UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended June 30, 20212022

 

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 Drive800 S Gay Street, Suite 2501610

Knoxville, Tennessee

 3793237929
(Address of principal executive offices) (Zip Code)

 

866-594-5999

(Registrant’s telephone number, including area code)

 

Not Applicable10025 Investment Drive, Suite 250, Knoxville, TN 37932

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

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
None N/A N/A

 

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 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). ☒ 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 filerAccelerated filer
   
Non-accelerated filerSmaller reporting company
   
  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 ☒ No

 

The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of August 12, 2021,10, 2022, was 404,007,037419,497,119.

 

 

 

 

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 Operations1412
Item 3. Quantitative and Qualitative Disclosures About Market Risk2017
Item 4. Controls and Procedures2017
  
PART II - OTHER INFORMATION 
  
Item 1. Legal Proceedings2118
Item 1A. Risk Factors2118
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds2118
Item 3. Defaults Upon Senior Securities2219
Item 4. Mine Safety Disclosures2219
Item 5. Other Information2219
Item 6. Exhibits2219
  
SIGNATURES2320

 

 

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,” 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, 2020)2021), and Item 1A of Part II of this Quarterly Report on Form 10-Q for the quarter ended June 30, 2021,2022, and:

 

 Our potential receipt of sales from investigational rose bengal sodium-based drug products PV-10® and PH-10®, and/or any other halogenated xanthene-based drug products (if and when approved); and licensing, milestone, royalty, and/or other payments related to these investigational drug products and/or the Company’s liquidation, dissolution, or winding up, or any sale, lease, conveyance, or other disposition of any intellectual property relating to rose bengal sodium-based and other halogenated xanthene-based investigational drug products and/or drug substances,

 Our ability to raise additional capital through the proceeds of private placement transactions, the exercise of existing warrants and outstanding stock options, and/or public offerings of debt or equity securities, and
   
 The widespread outbreak of an illness or communicable/infectious disease, such as severe acute respiratory syndrome coronavirus 2,, or a public health crisis, could disrupt our business and adversely affect our operations and financial condition, and
.
Many companies across a variety of sectors have reported and continue to report disruptions, shortages, and other supply chain-related issues. In the biopharmaceutical sector, delays and interruptions in the supply chain have been particularly pronounced. During this second quarter of 2022, we were able to effectively manage our supply of prescription drug candidates in a manner that avoided any significant interruptions to our clinical programs.

 

1

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS.

 

PROVECTUS BIOPHARMACEUTICALS, INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

        
 June 30, December 31,  June 30, December 31, 
 2021  2020  2022  2021 
 (Unaudited)      (Unaudited)  
Assets                
                
Current Assets:                
Cash and cash equivalents $47,407  $97,231  $84,274  $682,984 
Short-term receivables - legal fees, settlement and other, net  5,408   3,930 
Prepaid expenses  294,406   322,518 
Restricted cash  1,948,335   2,423,958 
Short-term receivables  2,744   5,107 
Prepaid expenses and other current assets  243,394   329,908 
                
Total Current Assets  347,221   423,679   2,278,747   3,441,957 
                
Equipment and furnishings, less accumulated depreciation
of $84,745
and $78,313, respectively
 
 
 
 
 
38,269
 
 
 
 
 
 
 
44,701
 
 
Equipment and furnishings, less accumulated depreciation of $97,215 and $91,178, respectively  25,799   31,836 
Operating lease right-of-use asset  80,809   120,821   138,863   39,563 
                
Total Assets $466,299  $589,201  $2,443,409  $3,513,356 
                
Liabilities and Stockholders’ Deficiency                
                
Current Liabilities:                
Accounts payable - trade $1,209,108  $956,860 
Accounts payable $1,894,201  $1,287,459 
Deposit for purchase of Series D-1 Preferred Stock  -   150,000 
Unearned grant revenue  1,990,685   2,500,000 
Other accrued expenses  1,653,506   1,500,782   2,331,621   2,002,486 
Current portion of accrued interest  -   2,774,968 
Current portion of accrued interest - related parties  -   1,766,493 
Current portion of note payable  127,393   236,228 
Current portion of convertible notes payable  -   16,622,000 
Current portion of convertible notes payable - related parties  -   6,770,000 
Current portion of operating lease liability  86,974   84,383 
Accrued interest  68,389   10,578 
Accrued interest - related parties  14,044   6,044 
Notes payable  142,693   238,452 
Convertible notes payable  1,810,000   1,260,000 
Convertible notes payable - related parties  200,000   200,000 
Operating lease liability, current portion  42,662   45,617 
                
Total Current Liabilities  3,076,981   30,711,714   8,494,295   7,700,636 
                
Note payable, non-current portion  -   39,061 
Operating lease liability, non-current portion  -   44,783   96,201   - 
                
Total Liabilities  3,076,981   30,795,558   8,590,496   7,700,636 
                
Commitments and contingencies (Note 10)  -   - 
Commitments, contingencies, and litigations (Note 11)  -   - 

Stockholders’ Deficiency:

        
Preferred stock; par value $0.001 per share; 25,000,000 shares authorized;        
Series D Convertible Preferred Stock; 12,374,000 shares designated; 12,373,247 shares issued and outstanding at June 30, 2022 and December 31, 2021; aggregate liquidation preference of $14,164,889 at June 30, 2022 and December 31, 2021  12,373   12,373 
Series D-1 Convertible Preferred Stock; 11,241,000 shares designated; 9,270,860 and 9,218,449 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively; aggregate liquidation preference of $106,132,320 and $105,532,804 at June 30, 2022 and December 31, 2021, respectively  9,271   9,219 

Preferred stock, value

      
                
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, 2021 and December 31, 2020; aggregate liquidation preference of $3,500 at June 30, 2021 and December 31, 2020

  -   - 
Series D Convertible Preferred Stock; 12,374,000 shares designated; 12,373,247 and 0 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively; aggregate liquidation preference of $14,164,889 and $0 at June 30, 2021 and December 31, 2020, respectively (See Note 4. Convertible Notes Payable – Liquidation Preference)  12,373   - 
Series D-1 Convertible Preferred Stock; 9,441,000 shares designated; 9,440,594 and 0 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively; aggregate liquidation preference of $108,075,431 and $0 at June 30, 2021 and December 31, 2020, respectively (See Note 4. Convertible Notes Payable – Liquidation Preference)  9,441   - 
Preferred stock, value  9,441   - 
Common stock; par value $0.001 per share; 1,000,000,000 shares authorized; 403,782,037 and 398,807,037 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively  403,783   398,808 
Common stock; par value $0.001 per share; 1,000,000,000 shares authorized; 419,447,119 shares issued and outstanding at June 30, 2022 and December 31, 2021  419,447   419,447 
Additional paid-in capital  240,742,061   209,923,347   241,590,054   241,440,106 
Accumulated other comprehensive loss  (34,381)  (34,097)  (35,511)  (34,467)
Accumulated deficit  (243,743,959)  (240,494,415)  (248,142,721)  (246,033,958)
                
Total Stockholders’ Deficiency  (2,610,682)  (30,206,357)  (6,147,087)  (4,187,280)
                
Total Liabilities and Stockholders’ Deficiency $466,299  $589,201  $2,443,409  $3,513,356 

 

See accompanying notes to condensed consolidated financial statements.

 

2

 

PROVECTUS BIOPHARMACEUTICALS, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 2021  2020  2021  2020                 
 For the Three Months Ended For the Six Months Ended  For the Three Months Ended For the Six Months Ended 
 June 30,  June 30,  June 30,  June 30, 
 2021  2020  2021  2020  2022  2021  2022  2021 
         
Grant Revenue $321,710  $-  $509,315  $- 
                         
Operating Expenses:                                
Research and development $602,979  $696,454  $1,258,123  $1,605,900   816,648   602,979   1,487,764   1,258,123 
General and administrative  619,038   514,394   1,144,570   1,053,188   583,042   619,038   1,099,589   1,144,570 
Total Operating Expenses  1,222,017   1,210,848   2,402,693   2,659,088   1,399,690   1,222,017   2,587,353   2,402,693 
                                
Total Operating Loss  (1,222,017)  (1,210,848)  (2,402,693)  (2,659,088)  (1,077,980)  (1,222,017)  (2,078,038)  (2,402,693)
                
Other Income/(Expense):                                
EIDL grant  -   3,000   -   3,000 
Research and development tax credit  32,144   113   32,144   26,364   38,259   32,144   38,259   32,144 
Investment and interest income  -   3,334   1   3,413 
Gain from extinguishment  63,094   -   63,094   -   -   63,094   -   63,094 
Interest expense  (452,812)  (410,404)  (942,087)  (815,555)
Total Other Expense, Net  (357,574)  (403,957)  (846,848)  (782,778)
Interest income and interest expense  (38,120)  (452,812)  (68,984)  (942,086)
Total Other Income/(Expense), Net  139   (357,574)  (30,725)  (846,848)
                                
Net Loss $(1,579,591) $(1,614,805) $(3,249,541) $(3,441,866) $(1,077,841) $(1,579,591) $(2,108,763) $(3,249,541)
                                
Basic and Diluted Loss Per Common Share $(0.00) $(0.00) $(0.01) $(0.01) $(0.00) $(0.00)  (0.01) $(0.01)
                                
Weighted Average Number of Common Shares Outstanding - Basic and Diluted 
 
 
 
 
403,628,466
 
 
 
 
 
 
 
390,714,200
 
 
 
 
 
 
 
402,910,628
 
 
 
 
 
 
 
390,635,608
 
 
  419,447,119   403,628,466   419,447,119   402,910,628 

See accompanying notes to condensed consolidated financial statements.

3

PROVECTUS BIOPHARMACEUTICALS, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

 2021  2020  2021  2020 
 For the Three Months Ended For the Six Months Ended                 
 June 30,  June 30,  For the Three Months Ended For the Six Months Ended 
 2021  2020  2021  2020  June 30,  June 30, 
        2022  2021  2022  2021 
                  
Net Loss $(1,579,591) $(1,614,805) $(3,249,541) $(3,441,866) $(1,077,841) $(1,579,591) $(2,108,763) $(3,249,541)
Other Comprehensive Income (Loss):                
Other Comprehensive Loss:                
Foreign currency translation adjustments  (1,121)  2,233   (34,381)  (30,802)  (328)  (1,121)  (1,044)  (284)
Total Comprehensive Loss $(1,580,712) $(1,612,572) $(3,283,922) $(3,472,668) $(1,078,169) $(1,580,712) $(2,109,807) $(3,249,825)

 

See accompanying notes to condensed consolidated financial statements.

