guzzetta $60,000 in consulting fees, and reimbursed The Guzzetta Company LLC $12,600 in office rent. In 2020, he received $60,000 in consulting fees and The Guzzetta Company LLC was reimbursed $12,600 for office rent of $1,050 monthly. On August 4, 2021, in connection with Mr. Guzzetta’s continued service to the Company, the Company cancelled, and concurrently replaced 7,500,000 stock options previously issued to Mr. Guzzetta pursuant to the Company’s Amended 2017 Plan between 2019 to 2020 at various exercise prices between $0.11 and $0.12 per share. The replacement options have a term of 6 years, exercisable at a price of $0.11 per share, expiring on August 3, 2028. In addition, the Company granted Mr. Guzzetta an option to purchase 260,000 shares of common stock under the Amended 2017 Plan with the same terms as the replacement options. Prior to a change in control of the Company, the vesting schedule of the options shall immediately accelerate so that the options are fully vested and available for exercise by Mr. Guzzetta. Please refer to “Outstanding Equity Awards at Fiscal Year-End” for a description of the option grants issued to Mr. Guzzetta during 2021. 25 Outstanding Equity Awards at Fiscal Year-End The following table provides information as to option awards held by each of the named executive officers of ProtoKinetix as of December 31, 2020. Name Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Option Exercise Price ($) Option Expiration Date Clarence E. Smith 25,000,000 (1) — 0.11 08/03/2028 1,300,000 (2) 1,300,000 0.11 08/03/2028 Michael R. Guzzetta 4,000,000 (3) — 0.09 11/08/2023 7,500,000 (4) — 0.11 08/03/2028 130,000 (5) 130,000 0.11 08/03/2028 (1) Represents options cancelled, and subsequently regranted pursuant to the Amended 2017 Plan on August 4, 2021 at $0.11 per share, fully vested. (2) Represents options granted pursuant to the Amended 2017 Plan on August 4, 2021 at $0.11 per share with 650,000 vesting on September 30, 2021 and 650,000 vesting every three months thereafter. (3) Represents options granted pursuant to the Amended 2017 Plan on September 1, 2017 at $0.09 per share, fully vested. (4) Represents options cancelled, and subsequently regranted pursuant to the Amended 2017 Plan on August 4, 2021 at $0.11 per share, fully vested. (5) Represents options granted pursuant to the Amended 2017 Plan on August 4, 2021 at $0.11 per share with 65,000 vesting on September 30, 2021 and 65,000 vesting every three months thereafter. 26 Director Compensation The following table sets forth a summary of the compensation earned by each non-employee director who served on the Board during the fiscal year ended December 31, 2021: Director Compensation Fees Earned or Paid in Cash Bonus Stock Awards (1) Option Awards (2) Nonequity Incentive Plan Compensation Nonqualified Deferred Compensation Earnings All Other Compensation Total ($) ($) ($) ($) ($) ($) ($) ($) Edward P. McDonough — — — 682,091 — — — 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, 2021, Mr. McDonough held options to acquire 7,000,000 shares of the Company’s common stock, all of which were vested and exercisable and expire on August 3, 2028. 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”). 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. On August 4, 2021, in connection with Mr. McDonough’s continued service to the Company, the Company cancelled, and concurrently replaced 7,000,000 stock options previously issued to Mr. McDonough pursuant to the Company’s Amended 2017 Plan between 2018 to 2020 at various exercise prices between $0.09 and $0.26 per share. The replacement options have a term of 6 years, exercisable at a price of $0.11 per share, expiring on August 3, 2028. Prior to a change in control of the Company, the vesting schedule of the options shall immediately accelerate so that the options are fully vested and available for exercise by Mr. McDonough. 27 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 9, 2022, 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 9, 2021 (1) More than 5% Stockholders Grant Young (2) 51,231,850 15.1 % Alexandra Smith (3) 27,700,776 9.3 % Directors and Named Executive Officers Clarence E. Smith(4) 72,246,269 22.1 % Michael R. Guzzetta(5) 12,401,369 4.0 % Edward P. McDonough(6) 7,000,000 2.3 % All directors and executive officers as a group: 91,647,638 28.4 % (1) Based on 299,530,151 shares of common stock outstanding on March 9, 2022, and, with respect to each individual holder, rights to acquire common stock exercisable within 60 days of March 9, 2022. (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; the