UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended JuneSeptember 30, 2019

 

or

 

[  ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                  to                  

 

Commission file number 001-36457

 

PROVECTUS BIOPHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware 90-0031917

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

   

10025 Investment Drive, Suite 250

Knoxville, Tennessee

 37932
(Address of principal executive offices) (Zip Code)

 

866-594-5999

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Title of each class Trading Symbol(s) Name of each exchange on which
registered
     

 

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. [X] Yes [  ] No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). [X] Yes [  ] No

 

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

 

Large accelerated filer[  ]Accelerated filer[  ]
    
Non-accelerated filer[X]Smaller reporting company[X]
    
  Emerging growth company[  ]

 

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 [X] No

 

The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of August 6,November 12, 2019, was 387,591,975.

388,576,975.

 

 

 

 
 

 

TABLE OF CONTENTS

 

 Page
PART I FINANCIAL INFORMATION 
  
Cautionary Note Regarding Forward-Looking Statements1
Item 1. Financial Statements (unaudited)2
Condensed Consolidated Balance Sheets2
Condensed Consolidated Statements of Operations3
Condensed Consolidated Statements of Comprehensive Loss4
Condensed Consolidated Statements of Changes in Stockholders’ Deficiency5
Condensed Consolidated Statements of Cash Flows6
Notes to Condensed Consolidated Financial Statements7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations14
Item 3. Quantitative and Qualitative Disclosures About Market Risk19
Item 4. Controls and Procedures19
  
PART II OTHER INFORMATION
  
Item 1. Legal Proceedings20
Item 1A. Risk Factors20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds20
Item 3. Defaults Upon Senior Securities21
Item 4. Mine Safety Disclosures21
Item 5. Other Information21
Item 6. Exhibits21
 
SIGNATURES22

 

 
 

 

Cautionary Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains “forward-looking statements” as defined under U.S. federal securities laws. These statements reflect management’s current knowledge, assumptions, beliefs, estimates, and expectations. These statements also express management’s current views of future performance, results, and trends and may be identified by their use of terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “plan,” “predict,” “project,” “should,” “strategy,” “will,” “wish,” and other similar terms. Forward-looking statements are subject to a number of risks and uncertainties that could cause our actual results to materially differ from those described in the forward-looking statements. Readers should not place undue reliance on forward-looking statements. Such statements are made as of the date of this Quarterly Report on Form 10-Q, and we undertake no obligation to update such statements after this date, unless otherwise required by law.

 

Risks and uncertainties that could cause our actual results to materially differ from those described in forward-looking statements include those discussed in our filings with the U.S. Securities and Exchange Commission (the “SEC”) (including those described in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2018), and the following:

 

 ●Our potential receipt of sales from investigational drug products PV-10 and PH-10 (if and when approved),; transaction fees,fees; licensing, andmilestone, and/or royalty payments,payments; and/or payments in connection with the Company’s liquidation, dissolution or winding up, or any sale, lease, conveyance or other disposition of any intellectual property relating to our investigational drug products and/or drug substance rose bengal (and/or any other halogenated xanthene),
   
 ●Our ability to raise additional capital, and
   
 ●Our ability to close on additional tranches of the financing from a group of the Company’s stockholders (the “PRH Group”) pursuant to the Definitive Financing Commitment Term Sheet we entered into with the PRH Group (which has specifically disclaimed it is a “group” as defined under U.S. federal securities law) effective as of March 19, 2017.

1

PART I FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS.

 

PROVECTUS BIOPHARMACEUTICALS, INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

  June 30,  December 31, 
  2019  2018 
  (Unaudited)    
Assets        
         
Current Assets:        
Cash and cash equivalents $1,324,228  $50,986 
Short-term receivables - legal fees, settlement and other, net  292,713   595,326 
Prepaid expenses  242,415   370,209 
         
Total Current Assets  1,859,356   1,016,521 
         
Equipment and furnishings, less accumulated depreciation of $57,584 and $50,538, respectively  65,430   72,476 
Operating lease right-of-use asset  229,975   - 
Patents, net of accumulated amortization of $11,151,778 and $10,816,218, respectively  563,667   899,227 
         
Total Assets $2,718,428  $1,988,224 
         
Liabilities and Stockholders’ Deficiency        
         
Current Liabilities:        
Accounts payable - trade $1,554,095  $3,312,049 
Other accrued expenses  1,042,042   790,358 
Current portion of operating lease liability  74,930   - 
         
Total Current Liabilities  2,671,067   4,102,407 
         
Accrued interest  1,074,681   659,379 
Accrued interest - related parties  987,649   711,927 
Convertible notes payable  11,887,000   7,062,000 
Convertible notes payable - related parties  6,895,000   6,870,000 
Non-current portion of operating lease liability  168,123   - 
         
Total Liabilities  23,683,520   19,405,713 
         
Commitments and contingencies (Note 8)        
         
Stockholders’ Deficiency:        
Preferred stock; par value $0.001 per share; 25,000,000 shares authorized; Series B Convertible Preferred Stock; 240,000 shares designated; 100 shares issued and outstanding at June 30, 2019 and December 31, 2018; aggregate liquidation preference of $3,500 at June 30, 2019 and December 31, 2018  -   - 
Common stock; par value $0.001 per share; 1,000,000,000 shares authorized; 384,906,118 and 384,614,528 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively  384,906   384,615 
Additional paid-in capital  209,116,301   209,092,187 
Accumulated other comprehensive loss  (24,859)  - 
Accumulated deficit  (230,441,440)  (226,894,291)
         
Total Stockholders’ Deficiency  (20,965,092)  (17,417,489)
         
Total Liabilities and Stockholders’ Deficiency $2,718,428  $1,988,224 

See accompanying notes to condensed consolidated financial statements.

PROVECTUS BIOPHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 For the Three Months Ended  For the Six Months Ended 
  June 30,  June 30, 
  2019  2018  2019  2018 
             
Operating Expenses:                
Research and development $1,208,324  $987,239  $2,245,655  $2,930,302 
General and administrative  631,063   1,107,737   1,390,316   1,863,887 
Total Operating Expenses  1,839,387   2,094,976   3,635,971   4,794,189 
                 
Total Operating Loss  (1,839,387)  (2,094,976)  (3,635,971)  (4,794,189)
Other Income/(Expense):                
Gain on settlement of lawsuits  -   825,000   675,000   825,000 
Research and development tax credit  (1,131)  42,685   82,941   42,685 
Investment and interest income  19,650   5,556   21,905   11,725 
Interest expense  (356,451)  (234,473)  (691,024)  (441,041)
                 
Net Loss $(2,177,319) $(1,456,208) $(3,547,149) $(4,355,820)
                 
Basic and Diluted Loss Per Common Share $(0.01) $(0.00) $(0.01) $(0.01)
                 
Weighted Average Number of Common Shares Outstanding - Basic and Diluted  384,773,639   381,574,365   384,769,219   379,483,491 
  September 30,  December 31, 
  2019  2018 
  (Unaudited)    
Assets        
         
Current Assets:        
Cash and cash equivalents $434,787  $50,986 
Short-term receivables - legal fees, settlement and other, net  290,076   595,326 
Prepaid expenses  169,113   370,209 
         
Total Current Assets  893,976   1,016,521 
         
Equipment and furnishings, less accumulated depreciation of $61,107 and $50,538, respectively  61,907   72,476 
Operating lease right-of-use asset  212,187   - 

Patents, net of accumulated amortization of $11,319,558 and $10,816,218, respectively

  395,887   899,227 
         
Total Assets $1,563,957  $1,988,224 
         
Liabilities and Stockholders’ Deficiency        
         
Current Liabilities:        
Accounts payable - trade $1,345,677  $3,312,049 
Other accrued expenses  949,427   790,358 
Current portion of operating lease liability  76,423   - 
         
Total Current Liabilities  2,371,527   4,102,407 
         
Accrued interest  1,314,357   659,379 
Accrued interest - related parties  1,125,549   711,927 
Convertible notes payable  12,297,000   7,062,000 
Convertible notes payable - related parties  6,895,000   6,870,000 
Non-current portion of operating lease liability  148,644   - 
         
Total Liabilities  24,152,077   19,405,713 
         
Commitments and contingencies (Note 8)        
         
Stockholders’ Deficiency:        
Preferred stock; par value $0.001 per share; 25,000,000 shares authorized; Series B Convertible Preferred Stock; 240,000 shares designated; 100 shares issued and outstanding at September 30, 2019 and December 31, 2018; aggregate liquidation preference of $3,500 at September 30, 2019 and December 31, 2018  -   - 
Common stock; par value $0.001 per share; 1,000,000,000 shares authorized; 388,576,975 and 384,614,528 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively  388,577   384,615 
Additional paid-in capital  209,309,619   209,092,187 
Accumulated other comprehensive loss  (24,801)  - 
Accumulated deficit  (232,261,515)  (226,894,291)
         
Total Stockholders’ Deficiency  (22,588,120)  (17,417,489)
         
Total Liabilities and Stockholders’ Deficiency $1,563,957  $1,988,224 

 

See accompanying notes to condensed consolidated financial statements.

