ProtoKinetix, Inc. - Quarter Report: 2018 March (Form 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

☑  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018

OR

☐  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to ___________________.

Commission file number:

 

PROTOKINETIX, INCORPORATED

(Exact name of registrant as specified in its charter)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).        Yes ☐ No ☒

As of April 26, 2018, there were 254,711,673 shares of ProtoKinetix, Incorporated that were issued and outstanding.

 

 

 

PROTOKINETIX, INCORPORATED

TABLE OF CONTENTS

		March 31, 2018				December 31, 2017
ASSETS
Current Assets
Cash		$	192,147			$	302,942
Prepaid expenses and deposits (Notes 3 and 11)			58,675				62,127
Total current assets			250,822				365,069
Intangible assets (Note 4)			155,181				153,028
Total assets		$	406,003			$	518,097
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued liabilities (Note 10)		$	7,731			$	26,906
Promissory notes payable (Note 10)			-				117,656
Total current liabilities			7,731				144,562
Stockholders’ Equity
Common stock, $0.0000053 par value; 400,000,000 common shares authorized; 254,711,673 and 251,352,433 shares issued and outstanding as at March 31, 2018 and December 31, 2017 respectively (Note 9)			1,362				1,344
Additional paid-in capital			30,837,384				30,506,094
Accumulated deficit			(30,440,474	)			(30,133,903	)
Total stockholders’ equity			398,272				373,595
Total liabilities and stockholders’ equity		$	406,003			$	518,097

		Three months ended March 31, 2018				Three months ended March 31, 2017
EXPENSES
Amortization – intangible assets (Note 4)		$	750			$	750
General and administrative			17,437				32,133
Professional fees (Note 10)			39,139				42,952
Research and development			84,616				69,038
Share-based compensation (Note 7 and 10)			163,346				230,516
			(305,288	)			(375,389	)
OTHER ITEM
Foreign exchange gain or (loss)			(1,283	)			25
Loss for the period		$	(306,571	)		$	(375,364	)
Loss per common share (basic and diluted)		$	(0.00	)		$	(0.01	)
Weighted average number of common shares outstanding (basic and diluted)			254,263,774				226,457,836

		Common Stock								Additional Paid-in				Accumulated
		Shares				Amount				capital				deficit				Total
Balance, December 31, 2017			251,352,433			$	1,344			$	30,506,094			$	(30,133,903	)		$	373,535
Issuance of common stock pursuant to private placement offering			1,000,000				5				49,995				-				50,000
Issuance of common  stock pursuant to settlement of promissory notes			2,359,240				13				117,949								117,962
Fair value of compensatory options issued			-				-				163,346				-				163,346
Net loss for the period			-				-				-				(306,571	)			(306,571	)
Balance, March 31, 2018			254,711,673			$	1,362			$	30,837,384			$	(30,440,474	)		$	398,272

		Three Months ended March 31, 2018				Three Months ended March 31, 2017
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss for the period		$	(306,571	)		$	(375,364	)
Adjustments to reconcile net loss to cash used in operating activities:
Amortization – intangible assets			750				750
Fair value of compensatory options granted			163,346				230,516
Interest accrued			306				-
Changes in operating assets and liabilities:
Prepaid expenses and deposits			3,452				28,862
Accounts payable and accrued liabilities			(19,175	)			4,648
Net cash used in operating activities			(157,892	)			(110,588	)
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of intangible assets			(2,903	)			(31,255	)
Net cash used in investing activities			(2,903	)			(31,255	)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock for cash			50,000				320,000
Net cash from financing activities			50,000				320,000
Net change in cash			(110,795	)			178,157
Cash, beginning of period			302,942				371,029
Cash, end of period		$	192,147			$	549,186
Cash paid for interest		$	-			$	-
Cash paid for income taxes		$	-			$	-
Supplementary information – non-cash transactions:
Common stock issued to settle promissory notes		$	117,962			$	-
Intangible asset costs previously included in accounts payable and accrued liabilities			-				3,631
Intangible asset costs previously included in prepaid expenses and deposits			-				15,614

		March 31,  2018				December 31,  2017
Deposit on research agreements (Note 11(c))		$	54,535			$	61,077
Other prepaid expenses			4,140				1,050
		$	58,675			$	62,127