right to acquire 33,500,000 shares of common stock upon option exercise; and the right to acquire 585,000 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 27,700,776 shares of common stock owned by Alexandra Smith directly. The principal address of Ms. Smith is 1409 Peachtree Road, Daytona Beach, FL 32114. Mr. Smith disclaims any beneficial interest in Ms. Smith’s shares. (4) Consists of 29,994,443 shares of common stock owned by Mr. Smith directly, 13,235,160 held by Mr. Smith’s trusts, 1,850,000 held by Mr. Smith’s retirement account, the right to acquire 26,950,000 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 1409 Peachtree Rd., Daytona Beach, FL 32114. (5) Consists of 706,369 shares of common stock owned by Mr. Guzzetta directly, and 11,695,000 shares of common stock issuable upon the exercise of stock options. The principal address of Mr. Guzzetta is 1109 Poplar Ave SW, Canton, OH 44710. (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. 28 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: Pursuant to a consulting agreement with an effective date of November 14, 2017, a total of $45,000 (2020 - $45,000) was paid or accrued to the Company's CFO. During the nine months ended September 30, 2021, the Company reimbursed a company controlled by the CFO a total of $9,450 (2020 - $9,450) in office rent. On August 4, 2021, the Company cancelled and concurrently replaced 25,000,000 stock options previously issued to the Company’s CEO and a Director of the Company from 2018 to 2020. The modification incremental fair value of $311,500 was recognized in the current period. The 25,000,000 replacement options and 2,600,000 new options granted have a term of 6 years, exercisable at a price of $0.11 per share, expiring on August 3, 2028. On August 4, 2021, the Company cancelled and concurrently replaced 7,500,000 stock options previously issued to the Company’s CFO and a Director of the Company from 2019 to 2020. The modification incremental fair value of $70,700 was recognized in the current period. The 7,500,000 replacement options and 260,000 new options granted have a term of 6 years, exercisable at a price of $0.11 per share, expiring on August 3, 2028. On August 4, 2021, the Company cancelled and concurrently replaced 7,000,000 stock options previously issued to a director of the Company from 2018 to 2020. The modification incremental fair value of $131,300 was recognized in the current period The 7,000,000 replacement options granted have a term of 6 years, exercisable at a price of $0.11 per share, expiring on August 3, 2028. On August 4, 2021, in connection with a consultant’s continued service to the Company, the Company cancelled, and concurrently replaced 33,500,000 stock options previously issued to the consultant pursuant to the Company’s Amended 2017 Plan between 2018 to 2020 at various exercise prices between $0.09 and $0.26 per share. The replacement options have a term of 6 years, exercisable at a price of $0.11 per share, expiring on August 3, 2028. In addition, the Company granted the consultant an option to purchase 780,000 shares of common stock under the Amended 2017 Plan with the same terms as the replacement options. Prior to a change in control of the Company, the vesting schedule of the options shall immediately accelerate so that the options are fully vested and available for exercise by the consultant. Please refer to “Recent Sales of Unregistered Securities and Use of Proceeds” for a description of the securities purchased by Mr. Smith during 2021. Please refer to “Outstanding Equity Awards at Fiscal Year-End” for a description of the option grants issued to Mr. Smith and Mr. Guzzetta during 2021. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Audit Fees For the years ended December 31, 2021 and 2020, 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, 2021 and 2020, 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.” 29 Tax Fees For the years ended December 31, 2021 and 2020, Davidson billed $3,500 in 2021 and $3,500 in 2020 for professional services for tax compliance, tax advice, and tax planning. All Other Fees For the years ended December 31, 2021 and 2020, 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, 2021 and 2020, Davidson billed the Company $23,837 and $23,837 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. 30 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 Amended and Restated Articles of Incorporation as filed on February 16, 2022(1). 