 

32
 

 

PROVECTUS BIOPHARMACEUTICALS, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSOPERATIONS

(Unaudited)

 

  For the Three Months Ended  For the Six Months Ended 
  June 30,  June 30, 
  2019  2018  2019  2018 
             
Net Loss $(2,177,319) $(1,456,208) $(3,547,149) $(4,355,820)
Other Comprehensive Loss:                
Foreign currency translation adjustments  (2,496)  -   (24,859)  - 
Total Comprehensive Loss $(2,179,815) $(1,456,208) $(3,572,008) $(4,355,820)

See accompanying notes to condensed consolidated financial statements.

PROVECTUS BIOPHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIENCY

(Unaudited)

  Preferred Stock     Additional  

Accumulated

Other

       
  Series B  Common Stock  Paid-In  Comprehensive  Accumulated    
  Shares  Amount  Shares  Amount  Capital  Loss  Deficit  Total 
Balance at January 1, 2019  100  $-   384,614,528  $384,615  $209,092,187  $-  $(226,894,291) $(17,417,489)
                                 
Common stock issued upon exercise of warrants  -   -   100,000   100   5,230   -   -   5,330 
Comprehensive loss:              -                 
Net loss  -   -   -   -   -   -   (1,369,830)  (1,369,830)
Other comprehensive loss  -   -   -   -   -   (22,363)  -   (22,363)
                                 
Balance at March 31, 2019  100  $-   384,714,528  $384,715  $209,097,417  $(22,363) $(228,264,121) $(18,804,352)
                                 
Common stock issued for services  -   -   191,590   191   8,771   -   -   8,962 
Warrants issued for services  -   -   -   -   10,113   -   -   10,113 
Comprehensive loss:                                
Net loss  -   -   -   -   -   -   (2,177,319)  (2,177,319)
Other comprehensive loss  -   -   -   -   -   (2,496)  -   (2,496)
                                 
Balance at June 30, 2019  100  $-   384,906,118  $384,906  $209,116,301  $(24,859) $(230,441,440) $(20,965,092)

  Preferred Stock     Additional       
  Series B  Common Stock  Paid-In  Accumulated    
  Shares  Amount  Shares  Amount  Capital  Deficit  Total 
Balance at January 1, 2018  100  $-   370,961,451  $370,962  $208,351,431  $(218,741,236) $(10,018,843)
                             
Common stock issued upon exercise of warrants  -   -   7,926,739   7,927   414,568   -   422,495 
Net loss  -   -   -   -   -   (2,899,612)  (2,899,612)
                             
Balance at March 31, 2018  100  $-   378,888,190  $378,889  $208,765,999  $(221,640,848) $(12,495,960)
                             
Common stock issued upon exercise of warrants  -   -   3,222,838   3,222   168,556   -   171,778 
Common stock issued in lieu of accounts payable  -   -   1,000,000   1,000   79,000   -   80,000 
Net loss  -   -   -   -   -   (1,456,208)  (1,456,208)
                             
Balance at June 30, 2018  100  $-   383,111,028  $383,111  $209,013,555  $(223,097,056) $(13,700,390)
  For the Three Months Ended  For the Nine Months Ended 
  September 30,  September 30, 
  2019  2018  2019  2018 
             
Operating Expenses:                
Research and development $1,004,454  $528,355  $3,250,109  $3,458,657 
General and administrative  438,359   829,406   1,828,675   2,693,293 
Total Operating Expenses  1,442,813   1,357,761   5,078,784   6,151,950 
                 
Total Operating Loss  (1,442,813)  (1,357,761)  (5,078,784)  (6,151,950)
Other Income/(Expense):                
Gain on settlement of lawsuits  -   -   675,000   825,000 
Research and development tax credit  (826)  -   82,115   42,685 
Investment and interest income  1,140   4,931   23,045   16,656 
Interest expense  (377,576)  (256,173)  (1,068,600)  (697,214)
                 
Net Loss $(1,820,075) $(1,609,003) $(5,367,224) $(5,964,823)
                 
Basic and Diluted Loss Per Common Share $(0.00) $(0.00) $(0.01) $(0.02)
                 

Weighted Average Number of Common

Shares Outstanding - Basic and Diluted

  385,817,485   383,256,742   385,726,721   380,754,529 

 

See accompanying notes to condensed consolidated financial statements.

 

53
 

 

PROVECTUS BIOPHARMACEUTICALS, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSCOMPREHENSIVE LOSS

(Unaudited)

 

  For the Six Months Ended 
  June 30, 
  2019  2018 
       
Cash Flows From Operating Activities:        
Net loss $(3,547,149) $(4,355,820)
Adjustments to reconcile net loss to net cash used in operating activities:        
Stock-based compensation  19,075   80,000 
Depreciation  42,622   7,047 
Amortization of patents  335,560   335,560 
Changes in operating assets and liabilities        
Settlement receivable  

49,863

   (533,926)
Prepaid expenses  127,794   126,864 
Accounts payable - trade  (1,757,954)  229,962 
Other accrued expenses and lease liability  

481,936

   261,484 
Accrued interest expense  691,024   373,684 
         
Net Cash Used In Operating Activities  (3,557,229)  (3,475,145)
         
Cash Flows From Financing Activities:        
Proceeds from issuance of convertible notes payable  4,825,000   1,956,000 
Proceeds from issuance of convertible notes payable - related parties  25,000   950,000 
Proceeds from exercise of warrants  5,330   594,274 
Net Cash Provided By Financing Activities  4,855,330   3,500,274 
         
Effect of Exchange Rate Changes on Cash  (24,859)  - 
         
Net Increase In Cash and Cash Equivalents  1,273,242   25,129 
         
Cash and Cash Equivalents, Beginning of Period  50,986   105,504 
         
Cash and Cash Equivalents, End of Period $1,324,228  $130,633 
         
Supplemental Disclosures of Cash Flow Information:        
Cash paid during the period for:        
Interest $-  $- 
Taxes $-  $- 
         
Non-cash investing and financing activities:        
Offset of related party receivable and payable $

252,750

  $- 
  For the Three Months Ended  For the Nine Months Ended 
  September 30,  September 30, 
  2019  2018  2019  2018 
             
Net Loss $(1,820,075) $(1,609,003) $(5,367,224) $(5,964,823)
Other Comprehensive Loss:                
Foreign currency translation adjustments  58   -   (24,801)  - 
Total Comprehensive Loss $(1,820,017) $(1,609,003) $(5,392,025) $(5,964,823)

 

See accompanying notes to condensed consolidated financial statements.