4

PROVECTUS BIOPHARMACEUTICALS, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIENCY

(Unaudited)

 

FOR THE SIX MONTHS ENDED JUNE 30, 20212022

 

 Shares  Amount  Shares  Amount  Shares  Amount  Shares  Amount  Capital  Loss  Deficit  Total                                         
                    Accumulated       Preferred Stock Preferred Stock       Additional 

 Accumulated

Other

      
 Preferred Stock  Preferred Stock  Preferred Stock       Additional  Other       Series D  Series D-1  Common Stock  Paid-In  Comprehensive  Accumulated    
 Series B  Series D  Series D-1  Common Stock  Paid-In  Comprehensive  Accumulated     Shares  Amount  Shares  Amount  Shares  Amount  Capital  Loss  Deficit  Total 
 Shares  Amount  Shares  Amount  Shares  Amount  Shares  Amount  Capital  Loss  Deficit  Total                      
Balance at January 1, 2022- 12,373,247  $12,373   9,218,449  $9,219   419,447,119  $419,447  $241,440,106  $(34,467) $(246,033,958) $(4,187,280)
Common stock issued upon exercise of warrants                                        
Common stock issued upon exercise of warrants, shares                                        
Common stock                                        
Common stock, shares                                        
Warrants                                        
Conversion of PRH Notes to Series D Preferred Stock                                        
Conversion of PRH Notes to Series D Preferred Stock, shares                                        
Conversion of PRH Notes to Series D-1 Preferred Stock                                        
Conversion of PRH Notes to Series D-1 Preferred Stock, shares                                        
                                                                 
Balance at January 1, 2021  100  $-   -  $-   -  $-   398,807,037   398,808   209,923,347   (34,097)  (240,494,415)  (30,206,357)
                                                
Common stock issued upon exercise of warrants  -   -   -   -   -   -   4,500,000   4,500   235,350   -   -   239,850 
Common stock issued for service                                                
Common stock issued for services, shares                                                
Stock-based compensation:                                                
Common stock  -   -   -   -   -   -   250,000   250   19,500   -   -   19,750 
Series D-1 Preferred Stock issued for cash  -   -   52,411   52   -   -   149,948   -   -   150,000 
Comprehensive loss:                                                                                       
Net loss  -   -   -   -   -   -   -   -   -   -   (1,669,950)  (1,669,950)- -   -   -   -   -   -   -   -   (1,030,922)  (1,030,922)
Other comprehensive loss  -   -   -   -   -   -   -   -   -   837   -   837   -   -   -   -   -   -   -   (716)  -   (716)
                                                                                        
Balance at March 31, 2021  100  $-   -  $-   -  $-   403,557,037  $403,558  $210,178,197  $(33,260) $(242,164,365) $(31,615,870)
Balance at March 31, 2022- 12,373,247  $12,373   9,270,860  $9,271   419,447,119  $419,447  $241,590,054  $(35,183) $(247,064,880) $(5,068,918)
                                                                                        
Common stock issued for services  -   -   -   -   -   -   25,000   25   1,650   -   -   1,675 
Common stock issued upon exercise of warrants  -   -   -   -   -   -   200,000   200   10,460   -   -   10,660 
Stock-based compensation:                                                
Warrants  -   -   -   -   -   -   -   -   488   -   -   488 
Conversion of PRH Notes to Series D Preferred Stock  -   -   12,373,247   12,373   -   -   -   -   3,528,849   -   -   3,541,222 
Conversion of PRH Notes to Series D-1 Preferred Stock  -   -   -   -   9,440,594   9,441   -   -   27,022,417   -   -   27,031,858 
Comprehensive loss:                                                                                        
Net loss  -   -   -   -   -   -   -   -   -   -   (1,579,591)  (1,579,591)- -   -   -   -   -   -   -   -   (1,077,841)  (1,077,841)
Other comprehensive income  -   -   -   -   -   -   -   -   -   (1,121)  -   (1,121)  -   -   -   -   -   -   -   (328)  -   (328)
Other comprehensive income (loss)  -   -   -   -   -   -   -   -   -   (1,121)  -   (1,121)
                                                                                        
Balance at June 30, 2021  100  $-   12,373,247  $12,373   9,440,594  $9,441   403,782,037  $403,783  $240,742,061  $(34,381) $(243,743,959) $(2,610,682)
Balance at June 30, 2022- 12,373,247  $12,373   9,270,860  $9,271   419,447,119  $419,447  $241,590,054  $(35,511) $(248,142,721) $(6,147,087)

 

FOR THE SIX MONTHS ENDED JUNE 30, 20202021

                Accumulated        Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Loss   Deficit   Total 
 Preferred Stock  Preferred Stock Preferred Stock       Additional  Other       Preferred Stock  Preferred Stock  Preferred Stock       Additional  

Accumulated

Other

      
 Series B  Series D  Series D1  Common Stock  Paid-In  Comprehensive  Accumulated     Series B  Series D  Series D-1  Common Stock  Paid-In  Comprehensive  Accumulated    
 Shares  Amount  Shares  Amount Shares  Amount  Shares  Amount  Capital  Loss  Deficit  Total  Shares  Amount  Shares  Amount  Shares  Amount  Shares  Amount  Capital  Loss  Deficit  Total 
                                             
Balance at January 1, 2020  100  $-      -       -   389,889,475  $389,889  $209,378,835  $(24,008) $(233,816,828) $(24,072,112)
Balance at January 1, 2021  100        -   -   -   -   -   398,807,037  $398,808  $209,923,347  $(34,097) $(240,494,415) $(30,206,357)
                                                                                               
Common stock issued upon exercise of warrants  -   -      -       -   800,000   800   41,840   -   -   42,640   -   -   -   -   -   -   4,500,000   4,500   235,350   -   -   239,850 
Stock-based compensation:                                                
Common stock  -   -   -   -   -   -   250,000   250   19,500   -   -   19,750 
Comprehensive loss:                                                                                              
Net loss  -   -      -       -   -   -   -   -   (1,827,061)  (1,827,061)  -   -   -   -   -   -   -   -   -   -   (1,669,950)  (1,669,950)
Other comprehensive loss  -   -       -       -   -   -   -   (9,027)  -   (9,027)  -   -   -   -   -   -   -   -   -   837   -   837 
                                                                                               
Balance at March 31, 2020  100  $-      -       -   390,689,475  $390,689  $209,420,675  $(33,035) $(235,643,889) $(25,865,560)
Beginning Balance  100  $-      -       -   390,689,475  $390,689  $209,420,675  $(33,035) $(235,643,889) $(25,865,560)
Balance at March 31, 2021  100   -   -   -   -   -   403,557,037  $403,558  $210,178,197  $(33,260) $(242,164,365) $(31,615,870)
Beginning balance, value  100   -   -   -   -   -   403,557,037   403,558   210,178,197   (33,260)  (242,164,365)  (31,615,870)
                                                                                               
Common stock issued for services  -   -                  25,000   25   1,125   -   -   1,150 
Common stock issued upon exercise of warrants  -   -   -   -   -   -   200,000   200   10,460   -   -   10,660 
Stock-based compensation:                                                
Common stock  -   -   -   -   -   -   25,000   25   1,650   -   -   1,675 
Warrants  -   -   -   -   -   -   -   -   488   -   -   488 
Conversion of PRH Notes to Series D Preferred Stock  -   -   12,373,247   12,373   -   -   -   -   3,528,849   -   -   3,541,222 
Conversion of PRH Notes to Series D-1 Preferred Stock  -   -   -   -   9,440,594   9,441   -   -   27,022,417   -   -   27,031,858 
Comprehensive loss:                                                                                               
Net loss  -   -      -       -   -   -   -   -   (1,614,805)  (1,614,805)  -   -   -   -   -   -   -   -   -   -   (1,579,591)  (1,579,591)
Net income (loss)  -   -   -   -   -   -   -   -   -   -   (1,579,591)  (1,579,591)
Other comprehensive income  -   -       -       -   -   -   -   2,233   -   2,233   -   -   -   -   -   -   -   -   -   (1,121)  -   (1,121)
Other comprehensive income (loss)  -   -       -       -   -   -   -   2,233   -   2,233   -   -   -   -   -   -   -   -   -   (1,121)  -   (1,121)
                                                                                               
Balance at June 30, 2020  100  $-      -       -   390,714,475  $390,714  $209,421,800  $(30,802) $(237,258,694) $(27,476,982)
Ending Balance  100  $-      -       -   390,714,475  $390,714  $209,421,800  $(30,802) $(237,258,694) $(27,476,982)
Balance at June 30, 2021  100  $-   12,373,247  $12,373   9,440,594  $9,441   403,782,037  $403,783  $240,742,061  $(34,381) $(243,743,959) $(2,610,682)

See accompanying notes to condensed consolidated financial statements.

 

5

 

PROVECTUS BIOPHARMACEUTICALS, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

         
  For the Six Months Ended 
  June 30, 
  2022  2021 
    
Cash Flows From Operating Activities:        
Net loss $(2,108,763) $(3,249,541)
Adjustments to reconcile net loss to net cash used in operating activities:        
Stock-based compensation  -   21,913 
Non-cash lease expense  31,142  40,012 
Depreciation  6,037   6,432 
Gain on forgiveness of PPP Loan and interest  -   (63,094)
Changes in operating assets and liabilities        
Short term receivables  2,363   (1,632)
Prepaid expenses and other current assets  143,940   123,230 
Accounts payable - trade  606,742   252,254 
Unearned grant revenue  (509,315)  - 
Other accrued expenses  329,135   152,786 
Operating lease liability  (37,196)  (42,191)
Accrued interest expense  65,811   940,212 
         
Net Cash Used In Operating Activities  (1,470,104)  (1,819,619)
         
Cash Flows From Financing Activities:        
Proceeds from issuance of convertible notes payable  550,000   1,700,000 
Repayment of short-term note payable  (153,185)  (95,387)
Note Payable  -   (85,398) 
Proceeds from exercise of warrants  -   250,510 
Net Cash Provided By Financing Activities  396,815   1,769,725 
         
Effect of exchange rates on cash, cash equivalents, and restricted cash  (1,044)  70 
         
Net Decrease In Cash, Cash Equivalents, and Restricted Cash  (1,074,333)  (49,824)
         
Cash, Cash Equivalents, and Restricted Cash, Beginning of Period  3,106,942   97,231 
         
Cash, Cash Equivalents, and Restricted Cash, End of Period $2,032,609  $47,407 
         
Cash, cash equivalents and restricted cash consisted of the following:        
Cash and cash equivalents $84,274  $47,407 
Restricted cash  1,948,335   - 
  $2,032,609  $47,407 
         
Supplemental Disclosures of Cash Flow Information:        
Cash paid during the period for:        
Interest $-  $- 
Income taxes $-  $- 
         
Non-cash investing and financing activities:        
Purchase of insurance policies financed by short-term note payable $(57,426) $(309,710)
Deposit applied for purchase of Series D-1 Preferred Stock $(150,000) $- 
Conversion of non-amended 2017 Notes to Series D Preferred Stock $-  $3,541,222 
Conversion of amended 2017 Notes and 2020 Notes to Series D-1 Preferred Stock $-  $27,031,858 

Right-of-use assets obtained in exchange for operating

lease liabilities

 $

130,422

  $-

 

 

  2021  2020 
  For the Six Months Ended 
  June 30, 
  2021  2020 
       
Cash Flows From Operating Activities:        
Net loss $(3,249,541) $(3,441,866)
Adjustments to reconcile net loss to net cash used in operating activities:        
Stock-based compensation  21,913   1,150 
Noncash lease expense  40,012   36,801 
Depreciation  6,432   7,046 
Amortization of patents  -   228,107 
Forgiveness of PPP Loan  (62,500)  - 
Changes in operating assets and liabilities        
Short term receivables  (1,632)  47,653
Prepaid expenses  123,230   207,590 
Accounts payable - trade  252,254   332,134 
Loan payable  (85,398)  -  
Other accrued expenses  152,786   120,817
Operating lease liability  (42,191)  (38,958)
Accrued interest expense  939,618   815,430 
         