3.2 Amended and Restated Bylaws of the Company as approved on December 20, 2021(2) 4.1 Amended 2017 Stock Option and Stock Bonus Plan(3) 4.2 Amendment to Amended 2017 Stock Option and Stock Bonus Plan as approved on July 15, 2019(6) 4.3 Amendment to Amended 2017 Stock Option and Stock Bonus Plan as approved on April 6, 2020(10) 10.1 Royalty Agreement between the Company and The Governors of the University of Alberta, dated April 8, 2015(4) 10.2 Collaborative Research Agreement between the Company and the University of British Columbia, dated May 31, 2016(5) 10.3 Consulting Agreement between the Company and Clarence E. Smith, dated December 30, 2016(7) 10.4 Director Consulting Agreement between the Company and Edward P. McDonough, dated December 30, 2016(7) 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(9) 10.7 First Amendment to Consulting Agreement between Grant Young and the Company dated September 1, 2017(9) 10.8 First Amendment to Consulting Agreement between Edward P. McDonough and the Company dated September 1, 2017(9) 10.9 Consulting Agreement between ProtoKinetix Incorporated and Michael Guzzetta, dated November 14, 2017(11) 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 104 Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)* 31 1. Incorporated by reference from the Company’s Current Report on Form 8-K filed on February 14, 2022 with the SEC. 2. Incorporated by reference from the Company’s Current Report on Form 8-K filed on December 23, 2021 with the SEC. 3. Incorporated by reference from the Company’s Current Report on Form 8-K filed on November 13, 2018 with the SEC. 4. Incorporated by reference from the Company’s Annual Report on Form 10-K filed on April 14, 2015 with the SEC. 5. Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on August 15, 2016 with the SEC. 6. Incorporated by reference from the Company’s Current Report on Form 8-K filed on July 17, 2019 with the SEC. 7. Incorporated by reference from the Company’s Annual Report on Form 10-K filed on February 21, 2017 with the SEC. 8. Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on November 13, 2017 with the SEC. 9. Incorporated by reference from the Company’s amended Current Report on Form 8-K filed on September 12, 2017 with the SEC. 10. Incorporated by reference from the Company’s Current Report on Form 8-K filed on April 10, 2020 with the SEC. 11. Incorporated by reference from the Company’s Current Report on Form 8-K filed on November 15, 2017 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. 32 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 10, 2022 By: /s/ Clarence E. Smith Clarence E. Smith Principal Executive Officer Dated: March 10, 2022 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 10, 2022 By: /s/ Clarence E. Smith Clarence E. Smith Chief Executive Officer (principal executive officer) & Chairman of the Board Dated: March 10, 2022 By: /s/ Edward P. McDonough Edward P. McDonough Director 33 PROTOKINETIX, INC. (A Development Stage Company) FINANCIAL STATEMENTS December 31 , 2021 (Stated in US Dollars) C O N T E N T S REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID # 731 ) DAVIDSON & COMPANY, VANCOUVER, BC, CANADA 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, 2021 and 2020, and the related statements of operations, stockholders’ equity, and cash flows for the years ended December 31, 2021 and 2020, 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 Protokinetix, Inc. as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years ended December 31, 2021 and 2020 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 Company has suffered recurring losses from operations, requires additional working capital and has a net accumulated deficit all which raises substantial doubt about its ability to continue as a going concern. Management's plans in regards 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 the Company’s 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 Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatements 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 $362,671 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 10, 2022 F- 3 PROTOKINETIX, INC. (A Development Stage Company) BALANCE SHEETS As of December 31, 2021 2021 2020 ASSETS Current Assets Cash $ 57,568 $ 193,445 Prepaid expenses and deposits (Note 3) 25,995 1,050 Total current assets 83,563 194,495 Intangible assets (Note 4) 362,671 274,686 Total assets $ 446,234 $ 469,181 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable and accrued liabilities $ 93,268 $ 44,959 Total liabilities 93,268 44,959 Stockholders' Equity Common stock, $ 0.0000053 par value; 500,000,000 common shares authorized; 297,393,485 and 285,955,071 shares issued