4

PROVECTUS BIOPHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIENCY

(Unaudited)

  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 
                 Accumulated       
  Preferred Stock        Additional  Other       
  Series B  Common Stock  Paid-In  Comprehensive  Accumulated    
  Shares  Amount  Shares  Amount  Capital  Loss  Deficit  Total 
                         
Balance at January 1, 2019   100  $            -   384,614,528  $384,615  $209,092,187  $  -  $(226,894,291) $(17,417,489)
                                 
Common stock issued upon exercise of warrants  -   -   100,000   100   5,230   -   -   5,330 
Comprehensive loss:              -                 
Net loss  -   -   -   -   -   -   (1,369,830)  (1,369,830)
Other comprehensive loss  -   -   -   -   -   (22,363)  -   (22,363)
                                 
Balance at March 31, 2019  100  $-   384,714,528  $384,715  $209,097,417  $(22,363) $(228,264,121) $(18,804,352)
                                 
Common stock issued for services  -   -   191,590   191   8,771   -   -   8,962 
Warrants issued for services  -   -   -   -   10,113   -   -   10,113 
Comprehensive loss:                                
Net loss  -   -   -   -   -   -   (2,177,319)  (2,177,319)
Other comprehensive loss  -   -   -   -   -      (2,496)  -   (2,496)
                                 
Balance at June 30, 2019  100  $-   384,906,118  $384,906  $209,116,301  $(24,859) $(230,441,440) $(20,965,092)
                                 
Common stock issued for services  -   -   25,000   25   1,725   -   -   1,750 
Common stock issued upon exercise of warrants  -   -   3,645,857   3,646   190,678   -   -   194,324 
Warrants issued for services  -   -   -   -   915   -   -   915 
Comprehensive loss:                                
Net loss  -   -   -   -   -   -   (1,820,075)  (1,820,075)
Other comprehensive loss  -   -   -   -   -   58   -   58 
                                 
Balance at September 30, 2019  100  $-   388,576,975  $388,577  $209,309,619  $(24,801) $(232,261,515) $(22,588,120)

  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 
  Preferred Stock        Additional       
  Series B  Common Stock  Paid-In  Accumulated    
  Shares  Amount  Shares  Amount  Capital  Deficit  Total 
                      
Balance at January 1, 2018  100  $       -   370,961,451  $370,962  $208,351,431  $(218,741,236) $(10,018,843)
                             
Common stock issued upon exercise of warrants  -   -   7,926,739   7,927   414,568   -   422,495 
Net loss  -   -   -   -   -   (2,899,612)  (2,899,612)
                             
Balance at March 31, 2018  100  $-   378,888,190  $378,889  $208,765,999  $(221,640,848) $(12,495,960)
                             
Common stock issued upon exercise of warrants  -   -   3,222,838   3,223   168,555   -   171,778 
Common stock issued in lieu of accounts payable  -   -   1,000,000   1,000   79,000   -   80,000 
Net loss  -   -   -   -   -   (1,456,208)  (1,456,208)
                             
Balance at June 30, 2018  100  $-   383,111,028  $383,112  $209,013,554  $(223,097,056) $(13,700,390)
                             
Common stock issued upon exercise of warrants  -   -   390,000   390   20,396   -   20,786 
Common stock issued in lieu of accounts payable  -   -   -   -   -   -   - 
Net loss  -   -   -   -   -   (1,609,003)  (1,609,003)
                             
Balance at September 30, 2018  100  $-   383,501,028  $383,502  $209,033,950  $(224,706,059) $(15,288,607)

See accompanying notes to condensed consolidated financial statements.

5

PROVECTUS BIOPHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

  For the Nine Months Ended 
  September 30, 
  2019  2018 
    
Cash Flows From Operating Activities:        
Net loss $(5,367,224) $(5,964,823)
Adjustments to reconcile net loss to net cash used in operating activities:        
Stock-based compensation  21,740   80,000 
Depreciation  63,492   10,570 
Amortization of patents  503,340   503,340 
Changes in operating assets and liabilities        
Settlement receivable  52,500   434,040 
Prepaid expenses  201,096   192,643 
Accounts payable - trade  (1,966,372)  (810,036)
Other accrued expenses and lease liability  371,776   462,409 
Accrued interest expense  1,068,600   697,214 
         
Net Cash Used In Operating Activities  (5,051,052)  (4,394,643)
         
Cash Flows From Financing Activities:        
Proceeds from issuance of convertible notes payable  5,235,000   2,556,000 
Proceeds from issuance of convertible notes payable - related parties  25,000   1,350,000 
Proceeds from exercise of warrants  199,654   615,059 
Net Cash Provided By Financing Activities  5,459,654   4,521,059 
         
Effect of Exchange Rate Changes on Cash  (24,801)  - 
         
Net Increase In Cash and Cash Equivalents  383,801   126,416 
         
Cash and Cash Equivalents, Beginning of Period  50,986   105,504 
         
Cash and Cash Equivalents, End of Period $434,787  $231,920 
         
Supplemental Disclosures of Cash Flow Information:        
Cash paid during the period for:        
Interest $-  $- 
Taxes $-  $- 
         
Non-cash investing and financing activities:        
Offset of related party receivable and payable $252,750  $- 

See accompanying notes to condensed consolidated financial statements.

6

PROVECTUS BIOPHARMACEUTICALS, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. Business Organization, Nature of Operations and Basis of Presentation

 

Provectus Biopharmaceuticals, Inc., a Delaware corporation (together with its subsidiaries, “Provectus” or the “Company”), is a clinical-stage biotechnology company that is developing a new class of drugs for oncology, hematology, and dermatology based on an entire, wholly-owned, family of small molecules called halogenated xanthenes:

 

 ●Oncology:Intralesional (aka intratumoral) PV-10, a cancer immunotherapy, is undergoing clinical study for adult solid tumor cancers, like melanoma and gastrointestinal (“GI”) tumors (including hepatocellular carcinoma, metastatic colorectal cancer, metastatic neuroendocrine tumors, and metastatic uveal melanoma, among others). Orphan drug designation status has been granted to PV-10 by the U.S. Food and Drug Administration (the “FDA”) for the treatments of metastatic melanoma in 2006, hepatocellular carcinoma in 2011, and ocular melanoma (including uveal melanoma) in 2019.
   
 PV-10 is also undergoing preclinical study for pediatric solid tumor cancers (including neuroblastoma, Ewing sarcoma, rhabdomyosarcoma, and osteosarcoma). Orphan drug designation status has been granted to PV-10 by the FDA for neuroblastoma in 2018.
   
 ●

Hematology.PV-10 is also undergoing preclinical study for pediatric blood cancers (including leukemia).

   
 ●Dermatology:Topical PH-10, an immune-dermatologyimmuno-dermatology agent, is undergoing clinical study for inflammatory dermatoses, like psoriasis and atopic dermatitis.

 

To date, the Company has not generated any revenues from planned principal operations. The Company’s activities are subject to significant risks and uncertainties, including failing to successfully develop and license or commercialize the Company’s prescription drug candidates.

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information pursuant to Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be reviewed in conjunction with the Company’s audited consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 2018 filed with the SEC on March 7, 2019. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and sixnine months ended JuneSeptember 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.

 

2. Liquidity and Going Concern

 

The Company’s cash and cash equivalents were $1,324,228$434,787 at JuneSeptember 30, 2019. The Company continues to incur significant operating losses. Management expects that significant on-going operating expenditures will be necessary to successfully implement the Company’s business plan and develop and market its products. These circumstances raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these financial statements are issued. Implementation of the Company’s plans and its ability to continue as a going concern will depend upon the Company’s ability to develop PV-10 and PH-10, and to raise additional capital.

 

The Company plans to access capital resources through possible public or private equity offerings, including the 2017 Financing (as defined in Note 4), exchange offers, debt financings, corporate collaborations or other means. In addition, the Company continues to explore opportunities to strategically monetize its lead drug candidates, PV-10 and PH-10, through potential co-development and licensing transactions, although there can be no assurance that the Company will be successful with such plans. The Company has historically been able to raise capital through equity offerings, although no assurance can be provided that it will continue to be successful in the future. If the Company is unable to raise sufficient capital through the 2017 Financing or otherwise, it will not be able to pay its obligations as they become due.

 

7

The primary business objective of management is to build the Company into a commercial-stage biotechnology company; however, the Company cannot assure you that it will be successful in developing further, co-developing, licensing, and/or commercializing PV-10, PH-10, and/or any other halogenated xanthene-based drug product candidate developed byof the Company, or entering into any commercial financial transaction. Moreover, even if the Company is successful in improving its current cash flow position, the Company nonetheless plans to seek additional funds to meet its long-term requirements in 2019 and beyond. The Company anticipates that these funds will otherwise come from the proceeds of private placement transactions, including the 2017 Financing, the exercise of existing warrants and outstanding stock options, or public offerings of debt or equity securities. While the Company believes that it has a reasonable basis for its expectation that it will be able to raise additional funds, the Company cannot assure you that it will be able to complete additional financing in a timely manner. In addition, any such financing may result in significant dilution to stockholders.

 

3. Critical Accounting Policies

 

Since the date the Company’s December 31, 2018 consolidated financial statements were issued in its 2018 Annual Report, there have been no material changes to the Company’s significant accounting policies, except as disclosed below.

