PROTOKINETIX, INCORPORATED
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended March 31, 2020 and
2019
|
|
Three Months ended
March 31, 2020
|
|
Three Months ended
March 31, 2019
|
|
|
|
|
|
CASH FLOWS USED IN OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
$
|
(3,169,265
|
)
|
|
$
|
(382,450
|
)
|
Adjustments to reconcile net loss to cash used in operating activities:
|
|
|
|
|
|
|
|
|
Amortization – intangible assets
|
|
|
750
|
|
|
|
750
|
|
Fair value of share-based compensation
|
|
|
2,854,984
|
|
|
|
255,598
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
—
|
|
|
|
(20,694
|
)
|
Accounts payable and accrued liabilities
|
|
|
(4,269
|
)
|
|
|
(8,233
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(317,800
|
)
|
|
|
(155,029
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS USED IN INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchase of intangible assets
|
|
|
(11,660
|
)
|
|
|
(1,892
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(11,660
|
)
|
|
|
(1,892
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Issuance of common stock for cash
|
|
|
—
|
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
Net cash from financing activities
|
|
|
—
|
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
(329,460
|
)
|
|
|
(111,921
|
)
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
377,349
|
|
|
|
136,029
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
47,889
|
|
|
$
|
24,108
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
Supplementary information – non-cash transactions:
|
|
|
|
|
|
|
|
|
Intangible asset additions included in accounts payable and accrued liabilities
|
|
$
|
7,618
|
|
|
$
|
—
|
|
See Notes to Financial Statements
PROTOKINETIX, INCORPORATED
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2020
Note 1. Basis of Presentation –
Going Concern Uncertainties
ProtoKinetix, Incorporated (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 March 31, 2020. These factors raise substantial doubt about the Company’s ability to continue
as a going concern.
The Company needs additional working capital
to continue its medical research or to be successful in any future business activities and continue to pay its liabilities.
Therefore, continuation of the Company as a going concern is dependent upon obtaining the additional working capital necessary
to accomplish its objective. Management is presently engaged in seeking additional working capital through equity financing
or related party loans.
In March 2020, the World Health Organization
declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related
adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading
to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the
outbreak and its effects on the Company’s business or ability to raise funds.
The accompanying financial statements do not
include any adjustments to the recorded assets or liabilities that might be necessary should the Company fail in any of the above
objectives and is unable to operate for the coming year.
Note 2. Summary of Significant Accounting
Policies
Basis of Presentation
The accompanying unaudited financial statements
have been prepared by the Company in conformity with accounting principles generally accepted in the United States of America (“US
GAAP”) applicable to interim financial information and with the rules and regulations of the United States Securities and
Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been condensed, or omitted, pursuant to such rules and regulations.
In the opinion of management, the unaudited interim financial statements include all adjustments necessary for the fair presentation
of the results of the interim periods presented. All adjustments are of a normal recurring nature, except as otherwise noted below.
These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto
for the year ended December 31, 2019, included in the Company’s Annual Report on Form 10-K, filed February 19, 2020, with
the Securities and Exchange Commission. The results of operations for the interim periods are not necessarily indicative of the
results of operations for any other interim period or for a full fiscal year.
PROTOKINETIX, INCORPORATED
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2020
Note 2. Summary of Significant Accounting
Policies (cont’d)
Use of Estimates
Preparation of financial statements in conformity
with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates. The more significant accounting estimates
inherent in the preparation of the Company’s financial statements include estimates as to valuation of equity related instruments
issued, deferred income taxes, and the useful life and impairment of intangible assets.
Cash
Cash consists of funds held in checking accounts.
Cash balances may exceed federally insured limits from time to time.
Fair Value of Financial Instruments
Financial instruments, which includes cash
and accounts payable and accrued liabilities, are carried at cost, which management believes approximates fair value due to the
short-term nature of these instruments.
The Company measures the fair value of financial
assets and liabilities pursuant to ASC 820 “Fair Value Measurements and Disclosures” which defines fair value, establishes
a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 establishes a fair value hierarchy,
which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair
value. The policy describes three levels of inputs that may be used to measure fair value:
Level 1 – quoted prices in active markets
for identical assets or liabilities
Level 2 – quoted prices for similar assets
and liabilities in active markets or inputs that are observable
Level 3 – inputs that are unobservable
(for example cash flow modeling inputs based on assumptions)
Level 1 inputs are used to measure cash. At
March 31, 2020, there were no other assets or liabilities subject to additional disclosure.