Net Cash Used In Operating Activities  (1,905,017)  (1,684,096)
         
Cash Flows From Financing Activities:        
Proceeds from issuance of convertible notes payable  1,700,000   2,375,000 
Proceeds from issuance of convertible notes payable - related parties  -   100,000 
Repayment of short-term note payable  (95,387)  - 
Proceeds from note payable  -   62,500 
Proceeds from exercise of warrants  250,510   42,640 
Net Cash Provided By Financing Activities  1,855,123   2,580,140 
         
Effect of Exchange Rate Changes on Cash  70   (3,536)
         
Net (Decrease)/Increase In Cash and Cash Equivalents  (49,824)  892,508
         
Cash and Cash Equivalents, Beginning of Period  97,231   590,706 
         
Cash and Cash Equivalents, End of Period $47,407  $1,483,214
         
Supplemental Disclosures of Cash Flow Information:        
Cash paid during the period for:        
Interest $-  $- 
Income taxes $-  $- 
         
Non-cash investing and financing activities:        
Conversion of 2017 Notes and 2020 Notes to Convertible Preferred Stock Series D and D-1  30,560,080   - 
Purchase of insurance policies financed by short-term note payable  (309,710)  - 

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”“the Company”), is a clinical-stage biotechnology company developing immunotherapy medicines for different diseases with the aim of maximizing the curative impact of these medicines and achieving immunity from treated disease. These investigational drugs are based on an entire, wholly owned, familya class of small molecules called halogenated xanthenes (“HXs”). , a class entirely owned by the Company.

Our lead HX molecule is named rose bengal disodiumsodium (“RBD”RBS”). The Company has established a multi-step approach using quality-by-design principles for synthesizing and manufacturing pharmaceutical-grade RBS by current good manufacturing practice (“cGMP”) and under the guidelines of The International Council for Harmonization of Technical Requirements for Pharmaceuticals for Human Use. A second HX molecule has been synthesized, 4,5,6,7-tetrabromo-3′,6′-dihydroxy-2′,4′,5′,7′-tetraiodo-3H-spiro[isobenz- ofuran-1,9′-xanthen]-3-one.

 

 

Oncology: PV-10®, an investigational cancer immunotherapy administered by intralesional (“IL”) injection and an injectable formulation of cGMP RBD,RBS, is undergoing clinical study for adult solid tumor cancers, such as melanoma and gastrointestinal (“GI”) tumors (including hepatocellular carcinoma (“HCC”), colorectal cancer metastatic to the liver (“mCRC”), neuroendocrine tumors (“NET”) metastatic to the liver (“mNET”), and uveal melanoma metastatic to the liver (“mUM”), among others). Orphan drug designation (“ODD”) status was granted to PV-10 by the U.S. Food and Drug Administration (the “FDA”) for metastatic melanoma in 2006, HCC in 2011, and ocular melanoma (including uveal melanoma) in 2019.cancers.

 

Oral formulations of cGMP RBDRBS are also undergoing preclinical study as prophylactic and therapeutic treatments for high-risk and refractory adult solid tumor cancers, such as head and neck, breast, colorectal, and testicular cancers.

   
 Pediatric Oncology: IL PV-10 is also undergoing preclinical study for pediatric solid tumor cancers (including neuroblastoma, Ewing sarcoma, rhabdomyosarcoma, and osteosarcoma). ODD status was granted to PV-10 by the FDA for neuroblastoma in 2018.cancers.
   
 Hematology: Oral formulations of cGMP RBDRBS are undergoing preclinical study for refractory and relapsed pediatric blood cancers (including leukemias).
   
 Virology: Systemically administeredSystemic administration of formulations of cGMP RBDRBS are undergoing preclinical study for the novel strain of coronavirus (“CoV”): severe acute respiratory syndrome (“SARS”) CoV 2 (“SARS-CoV-2”).
   
 Microbiology: Different formulations of cGMP RBDRBS are undergoing preclinical study as potential treatments for multi-drug resistant (“MDR”) bacteria, such as gram-positive and gram-negative.bacteria.
   
 Ophthalmology: Topical formulations of cGMP RBDRBS are undergoing preclinical study as potential treatments for diseases and disorders of the eye, such as infectious keratitis.eye.
   
 Dermatology: PH-10®, an investigational immuno-dermatologyimmune-dermatology agent administered as a topical gel and formulation of cGMP RBD,RBS, is undergoing monotherapy clinical study andas well as preclinical study ofas a monotherapy and in combination therapy with approved drugs for inflammatory dermatoses (including psoriasis and atopic dermatitis).dermatoses.
   
 Animal Health: Different formulations of cGMP RBDRBS are undergoing development as potential treatments for animal cancers and dermatological disorders.

 

To date, the Company has not generated any revenues or profits 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.

 

7

 

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, 20202021 filed with the SEC on March 2, 2021.29, 2022. 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 six months ended June 30, 20212022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.2022.

 

SARS-CoV-2 was reportedly first identified in late-2019 and subsequently declared a global pandemic by the World Health Organization on March 11, 2020. As a result of the SARS-CoV-2 pandemic, many companies have experienced disruptions of their operations and the markets they serve. The Company has taken several temporary precautionary measures intended to help ensure the well-being of its employees and contractors and to minimize business disruption. The Company considered the impact of SARS-CoV-2 pandemic on its business and operational assumptions and estimates, and determined there were no material adverse impacts on the Company’s results of operations and financial position at June 30, 2021.2022.

 

The full extent of the SARS-CoV-2 pandemic impacts on the Company’s operations and financial condition is uncertain. The Company has experienced slower than normal enrollment and treatment of patients, and a prolonged SARS-CoV-2 pandemic could have a material adverse impact on the Company’s business and financial results, including the timing and ability of the Company to raise capital, initiate and/or complete current and/or future preclinical studies and/or clinical trials;trials, disrupt the Company’s regulatory activities;activities, and/or have other adverse effects on the Company’s clinical development.

Basic and Diluted Loss Per Common Share

Basic loss per common share is computed by dividing net loss by the weighted average number of vested common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other instruments to issue common stock were exercised or converted into common stock. The following securities are excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive:

Schedule of Securities Excluded from Calculation of Weighted Average Dilutive Common Shares

  June 30,  June 30, 
  2021  2020 
Warrants  82,589,164   95,767,428 
Options  4,800,000   2,800,000 
Convertible preferred stock  21,813,941   65,663 
         
Total potentially dilutive shares  109,203,105   98,633,091 

 

2. Liquidity and Going Concern

 

The Company’s cash, and cash equivalents, and restricted cash were $47,407 2,032,609at June 30, 2021.2022 which includes $1,948,335 of restricted cash resulting from a grant received from the State of Tennessee. The Company’s working capital deficiency was $6,215,548 and $4,258,679 as of June 30, 2022 and December 31, 2021, respectively. 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 unaudited condensed consolidated 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, PH-10, and/or any other halogenated xanthene-based drug products, and to raise additional capital.

 

The Company plans to access capital resources through possible public or private equity offerings, including the 2021 financing (see Note 5), 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, it will not be able to pay its obligations as they become due.

 

8

During the six months ended June 30, 2021, warrant holders exercised warrants to purchase an aggregate of 4,700,000 shares of common stock at a price of $0.0533 per share. In connection with these exercises, the Company received aggregate cash proceeds of $250,510.

On June 20, 2021, the outstanding non-amended 2017 Notes converted into 12,373,247 shares of Series D Convertible Preferred Stock at the Original Conversion Price of $0.2862, and all the outstanding Amended 2017 Notes and outstanding 2020 Notes converted into 9,440,594 shares of Series D-1 Convertible Preferred Stock at the New Conversion Price of $2.862. The outstanding non-amended 2017 Notes, Amended 2017 Notes and 2020 Notes had totaled $30,560,080 in principal and interest.

 

The primary business objective of management is to build the Company into a commercial-stage biotechnology company; however, the Company cannot assure that it will be successful in co-developing, licensing, and/or commercializing PV-10, PH-10, and/or any other halogenated xanthene-based drug candidate developed by the Company or entering into any 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 20212022 and beyond. The Company anticipates that these funds will otherwise come from the proceeds of private placement transactions, 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 provide assurance 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. CriticalSignificant Accounting Policies

 

Since the date the Company’s December 31, 20202021 consolidated financial statements were issued in its 20202021 Annual Report, there have been no material changes to the Company’s significant accounting policies, except as disclosed below.

 

Recently Adopted Accounting Standards

 

In December 2019,October 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, Simplifying the Accounting for Income Taxes. The amendments in ASU 2019-12 simplify the accounting for income taxes by removing certain exceptions to the general principles in Accounting Standards Update (“ASU”) 2020-10 Codification (“ASC”) Topic 740, Income TaxesImprovements”. The amendments also improve consistent, which improves consistency by amending the Codification to include all disclosure guidance in the appropriate disclosure sections and clarifies application of various provisions in the Codification by amending and simplify GAAP foradding new headings, cross referencing to other areas of Topic 740 by clarifyingguidance, and amending existing guidance. ASU 2019-12 will berefining or correcting terminology. The guidance is effective for the Company’sCompany beginning in the first quarter of fiscal year 2022 with early adoption permitted. The Company adopted this standard on January 1, 2022 and it did not have a material effect on its condensed consolidated financial statements.

On May 3, 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. This standard is effective for fiscal years beginning after December 15, 2020, with early2021, including interim periods within those fiscal years. Issuers should apply the new standard prospectively to modifications or exchanges occurring after the effective date of the new standard. Early adoption permitted. An entity thatis permitted, including adoption in an interim period. If an issuer elects to early adopt the amendmentsnew standard in an interim period, the guidance should reflect any adjustmentsbe applied as of the beginning of the annual periodfiscal year that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period. The Company adopted ASU 2019-12this standard on January 1, 20212022 and there was noit did not have a material impacteffect on the Company’sits condensed consolidated financial statements or disclosures.statements.

 

Convertible InstrumentsCash and Cash Equivalents

The Company evaluates its convertibleconsiders all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. As of June 30, 2022 and December 31, 2021, the Company’s cash equivalents consist of Treasury bills of $0 and $42,594, respectively.

Restricted Cash

Restricted cash consists of a grant award of $2,500,000 received in cash from the State of Tennessee less expenses and deposits to vendors in the amount of $551,665. See Note 10. Grants.

Cash Concentrations

Cash, cash equivalents, and restricted cash are maintained at financial institutions and, at times, balances may exceed federally insured limits of $250,000, although the Company seeks to minimize this through treasury management. The Company has never experienced any losses related to these balances although no assurance can be provided that it will not experience any losses in the future. As of June 30, 2022 and December 31, 2021, the Company had cash, cash equivalents, and restricted cash balances in excess of FDIC insurance limits of $1,782,609 and $2,856,942, respectively.