 

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of operating lease right-of-use (“ROU”) assets and lease liabilities on the balance sheet (“ASC 842”) with amendments issued in 2018. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The Company is also required to recognize and measure new leases at the adoption date and recognize a cumulative-effect adjustment in the period of adoption using a modified retrospective approach, with certain practical expedients available.

 

The Company adopted ASC 842 effective January 1, 2019 and elected to apply the available practical expedients. The standard had an impact on the Company’s condensed consolidated balance sheets but did not have a material impact on the Company’s condensed consolidated statements of operations or condensed consolidated statements of cash flows upon adoption. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while the Company’s accounting for finance leases remained substantially unchanged. The adoption of ASC 842 did not have a material impact in the current year and prior year comparative periods and as a result, a cumulative-effect adjustment was not required.

 

Reclassifications

 

Certain prior year balances have been reclassified in order to conform to current year presentation. These reclassifications have no effect on previously reported results of operations or loss per share.

 

Stock-Based Compensation

 

The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. The fair value of the award is measured on the grant date and then is recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. The Company computes the fair value of equity-classified warrants and options granted using the Black-Scholes option pricing model. Option valuation models require the input of highly subjective assumptions including the expected volatility factor of the market price of the Company’s common stock which is determined by reviewing its historical public market closing prices.

 

8
 

 

4. Convertible Notes Payable

 

On March 23, 2017, the Company entered into an exclusive Definitive Financing Commitment Term Sheet with a group of the Company’s stockholders (the “PRH Group”), which was amended and restated effective as of March 19, 2017 (the “Term Sheet”) that set forth the terms on which the PRH Group would use their best efforts to arrange for a financing of a minimum of $10,000,000 and maximum of $20,000,000 (the “2017 Financing”).

 

As of JuneSeptember 30, 2019, the Company had received aggregate loans of $18,782,000$19,192,000 in connection with the 2017 Financing.

 

As of JuneSeptember 30, 2019, and through the date of filing, the Series D Preferred Stock had not been designated by the Company’s Board of Directors (the “Board”). As a result, the Company did not analyze the loan for a potential beneficial conversion feature as the definition of a firm commitment has not been met since the PRH Notes were not convertible as of their respective dates of issuance or as of JuneSeptember 30, 2019.

 

Convertible Notes Payable – Related Parties

 

During the sixnine months ended JuneSeptember 30, 2019, the Company entered into additional related party PRH Notes in the aggregate principal amount of $25,000.

 

As of JuneSeptember 30, 2019, the Company had borrowed $6,895,000 of related party PRH Notes that were outstanding.

 

Convertible Notes Payable – Non-Related Parties

 

During the sixnine months ended JuneSeptember 30, 2019, the Company entered into additional non-related party PRH Notes in the aggregate principal amount of $4,825,000.$5,235,000.

 

As of JuneSeptember 30, 2019, the Company had borrowed $11,887,000$12,297,000 of non-related party PRH Notes that were outstanding.

 

5. Receivables

 

The following table summarizes the receivables at JuneSeptember 30, 2019 and December 31, 2018:

 

 June 30, 2019  September 30, 2019 
 Legal Fees  Settlement  Total  Legal Fees  Settlement  Total 
              
Gross receivable $683,250  $1,703,935  $2,387,185  $683,250  $1,703,405  $2,386,655 
Reserve for uncollectibility  (455,500)  (1,649,043)  (2,104,543)  (455,500)  (1,649,043)  (2,104,543)
Net receivable  227,750   54,892   282,642   227,750   54,362   282,112 
Short-term receivable - Settlement  -   54,892   54,892   -   54,362   54,362 
Short-term receivable - Legal  227,750   -   227,750   227,750   -   227,750 
Long-term receivable $-  $-  $-  $-  $-  $- 

 

 December 31, 2018  December 31, 2018 
 Legal Fees  Settlement  Total  Legal Fees  Settlement  Total 
              
Gross receivable $911,000  $1,783,795  $2,694,795  $911,000  $1,783,795  $2,694,795 
Reserve for uncollectibility  (455,500)  (1,649,043)  (2,104,543)  (455,500)  (1,649,043)  (2,104,543)
Net receivable  455,500   134,752   590,252   455,500   134,752   590,252 
Short-term receivable - Settlement  -   134,752   134,752   -   134,752   134,752 
Short-term receivable - Legal $455,500  $-  $455,500   455,500   -   455,500 
Long-term receivable  -   -   -  $-  $-  $- 

9

During the sixnine months ended JuneSeptember 30, 2019, officers of the Company offset their settlement amounts owed to the Company against accrued payroll and other payables totaling $252,750. This offset reduced the amount of the settlement and was approved by the Company’s Board.

 

6. Stockholders’ Deficiency

 

Common Stock

 

During the sixnine months ended JuneSeptember 30, 2019, the Company issued an aggregate of 191,590216,590 shares of immediately vested restricted common stock to an employee and consultants with an issuance date fair value of $8,962,$10,712, which was recognized immediately.

 

Warrants

 

During the sixnine months ended JuneSeptember 30, 2019, the Company issued 387,500 five-year immediately vested warrants to a consultant to purchase an aggregate of 387,500 shares of common stock with exercise prices ranging from $1.00 to $2.00 per share. The warrants had an aggregate grant date fair value of $10,113, which was recognized immediately under stock compensation in general and administrative.

 

During the nine months ended September 30, 2019, the Company issued 25,000 three-year immediately vested warrants to a consultant to purchase an aggregate of 25,000 shares of common stock with an exercise price of $0.2862 per share. The warrants had an aggregate grant date fair value of $915, which was recognized immediately under stock compensation in general and administrative.

In applying the Black-Scholes option pricing model to warrants issued, the Company used the following assumptions:

 

 For the Three Month Ended For the Six Months Ended  For the Three Month Ended For the Nine Months Ended 
 June 30, June 30,  September 30,  September 30, 
 2019 2018 2019 2018  2019  2018  2019  2018 
Risk-free interest rate  2.23%  n/a   2.23%  n/a 
Expected terms (years)  5.00   n/a   5.00   n/a   3.00   n/a   3.00-5.00   n/a 
Expected volatility  129%  n/a   129%  n/a   131%  n/a   129-131%  n/a 
Expected dividend yields  0.00%  n/a   0.00%  n/a 
Risk free interest rate  1.82%  n/a   1.82-2.23%  n/a 
Expected dividends  0.00%  n/a   0.00%  n/a 

 

During the sixnine months ended JuneSeptember 30, 2019, warrant holders exercised warrants to purchase an aggregate of 100,0003,745,857 shares of common stock at a price of $0.0533 per share. In connection with these exercises, the Company received aggregate cash proceeds of $5,330$199,654 and issued 100,0003,745,857 shares of common stock to the warrant holders.

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7. Leases

 

The Company currently leases 4,500 square feet of corporate office space in Knoxville, Tennessee through an operating lease agreement for a term of five years ending on June 30, 2022. Payments range from approximately $7,300 to $7,800 per month.

 

Total rent expense for the sixnine months ended JuneSeptember 30, 2019 was $57,134,$79,756, of which, $38,089$53,171 was included within research and development and $19,045$26,585 was included within general and administrative expenses on the condensed consolidated statement of operations. Total rent expense for the sixnine months ended JuneSeptember 30, 2018 was $44,233,$66,313, of which, $29,489$44,209 was included within research and development and $14,744$22,104 was included within general and administrative expenses on the condensed consolidated statement of operations. Total rent expense during the three months ended JuneSeptember 30, 2019 was $22,329,$22,622, of which, $14,886$15,081 was included within research and development and $7,443$7,541 was included within general and administrative expenses on the condensed consolidated statement of operations. Total rent expense during the three months ended JuneSeptember 30, 2018 was $22,080, of which, $14,720 was included within research and development and $7,360 was included within general and administrative expenses on the condensed consolidated statement of operations.

 

As of JuneSeptember 30, 2019, the Company had no leases that were classified as a financing lease. As of JuneSeptember 30, 2019, the Company did not have additional operating and financing leases that have not yet commenced. 