Income Taxes
The Company accounts for income taxes following
the assets and liability method in accordance with the ASC 740 “Income Taxes.” Under such method, deferred tax
assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. The Company applies the accounting guidance
issued to address the accounting for uncertain tax positions. This guidance clarifies the accounting for income taxes, by
prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements
as well as provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods,
disclosure and transition. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years that the asset is expected to be recovered or the liability settled.
PROTOKINETIX, INCORPORATED
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2020
Note 2. Summary of Significant Accounting
Policies (cont’d)
Intangible assets – patent and
patent application costs
The Company owns intangible assets consisting
of certain patents and patent applications. Intangible assets acquired separately are measured on initial recognition at cost.
Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment
losses. Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset
to which they relate. All other expenditures are recognized in profit or loss as incurred.
As at March 31, 2020, the Company does not
hold any intangible assets with indefinite lives.
Intangible assets with finite lives are amortized
over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired.
The amortization method and amortization period of an intangible asset with a finite life is reviewed at least annually.
Changes in the expected useful life or the
expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization
period or method, as appropriate, and are treated as changes in accounting estimates.
Amortization is recognized in profit or loss
on a straight-line basis over the estimated useful lives of the Company’s patents, whereas no amortization has been recognized
on the patent application costs as at March 31, 2020.
Research and Development Costs
Research and development costs are expensed
as incurred.
Loss per Share and Potentially Dilutive Securities
Basic loss per share is computed by dividing
the net loss available to common stockholders by the weighted average number of common shares outstanding in the period.
Diluted loss per share takes into consideration common shares outstanding (computed under basic earnings per share) and potentially
dilutive securities. The effect of 84,450,000 stock options (March 31, 2019 – 58,600,000), and 8,500,000 warrants (March
31, 2019 – 6,000,000) were not included in the computation of diluted earnings per share for all periods presented because
it was anti-dilutive due to the Company’s losses.
Share-Based Compensation
The Company has granted warrants and options
to purchase shares of the Company’s common stock to various parties for consulting services. The fair values of the
warrants and options issued have been estimated using the Black-Scholes Option Pricing Model.
The Company accounts for stock compensation
with persons classified as employees for accounting purposes in accordance with ASC 718 “Compensation – Stock Compensation”,
which recognizes awards at fair value on the date of grant and recognition of compensation over the service period for awards expected
to vest. Cliff Vesting is used and awards vest on the last day of the vesting period. The fair value of stock options is determined
using the Black-Scholes Option Pricing Model. The fair value of common shares issued for services is determined based on the Company’s
stock price on the date of issuance.
PROTOKINETIX, INCORPORATED
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2020
Note 2. Summary of Significant Accounting
Policies (cont’d)
Share-Based Compensation (cont’d)
Share-Based for non-employees in exchange for
goods and services used or consumed in an entity’s own operations are also recorded at fair value on the measurement date
and accounted for in accordance with ASC 718. The measurement of share-based compensation is subject to periodic adjustment as
the underlying instruments vest. The fair value of stock options is estimated using the Black-Scholes Option Pricing Model and
the compensation charges are amortized over the vesting period.
Common stock
Common stock issued for non-monetary consideration
are recorded at their fair value on the measurement date and classified as equity. The measurement date is defined as the earliest
of the date at which the commitment for performance by the counterparty to earn the common shares is reached or the date at which
the counterparty’s performance is complete.
Transaction costs directly attributable to
the issuance of common stock, units and stock options are recognized as a deduction from equity, net of any tax effects.
Related Party Transactions
A related party is generally defined as (i)
any person that holds 10% or more of the Company’s securities and their immediate families, (ii) the Company’s management,
(iii) someone that directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) anyone
who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a
related party transaction when there is a transfer of resources or obligations between related parties.
Recent Accounting Pronouncements
Certain new accounting pronouncements that have been issued
are not expected to have a material effect on the Company’s financial statements.