Reclassifications

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

Basic and Diluted Loss Per Common Share

Basic loss per common share is computed by dividing net loss by the weighted average number of vested common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other instruments to determine if those contractsissue common stock were exercised or embedded componentsconverted into common stock. The following securities are excluded from the calculation of those contracts qualify as derivative financial instruments to be separately accounted for in accordance with ASC Topic 815: Derivatives and Hedging. The accounting treatmentweighted average dilutive common shares because their inclusion would have been anti-dilutive:

Schedule of derivative financial instruments requires that the Company record embedded conversion options and any related freestanding instruments at their fair values asSecurities Excluded from Calculation of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. Embedded conversion options and any related freestanding instruments are recorded as a discount to the host instrument.Weighted Average Dilutive Common Shares

If the instrument is determined to not be a derivative liability, the Company then evaluates for the existence of a beneficial conversion feature by comparing the commitment date fair value to the effective conversion price of the instrument.

Preferred Stock

The Company applies the accounting standards for distinguishing liabilities from equity when determining the classification and measurement of its preferred stock. Preferred shares subject to mandatory redemption are classified as liability instruments and are measured at fair value. Conditionally redeemable preferred shares (including preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, preferred shares are classified as stockholders’ deficiency.

         
  June 30,  June 30, 
  2022  2021 
Warrants  512,500   82,589,164 
Options  3,425,000   4,800,000 
Convertible preferred stock  105,081,847   106,778,757 
2021 unsecured convertible notes  7,311,088   - 
         
Total potentially dilutive shares  116,330,435   194,167,921 

 

9

 

4. Convertible Notes PayableOther Accrued Expenses

The following table summarizes the other accrued expenses at June 30, 2022 and December 31, 2021:

Schedule of Other Accrued Expenses

         
  

June 30,

2022

  

December 31,

2021

 
Accrued payroll and taxes $259,008  $174,533 
Accrued vacation  56,356   42,871 
Accrued directors’ fees  1,753,089   1,560,589 
Accrued other expenses  263,168   224,493 
Total Other Accrued Expenses $2,331,621  $2,002,486 

 

2017 Financing

On March 23, 2017, the Company entered into a 2017 Term Sheet with the PRH Group 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”). The 2017 Financing was in the form of a secured convertible loan from the PRH Group and other investors in the 2017 Financing, which were evidenced by secured convertible promissory notes (individually a “2017 Note” and collectively, the “2017 Notes”) from the Company to the PRH Group and other investors. As of June 30, 2021 and December 31, 2020, the Company had received aggregate proceeds of $20,067,000 from the issuance of the 2017 Notes, respectively, of which $6,770,000 was received from related parties.

2020 Financing

On December 31, 2019, the Board approved a Definitive Financing Term Sheet (the “2020 Term Sheet”), which sets forth the terms under which the Company will use its best efforts to arrange for financing of a maximum of $20,000,000 (the “2020 Financing”). The 2020 Financing was in the form of secured convertible loans from investors that were evidenced by secured convertible promissory notes (the “2020 Notes”). The 2020 Term Sheet was similar to the 2017 Term Sheet. Subject to the terms and conditions of the 2020 Term Sheet, the Company used its best efforts to arrange for the 2020 Financing, which amounts were obtained in several tranches. As of June 30, 2021 and December 31, 2020, the Company had received proceeds of $5,025,000 and $3,325,000, respectively,in connection with the 2020 Financing, of which $100,000 was received from related parties.

Firm Commitment

Previously, the Company had not designated the Series D Preferred Stock into which the 2017 Notes and the 2020 Notes (collectively the “Notes”) were convertible into. As a result, the Company did not analyze the Notes for a potential beneficial conversion feature as the definition of a firm commitment had not been met since the Notes were not yet convertible.   On June 17, 2021, the required Certificates of Designation were filed with the Delaware Secretary of State.  Accordingly, a firm commitment was achieved.  The Company analyzed the Notes for a beneficial conversion feature and determined that there was none because the Notes have an effective conversion price of $0.2862 and $2.862 per share of underlying common stock, which exceeds the $0.07 per share commitment date closing market price of the common stock.

The Series D and D-1 Convertible Preferred Stock

The 2017 Notes originally provided that they were convertible into a new class of the Company’s preferred stock, $0.001 par value per share (“Preferred Stock”), at a price per share equal to $0.2862 (the “Original Conversion Price”), which would be convertible into one share (the “Original Conversion Ratio”) of the Company’s common stock, $0.001 par value per share (“Common Stock”).

In order to ensure that the Company had sufficient authorized shares of Preferred Stock into which the 2017 Notes would convert, yet keep the economic terms of the 2017 Notes substantially equivalent, the Company entered into amendments (the “Amendments”) to the 2017 Notes (as amended, the “Amended 2017 Notes”) with a large majority of the holders of 2017 Notes to increase the conversion price by 10 times from $0.2862 to $2.862 (the “New Conversion Price”) and to change the conversion ratio by providing that one share of Preferred Stock would be convertible into 10 shares of Common Stock (the “New Conversion Ratio”). The impact of the Amendments was to reduce by 10 times the number of shares of Preferred Stock into which the 2017 Notes would convert, while keeping the economic terms the same by increasing the conversion ratio into Common Stock by 10 times. The 2020 Notes had substantially similar terms to the Amended 2017 Notes, including being convertible into Preferred Stock at the New Conversion Price, with the Preferred Stock being convertible into Common Stock at the New Conversion Ratio.

In order to (i) address the fact that a small minority of the holders of 2017 Notes did not execute the Amendments and (ii) ensure economic fairness for all of the holders of the 2017 Notes and 2020 Notes, the Company designated two separate classes of Preferred Stock into which the 2017 Notes and 2020 Notes would convert: (i) the Company’s Series D Convertible Preferred Stock, par value $0.001 per share (the “Series D Convertible Preferred Stock”), was designated for the holders of 2017 Notes who did not execute the Amendments and (ii) the Company’s Series D-1 Convertible Preferred Stock, par value $0.001 per share (the “Series D-1 Convertible Preferred Stock”), was designated for the holders of Amended 2017 Notes (i.e., who did execute the Amendments) and the holders of the 2020 Notes.

On June 20, 2021, the outstanding non-amended 2017 Notes converted into 12,373,247 shares of Series D Convertible Preferred Stock at the Original Conversion Price of $0.2862, and all the outstanding Amended 2017 Notes and outstanding 2020 Notes converted into 9,440,594 shares of Series D-1 Convertible Preferred Stock at the New Conversion Price of $2.862.

As a result of the conversion of the 2017 Notes and 2020 Notes into convertible preferred stock, all the security interests of these notes in the Company’s intellectual property were released.

The rights, preferences and privileges of the Series D Convertible Preferred Stock are set forth in a Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock (the “Series D Certificate of Designation”). The rights, preferences and privileges of the Series D-1 Convertible Preferred Stock are set forth in a Certificate of Designation of Preferences, Rights and Limitations of Series D-1 Convertible Preferred Stock (the “Series D-1 Certificate of Designation”). The Board of Directors of the Company approved each of the Series D Certificate of Designation and Series D-1 Certificate of Designation on June 16, 2021, and each of the Series D Certificate of Designation and Series D-1 Certificate of Designation were filed with the Delaware Secretary of State on June 17, 2021. The Series D Certificate of Designation and Series D-1 Certificate of Designation are the same, other than certain key differences to account solely for the different conversion ratios for the holders of 2017 Notes who did not execute Amendments compared to the holders of Amended 2017 Notes and the holders of 2020 Notes.

Number of Shares

The Series D Certificate of Designation established and designated 12,374,000 shares of Series D Convertible Preferred Stock. The Series D-1 Certificate of Designation established and designated 9,441,000 shares of Series D-1 Convertible Preferred Stock.

Rank

The Series D Convertible Preferred Stock and the Series D-1 Convertible Preferred Stock rank pari passu with each other. The Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock rank senior to the Common Stock and any other class or series of the Company’s capital stock, the terms of which do not provide that shares of such class rank senior to, or pari passu with, the Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock as to dividends and distributions upon a change of control transaction, or the liquidation, winding-up and dissolution of the Company.

Dividends

The Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock do not have any dividend preference but are entitled to receive, on a pari passu basis, dividends, if any, that are declared and paid on the Common Stock and any other class of the Company’s capital stock that ranks junior or on par to the Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock.

Liquidation Preference

Upon the occurrence of the liquidation, winding-up or dissolution of the Company or certain mergers, corporate reorganizations or sales of the Company’s assets (each, a “Company Event”), holders of Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock will be entitled to receive a liquidation preference before any distributions are made to holders of any other class or series of the Company’s capital stock junior to the Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock. If a Company Event occurs within two years of June 20, 2021 (the “Date of Issuance”), the holders of Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock will receive for each share of Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock, respectively, an amount in cash equal to the Original Issue Price (as defined in the Series D Certificate of Designation and Series D-1 Certificate of Designation, respectively) multiplied by four. If a Company Event occurs from and after the second anniversary of the Date of Issuance, the holders of Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock will receive for each share of Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock, respectively, an amount in cash equal to the Original Issue Price multiplied by six. The Original Issue Price for the Series D Convertible Preferred Stock is $0.2862, and the Original Issue Price for the Series D-1 Convertible Preferred Stock is $2.862.

Voting Rights

��

Holders of shares of Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock will vote together with the holders of Common Stock as a single class. Each share of Series D Convertible Preferred Stock carries the right to one vote per share. Each share of Series D-1 Convertible Preferred Stock carries the right to 10 votes per share.

The Company is not permitted to amend, alter or repeal its Certificate of Incorporation or Bylaws in a manner adverse to the relative rights, preferences, qualifications, limitations or restrictions of the Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock without the affirmative vote of a majority of the votes entitled to be cast by holders of outstanding shares of Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock, voting together as a single class with each share of Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock having a number of votes equal to the number of shares of Common Stock then issuable upon conversion of such share of Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock.

Conversion

The Series D Convertible Preferred Stock is convertible at the option of the holders thereof into shares of Common Stock based on a one-for-one conversion ratio. The Series D-1 Convertible Preferred Stock is convertible at the option of the holders thereof into shares of Common Stock based on a one-for-10 conversion ratio. The conversion ratio of the Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock is subject to adjustment for stock splits and combinations, recapitalizations, reclassifications, reorganizations, mergers and consolidations. The Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock will automatically convert into shares of Common Stock upon the fifth anniversary of the Date of Issuance.

5. Convertible Notes Payable

 

On April 20, 2020,2021 Financing

Schedule of Convertible Notes Payable

          
  Non-Related Party  Related Party    
  Face Amount  Face Amount  Total 
Balance as of January 1, 2022 $1,260,000  $200,000  $1,460,000 
             
Issued  50,000   -   50,000 
             
Balance as of March 31, 2022 $1,310,000  $200,000  $1,510,000 
             
Beginning Balance $1,310,000  $200,000  $1,510,000 
Issued  500,000   -   500,000 
             
Balance as of June 30, 2022 $1,810,000  $200,000  $2,010,000 
Ending Balance $1,810,000  $200,000  $2,010,000 

For further details on the terms of the 2021 Notes, refer to our Form 10-K as filed with the SEC on March 29, 2022.