 

A summary of the Company’s right-of-use assets and liabilities is as follows:

 

 Six Months Ended
June 30, 2019		  Nine Months End September 30, 2019 
      
Cash paid for amounts included in the measurement of lease liabilities:        
Operating cash flows from operating leases $44,330  $66,952 
        
Right-of-use assets obtained in exchange for lease obligations:        
Operating leases $265,550  $265,550 
        
Weighted Average Remaining Lease Term        
Operating leases  3.25 years   2.75 Years 
        
Weighted Average Discount Rate        
Operating leases  8.0%  8.0%

11

 

Future minimum payments under non-cancellable lease as of JuneSeptember 30, 2019 were as follows:

For the Years Ending December 31, Amount 
    
2019 $45,785 
2020  90,666 
2021  92,471 
2022  46,687 
Total future minimum lease payments  275,609 
Less: amount representing imputed interest  (32,556)
Total $243,053 

For the Years Ending December 31, Amount 
    
2019 $24,687 
2020  90,666 
2021  92,471 
2022  46,687 
Total future minimum lease payments  254,511 
Less: amount representing imputed interest  (29,444)
Total $225,067 

 

8. Commitments, Contingencies and Litigation

 

Culpepper Travel Expenses and Related Collection Efforts

 

On December 27, 2016, the then-Board of Directors (the “then-Board”) unanimously voted to terminate then-interim Chief Executive Officer, then-Chief Operating Officer, and former Chief Financial Officer, Peter Culpepper (“Culpepper”), effective immediately, from all positions he held with the Company and each of its subsidiaries, “for cause,” in accordance with the terms of the Amended and Restated Executive Employment Agreement entered into by Culpepper and the Company on April 28, 2014 (the “Culpepper Employment Agreement”), based on the results of the investigation conducted by the Audit Committee of the then-Board regarding improper expense reimbursements to Culpepper.

 

The Audit Committee retained independent counsel and an advisory firm with forensic accounting expertise to assist the Audit Committee in conducting the investigation. The Audit Committee found that Culpepper received $294,255 in expense reimbursements that were unsubstantiated or otherwise improper. The Company seeks to recover from Culpepper the entire $294,255 in expense reimbursements, as well as all attorney’s fees and auditors’/experts’ fees incurred by the Company in connection with the examination of his expense reimbursements. On December 12, 2017, Culpepper agreed to an order by the SEC to pay disgorgement of $140,115, and prejudgment interest of $12,261, for a total of $152,376, to the Company within 30 days. The Company received the payment of $152,376 in January 2018.

 

The Company took the position that under the terms of the Culpepper Employment Agreement, Culpepper is owed no severance payments as a result of his termination “for cause” as that term is defined in the Culpepper Employment Agreement. Furthermore, Culpepper is no longer entitled to the 2:1 credit under the Stipulated Settlement Agreement and Mutual Release in the Kleba Derivative Lawsuit Settlement (the “Derivative Lawsuit Settlement”) such that the total $2,240,000 owed by Culpepper pursuant to the Derivative Lawsuit Settlement plus Culpepper’s proportionate share of the litigation cost in the amount of $227,750, less the amount that he repaid as of December 31, 2016, is immediately due and payable. The Company sent Culpepper a notice of default in January 2017 for the total amount he owes the Company and is in the process of pursuing these claims in accordance with the alternative dispute resolution provision of the Culpepper Employment Agreement. The Company has established a reserve of $2,051,083$2,104,543 as of JuneSeptember 30, 2019 and December 31, 2018, which amount represents the amount the Company currently believes Culpepper owes to the Company under the Derivative Lawsuit Settlement (excluding the amount of attorneys’ fees incurred in enforcing the terms of the Derivative Lawsuit Settlement), while the Company pursues collection of this amount.

 

Culpepper disputed that he was terminated “for cause” under the Culpepper Employment Agreement. Pursuant to the alternative dispute resolution provisions of that agreement, the Company and Culpepper participated in a mediation of their dispute on June 28, 2017. Having reached no resolution during the mediation, the parties participated in arbitration under the commercial rules of the American Arbitration Association, arbitrating both Culpepper’s claim for severance against the Company and the Company’s claims against Culpepper for improper expense reimbursements and amounts Culpepper owes the Company under the Derivative Lawsuit Settlement (the “Culpepper Arbitration”). The Culpepper Arbitration hearing was held from May 15 to May 18, 2018.

12

On July 12, 2018, the arbitrator issued an interim award in favor of the Company, the terms of which are confidential pursuant to the Culpepper Employment Agreement and instructed the parties that a final award was forthcoming. On September 12, 2018, the arbitrator issued his final award in favor of the Company. On October 4, 2018, the Company filed a petition with the Chancery Court for Davidson County, Tennessee to confirm the arbitration award. On November 7, 2018, the Company received Culpepper’s answer to the petition filed on October 4, 2018. This court entered an order confirming the arbitrator’s award on January 23, 2019. On February 20, 2019, Culpepper filed a motion to alter or amend this judgment. On March 22, 2019, the Chancery Court upheld the arbitration award in favor of the Company. On April 16, 2019, Culpepper filed a Notice of Appeal with the Tennessee Court of Appeals regarding the judgment confirming the arbitration award and the order denying Culpepper’s motion to alter or amend the judgment (the “Culpepper Appeal”). The Company and Culpepper hashave submitted atheir respective Culpepper Appeal brief, and the Company plans to submit a Culpepper Appeal brief in the third quarter of 2019.briefs.

9. Subsequent Events

 

WachterConvertible Notes Payable

Subsequent to September 30, 2019, the Company entered into PRH Notes with non-related parties in the aggregate principal amount of $200,000. The Company had drawn down the entire $200,000 under these notes.

Scott Kleba Settlement Agreement Satisfaction

 

Pursuant to the terms and conditions of the Stipulated Settlement Agreement and Mutual Release made and entered into by and between the Company (then-Provectus Pharmaceuticals, Inc.) and Eric A. Wachter,Timothy C. Scott, Ph.D. on June 6, 2014, and consented to and approved by Glenn Kleba and Don B. Dale (the “Plaintiffs”), derivatively on behalf of the Company in the Plaintiffs’ shareholder derivative lawsuit (the “Kleba Settlement Agreement”), Dr. WachterScott completed prepaymentrepayment of his Cash Repayment Obligations (as defined in the Kleba Settlement Agreement) on June 28,October 9, 2019. Dr. Wachter’sScott’s Cash Repayment Obligations equaled (i) the Reduced Repayment Amount (as defined in the Kleba Settlement Agreement) of $1,199,303, including imputed interest, plus (ii) Dr. Wachter’sScott’s pro rata portion of the Company’s Litigation Costs (as defined in the Kleba Settlement Agreement) of $227,750, for a total payment to the Company of $1,427,053. As part of his prepayment completion, the PRH Note in the principal amount of $250,000 and accrued interest of $32,111, that the Company entered into with Dr. Scott and Leigh Anne Scott on February 28, 2018 was cancelled. Pursuant to the terms and conditions of the Stock Pledge Agreement related to the Kleba Settlement Agreement, satisfaction of his Cash Repayment Obligations removed the Company’s first-priority security interest in 1,000,000 shares of the Company’s common stock beneficially owned by Dr. Wachter,Scott, which had served as collateral for the Cash Repayment Obligations owed to the Company.

 

9. Subsequent Events

Exercise of Warrants

Subsequent to June 30, 2019, warrant holders exercised warrants to purchase an aggregate of 2,985,857 shares of common stock at $0.0533 per share. In connection with these exercises, the Company received aggregate cash proceeds of $159,146 and issued 2,985,857 shares of common stock to the warrant holders.

13

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

 

The following discussion is intended to assist in the understanding and assessment of significant changes and trends related to our results of operations and our financial condition together with our consolidated subsidiaries. This discussion and analysis should be read in conjunction with the accompanying unaudited financial statements and our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 7, 2019 (“2018 Form 10-K”), which includes additional information about our critical accounting policies and practices and risk factors. Historical results and percentage relationships set forth in the statement of operations, including trends which might appear, are not necessarily indicative of future operations.

 

Overview

 

Provectus is a clinical-stage biotechnology company developing a new class of drugs for oncology, hematology, and dermatology based on an entire, wholly-owned, family of chemical small molecules called halogenated xanthenes, such as rose bengal (4,5,6,7-tetrachloro-2’,4’,5’,7’-tetraiodofluorescein). Intralesional (aka intratumoral) PV-10, the first small molecule oncolytic immunotherapy, which can induce immunogenic cell death, is undergoing clinical study for adult solid tumor cancers, like melanoma and GI tumors (like hepatocellular carcinoma, metastatic colorectal cancer, metastatic neuroendocrine tumors, and metastatic uveal melanoma, among others), and preclinical study for pediatric solid tumor cancers (like neuroblastoma, Ewing sarcoma, rhabdomyosarcoma, and osteosarcoma) and blood cancers (like leukemia). Topical PH-10 is undergoing clinical study for inflammatory dermatoses like psoriasis and atopic dermatitis.