and outstanding for 2021 and 2020 respectively (Note 7) 1,591 1,531 Additional paid-in capital 45,892,545 43,615,323 Accumulated deficit ( 45,541,170 ) ( 43,192,633 ) Total stockholders' equity 352,966 424,221 Total liabilities and stockholders' equity $ 446,234 $ 469,181 Basis of Presentation – Going Concern Uncertainties (Note 1) Commitments and Contingency (Note 9) See Notes to Financial Statements F- 4 PROTOKINETIX, INC. (A Development Stage Company) STATEMENTS OF OPERATIONS For the Years Ended December 31, 2021 and 2020 2021 2020 EXPENSES Amortization – intangible assets (Note 4) $ 3,000 $ 3,000 General and administrative 316,995 208,967 Professional fees (Note 8) 160,388 164,489 Research and development 435,872 527,291 Share-based compensation (Notes 5 and 8) 1,413,055 6,740,743 Operating Income (Expenses) ( 2,329,310 ) ( 7,644,490 ) Net loss for the year $ ( 2,329,310 ) $ ( 7,644,490 ) Net loss per common share (basic and diluted) $ ( 0.00 ) $ ( 0.03 ) Weighted average number of common shares outstanding (basic and diluted) 291,865,922 278,598,615 See Notes to Financial Statements F- 5 PROTOKINETIX, INC. (A Development Stage Company) STATEMENT OF STOCKHOLDERS' EQUITY For the Years Ended December 31, 2021 and 2020 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- 6 PROTOKINETIX, INC. (A Development Stage Company) STATEMENT OF STOCKHOLDERS' EQUITY For the Years Ended December 31, 2021 and 2020 Common Stock Additional paid-in Accumulated Shares Amount capital deficit Total Balance, December 31, 2020 285,955,071 $ 1,531 $ 43,615,323 $ ( 43,192,633 ) $ 424,221 Fair value of share-based compensation — — 1,413,055 — 1,413,055 Issuance of common stock pursuant to private placement offering 7,668,572 41 569,959 — 570,000 Issuance of common stock pursuant to warrant exercise 3,214,286 17 274,983 — 275,000 Issuance of common stock pursuant to cashless option exercise 555,556 3 ( 3 ) — — Extension of the terms of warrants — — 19,227 ( 19,227 ) — Net loss for the year — — — ( 2,329,310 ) ( 2,329,310 ) Balance, December 31, 2021 297,393,485 $ 1,591 $ 45,892,545 $ ( 45,541,170 ) $ 352,966 See Notes to Financial Statements F- 7 PROTOKINETIX, INC. (A Development Stage Company) STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2021 and 2020 2021 2020 CASH FLOWS USED IN OPERATING ACTIVITIES Net loss for the year $ ( 2,329,310 ) $ ( 7,644,490 ) Adjustments to reconcile net loss to cash used in operating activities: Amortization – intangible assets 3,000 3,000 Fair value of compensatory options granted 1,413,055 6,740,743 Changes in operating assets and liabilities: Prepaid expenses and deposits ( 24,945 ) — Accounts payable and accrued liabilities 48,309 19,439 Net cash used in operating activities ( 889,891 ) ( 881,308 ) CASH FLOWS USED IN INVESTING ACTIVITIES Purchase of intangible assets ( 90,985 ) ( 70,178 ) Net cash used in investing activities ( 90,985 ) ( 70,178 ) CASH FLOWS FROM FINANCING ACTIVITIES Issuance of common stock for cash 845,000 767,581 Net cash from financing activities 845,000 767,581 Net change in cash ( 135,877 ) ( 183,905 ) Cash, beginning of year 193,445 377,350 Cash, end of year $ 57,568 $ 193,445 Cash paid for interest $ — $ — Cash paid for income taxes $ — $ — Supplementary information – non-cash transactions: There were no non-cash financing or investing activities. $ — $ — See Notes to Financial Statements F- 8 PROTOKINETIX, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS December 31, 2021 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, 2021. 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. As of the date of this filing, the Company has regained a significant portion of its operational capacity and we continue to move forward with our research goals. Our supply of the patented AAGP® molecule has been manufactured and stored in the United States and we have adequate inventory to carry out the projects currently underway. The Company engages contract research organizations (CROs) located in both the United States and Canada. The CROs contracted by the Company for research projects have been able to meet milestone goals without disruption due to the pandemic. We cannot predict future disruptions to the Company which may occur due to the spread of COVID-19. We continue to monitor the status of the pandemic and will adjust our strategy accordingly in order to mitigate the impact on our research projects. 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, 2021 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, 2021, 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, 2021 Note 2. Summary of Significant Accounting Policies (cont'd) Intangible assets – patent and patent application costs The Company owns intangible assets consisting of certain patents and patent applications. Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which they relate. All other expenditures are recognized in profit or loss as incurred. As at December 31, 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 at December 31, 2021. 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 84,690,000 stock options (December 31, 2020 – 82,650,000 ) and 12,081,143 warrants (December 31, 2020 – 10,326,857 ) 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, 2021 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. F- 12 PROTOKINETIX, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS December 31, 2021 Note 2. Summary of Significant Accounting Policies (cont'd) Recent Accounting Pronouncements 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 was effective for the Company beginning on January 1, 2021 and prescribes different transition methods for the various provisions. The adoption of ASU 2019-12 did not have a material impact on the Company’s 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, 2021 and 2020: Schedule of prepaid expenses 2021 2020 Rental deposit $ 1,050 $ 1,050 Deposit on February 11, 2022 shareholder meeting 24,945 — Total Prepaid Expenses and Deposits $ 25,995 $ 1,050 F- 13 PROTOKINETIX, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS December 31, 2021 Note 4. Intangible Assets Intangible asset transactions are summarized as follows: Intangible asset transactions Patent Rights Patent Application Rights Total Cost 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 Additions — 90,985 90,985 Balance, December 31, 2021 $ 30,000 $ 352,171 $ 382,171 Accumulated amortization Balance, December 31, 2019 $ 13,500 $ — $ 13,500 Amortization 3,000 — 3,000 Balance, December 31, 2020 $ 16,500 $ — $ 16,500 Amortization 3,000 — 3,000 Balance, December 31, 2021 $ 19,500 $ — $ 19,500 Net carrying amounts December 31, 2019 $ 16,500 $ 191,008 $ 207,508 December 31, 2020 $ 13,500 $ 261,186 $ 274,686 December 31, 2021 $ 10,500 $ 352,171 $ 362,671 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, 2021, the Company recorded $ 3,000 (2020 - $ 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 $317,171 in direct costs relating to the Patent Application Rights, $ 90,985 of which were incurred during the year ended December 31, 2021. F- 14 PROTOKINETIX, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS December 31, 2021 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 from any product developed as a result of research done at the University. 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, 2021. 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, 2021, there are 84,690,000 options granted and outstanding under the 2017 Plan. F- 15 PROTOKINETIX, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS December 31, 2021 Note 5. Stock Options (cont'd) Stock option transactions are summarized as follows: Schedule of Share-based Compensation, Stock Options, Activity 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 exercised ( 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, 2020 82,650,000 0.15 Options cancelled ( 76,100,000 ) 0.16 Options exercised ( 750,000 ) 0.07 Options granted 78,890,000 0.11 Outstanding, December 31, 2021 84,690,000 0.15 4.23 During the year ended December 31, 2021, the Company granted the following stock options: 500,000 options for shares of common stock exercisable at $0.18 per share, expiring April 15, 2027. 78,390,000 options for shares of common stock exercisable at $0.11 per share, expiring Aug 3, 2028 The CFO of the Company exercised 750,000 options for shares of common stock at $ 0.07 per share through a cashless exercise of the options resulting in 555,556 shares being issued. Total share-based compensation for the 78,890,000 stock options granted (2020 - 30,400,000 ) and vested during the year ended December 31, 2021 was $ 1,413,055 (2020 - $ 6,740,743 ). The fair values of the stock options granted were estimated using the Black-Scholes Option Pricing Model, based on the following weighted average assumptions: Schedule of valuation assumptions for options December 31, 2021 December 31, 2020 Risk-free interest rate 1.76 % 2.55 % Dividend yield 0.00 % 0.00 % Expected stock price volatility 140.70 % 143.56 % Expected forfeiture rate 0.00 % 0.00 % Expected life 6.00 years 5.09 years F- 16 PROTOKINETIX, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS December 31, 2021 Note 5. Stock Options (cont'd) The following non-qualified stock options were outstanding and exercisable at December 31, 2021: Schedule of options by exercise price Expiry date Exercise Price Number of Options Outstanding Number of Options Exercisable $ December 31, 2022 0.06 800,000 800,000 August 31, 2023 0.08 600,000 600,000 November 8, 2023 0.09 4,000,000 4,000,000 May 5, 2026 0.11 150,000 150,000 October 26, 2026 0.10 500,000 500,000 November 27, 2026 0.10 250,000 250,000 August 3, 2028 0.11 74,500,000 74,500,000 August 3, 2028 0.11 3,890,000 1,945,000 84,690,000 82,745,000 As at December 31, 2021, the aggregate intrinsic value of the Company's stock options is $ 2,107,500 (December 31, 2020 – $ 393,710 ). F- 17 PROTOKINETIX , INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS December 31, 2021 Note 6. Warrants Warrant transactions are summarized as follows: Schedule of Stockholders' Equity Note, Warrants or Rights Number of Warrants Weighted Average Exercise Price $ 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 Warrants granted 4,968,572 0.08 Warrants exercised ( 3,214,286 ) 0.07 Outstanding, December 31, 2021 12,081,143 0.17 The following warrants were outstanding and exercisable as at December 31, 2021: Schedule of outstanding and exercisable 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 216,666 0.12 December 18, 2022 110,714 0.07 March 1, 2022 142,571 0.07 March 1, 2022 359,286 0.07 March 1, 2022 100,000 0.07 March 1, 2022 442,857 0.07 March 1, 2022 571,429 0.07 March 1, 2022 100,000 0.07 March 1, 2022 500,000 0.07 March 1, 2022 100,000 0.07 March 1, 2022 357,143 0.07 March 1, 2022 357,143 0.07 March 1, 2022 1,440,000 0.10 March 1, 2022 12,081,143 On November 19, 2021, the board of directors of Protokinetix, Inc. Extended the expiration date of the warrant issued as follows: - Extended to the December offering and the August offering a total of 4,795,429 warrants to expire as of March 1, 2022 . The modifications to the warrants resulted in them meeting the definition of a derivative instrument under ASC 815 – Derivative and Hedging. They continue to be classified in equity as the number of shares and the exercise price were both fixed at inception. The extension of the term of the warrants resulted in additional value being attributed to those warrants. On November 19, 2021 the fair value of the warrants was estimated to be $ 19,227 using a Black Scholes Model. The Company recorded a deemed dividend of $ 19,227 in deficit related to the difference between the original and modified warrants. F- 18 PROTOKINETIX, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS December 31, 2021 Note 7. Stockholders' Equity The Company is authorized to issue 400,000,000 (December 31, 2020 – 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, 2021 (December 31, 2020 - $ 0 nil). During the year ended December 2021, the Company: a) Issued 3,528,572 units (each unit consisting of one share of common stock and one warrant to purchase one share of common stock $ 0.07 ) as part of a private placement for total proceeds of $ 247,000 . b) Issued 200,000 shares of common stock at $ 0.12 as part of a private placement for total proceeds of $ 24,000 . c) Issued 1,440,000 units (each unit consisting of one share of common stock and one warrant to purchase one share of common stock $ 0.10 ) as part of a private placement for total proceeds of $ 144,000 . d) Issued 3,214,286 shares of common stock from exercised warrants (2,214,286 shares issued at $0.07 and 1,000,000 shares issued at $0.12) for total proceeds of $ 275,000 . e) Issued 555,556 shares of common stock to CFO pursuant to a cashless exercise of 750,000 stock options. f) Issued 250,000 shares of common stock at $ 0.08 as part of a private placement for total proceeds of $ 20,000 . g Issued 2,250,000 shares of common stock at $ 0.06 as part of a private placement for total proceeds of $ 135,000 . h) Extended exercise date for warrants to purchase 1,440,000 shares of common stock issued August of 2021. i) Extended exercise date for warrants to purchase 3,355,429 shares of common stock, issued December of 2020. 