As of June 30, 2022, the Company had received 2021 Notes proceeds of $2,010,000, of which $200,000 is from a related party investor (a Company officer).

Subsequent to June 30, 2022, the Company received 2021 Notes proceeds of $225,000 from a $62,500 loan under the CARES Act PPP (the “PPP Loan”)related party investor (a Company director). See Note 12. Subsequent Events.

The PPP provides for loans to qualifying businesses for amounts of up to 2.5 times certain of the borrower’s average monthly payroll expenses.

6. Notes PayableOn May 20, 2021, the Company applied for forgiveness of the PPP Loan. On June 2, 2021, the Company was awarded full forgiveness of the PPP Loan. The Company recognized a gain on forgiveness of note payable in the period in which it obtained forgiveness, and is included in gain from extinguishment on the accompanying condensed consolidated statements of operations.

 

The Company obtained short-term financing from AFCO Insurance Premium Finance for our commercial insurance policies. As of June 30, 20212022 and December 31, 2020,2021, the balance of the note payable was $127,393 142,693and $212,790238,452, respectively.

 

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6.7. Related Party Transactions

 

During the three months ended June 30, 20212022 and June 30, 2020,2021, the Company paid Mr. Bruce Horowitz (Capital Strategists) consulting fees of $42,400and $11,20042,400, respectively, for services rendered. Director fees for Mr. Horowitz for the three months ended June 30, 2022 and 2021 were $18,750 and $18,750, respectively.

 

During the six months ended June 30, 20212022 and June 30, 2020,2021, the Company paid Mr. Bruce Horowitz (Capital Strategists) consulting fees of $127,200 84,800and $63,600127,200, respectively, for services rendered. Director fees for Mr. Horowitz for the six months ended June 30, 2022 and 2021 were $37,500 and $37,500, respectively.

 

Accrued director fees for Mr. Horowitz as of June 30, 20212022 and December 31, 20202021 were $37,500 318,750and $75,000281,250, respectively. Total amount owed to Capital Strategists for consulting fees as of June 30, 2022 and December 31, 2021 were $169,600 and $127,200, respectively. Mr. Horowitz serves as both COOChief Operating Officer (“COO”) and a Director.Company director.

 

See Note 45 for details of other related party transactions.

 

Director fees during the three months ended June 30, 20212022 and June 30, 20202021 were $96,250and $96,250, respectively.

Director fees during the six months ended June 30, 20212022 and June 30, 20202021 were $192,500and $192,500, respectively.

Accrued directors’ fees as of June 30, 20212022 and December 31, 20202021 were $1,368,089 1,753,089and $1,175,5891,560,589, respectively, and are included in other accrued expenses on the accompanying condensed consolidated balance sheet.respectively.

7. Short-term Receivables

The following table summarizes the receivables at June 30, 2021 and December 31, 2020:

Summary of Short-term Receivables

  June 30, 2021 
  Tax Credit  Legal Fees  Settlement  Total 
             
Provectus Australia Tax Credit $5,408  $-  $-  $5,408 
Gross receivable  -   455,500   1,649,043   2,104,543 
Reserve for uncollectibility  -   (455,500)  (1,649,043)  (2,104,543)
Net receivable $5,408  $-  $-  $5,408 

  December 31, 2020 
  Tax Credit  Legal Fees  Settlement  Total 
             
Provectus Australia Tax Credit $3,930  $-  $-  $3,930 
Gross receivable  -   455,500   1,649,043   2,104,543 
Reserve for uncollectibility  -   (455,500)  (1,649,043)  (2,104,543)
Net receivable $3,930  $-  $-  $3,930 

 

8. Stockholders’ Deficiency

CommonPreferred Stock

 

During the six months ended June 30, 2021,2022, the Company issued an aggregate of 250,000 52,411shares of immediately vested restricted common stock with a grant date valueSeries D-1 Convertible Preferred Stock in exchange for an investment of $19,750 150,000for services.

During the six months ended June 30, 2021, the Company issued an aggregate of 25,000 shares of immediately vested restricted common stock to an advisory board member with from a grant date value of $1,675 for services. See also Note 11 – Subsequent Events.non-related party.

 

Preferred Stock

On June 20, 2021, the Company issued 12,373,247 and 9,440,594 shares of Series D and D-1 Convertible Preferred Stock, respectively. See Note 4 convertible notes payable.

WarrantsAnnual Stockholder Meeting Proposals

 

DuringThe Company held its annual meeting of stockholders on June 22, 2022. As proposal number 4, stockholders authorized the six months ended June 30, 2021, warrant holders exercised warrantsCompany’s board of directors (the “Board”) to purchase an aggregateamend the Company’s Certificate of Incorporation, as amended by the Certificate of Designation of Series D Convertible Preferred Stock and Certificate of Designation of Series D-1 Convertible Preferred Stock (the “Certificates of Designation”), 4,700,000 to effect a reverse stock split of the Company’s common stock, Series D Convertible Preferred Stock, and Series D-1 Convertible Preferred Stock at a ratio of between 1-for-10 and 1-for-50, where the ratio would be determined by the Board at its discretion, and to make corresponding amendments to the Certificates of Designation to provide for the proportional adjustment of certain terms upon a reverse stock split, consistent with the Board’s recommendation. As proposal number 5, the Company’s stockholders also authorized the Board, given the stockholders’ approval of proposal number 4, to amend the Company’s Certificate of Incorporation, as amended by the Certificates of Designation, to decrease the number of authorized shares of the Company’s common stock at a priceand preferred stock by the same reverse stock split ratio determined by the Board, consistent with the Board’s recommendation. The Board has not acted on these stockholder authorizations as of $0.0533 per share. In connection with these exercises, the Company received aggregate cash proceeds of $250,510. See Note 11 – Subsequent Events.

During the six months ended June 30, 2021, the Company issued three-year immediately vested warrants to purchase an aggregate of 25,000 shares of common stock with an exercise price of $0.2862 per share to an advisory board member. The warrants had an issuance date fair value of an aggregate of $488, which was recognized immediately and is included in general and administrative expenses on the condensed consolidated statements of operations.filing date.

 

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9. Leases

 

The Company currently leasesleased 4,500square 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 were approximately $6,100 per month due to the Company negotiating a continued reduced rent from January 1, 2022 through June 30, 2022.

On June 30, 2022, the lease expired and was not renewed. On June 18, 2022, the Company moved into 2,700 square feet of leased corporate office space in Knoxville, Tennessee through an operating lease agreement for a term of three years. Payments are approximately ending June 30, 2025. The monthly base rent ranges from $7,900 4,053 to $4,278per month. over the term on the lease.

 

Total operating lease expense for the three months ended June 30, 20212022 was $23,04423,092, of which, $15,363 15,395was included within research and development and $7,681 7,697was included within general and administrative expenses on the condensed consolidated statement of operations. Total operating lease expense for the three months ended June 30, 20202021 was $22,33223,044, of which, $14,888 15,363was included within research and development and $7,6817,444 was included within general and administrative expenses on the condensed consolidated statement of operations.

 

Total operating lease expense for the six months ended June 30, 20212022 was $47,80638,051, of which, $31,871 25,367was included within research and development and $15,935 12,684was included within general and administrative expenses on the condensed consolidated statement of operations. Total operating lease expense for the six months ended June 30, 20202021 was $43,63447,806, of which, $29,090 31,871was included within research and development and $14,544 15,935was included within general and administrative expenses on the condensed consolidated statement of operations.

As of June 30, 2021, the Company had no leases that were classified as a financing lease. As of June 30, 2021, 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:

 

Schedule of Right-of-UseRight-of-use Assets and Liabilities

  For The Six Months Ended 
  June 30, 
  2021  2020 
Cash paid for amounts included in the measurement of lease liabilities:        
Operating cash flows used in operating leases $45,784  $44,882 
         
Right-of-use assets obtained in exchange for lease obligations:        
Operating leases $-  $- 
         
Weighted Average Remaining Lease Term        
Operating leases  1.00 Year   2.00 Years 
         
Weighted Average Discount Rate        
Operating leases  8.0%  8.0%

  For The Six Months Ended 
  June 30, 
  2022  2021 
Cash paid for amounts included in the measurement of lease liabilities:      
Operating cash flows used in operating leases $38,625  $45,784 
         
Right-of-use assets obtained in exchange for lease obligations:        
Operating leases $151,693  $- 
         
Weighted Average Remaining Lease Term        
Operating leases  3 years    1 year  
         
Weighted Average Discount Rate        
Operating leases  5% - 8.0%  8.0%

 

Future minimum payments under the Company’s non-cancellable lease obligations as of June 30, 20212022 were as follows:

Schedule of Future Minimum Payment forPayments Under Non-cancellable Lease

     
Years Amount 
2022 $24,318 
2023  49,311 
2024  50,663 
2025  25,669 
Total future minimum lease payments  149,961 
Less: amount representing imputed interest  11,098 
Total $138,863 

Years Amount 
2021  46,687 
2022  $46,687 
Total future minimum lease payments  93,374 
Less: amount representing imputed interest  (6,400)
Total $86,974 

10. Grants

 

12

On October 25, 2021, the Company received a grant award of $2,500,000

from the State of Tennessee for the study of animal cancers and dermatological disorders for the period October 15, 2021 to June 30, 2022. As of June 30, 2022, $1,990,685 has been recorded as unearned grant revenue liability on the accompanying condensed consolidated balance sheets. The Company recorded $509,315 of grant revenue during the six months ended June 30, 2022. The grant was pre-funded; therefore, the funds do not need to be used in full by June 30, 2022.

10.

11. Commitments, Contingencies and Litigation

 

The Company may, from time to time, be involved in litigation arising infrom the ordinary course of business and/or whichthat may be expected to be covered by insurance. The Company is not aware of any pending or threatened litigation that, if resolved against the Company, would have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

 

11.12. Subsequent Events

The Company has evaluated events that have occurred after the balance sheet and through the date the financial statements were issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements, except as disclosed below.

Series D-1 Convertible Preferred StockNotes Payable

 

Subsequent to June 30, 2021,2022, the Company received total investments2021 Notes proceeds of $150,000 225,000from non-relateda related party investors in exchange for an aggregate of 52,411 shares of restricted Series D-1 Convertible Preferred Stock that have not yet been issued.investor (a Company director).

 

Common Stock

 

Subsequent to June 30, 2021,2022, the Company issued an aggregate of 25,000shares of immediately vested restricted common stock to a consultant with a grant date value of $1,500for services.

Warrants

 

Subsequent to June 30, 2021, warrant holders exercised warrants to purchase2022, the Company issued an aggregate of 200,000 25,000shares of immediately vested restricted common stock atto an employee with a pricegrant date value of $0.0533 1,500per share. as an award.

 

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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 condensed financial statements and our Annual Report on Form 10-K for the year ended December 31, 20202021 filed with the SEC on March 2, 29, 2022 (“2021 (“2020 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 consolidated statement of operations, including trends which might appear, are not necessarily indicative of future operations.