 

Our Core Science and Technology

 

Oncology.PV-10 is an injectable formulation of rose bengal disodium (4,5,6,7-tetrachloro-2’,4’,5’,7’-tetraiodofluorescein disodium salt). PV-10 drug product is a bright rose red solution containing 10% w/v rose bengal disodium in 0.9% saline for injection, which is supplied in single-use glass vials containing 5 mL (to deliver) of solution and administered without dilution to solid tumors via intralesional (intratumoral) injection. PV-10 selectively accumulates in the lysosomes of cancer cells. Physicochemical properties of lysosomes trap PV-10. Lumenal pH of 4.5 to 5 is ideal for the conversion of soluble rose bengal disodium into insoluble rose bengal lactone.

 

Lysosomes are the central organelles for intracellular degradation of biological macromolecules and organelles. Discovered by Christian de Duve, M.D. in 1955, lysosomes have been linked with a number of biological processes like cell death, inflammasome activation, and immune response. In 1959, Dr. de Duve described lysosomes as “suicide bags,” because their rupture led to cell death and tissue autolysis. Lysosomes have been shown to play a role in each of the three major, distinctprimary pathways of cell death, which are apoptosis, autophagy, and necrosis. Dr. de Duve was awarded the Nobel Prize in 1974 for discovering and characterizing lysosomes.

Provectus showed that PV-10 selectively accumulates in the lysosomes of cancer cells and disrupts them, causing the cancer cells to die. PV-10 (rose bengal) has also been shown by Provectus and independent researchers to trigger each major, distinct form of lysosomal cell death; that is, apoptosis, autophagy, and necrosis.

14

PV-10’s lysosomal targeting comprises:

 

 ●Transiting the plasmalemma of cancer cells. PV-10 penetrates the cell membrane of cancerous cells. The plasmalemma previously protected the cancer cell from its surrounding environment. PV-10, however, is excluded from normal cells,
   
 ●Accumulating in the lysosomes of cancer cells. As noted above, the physicochemical properties of lysosomes trap PV-10,
   
 ●Triggering the release of lysosomal contents. Acute autolysis occurs within 30 to 60 minutes. Early preclinical work by Provectus on PV-10’s lysosomal targeting showed identical responses in different disease models, such as Hepa1-6 murine hepatocellular carcinoma, HTB-133 human breast carcinoma, and H96Ar human multi-drug resistant small cell lung carcinoma,
   
 ●Inducing the rapid cell death of cancer cells. Early trypan blue exclusion work by Provectus confirmed cell death within hours, and
   
 ●Intracellular pH consistency with the release of acidic lysosomal contents. Early SNARF-1 staining work by Provectus confirmed lower intracellular pH upon exposure to PV-10 (rose bengal).

 

Dermatology.For psoriasis, pathways significantly improved include published psoriasis transcriptomes and cellular responses mediated by IL-17, IL-22, and interferons. Clinical work has shown that more than 500 disease-related genes were down-regulated after four weeks of PH-10 application and expression of a wide-range of central “psoriasis related” genes including IL-23, IL-17, IL-22, S100A7, IL-19, IL-36, and CXCL1 were effectively normalized – treated lesional skin had values in the same range as baseline non-lesional skin.

 

Our Drug Development Strategy for Oncology

 

The Company’s strategy is designed to (i) demonstrate the single-agent activity of PV-10; that is, safety and activity in T cell and non-T cell inflamed tumor types, and in high and low tumor mutation burden tumor types, (ii) demonstrate the T cell response generated by PV-10 treatment, and (iii) contrast and compare PV-10 treatment – safety, activity, and induced immune response – with that of checkpoint inhibitor (“CI”) and other drug classes in monotherapy and combination therapy settings.

 

We believe this strategy should quicken the advancement of single-agent PV-10 along a pathway-to-approval in solid tumor cancer indications where there is high unmet need, limited activity from other therapies, and the opportunity to display the immune response from PV-10 treatment, such as for metastatic neuroendocrine tumors (NCT02693067). This strategy also should permit the Company to develop and advance a cancer combination therapy involving a CI or other drug class along a pathway-to-approval in a disease indication where there is high unmet need, limited activity from standard of care (“SOC”) treatment, and the opportunity to display how PV-10 augments clinical response to existing or emerging SOCs, such as for metastatic uveal melanoma (i.e., combination therapy with anti-CTLA-4 and anti-PD-1 agents) (NCT00986661).

 

Our Drug Development Strategy for Dermatology

 

The Company’s strategy is designed to (i) demonstrate 12-week single-agent administration proof-of-concept (“POC”) for PH-10 that includes (a) a preclinical safety study of extended 12-week administration (compared to, previously, four weeks), (b) a clinical mechanism of action study in atopic dermatitis, which would be a “book-end” trial to the already completed clinical mechanism study in psoriasis, (c) Phase 2 randomized controlled trials of PH-10 for the treatment of psoriasis and atopic dermatitis that may potentially utilize SOC comparators, and (d) End-of-Phase 2 meetings with the FDA upon the completion of the abovementioned Phase 2 trials, and (ii) expand POC PH-10 treatment to include dermatology combination therapy. Our goal for this POC work is to achieve Phase 3 trial-ready status for PH-10 in both psoriasis and atopic dermatitis.

 

Our Advisory Boards

The Company named a second member, Frank Akers, Ph.D., to its Strategic Advisory Board effective as of September 1, 2019. The purpose of the Strategic Advisory Board is for the Company to have formal access to a group of independent people with significant, meaningful, professional experience who provide high quality, objective advice to the Company in areas of strategic importance, including but not limited to business development, corporate development, and business operations (such as clinical operations, drug development, regulatory affairs, and manufacturing of drug substance and drug product). The Company named the first member, Harold Schmitz, Ph.D., to its Scientific Advisory Board effective as of September 1, 2019. The purpose of the Scientific Advisory Board is for the Company to have formal access to a group of independent people with significant, meaningful, professional experience who provide high quality, objective advice to the Company in areas of strategic scientific importance, such as but not limited to the Company’s science and technology, and drug development.

Components of Operating Results

 

Research and Development Expenses

 

A large component of our total operating expenses is the Company’s investment in research and development activities, including the clinical development of our product candidates. Research and development expenses represent costs incurred to conduct research and undertake clinical trials to develop our drug product candidates. We recognize all research and development costs as they are incurred. Clinical trial costs, contractor labor, personnel cost, and other research and development-based costs incurred by third parties are expensed as the contracted work is performed.

 

We expect our research and development expenses to increase in the future as we advance our existing product candidates through clinical trials and pursue their regulatory approval. Undertaking clinical development and pursuing regulatory approval are both costly and time-consuming activities. As a result of known and unknown uncertainties, we are unable to determine the duration and completion costs of our research and development activities, or if, when, and to what extent we will generate revenue from any subsequent commercialization and sale of our drug product candidates.

 

General and Administrative Expenses

 

General and administrative expenses include personnel costs, expenses for outside professional services, and other allocated expenses. Personnel costs consists of salaries, benefits, and stock-based compensation. Outside professional services consist of accounting and audit services, administrative services, and other consulting fees.