		Patent Rights				Patent Application Rights				Total
Cost
Balance, December 31, 2016		$	30,000			$	75,181			$	105,181
Additions			-				55,347				55,347
Balance, December 31, 2017		$	30,000			$	130,528			$	160,528
Additions			-				2,903				2,903
Balance, March 31, 2018		$	30,000			$	133,431			$	163,431
Accumulated amortization
Balance, December 31, 2016		$	4,500			$	-			$	4,500
Amortization			3,000				-				3,000
Balance, December 31, 2017		$	7,500			$	-			$	7,500
Amortization			750				-				750
Balance, March 31, 2018		$	8,250			$	-			$	8,250
Net carrying amounts
December 31, 2017		$	22,500			$	130,528			$	153,028
March 31, 2018		$	21,750			$	133,431			$	155,181

2018			Number of Shares				Value per Share				Total
January - March 2018			-			$	-			$	-
			-							$	-

2017		Number of Shares				Value per Share				Total
January - March 2017			-			$	-			$	-
			-							$	-

		Number of Stock Options				Weighted Average Exercise Price				Weighted Average  Fair Value			Weighted Average Remaining Life
						$				$			(Years)
Outstanding, December 31, 2017			44,100,000				0.06				0.05
Options expired			(1,000,000	)			0.05				0.05
Options granted			800,000				0.06				0.06
Outstanding, March 31, 2018			43,900,000				0.06				0.05		2.46

		March 31, 2018				March 31, 2017
Risk-free interest rate			1.38	%			1.05	%
Dividend yield			0.00	%			0.00	%
Expected stock price volatility			125.00	%			125.00	%
Expected forfeiture rate			0.00	%			0.00	%
Expected life		3.60 years				3.44 years

Expiry date		Exercise Price				Number of Options Outstanding				Number of Options Exercisable
										$
February 25, 2020			0.04				2,000,000				-
February 28, 2020			0.04				5,000,000				5,000,000
June 30, 2018			0.10				600,000				600,000
December 31, 2019			0.08				11,000,000				11,000,000
October 05, 2018			0.08				300,000				300,000
December 31, 2020			0.05				12,200,000				12,200,000
August 31, 2021			0.06				11,000,000				5,000,000
November 14, 2021			0.07				1,000,000				250,000
December 31, 2022			0.06				800,000				200,000
							43,900,000				34,550,000

	Number of Warrants				Weighted Average Exercise Price
Balance, December 31, 2017 and March 31, 2018			6,500,000			$	0.11

Number of Warrants				Exercise Price ($)			Expiry Date
	500,000				0.25		November 8, 2018
	6,000,000				0.10		April 22, 2020
	6,500,000

			March 31, 2018				December 31, 2017
Clarence Smith (CEO)	Promissory notes payable (and interest)		$	-			$	117,656

 

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless the context requires otherwise, references in this document to “ProtoKinetix”, “we”, “our”, “us” or the “Company” are to ProtoKinetix, Incorporated.

The following discussion provides information regarding the results of operations for the three month period ended March 31, 2018 and 2017, and our financial condition, liquidity and capital resources as of March 31, 2018, and December 31, 2017.  The financial statements and the notes thereto contain detailed information that should be referred to in conjunction with this discussion.

The information discussed in this Quarterly Report on Form 10-Q include “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”).  All statements, other than statements of historical facts, included herein and therein concerning, among other things, planned capital expenditures, future cash flows and borrowings, pursuit of potential acquisition opportunities, our financial position, business strategy and other plans and objectives for future operations, are forward looking statements. These forward looking statements are identified by their use of terms and phrases such as “may,” “expect,” “estimate,” “project,” “plan,” “believe,” “intend,” “achievable,” “anticipate,” “will,” “continue,” “potential,” “should,” “could,” and similar terms and phrases.  Although we believe that the expectations reflected in these forward looking statements are reasonable, they do involve certain assumptions, risks and uncertainties and are not (and should not considered to be) guarantees of future performance. Our results could differ materially from those anticipated in these forward looking statements as a result of certain factors, including, among others:

•

Our capital requirements and the uncertainty of being able to obtain additional funding on terms acceptable to us;

•

Our plans to develop and commercialize products from the AAGP® molecule;

•

Ongoing testing of the AAGP® molecule;

•

Our intellectual property position;

•

Our commercialization, marketing and manufacturing capabilities and strategy;

•

Our ability to retain key members of our senior management and key scientific consultants;

•

The effects of competition;

•

Our potential tax liabilities resulting from conducting business in the United States and Canada;

•

The effect of further sales or issuances of our common stock and the price and volume volatility of our common stock; and

•

Our common stock’s limited trading history.

Finally, our future results will depend upon various other risks and uncertainties, including, but not limited to, those detailed in our filings with the SEC under the Exchange Act and the Securities Act, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.  All forward looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere in this Quarterly Report. Other than as required under securities laws, we do not assume a duty to update these forward looking statements, whether as a result of new information, subsequent events or circumstances, changes in expectations or otherwise.