 

OverviewComponents of Operating Results

Provectus is a clinical-stage biotechnology company developing immunotherapy medicines based on an entire, wholly owned, family of small molecules called HXs. The Company’s lead HX molecule is proprietary cGMP RBD. IL PV-10, a cancer immunotherapy and injectable formulation of cGMP RBD, can induce immunogenic cell death (“ICD”), and is undergoing clinical study for adult solid tumor cancers, such as melanoma and GI tumors (e.g., HCC, mCRC, mNET, mUM), and preclinical study for pediatric solid tumor cancers (e.g., neuroblastoma, Ewing sarcoma, rhabdomyosarcoma, osteosarcoma). Topically administered PH-10, an immune-modulatory agent and formulation of cGMP RBD, is undergoing clinical study for inflammatory dermatoses (e.g., psoriasis, atopic dermatitis). New formulations of and routes of administration for cGMP RBD are being investigated for hematology (e.g., acute myeloid leukemia, acute monocytic leukemia), virology (e.g., SARS-CoV-2), oncology (e.g., high-risk and refractory adult solid tumor cancers), microbiology (e.g., MDR bacteria), and ophthalmology (e.g., infectious keratitis).

The SARS-CoV-2 pandemic has already caused significant disruptions in the financial markets, and may continue to cause such disruptions, which could impact our ability to raise additional funds and may also impact the volatility of our stock price and trading in our stock. Moreover, the pandemic has also significantly impacted economies worldwide, which could result in adverse effects on our business and operations. We cannot be certain what the overall impact of the SARS-CoV-2 pandemic will be on our business. It has the potential to adversely affect our business, financial condition, results of operations, and prospects. We have taken several temporary precautionary measures intended to help ensure the well-being of our employees and contractors and to minimize disruption to our business. We considered the impact of the SARS-CoV-2 pandemic on our business and operational assumptions and estimates, and determined there were no material adverse impacts on our results of operations and financial position at June 30, 2021.

Our Science and Technology

Oncology. IL PV-10 drug product is Provectus’ cGMP injectable formulation of the Company’s pharmaceutical-grade (cGMP) RBD (4,5,6,7-tetrachloro-2’,4’,5’,7’-tetraiodofluorescein disodium salt) drug substance. RBD selectively accumulates in the lysosomes of cancer cells. Cancer cells, particularly advanced cancer cells, are very dependent on effective lysosomal functioning (Piao et al., Ann N Y Acad Sci 2016). Cancer progression and metastasis are associated with lysosomal compartment changes (Nishimura et al., Pathol Oncol Res 1998; Gocheva et al., Genes Dev 2006), which are closely correlated with, among other things, invasive growth, angiogenesis, and drug resistance (Fahrenbacher et al., Cancer Res 2005).

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 primary pathways of cell death, which are apoptosis, autophagy, and necrosis. He was awarded the Nobel Prize in 1974 for discovering and characterizing lysosomes.

14

Provectus showed that RBD selectively accumulates in the lysosomes of cancer cells and disrupts them, causing the cancer cells to die. RBD 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.

RBD’s lysosomal targeting comprises:

Transiting the plasmalemma (i.e., the cell membrane) of cancer cells. RBD penetrates the cell membrane of cancerous cells which normally protects the cancer cell from its surrounding environment. RBD, however, is excluded from normal cells;
Accumulating in the lysosomes of cancer cells. As noted above, the physicochemical properties of lysosomes trap RBD;
Triggering the release of lysosomal contents. Acute autolysis can occur within 60 minutes. Early preclinical work by Provectus on RBD’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 seminaphthorhodafluor-1 (“SNARF-1”) staining work by Provectus confirmed lower intracellular pH upon exposure to RBD.

Hematology. In primary cells and cell lines derived from pediatric leukemia patients, RBD may lead to stimulator of interferon genes (“STING”) dimerization and the release of interferon gamma, indicating a potential immune activation mechanism of RBD. Heat shock proteins, which chaperone misfolded or abnormally folded proteins, associated with STING dimerization in RBD-treated cells, indicating a mechanism that may lead to enhanced STING activation following RBD-specific treatment.

Virology. The Company’s work in this disease area to identify drug activity and elucidate mechanism(s) of action is ongoing.

Microbiology. The Company’s work in this disease area to identify drug activity and elucidate mechanism(s) of action is ongoing.

Ophthalmology. The Company’s work in this disease area to identify drug activity is ongoing.

Dermatology. For psoriasis, pathways significantly improved by monotherapy PH-10 drug product treatment 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 application and a wide-range of central psoriasis-related genes, including IL-23, IL-17, IL-22, S100A7, IL-19, IL-36, and CXCL1, were normalized (i.e., treated lesional skin had values in the same range as baseline non-lesional skin).

Animal Health. The Company’s work in this disease area to develop a drug candidate or candidates is ongoing.

15

 

Grant Revenue

Our Drug Development Strategy

Oncology. The Company’s strategyGrant income is to (i) demonstrate the independent action of single-agent IL PV-10; that is, safetyrecognized when qualifying costs are incurred and activity in T cell and non-T cell inflamed tumor types, in high and low tumor mutation burden tumor types, and in other tumor type categories, such as gene mutations, (ii) demonstrate the coordinated induction of multiple immune signaling pathways (i.e., functional ICD), (Snyder et al., Sci Immunol 2019) by IL PV-10 treatment, (iii) demonstrate the functional T cell response generated by IL PV-10 treatment, and (iv) contrast and compare IL PV-10 treatment (i.e., safety, activity, and induced immune response) with that of immune checkpoint blockade (“CB”) and other drug classes in single-agent and IL PV-10-based combination therapy settings.

This strategy may quicken the advancement of single-agent IL 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 IL PV-10 treatment, such as mNET (NCT02693067). This strategy may also permit the Company to develop and advance a cancer combination therapy involving one or more CB and/or other drug classes 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 IL PV-10 augments clinical response to existing or emerging SOCs, such as mUM (i.e., combination therapy with an anti-CTLA-4 agent and an anti-PD-1 agent) (NCT00986661).

Hematology. The Company and research collaborators are undertaking preclinical work on a potential, systemically administered, cGMP RBD leukemia treatment and/or cancer vaccine for pediatric patients.

Virology. The Company and research collaborators are undertaking preclinical work on a potential, systemically administered, cGMP RBD therapy for SARS-CoV-2 and other classes of enveloped and non-enveloped viruses.

Microbiology. The Company and research collaborators are undertaking preclinical work on cGMP RBD therapy for MDR bacteria.

Ophthalmology. The Company and clinical and research collaborators are undertaking preclinical work on potential, topically administered, cGMP RBD therapy for the treatment of infectious keratitis.

Dermatology. The Company’s strategy is to (i) demonstrate 12-week single-agent administration proof-of-concept (“POC”) for topical PH-10reasonable assurance 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 topical 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 completionconditions of the abovementioned Phase 2 trials,grant have been met. Cash received from grants in advance of incurring qualifying costs is recorded as unearned grant revenue and (ii) expand POC topical PH-10 treatment to include dermatology combination therapy. Our goal for this POC work is to achieve Phase 3 trial-ready status for topical PH-10 in both psoriasis and atopic dermatitis.

Animal health. The Company and research collaboratorsrecognized as other income when qualifying costs are undertaking work on cGMP RBD therapies for animal cancers and dermatological disorders.

Components of Operating Resultsincurred.

 

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. These expenses consist primarily of:

 

 Costs of conducting clinical trials, including amounts paid to clinical centers, clinical research organizations and consultants, among others;
 Salaries and related expenses for personnel, including stock-based compensation expense;
 Other outside service costs including cost of contract manufacturing;
 The costs of supplies and reagents; and,
 Occupancy and depreciation charges.

We expense research and development costs as incurred.

 

Research and development activities are central to our business model. 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 expense consists primarily of salaries, stock-based compensation expense and other related costs for personnel in executive, finance, accounting, business development, legal, information technology and corporate communication functions. Other costs include facility costs not otherwise included in research and development expense, insurance, and professional fees for legal, patent and accounting services.

 

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Results of Operations

 

Comparison of the Three Months Ended June 30, 20212022 and June 30, 20202021

 

Overview

 

Total operating expenses were $1,222,017$1,399,690 for the three months ended June 30, 2021,2022, an increase of $11,169$177,673 or 0.9%14.5% compared to the three months ended June 30, 2020.2021. The increase was driven primarily by (i) increased clinical trial cost, (ii) higher insurance costs and (iii) higher professional fees, partially offset by (iv) lower legal cost relating to our patents.and litigation fees. Net loss for the three months ended June 30, 20212022 was $1,579,591,$1,077,841, a decrease of $35,214$501,750 or 2.2%31.8% which was primarily attributable to lower interest expense costs incurred in connection with our preclinicalthe 2017 and clinical trial programs.2020 Notes which converted to preferred stock on June 20, 2021 and the recognition of grant revenue in the amount of $321,710.

 

 For the Three Months Ended       For the Three Months Ended      
 June 30,       June 30,      
 2021  2020  Increase/(Decrease)  % Change  2022  2021  Increase/(Decrease)  % Change 
         
Grant Revenue $321,710  $-  $321,710   0.0%
                         
Operating Expenses:                                
Research and development $602,979  $696,454  $(93,475)  -13.4%  816,648   602,979  213,669   35.4%
General and administrative  619,038   514,394   104,644   20.3%  583,042   619,038   (35,996)  -5.8%
Total Operating Expenses  1,222,017   1,210,848   11,169   0.9%  1,399,690   1,222,017   177,673   14.5%
                                
Total Operating Loss  (1,222,017)  (1,210,848)  (11,169)  0.9%  (1,077,980)  (1,222,017)  144,037  -11.8%
                
Other Income/(Expense):                                
EIDL grant  -   3,000   (3,000)  0.0%
Research and development tax credit  32,144   113   32,031  28346%  38,259   32,144   6,115   19.0%
Investment and interest income  -   3,334   (3,334)  0.0%
Gain from extinguishment  

63,094

   -   

63,094

   

100.0

%  -   63,094   (63,094)  -100.0%
Interest expense  (452,812)  (410,404)  (42,408)  10.3%
Total Other Expense, Net  (357,574)  (403,957)  46,383   -11.5%
Interest income and interest expense  (38,120)  (452,812)  414,692   -91.6%
                
Total Other Income/ (Expense), Net  139   (357,574)  357,713   -100.0%
                                
Net Loss $(1,579,591) $(1,614,805) $35,214   -2.2% $(1,077,841) $(1,579,591) $501,750   -31.8%

 

Grant Revenue

For the three months ended June 30, 2022 and 2021, there was $321,710 and $0, respectively, of grant revenue recognized related to qualifying expenses that were incurred and included within research and development on the condensed consolidated statements of operations.

Research and Development Expenses

 

Research and development expenses were $816,648 for the three months ended June 30, 2022, an increase of $213,669 or 35.4% compared to $602,979 for the three months ended June 30, 2021, a decrease of $93,475 or 13.4% compared to $696,454 for the three months ended June 30, 2020.2021. The decreaseincrease was primarily due to (i) reducedincreased cost on clinical trials due to slowerincreased recruitment and treatment in clinical trials, due to the effects of SARS-CoV-2,and (ii) lower amortization due to patents being fully amortized, and (iii) a decrease inhigher insurance expense.cost.