15

Results of Operations

 

Comparison of the Three Months Ended JuneSeptember 30, 2019 and JuneSeptember 30, 2018

 

Overview

 

 For the Three Months Ended     For the Three Months Ended      
 June 30,     September 30,  Increase/   
 2019  2018  Increase/(Decrease)  2019  2018  (Decrease)  % Change 
                
Operating Expenses:                            
Research and development $1,208,324  $987,239  $221,085  $1,004,454  $528,355  $476,099   90.1%
General and administrative  631,063   1,107,737   (476,674)  438,359   829,406   (391,047)  -47.1%
Total Operating Expenses  1,839,387   2,094,976   (255,589)  1,442,813   1,357,761   85,052   6.3%
                            
Total Operating Loss  (1,839,387)  (2,094,976)  255,589   (1,442,813)  (1,357,761)  (85,052)  6.3%
Other Income/(Expense):                            
Gain on settlement of lawsuits  -   825,000   (825,000)  -   -   -   0.0%
Research and development tax credit  (1,131)  42,685   (43,816)  (826)  -   (826)  100.0%
Investment and interest income  19,650   5,556   14,094   1,140   4,931   (3,791)  -76.9%
Interest expense  (356,451)  (234,473)  (121,978)  (377,576)  (256,173)  (121,403)  47.4%
                            
Net Loss $(2,177,319) $(1,456,208) $(721,111) $(1,820,075) $(1,609,003) $(211,072)  13.1%

Research and Development Expenses

 

Research and development expenses were $1,208,324$1,004,454 for the three months ended JuneSeptember 30, 2019, an increase of $221,085$476,099 or 22%90.1% compared to the three months ended JuneSeptember 30, 2018. The increase was due to (i) higherthe 2018 settlement between the Company and a former clinical operations costs from closure activities related to our Phase 3 clinical trial (PV-10 Intralesional Injection vs Systemic Chemotherapy or Oncolytic Viral Therapyvendor whereby the Company received a credit for Treatment of Locally Advanced Cutaneous Melanoma),$596,894 against its overall amounts due, partially offset by (ii) lower insurance costs, and (iii) a decrease in payroll and related taxes due to a lower negotiated employment agreement.

 

The following table summarizes our research and development expenses incurred during the three months ended JuneSeptember 30, 2019 and JuneSeptember 30, 2018:

 

  For the Three Months Ended    
  June 30,    
  2019  2018  Increase/(Decrease) 
          
Research and development:            
Clinical trial and research expenses $910,591  $586,916  $323,675 
Depreciation/amortization  169,942   169,942   - 
Insurance  61,049   75,233   (14,184)
Payroll and taxes  50,932   139,391   (88,460)
Rent and utilities  15,810   15,757   54 
Total research and development $1,208,324  $987,239  $221,085 

  For the Three Months Ended       
  September 30,  Increase/    
  2019  2018  (Decrease)  % Change 
             
Research and development:                
Clinical trial and research expenses $689,203  $134,818  $554,385   411.2%
Depreciation/amortization  169,941   169,942   (1)  0.0%
Insurance  66,762   67,964   (1,202)  -1.8%
Payroll and taxes  61,793   139,172   (77,379)  -55.6%
Rent and utilities  16,755   16,459   296   1.8%
Total research and development $1,004,454  $528,355  $476,099   90.1%

 

General and Administrative Expenses

 

General and administrative expenses were $631,063$438,359 for the three months ended JuneSeptember 30, 2019, a decrease of $476,674$391,047 or 43%47.1% compared to the three months ended JuneSeptember 30, 2018. The decrease was due to (i) lower legal fees as we concluded the Company’s lawsuits against former accounting vendors, (ii) a decrease in payroll and related taxes, and (iii) lower professional fees, partially offset by (iii) increased director fees (from having, period-over-period, a five-member Board compared to a four-member Board in previous year).fees.

 

The following table summarizes our general and administrative expenses incurred during the three months ended JuneSeptember 30, 2019 and JuneSeptember 30, 2018:

 

 For the Three Months Ended      
 For the Three Months Ended     September 30,  Increase/   
 June 30,     2019  2018  (Decrease)  % Change 
 2019  2018  Increase/(Decrease)          
General and administrative:                            
Depreciation $1,362  $1,362  $-  $1,361  $1,361  $(0)  0.0%
Directors fees  96,250   84,607   11,643   96,250   96,250   -   0.0%
Insurance  43,446   40,782   2,664   39,052   56,712   (17,660)  -31.1%
Legal and litigation  153,716   473,707   (319,991)  71,362   325,880   (254,518)  -78.1%
Other general and administrative cost  45,207   40,207   5,000   23,691   36,605   (12,914)  -35.3%
Payroll and taxes  75,168   97,433   (22,265)  55,162   116,122   (60,960)  -52.5%
Professional fees  207,265   361,240   (153,975)  143,278   188,000   (44,722)  -23.8%
Rent and utilities  8,648   8,398   250   8,203   8,476   (273)  -3.2%
Total general and administrative $631,063  $1,107,737  $(476,673) $438,359  $829,406  $(391,047)  -47.1%

 

16

Other Income/(Expense)

 

Other income decreased by $854,722$4,617 from $873,241$4,931 for the three months ended JuneSeptember 30, 2018 to $18,519$314 for the three months ended JuneSeptember 30, 2019. In the quarter ended June 30, 2018, the matter with BDO USA LLP (“BDO”), former external audit firm, was resolved pursuant to a settlement between the party and the Company, the terms of which are confidential.

 

Interest expense increased by $121,978$121,403 from $234,473$256,173 for the three months ended JuneSeptember 30, 2018 to $356,451$377,576 for the three months ended JuneSeptember 30, 2019. The increase was due to the increased number of convertible notes payable relating to the PRH Notes.

 

Comparison of SixNine Months Ended JuneSeptember 30, 2019 and JuneSeptember 30, 2018

 

Overview

 For the Six Months Ended     For the Nine Months Ended      
 June 30,     September 30,  Increase/   
 2019  2018  Increase/Decrease  2019  2018  (Decrease)  % Change 
                
Operating Expenses:                     
Research and development $2,245,655  $2,930,302  $(684,647) $3,250,109  $3,458,657  $(208,548)  -6.0%
General and administrative  1,390,316   1,863,887  $(473,571)  1,828,675   2,693,293   (864,618)  -32.1%
Total Operating Expenses  3,635,971   4,794,189  $(1,158,218)  5,078,784   6,151,950   (1,073,166)  -17.4%
                            
Total Operating Loss  (3,635,971)  (4,794,189) $1,158,218   (5,078,784)  (6,151,950)  1,073,166   -17.4%
                
Other Income/(Expense):                            
Gain on settlement of lawsuits  675,000   825,000  $(150,000)  675,000   825,000   (150,000)  -18.2%
Research and development tax credit  82,941   42,685  $40,256   82,115   42,685   39,430   92.4%
Investment and interest income  21,905   11,725  $10,180   23,045   16,656   6,389   38.4%
Interest expense  (691,024)  (441,041) $(249,983)  (1,068,600)  (697,214)  (371,386)  53.3%
                            
Net Loss $(3,547,149) $(4,355,820) $808,671  $(5,367,224) $(5,964,823) $597,599   -10.0%

 

Research and Development

 

Research and development expenses were $2,245,655$3,250,109 for the sixnine months ended JuneSeptember 30, 2019, a decrease of $684,647$208,548 or 23%6.0% compared to the sixnine months ended JuneSeptember 30, 2018. The decrease was due to (i) lower clinical operations due to drug manufacturing in 2018, (ii) the 2018 settlement between the Company and lower consultant costs, (ii)a former clinical operations vendor whereby the Company received a credit for $596,894 against its overall amounts due, (iii) lower insurance costs, and (iii)(iv) lower payroll and related taxes due to a lower negotiated employment agreement.agreement

 

The following table summarizes our research and development expenses incurred during the sixnine months ended JuneSeptember 30, 2019 and 2018:

 

 For the Six Months Ended    
  June 30,    
  2019  2018  Increase/(Decrease) 
          
Research and development:            
Clinical trial and research expenses $1,538,126  $2,121,255  $(583,129)
Depreciation/amortization  339,884   339,884   - 
Insurance  127,012   150,952   (23,940)
Payroll and taxes  200,407   284,595   (84,188)
Rent and utilities  40,226   33,616   6,610 
Total research and development $2,245,655  $2,930,302  $(684,647)

  For the Nine Months Ended       
  September 30,  Increase/    
  2019  2018  (Decrease)  % Change 
             
Operating Expenses:                
Research and development:                
Clinical trial and research expenses $2,227,329  $2,256,074  $(28,745)  -1.3%
Depreciation/amortization  509,825   509,825   -   0.0%
Insurance  193,774   218,917   (25,143)  -11.5%
Payroll and taxes  262,200   423,766   (161,566)  -38.1%
Rent and utilities  56,981   50,075   6,906   13.8%
Total research and development $3,250,109  $3,458,657  $(208,548)  -6.0%

17

General and Administrative

 

General and administrative expenses were $1,390,316$1,828,675 for the sixnine months ended JuneSeptember 30, 2019, a decrease of $473,571$864,618 or 25%32.1% compared to the sixnine months ended JuneSeptember 30, 2018. The decrease was due to (i) lower legal fees as we concluded the Company’s lawsuits against former accounting vendors, (ii) lower payroll and related taxes, and (iii) lower other general and administrative cost (travel and entertainment), partially offset by (vi) increased director fees (from having period-over-period, a five-member Board compared to a four-member Board in previous year), and (v) increased professional fees due to credit received in 2018 from a vendor after negotiating reduced rates..