PROTOKINETIX, INCORPORATED
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2020
Note 3. Prepaid Expenses
The following summarizes the Company’s
prepaid expenses outstanding as at March 31, 2020 and December 31, 2019:
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
|
|
|
Rental deposit
|
|
|
1,050
|
|
|
|
1,050
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,050
|
|
|
$
|
1,050
|
|
PROTOKINETIX, INCORPORATED
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2020
Note 4. Intangible Assets
Intangible asset transactions are summarized
as follows:
|
|
Patent Rights
|
|
Patent Application Rights
|
|
Total
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
$
|
30,000
|
|
|
$
|
168,271
|
|
|
$
|
198,271
|
|
Additions
|
|
|
—
|
|
|
|
22,737
|
|
|
|
22,737
|
|
Balance, December 31, 2019
|
|
$
|
30,000
|
|
|
$
|
191,008
|
|
|
$
|
221,008
|
|
Additions
|
|
|
—
|
|
|
|
19,278
|
|
|
|
19,278
|
|
Balance, March 31, 2020
|
|
$
|
30,000
|
|
|
$
|
210,286
|
|
|
$
|
240,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
$
|
10,500
|
|
|
$
|
—
|
|
|
$
|
10,500
|
|
Amortization
|
|
|
3,000
|
|
|
|
—
|
|
|
|
3,000
|
|
Balance, December 31, 2019
|
|
$
|
13,500
|
|
|
$
|
—
|
|
|
$
|
13,500
|
|
Amortization
|
|
|
750
|
|
|
|
—
|
|
|
|
750
|
|
Balance, March 31, 2020
|
|
$
|
14,250
|
|
|
$
|
—
|
|
|
$
|
14,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
$
|
16,500
|
|
|
$
|
191,008
|
|
|
$
|
207,508
|
|
March 31, 2020
|
|
$
|
15,750
|
|
|
$
|
210,286
|
|
|
$
|
226,036
|
|
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. During the three month period ended March 31, 2020, the Company recorded $750 (2019
-$750) in amortization expense associated with the Patents.
During the year ended December 31, 2015, the
Company entered into a Technology Transfer Agreement with Grant Young for the assignment of his 50% ownership of certain patents
and all rights associated therewith (the “Patent Application Rights”). In exchange for the Patent Application
Rights, the Company agreed to pay $10,000 (paid) and to issue 6,000,000 warrants (issued) to purchase shares of the Company’s
common stock at an exercise price of $0.10 per share for a period of five years. The Patent Application Rights had a total fair
value of $35,000, which was allocated as $10,000 to the cash consideration paid, with the remaining $25,000 being allocated to
the warrant component of the overall consideration. The Company has incurred $175,286 in direct costs relating to the Patent Application
Rights, $19,278 of which were incurred during the three month period ended March 31, 2020.
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.
PROTOKINETIX, INCORPORATED
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2020
Note 4. Intangible Assets (cont’d)
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 to March 31, 2020.
Note 5. Stock Options
Pursuant to an amendment on April 6,
2020, the aggregate number of shares that may be issued under the 2017 Stock Option and Stock Bonus Plan (the “2017 Plan”)
is 85,700,000 shares, subject to adjustment as provided therein. The 2017 Plan is administered by the Company’s Board of
Directors, or a committee appointed by the Board of Directors, and includes two types of options. Options intended to qualify as
incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended, are referred to as incentive options.
Options that are not intended to qualify as incentive options are referred to as non-qualified options. The exercise price of an
option may be paid in cash, in shares of the Company's common stock or other property having a fair market value equal to the exercise
price of the option, or in a combination of cash, shares, other securities and property.
As of March 31, 2020, there are 84,450,000
options granted and outstanding under the 2017 Plan.