 

The following table summarizes our research and development expenses incurred during the three months ended June 30, 2021 and June 30, 2020:

  For the Three Months Ended       
  June 30,       
  2022  2021  Increase/(Decrease)  % Change 
Operating Expenses:                
Research and development:                
Clinical trial and research expenses $674,294  $465,627  $208,667   44.8%
Depreciation/amortization  1,765   2,162   (397)  -18.4%
Insurance  57,367   51,393   5,974   11.6%
Payroll and taxes  67,360   67,706   (346)  -0.5%
Rent and utilities  15,862   16,091   (229)  -1.4%
Total research and development $816,648  $602,979  $213,669   35.4%

 

  For the Three Months Ended       
  June 30,       
  2021  2020  Increase/(Decrease)  % Change 
             
Operating Expenses:                
Research and development:                
Clinical trial and research expenses $465,627  $477,384  $(11,757)  -2.5%
Depreciation/amortization  2,162   62,489   (60,327)  -96.5%
Insurance  51,393   72,685   (21,292)  -29.3%
Payroll and taxes  67,706   68,282   (576)  -0.8%
Rent and utilities  16,091   15,614   477   3.1%
Total research and development $602,979  $696,454  $(93,475)  -13.4%

1713

General and Administrative Expenses

 

General and administrative expenses were $619,038$583,042 for the three months ended June 30, 2021, an increase2022, a decrease of $104,644$35,996 or 20.3%5.8% compared to $514,394 for the three months ended June 30, 2020. The increase was primarily due to (i) higher professional fees, (ii) higher legal fees relating to patents, (iii) an increase in payroll and related taxes due to addition of employee, partially offset by (iv) lower insurance cost.

The following table summarizes our general and administrative expenses incurred during the three months ended June 30, 2021 and June 30, 2020:

  For the Three Months Ended       
  June 30,       
  2021  2020  Increase/(Decrease)  % Change 
             
Operating Expenses:                
General and administrative:                
Depreciation $1,055  $1,362  $(307)  -22.5%
Directors fees  96,250   96,250   -   0.0%
Insurance  42,262   53,610   (11,348)  -21.2%
Legal and litigation  216,723   129,563   87,160   67.3%
Other general and administrative cost  15,583   18,766   (3,183)  -17.0%
Payroll and taxes  62,540   48,436   14,104   29.1%
Professional fees  172,759   158,318   14,441   9.1%
Rent and utilities  8,219   8,078   141   1.7%
Foreign currency translation  3,647   11   3,636   0.0%
Total general and administrative $619,038  $514,394  $104,644   20.3%

Other Income/(Expense)

Other income increased by $88,791 from $6,447 for the three months ended June 30, 2020 to $95,238$619,038 for the three months ended June 30, 2021. The increasedecrease was mainlyprimarily due to the PPP loan forgiveness(i) lower legal fees relating to patents, partially offset by (ii) higher professional fees, and the research(iii) increased other general and development tax credit in Australia.

administration expenses.

  For the Three Months Ended       
  June 30,       
  2022  2021  Increase/(Decrease)  % Change 
Operating Expenses:                
General and administrative:                
Depreciation $1,055  $1,055  $-   0.0%
Directors fees  96,250   96,250   -   0.0%
Insurance  44,672   42,262   2,410   5.7%
Legal and litigation  126,087   216,723   (90,636)  -41.8%
Other general and administrative cost  34,476   15,583   18,893   121.2%
Payroll and taxes  63,575   62,540   1,035   1.7%
Professional fees  208,678   172,759   35,919   20.8%
Rent and utilities  8,267   8,219   48   0.6%
Foreign currency translation  (18)  3,647   (3,665)  -100.5%
Total general and administrative $583,042  $619,038  $(35,996)  -5.8%

Other Income/(Expense)

Interest expense increased

Other income/(expense) decreased by $42,408$357,713 from $410,404($357,574) for the three months ended June 30, 20202021 to $452,812$139 for the three months ended June 30, 2021.2022. The increasedecrease was due to the increased principal balancelower interest expense costs incurred in connection with the 2017 and 2020 Notes which converted to preferred stock on June 20, 2021, offset by the gain from extinguishment of convertible notes payable outstanding during the perioddebt in 2021 relating to the 2020 Notes.PPP loan forgiveness.

  For the Three Months Ended       
  June 30,       
  2022  2021  Increase/(Decrease)  % Change 
Other Income/(Expense):                
Research and development tax credit $38,259  $32,144  $6,115   19.0%
Gain from extinguishment -   63,094   (63,094)  -100.0%
Interest income and interest expense (38,120)  (452,812) 414,692   -91.6%
Total Other Income/(Expenses), Net $139  $(357,574) $357,713   -100.0%

14

 

Comparison of the Six Months Ended June 30, 20212022 and June 30, 20202021

 

Overview

 

Total operating expenses were $2,402,693$2,587,353 for the six months ended June 30, 2021, a decrease2022, an increase of $256,395$184,660 or 9.6%7.7% compared to the six months ended June 30, 2020.2021. The decreaseincrease was driven primarily by our continued transformation(i) increased clinical trial cost, (ii) higher insurance costs and process improvement efforts within the Company along with(iii) higher professional fees, partially offset by (iv) lower amortization due to patents being fully amortizedlegal and slower recruitmentlitigation fees, and treatment in clinical trials due to the effects of SARS-CoV-2.(v) lower rent and utility expense. Net loss for the six months ended June 30, 20212022 was $3,249,541,$2,108,763, a decrease of $192,325$1,140,778 or 5.6%35.1% which was primarily attributable to lower interest expense costs incurred in connection with our preclinicalthe 2017 and clinical trial programs.2020 Notes which converted to preferred stock on June 20, 2021 and the recognition of grant revenue in the amount of $509,315.

 

 For the Six Months Ended       For the Six Months Ended      
 June 30,       June 30,      
 2021  2020  Increase/(Decrease)  % Change  2022  2021  Increase/(Decrease)  % Change 
         
Grant Revenue $509,315  $-  $509,315   0.0%
                       
Operating Expenses:                                
Research and development $1,258,123  $1,605,900  $(347,777)  -21.7%  1,487,764   1,258,123   229,641   18.3%
General and administrative  1,144,570   1,053,188   91,382   8.7%  1,099,589   1,144,570   (44,981)  -3.9%
Total Operating Expenses  2,402,693   2,659,088   (256,395)  -9.6%  2,587,353   2,402,693   184,660   7.7%
                                
Total Operating Loss  (2,402,693)  (2,659,088)  (256,395)  9.6%  (2,078,038)  (2,402,693)  324,655   -13.5%
                
Other Income/(Expense):                                
EIDL grant  -   3,000   (3,000)  -0.0%
Research and development tax credit  32,144   26,364   5,780  21.9%  38,259   32,144   6,115   19.0%
Investment and interest income  1   3,413   (3,412)  0.00%
Gain from extinguishment  63,094   -   63,094   

100.0

%  -   63,094   (63,094)  

-100.0
%
Interest expense  (942,087)  (815,555)  (126,532)  15.5%
Interest income and interest expense  (68,984)  (942,086)  873,102   -92.7%
Total Other Expense, Net  (846,848)  (782,778)  (64,070)  8.2%  (30,725)  (846,848)  816,123   -96.4%
                                
Net Loss $(3,249,541) $(3,441,866) $(192,325)  5.6% $(2,108,763) $(3,249,541) $1,140,778   -35.1%

 

Grant Revenue

For the six months ended June 30, 2022 and 2021, there was $509,315 and $0, respectively, of grant revenue recognized related to qualifying expenses that were incurred and included within research and development on the condensed consolidated statements of operations.

Research and Development Expenses

 

Research and development expenses were $1,487,764 for the six months ended June 30, 2022, an increase of $229,641 or 18.3% compared to $1,258,123 for the six months ended June 30, 2021, a decrease of $347,777 or 21.7% compared to $1,605,900 for the six months ended June 30, 2020.2021. The decreaseincrease was primarily due to (i) reducedincreased cost on clinical trials due to slowerincreased recruitment and treatment in clinical trials, due to the effects of SARS-CoV-2,and (ii) higher insurance cost, partially offset by (iii) lower amortization due to patents being fully amortized,payroll and (iii)payroll taxes, and (iv) a decrease in insurance expense.rent and utility expenses.

 

The following table summarizes our research and development expenses incurred during the six months ended June 30, 2021 and June 30, 2020:

 For the Six Months Ended      
 June 30,       For the Six Months Ended      
 2021  2020  Increase/(Decrease)  % Change  June 30,      
          2022  2021  Increase/(Decrease)  % Change 
Operating Expenses:                                
Research and development:                                
Clinical trial and research expenses $977,207  $1,061,441  $(84,234)  -7.9% $1,205,985  $977,207  $228,778   23.4%
Depreciation/amortization  4,324   232,431   (228,107)  -98.1%  3,929   4,324   (395)  -9.1%
Insurance  102,781   146,277   (43,496)  -29.7%  115,890   102,781   13,109   12.8%
Payroll and taxes  140,040   134,761   5,279   3.9%  134,475   140,040   (5,565)  -4.0%
Rent and utilities  33,771   30,990   2,781   9.0%  27,485   33,771   (6,286)  -18.6%
Total research and development $1,258,123  $1,605,900  $(347,777)  -21.7% $1,487,764  $1,258,123  $229,641   18.3%

 

1815

General and Administrative Expenses

 

General and administrative expenses were $1,099,589 for the six months ended June 30, 2022, a decrease of $44,981 or 3.9% compared to $1,144,570 for the six months ended June 30, 2021, an increase of $91,382 or 8.7% compared to $1,053,188 for the six months ended June 30, 2020.2021. The increasedecrease was primarily due to (i) higherlower legal fees relating to patents, (ii) an increase in payroll and related taxes due to addition of employee, partially offset by (ii) higher professional fees, (iii) a decrease in professional fees.increased payroll and taxes, and (iv) increased other general and administration expenses.

 

The following table summarizes our general and administrative expenses incurred during the six months ended June 30, 2021 and June 30, 2020:

  For the Six Months Ended       
  June 30,       
  2022  2021  Increase/(Decrease)  % Change 
Operating Expenses:                
General and administrative:                
Depreciation $2,109  $2,109  $-   0.0%
Directors fees  192,500   192,500   -   0.0%
Insurance  92,890   85,828   7,062   8.2%
Legal and litigation  238,621   348,738   (110,117)  -31.6%
Other general and administrative cost  57,335   46,588   10,747   23.1%
Payroll and taxes  127,874   108,600   19,274   17.7%
Professional fees  375,033   338,475   36,558   10.8%
Rent and utilities  13,866   16,945   (3,079)  -18.2%
Foreign currency translation  (639)  4,787   (5,426)  -113.3%
Total general and administrative $1,099,589  $1,144,570  $(44,981)  -3.9%

 

  For the Six Months Ended       
  June 30,       
  2021  2020  Increase/(Decrease)  % Change 
             
Operating Expenses:                
General and administrative:                
Depreciation $2,109  $2,723  $(614)  -22.5%
Directors fees  192,500   192,500   -   0.0%
Insurance  85,828   95,476   (9,648)  -10.1%
Legal and litigation  348,738   217,625   131,113   60.2%
Other general and administrative cost  46,588   35,773   10,815   30.2%
Payroll and taxes  108,600   83,922   24,678   29.4%
Professional fees  338,475   408,329   (69,854)  -17.1%
Rent and utilities  16,945   15,738   1,207   7.7%
Foreign currency translation  4,787   1,102   3,685   334.4%
Total general and administrative $1,144,570  $1,053,188  $91,382   8.7%

Other Income/(Expense)

 

Other income increasedincome/(expense) decreased by $62,462$816,123 from $32,777($846,848) for the six months ended June 30, 20202021 to $95,239($30,725) for the six months ended June 30, 2021.2022. The increasedecrease was mainly due to the lower interest expense costs incurred in connection with the 2017 and 2020 Notes which converted to preferred stock on June 20, 2021, offset by the gain from extinguishment of debt in 2021 relating to the PPP loan forgiveness and the research and development tax credit in Australia.forgiveness.