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. F- 19 PROTOKINETIX, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS December 31, 2021 Note 8. Related Party Transactions and Balances During the twelve month period ended December 31, 2021 and 2020, 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 (2020 - $ 60,000 ) was paid or accrued to the Company's CFO. During the twelve months ended December 31, 2021, the Company reimbursed a company controlled by the CFO a total of $ 12,600 (2020 - $ 12,600 ) in office rent. b) On March 26, 2020, the Company cancelled and concurrently replaced 10,000,000 stock options and 1,000,000 stock options previously issued to the Company’s CEO and a Director of the Company in 2017, respectively. The 11,000,000 replacement options granted have a term of 6 years and are exercisable at a price of $ 0.14 per share, expiring on March 26, 2026 . The modification incremental fair value of $ 235,703 was recognized during the period. No stock options were issued during the three month period ending December 31, 2021. c) 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 modification incremental fair value of $ 5,704 was recognized in the period. d) On August 4, 2021, the Company cancelled and concurrently replaced 25,000,000 stock options previously issued to the Company’s CEO and a Director of the Company from 2018 to 2020. The modification incremental fair value of $ 311,500 was recognized in the current period. The 25,000,000 replacement options and 2,600,000 new options granted have a term of 6 years, exercisable at a price of $ 0.11 per share, expiring on August 3, 2028 . e) On August 4, 2021, the Company cancelled and concurrently replaced 7,500,000 stock options previously issued to the Company’s CFO and a Director of the Company from 2019 to 2020. The modification incremental fair value of $ 70,700 was recognized in the current period. The 7,500,000 replacement options and 260,000 new options granted have a term of 6 years, exercisable at a price of $ 0.11 per share, expiring on August 3, 2028 . f) On August 4, 2021, the Company cancelled and concurrently replaced 7,000,000 stock options previously issued to a Director of the Company from 2018 to 2020. The modification incremental fair value of $ 131,300 was recognized in the current period The 7,000,000 replacement options granted have a term of 6 years, exercisable at a price of $ 0.11 per share, expiring on August 3, 2028 . g) The Company recognized $ 722,822 including modification (2020 - $ 3,474,418 ) in share-based compensation during the period associated with stock options granted to key management personnel. The incremental fair value of modifications to stock options for key management was $ 72,322 . As at December 31, 2021 and December 31, 2020, there were $ 0 nil balances owing to related parties. F- 20 PROTOKINETIX, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS December 31, 2021 Note 9. Commitments and Contingency Commitments As at December 31, 2021, 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 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. Agreement renews annually unless otherwise terminated by either party with at least 30 days’ notice. 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- 21 PROTOKINETIX, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS December 31, 2021 Note 10. Income Taxes As a Nevada corporation, the Company is liable for taxes in the United States. As of December 31, 2021, 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, 2020 – none). A reconciliation of income taxes at statutory rates with the reported taxes is as follows: Schedule of Effective Income Tax Reconciliation 2021 2020 Net loss for the year $ ( 2,329,310 ) $ ( 7,644,490 ) Expected income tax recovery $ ( 490,000 ) $ ( 1,605,000 ) Non-deductible expenses $ 300,000 $ 1,416,000 Impact of change of future tax rate — — Adjustment to prior years provision versus statutory tax returns $ 90,000 $ 89,000 Change in valuation allowance — $ 100,000 Total income tax expense (recovery) $ — $ — The Company’s deferred tax assets that have not been recognized are as follows: Schedule of Deferred Tax Assets Tax benefit of net operating loss carry forward $ 6,300,000 $ 6,200,000 Valuation allowance $ ( 6,300,000 ) $ ( 6,200,000 ) $ — $ — The Company has tax losses of approximately $ 30,000,000 (December 31, 2020 - $ 29,000,000 ) to reduce future taxable income. The tax losses expire in years starting from 2021. The deferred tax asset associated with the tax loss carry forward is approximately $ 6,300,000 (December 31, 2020 - $ 6,200,000 ). 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, 2021, the Company: a) Between January 1, 2022 and February 8, 2022 the Company issued 2,136,666 shares of common stock to investors at $ 0.06 per share for gross proceeds of $ 128,200 . A Form D/A was filed on February 25, 2022. b) On February 11, 2022 the Company approved amending and restating of the Company’s articles of incorporation to increase the number of authorized shares from 400,000,000 to 500,000,000 of common stock. F- 22