Business Overview

ProtoKinetix, Incorporated is a research and development stage bio-technology company focused on scientific medical research of AFGPs (Anti-Freeze Glycoproteins) or anti-aging glycoproteins, trademarked as AAGP®.  The Company has recently been in the process of directing major efforts to the practical side of commercial validation.  The commercial applications for AAGP® in large markets such as targeted health care solutions are numerous, and ProtoKinetix is currently working with researchers, business leaders and advisors and commercial entities to bring AAGP® to market.

Results of Operations

The following table shows selected financial data and operating results for the periods noted.  Following the table, please see management’s discussion of significant changes.

Revenues

We had no revenues for the three month periods ended March 31, 2018 and 2017.

Gross Profit and Expenses

The Company’s net loss was $306,571 for the three month period ended March 31, 2018 compared to $375,364 for the three month period ended March 31, 2017.  These expenses were primarily incurred for professional fees, consulting services related to the operations of the Company’s business, research and development and other general and administrative expenses.  Significant changes from the prior three month period ended March 31, 2017 include:

·

Professional fees decreased by $3,813 from $42,952 to $39,139 primarily as a result of a decrease in accounting fees associated with Company operations.

·

Research and development increased by $15,578 from $69,038 to $84,616 primarily as a result of additional spending for  expanded testing of effects of glycopeptides on bone marrow stem cell engraphment and antibody production with the University of British Columbia.

·

Share-based compensation decreased by $67,170 from $230,516 to $163,346 primarily as a result of a decrease in stock option valuation for the current year.

Liquidity and Capital Resources

The following summarizes our statements of cash flows at March 31, 2018 and December 31, 2017:

At March 31, 2018, we had $192,147 in cash and $250,822 in total current assets.  As of March 31, 2018, we had a working capital equity position of $243,091. Based upon our working capital equity as of March 31, 2018, we require additional equity and/or debt financing in order to meet cash flow projections and carry forward our business objectives.   There can be no assurance that in the future we will be able to raise capital from outside sources in sufficient amounts to fund our new business.

The failure to secure adequate outside funding would have an adverse effect on our plan of operation and results therefrom and a corresponding negative impact on stockholder liquidity.

 

 

 

Sources and Uses of Cash

Net Cash Used in Operating Activities

Net cash used in operating activities increased by $47,304 from $110,588 to $157,892 for the three months ended March 31, 2017 and 2018, respectively.  This increase was predominantly due to an increase in payments made to the Company’s vendors along with a increased spending for research and development.

Net Cash Used in Investing Activities

Net cash used in investing activities was $2,903 for the three month period ended March 31, 2018 while the Company had net cash used in investing activities of $31,255 for the comparative period.  The difference is attributable to a decrease in the purchase of intangible assets.

Net Cash Provided by Financing Activities

Net cash provided by financing activities decreased by $270,000 from $320,000 to $50,000 for the three months ended March 31, 2017 and 2018, respectively due to a decrease in funding from private placements.

Going Concern

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”), which contemplate continuation of the Company as a going concern.  The history of losses and the inability for the Company to make a profit from selling a good or service has raised substantial doubt about our ability to continue as a going concern. In spite of the fact that the current cash obligations of the Company are relatively minimal, given the cash position of the Company, we have very little cash to operate. We intend to fund the Company and attempt to meet corporate obligations by selling common stock.  However, the Company’s common stock is at a low price and is not actively traded.

Off-Balance Sheet Arrangements

None.

Contractual Obligations

As a smaller reporting company, we are not required to provide the information required by paragraph (a)(5) of this Item.

Critical Accounting Policies

The preparation of financial statements in conformity with U.S. GAAP requires management to make a variety of estimates and assumptions that affect (i) the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and (ii) the reported amounts of revenues and expenses during the reporting periods covered by the financial statements.

 

 

 

Our management routinely makes judgments and estimates about the effect of matters that are inherently uncertain. As the number of variables and assumptions affecting the future resolution of the uncertainties increase, these judgments become even more subjective and complex. Although we believe that our estimates and assumptions are reasonable, actual results may differ significantly from these estimates. Changes in estimates and assumptions based upon actual results may have a material impact on our results of operation and/or financial condition. Our significant accounting policies are disclosed in Note 2 to the Financial Statements included in this Form 10-Q.

While all of the significant accounting policies are important to the Company’s financial statements, the following accounting policies and the estimates derived there from have been identified as being critical.