 

Interest expense increased by $126,532 from $815,555 for the six months ended June 30, 2020 to $942,087 for the six months ended June 30, 2021. The increase was due to the increased principal balance on convertible notes payable outstanding during the period relating to the 2020 Notes.

  For the Six Months Ended       
  June 30,       
  2022  2021  Increase/(Decrease)  % Change 
Other Income/(Expense):                
Research and development tax credit $38,259  $32,144  $6,115   19.0%
Gain from extinguishment  -   63,094   (63,094)  -100.0%
Interest income and interest expense (68,984)  (942,087) 873,103   -92.7%
Total Other Expenses, Net $(30,725) $(846,848) $816,123   -96.4%

 

Liquidity and Capital Resources

 

OurThe Company’s cash, and cash equivalents, and restricted cash were $47,407$2,032,609 at June 30, 2021,2022 which includes the $1,948,335 of restricted cash resulting from a grant received from the State of Tennessee, compared to $97,231$3,106,942 at December 31, 2020.2021, which included $2,423,958 of restricted cash. The Company’s working capital deficiency was $6,215,548 and $4,258,679 as of June 30, 2022 and December 31, 2021, respectively. 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 $243,743,959$248,142,721 as of June 30, 2021.2022. 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.

 

During the six months endedAs of June 30, 2021, the Company entered into additional non-related party 2020 Notes2022, cash required for our current liabilities included approximately $4,350,917 for accounts payable and accrued expenses (including lease liability) and a $142,693 note payable related to our short-term financing of our commercial insurance policies. Also, if not converted prior to maturity, convertible debt in the aggregate principal amount of $1,700,000.

During$2,010,000 plus accrued interest will mature one year from the six months endeddate of the notes. Cash requirements for long-term liabilities were $96,201 at June 30, 2021, warrant holders exercised warrants2022. The Company intends to purchase an aggregate of 4,700,000 shares of common stock at an exercise price of $0.0533 per share. In connection withmeet these exercises, the Company received aggregate cash proceeds of $250,510.

On June 20, 2021, the outstanding non-amended 2017 Notes converted into 12,373,247 shares of Series D Convertible Preferred Stock at the Original Conversion Price of $0.2862,requirements from its current cash balance and all the outstanding Amended 2017 Notes and outstanding 2020 Notes converted into 9,440,594 shares of Series D-1 Convertible Preferred Stock at the New Conversion Price of $2.862. The outstanding non-amended 2017 Notes, Amended 2017 Notes, and 2020 Notes had totaled $30,560,080 in principal and interest.from future financing.

 

Management’s plans include selling our equity securities and obtaining other financing, including the 2021 financing, to fund our capital requirements and on-going operations; however, there can be no assurance we will be successful in these efforts. The condensed consolidated 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.

16

 

The SARS-CoV-2 pandemic has already caused significant disruptions in the financial markets, and may continue to cause such disruptions, which could impact our ability to raise additional funds and may also impact the volatility of our stock price and trading in our stock. Moreover, the pandemic has also significantly impacted economies worldwide, which could result in adverse effects on our business and operations. We cannot be certain what the overall impact of the SARS-CoV-2 pandemic will be on our business. It has the potential to adversely affect our business, financial condition, results of operations, and prospects. The Company has experienced slower than normal enrollment and treatment of patients, and a prolonged SARS-CoV-2 pandemic could have a material adverse impact on the Company’s business and financial results, including the timing and ability of the Company to raise capital, initiate and/or complete current and/or future preclinical studies and/or clinical trials; disrupt the Company’s regulatory activities; and/or have other adverse effects on the Company’s clinical development. We have taken several temporary precautionary measures intended to help ensure the well-being of our employees and contractors and to minimize disruption to our business. We considered the impact of the SARS-CoV-2 pandemic on our business and operational assumptions and estimates, and determined there were no material adverse impacts on our results of operations and financial position at June 30, 2021.2022.

19

Access to Capital

 

Management plans to access capital resources through possible public or private equity offerings, including the 2021 financing, equity financings, debt financings, corporate collaborations, or other means. If we are unable to raise sufficient capital, 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 20212022 and beyond. We anticipate that these funds will otherwise come from the proceeds of private placement transactions, 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 PoliciesEstimates

 

ForThe preparation of financial statements and related disclosures must be in conformity with U.S. GAAP. These accounting principles require us to make estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenue and expense during the periods presented. We believe that the estimates and judgments upon which it relies are reasonably based upon information available to us at the time that it makes these estimates and judgments. To the extent that there are material differences between these estimates and actual results, our financial results will be affected. The accounting policies that reflect our more significant estimates and judgments and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results are described below.

The following is not intended to be a descriptioncomprehensive list of all of our critical accounting policies seeor estimates. Our accounting policies are more fully described in Note 3 – Critical–Significant Accounting Policies in Part 1, Item 1 of this Quarterly Report on Form 10-Q.

 

Stock-Based Compensation

We measure the cost of services received in exchange for an award of equity instruments based on the fair value of the award on the date of grant. The fair value amount of the shares expected to ultimately vest is then recognized over the period for which services are required to be provided in exchange for the award, usually the vesting period. The estimation of stock-based awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from original estimates, such amounts are recorded as a cumulative adjustment in the period that the estimates are revised. We account for forfeitures as they occur.

Research and Development

Research and development expenses consist of expenses incurred in performing research and development activities, including compensation and benefits for research and development employees and consultants, facilities expenses, overhead expenses, cost of laboratory supplies, manufacturing expenses, fees paid to third parties and other outside expenses. We accrue for costs incurred as the services are being provided by monitoring the status of the clinical trial or project and the invoices received from our external service providers. We adjust our accrual as actual costs become known.

Recently IssuedAdopted Accounting Standards

 

Recently issuedadopted accounting standards are included in Note 3 – CriticalSignificant 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”).

17

 

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.

 

Inherent Limitations on Effectiveness of Controls

Even assuming the effectiveness of our controls and procedures, our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error or all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. In general, our controls and procedures are designed to provide reasonable assurance that our control system’s objective will be met, and our principal executive officer and principal financial officer has concluded that our disclosure controls and procedures are effective at the reasonable assurance level. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls in future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

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.

 

20

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 10.11.

 

ITEM 1A. RISK FACTORS.

 

There have been no material changes to the risk factors that were disclosed in the 20202021 Form 10-K, other than set forth below.10-K.

Our business, financial condition and results of operations may be adversely affected by the severe acute respiratory syndrome (SARS)-associated CoV-2 (SARS-CoV-2) pandemic or other similar outbreaks of contagious diseases.

Outbreaks of contagious diseases and other adverse public health developments, affecting us and/or the third parties on which we rely, could have a material and adverse effect on our business, financial condition, and results of operations. The severe acute respiratory syndrome (SARS)-associated CoV-2 (SARS-CoV-2) pandemic, which was reported to have begun in late-2019 and has spread worldwide, may affect our ability to initiate and/or complete current and/or or future preclinical studies and/or clinical trials; disrupt our regulatory activities; and/or have other adverse effects on our clinical development. In addition, stay-at-home orders, business closures, travel restrictions, supply chain disruptions and employee or independent contractor illness or quarantines could result in disruptions to our operations, which could adversely impact our results from operations and financial condition. The SARS-CoV-2 pandemic has also caused substantial disruption in capital and financial markets and adversely impacted economies worldwide, any and/or all of which may disrupt our business, negatively impact our ability to raise additional funds, and adversely affect our results of operations and financial condition. Moreover, many risk factors set forth in the 2020 Form 10-K should be interpreted as heightened risks as a result of the impact of the SARS-CoV-2 pandemic. The extent to which the SARS-CoV-2 pandemic may impact our business, financial condition and results of operations will depend on the manner in which this pandemic continues to evolve and future developments in response thereto, which are highly uncertain and cannot be predicted with confidence as of the date of this Form 10-Q.

 

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

 

20202021 Financing

 

During the sixthree months ended June 30, 2021,2022, the Company did not enter into any additional 2020 Notes with related party investors.had received aggregate proceeds of $500,000 pursuant to certain unsecured convertible notes (the “2021 Notes”). As of June 30, 2021,2022, the Company had cumulatively drawn down $2,010,000 under the entire $100,000 under these notes.2021 Notes.

 

DuringFor further details on the six months ended June 30, 2021, the Company entered into additional 2020 Notes with non-related party accredited investors in the aggregate principal amount of $1,700,000. As of June 30, 2021, the Company had drawn down the entire $4,925,000 under these notes.

On June 20, 2021, the outstanding non-amended 2017 Notes converted into 12,373,247 shares of Series D Convertible Preferred Stock at the Original Conversion Price of $0.2862, and all the outstanding Amended 2017 Notes and outstanding 2020 Notes converted into 9,440,594 shares of Series D-1 Convertible Preferred Stock at the New Conversion Price of $2.862. The Series D Convertible Preferred Stock is convertible at the optionterms of the holders thereof into shares of Common Stock based2021 Notes, refer to our Form 10-K as filed with the SEC on a one-for-one conversion ratio. The Series D-1 Convertible Preferred Stock is convertible at the option of the holders thereof into shares of Common Stock based on a one-for-10 conversion ratio.

March 29, 2022.

 

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 506506(b) of Regulation D promulgated thereunder) as transactions by an issuer not involving a public offering.

 

For further details on the terms of the 2017 and 2020 Notes, refer to our Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the SEC on March 2, 2021.

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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
3.1Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 of the Company’s current report on Form 8-K filed on June 24, 2021).
3.2Certificate of Designation of Preferences, Rights and Limitations of Series D-1 Convertible Preferred Stock (incorporated by reference to Exhibit 3.2 of the Company’s current report on Form 8-K filed on June 24, 2021).
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.INSInline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHInline XBRL Taxonomy Extension Schema Document.
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE101 PREInline XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

** Filed herewith.

*** Furnished herewith.

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** Filed herewith.

*** Furnished herewith.

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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 12, 202111, 2022By:/s/ Bruce Horowitz
  Bruce Horowitz
  Chief Operating Officer (Principal Executive Officer)
   
 By:/s/ Heather Raines
  Heather Raines, CPA
  Chief Financial Officer (Principal Financial Officer)

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