PROTOKINETIX, INCORPORATED
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2020
Note 5. Stock Options (cont’d)
Stock
option transactions are summarized as follows:
|
|
Number of Stock Options
|
|
Weighted Average Exercise Price
|
|
|
|
|
$
|
|
(Years)
|
Outstanding, December 31, 2019
|
|
|
91,450,000
|
|
|
|
0.14
|
|
|
|
|
|
Options cancelled
|
|
|
(27,000,000
|
)
|
|
|
0.09
|
|
|
|
|
|
Options expired
|
|
|
(2,000,000
|
)
|
|
|
0.04
|
|
|
|
|
|
Options granted
|
|
|
22,000,000
|
|
|
|
0.14
|
|
|
|
|
|
Outstanding, March 31, 2020
|
|
|
84,450,000
|
|
|
|
0.16
|
|
|
|
4.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Stock Options
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Life
|
|
|
|
|
$
|
|
(Years)
|
Outstanding, December 31, 2018
|
|
|
58,600,000
|
|
|
|
0.07
|
|
|
|
|
|
Options expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Options granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Outstanding, March 31, 2019
|
|
|
58,600,000
|
|
|
|
0.07
|
|
|
|
2.36
|
|
PROTOKINETIX, INCORPORATED
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2020
Note 5. Stock Options (cont’d)
Total share-based compensation
for stock options granted during the period March 31, 2020 was $2,854,984 (2019 - $255,598). The fair values of the stock options
granted during the three month period ended March 31, 2020 and 2019 were estimated using the Black-Scholes Option Pricing Model.
The weighted average assumptions used in the pricing model for these options are as follows:
|
|
March 31, 2020
|
|
March 31, 2019
|
Risk-free interest rate
|
|
|
2.56
|
%
|
|
|
1.51
|
%
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected stock price volatility
|
|
|
138.90
|
%
|
|
|
125.00
|
%
|
Expected forfeiture rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected life
|
|
|
5.07 years
|
|
|
|
3.45 years
|
|
The following non-qualified
stock options were outstanding and exercisable at March 31, 2020:
Expiry date
|
|
Exercise Price
|
|
Number of Options
Outstanding
|
|
Number of
Options
Exercisable
|
|
|
$
|
|
|
|
|
December 31, 2020
|
|
|
0.05
|
|
|
|
1,200,000
|
|
|
|
1,200,000
|
|
November 14, 2021
|
|
|
0.07
|
|
|
|
750,000
|
|
|
|
750,000
|
|
December 31, 2022
|
|
|
0.06
|
|
|
|
800,000
|
|
|
|
800,000
|
|
August 31, 2023
|
|
|
0.08
|
|
|
|
600,000
|
|
|
|
600,000
|
|
November 8, 2023
|
|
|
0.09
|
|
|
|
15,000,000
|
|
|
|
15,000,000
|
|
May 5, 2023
|
|
|
0.13
|
|
|
|
1,600,000
|
|
|
|
1,600,000
|
|
July 14, 2024
|
|
|
0.26
|
|
|
|
27,500,000
|
|
|
|
14,000,000
|
|
November 17, 2024
|
|
|
0.11
|
|
|
|
15,000,000
|
|
|
|
3,750,000
|
|
March 26, 2026
|
|
|
0.14
|
|
|
|
22,000,000
|
|
|
|
22,000,000
|
|
|
|
|
|
|
|
|
84,450,000
|
|
|
|
59,700,000
|
|
As at March 31, 2020, the aggregate intrinsic
value of the Company’s stock options is $2,330,750 (December 31, 2019 – $1,005,350). The weighted average fair value
of stock options granted during the three month period ended March 31, 2020 is $0.14 (2019 - $nil).
Note 6. Warrants
Warrant transactions for the three months ended March 31, 2020 are
summarized as follows:
|
|
Number of
Warrants
|
|
Weighted
Average Exercise
Price
|
|
|
|
|
|
|
Balance, December 31, 2018 and March 31, 2019
|
|
|
|
6,000,000
|
|
|
$
|
0.10
|
|
|
Balance, December 31, 2019 and March 31, 2020
|
|
|
|
8,500,000
|
|
|
$
|
0.22
|
|
PROTOKINETIX, INCORPORATED
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2020
Note 6. Warrants (cont’d)
The following warrants were outstanding
and exercisable as at March 31, 2020:
Number of Warrants
|
|
Exercise Price ($)
|
|
Expiry Date
|
|
6,000,000
|
|
|
|
0.26
|
|
|
July 14, 2024
|
|
833,333
|
|
|
|
0.12
|
|
|
October 15, 2022
|
|
250,000
|
|
|
|
0.12
|
|
|
October 21, 2022
|
|
116,667
|
|
|
|
0.12
|
|
|
November 1, 2022
|
|
83,334
|
|
|
|
0.12
|
|
|
November 12, 2022
|
|
833,333
|
|
|
|
0.12
|
|
|
December 1, 2022
|
|
166,667
|
|
|
|
0.12
|
|
|
December 18, 2022
|
|
216,666
|
|
|
|
0.12
|
|
|
December 18, 2022
|
Note 7. Stockholders’ Equity
The Company is authorized to issue 400,000,000
(December 31, 2019 – 400,000,000) shares of $0.0000053 par value common stock. Each holder of common stock has the right
to one vote but does not have cumulative voting rights. Shares of common stock are not subject to any redemption or sinking fund
provisions, nor do they have any preemptive, subscription or conversion rights. Holders of common stock are entitled to receive
dividends whenever funds are legally available and when declared by the board of directors, subject to the prior rights of holders
of all classes of stock outstanding having priority rights as to dividends. No dividends have been declared or paid as of March
31, 2020 (December 31, 2019 - $nil).