Share-Based Compensation

On July 1, 2015, the Board of Directors of the Company adopted the 2015 Stock Option and Stock Bonus Plan (the “Plan”).  The Company has granted warrants and options to purchase shares of the Company’s common stock to various parties for consulting services outside of the Plan, and beginning July 1, 2015 and ending December 31, 2016 pursuant to the Plan.  On December 30, 2016, the Board of Directors of the Company adopted the 2017 Stock Option and Stock Bonus Plan (the “2017 Plan”). During the three month period ended March 31, 2018, the Company granted options to purchase a total of 800,000 shares of common stock to two consultants pursuant to the 2017 Plan.  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.  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.

The Company accounts for stock compensation arrangements with persons classified as non-employees for accounting purposes in accordance with ASC 505-50 “Stock-Based Transactions with Nonemployees”, which requires that such equity instruments are recorded at their fair value on the measurement date. 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.

Sales and Marketing

The Company is currently not selling or marketing any products.

Inflation

Although management expects that our operations will be influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the three months ended March 31, 2018.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.

 

 

Item 4: 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 Securities Exchange Act of 1934 (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 March 31, 2018 (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 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 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.

Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated by the SEC under the 1934 Act) during the three months ended March 31, 2018, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Other than previously reported, the Company and its management are not aware of any regulatory or legal proceedings or investigations pending involving the Company, any of its subsidiaries or affiliates, or any of their respective officers, directors or employees.

Item 1A. Risk Factors

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.  However, our current risk factors are set forth in our Annual Report on Form 10-K for the year ended December 31, 2017 as filed with the SEC on March 9, 2018, and such risk factors are incorporated herein by this reference.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On January 1, 2018, the Company issued options to purchase a total of 800,000 shares of common stock at $0.06 per share to two consultants pursuant to the 2017 Plan.  For these grants of options, no solicitation was used and the Company relied on the exemption from registration available under Section 4(a)(2) of the Securities Act of 1933, as amended (the “1933 Act”) and/or 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 January 12, 2018, the Company issued 1,000,000 shares of common stock at a price of $0.05 per share to an accredited investor for a total of $50,000 in gross proceeds pursuant to a private placement.

As previously reported on the Current Report on Form 8-K filed on November 9, 2017, Clarence E. Smith, the Company’s President and Chief Executive Officer, entered into an unsecured promissory note with the Company in the amount of $86,000 on October 23, 2017, and a second unsecured promissory note in the amount of $30,000 on November 3, 2017.

On January 12, 2018, the Company cancelled both promissory notes for a total of $117,962 of principal and interest in exchange for the issuance of 2,359,240 shares of common stock of the Company to Mr. Smith, at a price of $0.05.

For both sales of common stock of the Company on January 12, 2018, no solicitation was used in the offerings.  The Company relied on the exemption from registration available under Section 4(a)(2) of the Securities Act of 1933, as amended (the “1933 Act”) and Rule 506(b) of Regulation D promulgated under the 1933 Act with respect to transactions by an issuer not involving any public offering.  No commissions were paid in connection with these issuances of securities.  A Form D was filed previously on September 21, 2017.

Other than previously reported, there have been no unregistered sales of equity securities during the three month period ended March 31, 2018.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosure

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

The following is a complete list of exhibits filed as part of this Form 10-Q.  Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601 of Regulation S-K.

EXHIBIT INDEX

The following documents are being filed with the Commission as exhibits to this Quarterly Report on Form 10-Q.

Exhibit		Description
3.1		Certificate of Incorporation1
3.2		Bylaws1
4.1		2015 Stock Option and Stock Bonus Plan2
4.2		2017 Stock Option and Stock Bonus Plan3
10.1		Royalty Agreement between the Company and The Governors of the University of Alberta, dated April 8, 20154
10.2		Collaborative Research Agreement between the Company and the University of British Columbia, dated May 31, 20165
10.3		Consulting Agreement between the Company and Clarence E. Smith, dated December 30, 20163
10.4		Director Consulting Agreement between the Company and Edward P. McDonough, dated December 30, 20163
10.5		Consulting Agreement between the Company and Grant Young, dated December 30, 201610
10.6		First Amendment to Consulting Agreement between Clarence E. Smith and the Company dated September 1, 20179
10.7		First Amendment to Consulting Agreement between Edward P. McDonough and the Company dated September 1, 20179
10.8		First Amendment to Consulting Agreement between Grant Young and the Company dated September 1, 20179
10.9		Consulting Agreement between ProtoKinetix Incorporated and Michael Guzzetta, dated November 14, 2017.8
10.10		Unsecured Promissory Note issued by ProtoKinetix, Incorporated to Clarence E. Smith dated October 23, 2017.7
10.11		Unsecured Promissory Note issued by ProtoKinetix, Incorporated to Clarence E. Smith dated November 3, 2017.7
14.1		Code of Ethics6
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

 SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.