 

The following table summarizedsummarizes our general and administrative expenses incurred during the sixnine months ended JuneSeptember 30, 2019 and 2018:

 

 For the Six Months Ended
June 30,		    For the Nine Months Ended     
 2019 2018 Change  September 30,  Increase/    
General and administrative       
 2019  2018  (Decrease)  % Change 
          
General and administrative:                
Depreciation $2,723  $2,723  $-  $4,084  $4,084  $(0)  0.0%
Directors fees  192,500   140,857   51,643   288,750   137,107   151,643   110.6%
Insurance  91,842   89,722   2,120   130,894   146,433   (15,539)  -10.6%
Legal and litigation  347,357   847,160   (499,803)  418,719   1,173,040   (754,321)  -64.3%
Other general and administrative cost  68,891   83,944   (15,053)  92,582   236,267   (143,685)  -60.8%
Payroll and taxes  198,439   240,827   (42,388)  253,601   356,948   (103,347)  -29.0%
Professional fees  467,477   441,466   26,011   610,755   633,750   (22,995)  -3.6%
Rent and utilities  21,087   17,188   3,899   29,290   5,664   23,626   417.1%
Total general and administrative $1,390,316  $1,863,887  $(473,571) $1,828,675  $2,693,293  $(864,618)  -32.1%

 

Other Income/(Expense)

 

Other income decreased by $99,564$104,181 from $879,410$884,341 for the sixnine months ended JuneSeptember 30, 2018 to $779,846$780,160 for the sixnine months ended JuneSeptember 30, 2019. During the sixnine months ended JuneSeptember 30, 2019, the matters with former accounting vendors Bible Harris Smith, PC (“BHS”) and RSM US LLP (“RSM”) were resolved pursuant to a settlement between these parties and the Company, the terms of which are confidential. During the sixnine months ended JuneSeptember 30, 2018, the matter with BDO, the Company’s former external audit firm, was resolved pursuant to a settlement between the party and the Company, the terms of which are confidential.

 

Interest expense increased by $249,983$371,386 from $441,041$697,214 for the sixnine months ended JuneSeptember 30, 2018 to $691,024$1,068,600 for the sixnine months ended JuneSeptember 30, 2019. The increase was due to the increased number of convertible notes payable relating to the PRH Notes.

 

Liquidity and Capital Resources

 

Our cash and cash equivalents were $1,324,228$434,787 at JuneSeptember 30, 2019, compared to $50,986 at December 31, 2018. The condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q have been prepared on a basis that contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. We have continuing net losses and negative cash flows from operating activities. In addition, we have an accumulated deficit of $230,441,440$232,261,515 as of JuneSeptember 30, 2019. These conditions raise substantial doubt about our ability to continue as a going concern for a period within one year from the date that the financial statements included elsewhere in this Quarterly Report on Form 10-Q are issued. Our financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern. Our ability to continue as a going concern depends on our ability to obtain additional financing as may be required to fund current operations.

 

Management’s plans include selling our equity securities and obtaining other financing to fund our capital requirement and on-going operations, including the 2017 Financing; however, there can be no assurance we will be successful in these efforts. The financial statements do not include any adjustment that might be necessary if we are unable to continue as a going concern. Significant funds will be needed to continue and complete our ongoing and planned clinical trials.

18

Access to Capital

 

Management plans to access capital resources through possible public or private equity offerings, including the 2017 Financing, exchange offers, debt financings, corporate collaborations or other means. If we are unable to raise sufficient capital through the 2017 Financing or otherwise, we will not be able to pay our obligations as they become due.

 

The primary business objective of management is to build the Company into a commercial-stage biotechnology company; however, we cannot assure you that management will be successful in implementing the Company’s business plan of developing, licensing, and/or commercializing our prescription drug product candidates. Moreover, even if we are successful in improving our current cash flow position, we nonetheless plan to seek additional funds to meet our current and long-term requirements in 2019 and beyond. We anticipate that these funds will otherwise come from the proceeds of private placement transactions, including the 2017 Financing, the exercise of existing warrants and outstanding stock options, or public offerings of debt or equity securities. While we believe that we have a reasonable basis for our expectation that we will be able to raise additional funds, we cannot assure you that we will be able to complete additional financing in a timely manner. In addition, any such financing may result in significant dilution to stockholders.

 

Critical Accounting Policies

 

For a description of our critical accounting policies, see Note 3 – Critical Accounting Policies in Part 1, Item 1 of this Quarterly Report on Form 10-Q.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as special purpose entities (“SPEs”).

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our principal executive officer and principal financial officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control Over Financial Reporting

 

There has been no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

19
 

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

The information required by this item is incorporated by reference from Part I, Item 1. Financial Statements, Notes to Condensed Consolidated Financial Statements, Note 8.

 

ITEM 1A. RISK FACTORS.

 

There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

2017 Financing

 

During the sixthree months ended June 30, 2019, the Company entered into additional PRH Notes with related parties in the aggregate principal amount of $25,000. As of June 30, 2019, the Company had drawn down the entire $25,000 under these notes.

During the six months ended JuneSeptember 30, 2019, the Company entered into additional PRH Notes with non-related party accredited investors in the aggregate principal amount of $4,825,000.$410,000. As of JuneSeptember 30, 2019, the Company had drawn down the entire $4,825,000$410,000 under these notes.

 

The Company believes that such transactions were exempt from the registration requirements of the Securities Act of 1933, as amended, (the “Securities Act”), in reliance on Section 4(a)(2) of the Securities Act (or Rule 506 of Regulation D promulgated thereunder) as transactions by an issuer not involving a public offering.

 

For further details on the terms of the PRH Notes, refer to our Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the SEC on March 7, 2019.

 

Incentive Compensation to Chief Financial Officer

On March 25, 2019, the Company entered into an employment agreement (the “Employment Agreement”) with its Chief Financial Officer (“CFO”). The Employment Agreement provides that the CFO shall receive initial incentive compensation of 50,000 shares of common stock. The Company believes that such transaction was exempt from the registration requirements of the Securities Act in reliance on Section 4(a)(2) of the Securities Act (or Rule 506 of Regulation D promulgated thereunder) as a transaction by an issuer not involving a public offering. On May 2, 2019, the Company issued the shares to the CFO.

Incentive Compensation to Consultants

 

During the sixthree months ended JuneSeptember 30, 2019, the Company issued an aggregate of 141,59025,000 shares of common stock to consultantsan advisory board member in connection with services rendered.the contract entered into on August 1, 2019. During the sixthree months ended JuneSeptember 30, 2019, the Company issued 387,500 five-year25,000 three-year immediately vested warrants to a consultant to purchase an aggregate of 387,50025,000 shares of common stockstocks with an exercise prices ranging from $1.00 to $2.00price of $0.2862 per share. The Company believes that such transactions were exempt from the registration requirements of the Securities Act in reliance on Section 4(a)(2) of the Securities Act (or Rule 506 of Regulation D promulgated thereunder) as a transaction by an issuer not involving a public offering.

20
 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4.Mine Safety Disclosures.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

ITEM 6. EXHIBITS.

 

Exhibit No. Description
10.1

Amendment No. 2 to the Independent Contractor Agreement dated April 19, 2017 between the Company and Bruce Horowitz, dated May 8, 2019 (incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed May 9, 2019).

10.2

Executive Employment Agreement between the Company and Eric A. Wachter, Ph.D., dated May 17, 2019 (incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K filed May 20, 2019).

   
31.1** Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) (Section 302 Certification).
   
31.2** Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) (Section 302 Certification).
   
32*** Certification of Principal Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 (Section 906 Certification).
   
101** Interactive Data Files.

 

** Filed herewith.

*** Furnished herewith.

21

SIGNATURES

 

Pursuant to the requirements 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.

 

 PROVECTUS BIOPHARMACEUTICALS, INC.
   
August 8,November 12, 2019By:/s/ Bruce Horowitz
  Bruce Horowitz
  Chief Operating Officer (Principal Executive Officer)
   
 By:/s/ Heather Raines
  Heather Raines, CPA
  

Chief Financial Officer (Principal Financial Officer)

 

22