During the three month period ended March 31, 2020, the Company:
a) No shares of common stock were issued.
During the three month period ended March 31, 2019, the Company:
|
a)
|
Issued 750,000 shares of common stock to investors at $0.06 for gross proceeds of $45,000.
|
Note 8. Related Party Transactions and Balances
During the three month period ended March
31, 2020 and 2019, the Company entered into the following related party transactions:
a) Pursuant to a consulting
agreement with an effective date of November 14, 2017, a total of $15,000 (2019 - $15,000) was paid or accrued to the Company's
CFO. During the three months ended March 31, 2020, the Company reimbursed a company controlled by the CFO a total of $3,150 (2019
- $3,150) in office rent.
1
PROTOKINETIX, INCORPORATED
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2020
Note 8. Related Party Transactions and Balances (cont’d)
b) On March 25, 2020,
the Company cancelled and concurrently approved for issuance on March 26, 2020 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 25, 2026.
Also
on March 25, 2020, the Company cancelled an additional 5,000,000 stock options previously issued to the Company’s CEO in
2019. There were no replacement options granted in connection with these cancelled options.
In accordance with
ASC 718, the 11,000,000 replacement options were accounted for as a modification of the terms of the cancelled award, with the
incremental cost being measured as the excess of the fair value of the replacement options over the fair value of the cancelled
options at the cancellation date.
Total share-based
compensation of $282,844 was recorded in connection with the option modification, based on the following assumptions used in the
Black-Scholes Option Pricing Model: risk-free interest rate of 1.76%; dividend yield of 0.00%; stock price volatility of 144.40%;
forfeiture rate of 0%; and an expected life of 6 years.
c) The Company recognized
$1,542,550 (2019 - $167,589) in share-based compensation during the period associated with stock options granted to key management
personnel.
As at March 31, 2020 and December 31, 2019, there were $nil balances
owing to related parties.
PROTOKINETIX, INCORPORATED
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2020
Note 9. Commitments and Contingency
As at March 31, 2020, the Company has the following commitments:
a)
|
Entered into a
consulting agreement with an effective date of January 1, 2017 whereby the Company would pay the consultant $7,000 per month
for providing research and development services. On March 25, 2020, the Company cancelled and concurrently approved for
issuance on March 26, 2020, 10,000,000 stock options previously issued to the consultant in 2017. The 10,000,000 replacement
options granted have a term of 6 years and are exercisable at a price of $0.14 per share, expiring on March 25, 2026.
In accordance with
ASC 718, the 10,000,000 replacement options were accounted for as a modification of the terms of the cancelled award, with the
incremental cost being measured as the excess of the fair value of the replacement options over the fair value of the cancelled
options at the cancellation date.
Total share-based compensation of
$235,703 was recorded in connection with the option modification based on the following assumptions used in the Black-Scholes Option
Pricing Model: risk-free interest rate of 0.81%; dividend yield of 0.00%; stock price volatility of 144.40%; forfeiture rate of
o%; and an expected life of 6 years.
|
b)
|
Entered into a consulting agreement effective January 1, 2018, whereby the Company would pay the consultant $1,000 per month for a term of 1 year for providing public relations services, unless otherwise terminated by either party with at least 30 days’ notice.
|
c)
|
Entered into a consulting agreement effective April 1, 2019, whereby the Company would pay the consultant $1,500 per month minimum plus travel expenses for a term of 1 year for providing research consulting services, unless otherwise terminated by either party with at least 30 days’ notice.
|
|
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