PROVECTUS BIOPHARMACEUTICALS, INC. - Quarter Report: 2008 September (Form 10-Q)
United
States
Securities
And Exchange Commission
Washington,
DC 20549
FORM
10-Q
(Mark
One)
x Quarterly Report
under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly
period ended September 30, 2008
OR
o Transition Report
under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from
__________ to _______________
Commission
file number: 0-9410
Provectus
Pharmaceuticals, Inc.
(Exact
Name of Small Business Issuer as Specified in Its Charter)
|
Nevada
|
90-0031917
|
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification Number)
|
7327
Oak Ridge Highway Suite A, Knoxville, TN 37931
(Address
of Principal Executive Offices)
866/594-5999
(Issuer's
Telephone Number, Including Area Code)
N/A
(Former
Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check mark whether the
registrant: (1) 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 x No
o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. (Check one):
Large Accelerated
Filer o Accelerated
Filer o
Non-Accelerated
Filer
o
Smaller reporting
company x
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act. Yes o No
x
The number of
shares outstanding of the issuer's stock, $0.001 par value per share, as of
September 30, 2008 was 52,571,910.
Transitional Small Business Disclosure
Format (check one): Yes o No x
Item
1. Financial Statements
PROVECTUS
PHARMACEUTICALS, INC.
(A
Development-Stage Company)
CONSOLIDATED
BALANCE SHEETS
|
September
30, 2008
|
December
31, 2007
|
|||||||
|
(Unaudited)
|
(Audited)
|
|||||||
|
Assets
|
||||||||
|
Current
Assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 448,807 | $ | 352,389 | ||||
|
United
States Treasury Notes, total face value $2,002,832 and $6,910,157,
respectively
|
2,002,832 | 6,907,837 | ||||||
|
Investment
in preferred units in investment company
|
2,000,000 | -- | ||||||
|
Prepaid
expenses and other current assets
|
64,301 | 99,460 | ||||||
|
Total
Current Assets
|
4,515,940 | 7,359,686 | ||||||
|
Equipment
and furnishings, less accumulated depreciation of $388,919 and
$381,977, respectively
|
36,004 | 42,946 | ||||||
|
Patents,
net of amortization of $3,937,237 and $3,433,897,
respectively
|
7,778,208 | 8,281,548 | ||||||
|
Other
assets
|
27,000 | 27,000 | ||||||
| $ | 12,357,152 | $ | 15,711,180 | |||||
|
Liabilities
and Stockholders' Equity
|
||||||||
|
Current
Liabilities
|
||||||||
|
Accounts
payable – trade
|
$ | 123,409 | $ | 455,192 | ||||
|
Accrued
compensation and payroll taxes
|
330,664 | 274,011 | ||||||
|
Accrued
consulting expense
|
173,000 | 102,037 | ||||||
|
Other
accrued expenses
|
39,500 | 48,430 | ||||||
|
Total
Current Liabilities
|
666,573 | 879,670 | ||||||
|
Stockholders'
Equity
|
||||||||
|
Preferred
stock; par value $.001 per share; 25,000,000 shares
authorized;
no
shares issued and outstanding
|
-- | -- | ||||||
|
Common stock; par value $.001 per share; 100,000,000 shares
authorized;
52,571,910 and 49,399,281 shares issued and
outstanding,
respectively
|
52,572 | 49,399 | ||||||
|
Paid in capital
|
64,309,441 | 59,988,147 | ||||||
|
Deficit accumulated during the development stage
|
(52,671,434 | ) | (45,206,036 | ) | ||||
|
Total
Stockholders' Equity
|
11,690,579 | 14,831,510 | ||||||
| $ | 12,357,152 | $ | 15,711,180 | |||||
See
accompanying notes to consolidated financial statements.
1
PROVECTUS
PHARMACEUTICALS, INC.
(A
Development-Stage Company)
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
|
Three
Months
Ended
September 30,
2008
|
Three
Months
Ended
September
30, 2007
|
Nine
Months
Ended
September
30, 2008
|
Nine
Months
Ended
September
30, 2007
|
Cumulative Amounts
from January 17, 2002 (Inception) Through
September
30, 2008
|
||||||||||||||||
|
Revenues
|
||||||||||||||||||||
|
OTC
product revenue
|
$ | -- | $ | -- | $ | -- | $ | -- | $ | 25,648 | ||||||||||
|
Medical
device revenue
|
-- | -- | -- | -- | 14,109 | |||||||||||||||
|
Total
revenues
|
-- | -- | -- | -- | 39,757 | |||||||||||||||
|
Cost
of sales
|
-- | -- | -- | -- | 15,216 | |||||||||||||||
|
Gross
profit
|
-- | -- | -- | -- | 24,541 | |||||||||||||||
|
Operating
expenses
|
||||||||||||||||||||
|
Research and
development
|
1,092,005 | 1,079,345 | 3,403,789 | 3,231,930 | 14,936,954 | |||||||||||||||
|
General and
administrative
|
1,166,588 | 1,541,364 | 3,630,028 | 3,907,372 | 25,596,057 | |||||||||||||||
|
Amortization
|
167,780 | 167,780 | 503,340 | 503,340 | 3,937,237 | |||||||||||||||
|
Total
operating loss
|
(2,426,373 | ) | (2,788,489 | ) | (7,537,157 | ) | (7,642,642 | ) | (44,445,707 | ) | ||||||||||
|
Gain
on sale of fixed assets
|
-- | -- | -- | -- | 55,075 | |||||||||||||||
|
Loss
on extinguishment of debt
|
-- | -- | -- | -- | (825,867 | ) | ||||||||||||||
|
Investment
income
|
12,849 | 74,560 | 71,759 | 244,308 | 643,069 | |||||||||||||||
|
Interest
expense
|
-- | -- | -- | (11,409 | ) | (8,098,004 | ) | |||||||||||||
|
Net
loss
|
$ | (2,413,524 | ) | $ | (2,713,929 | ) | $ | (7,465,398 | ) | $ | (7,409,743 | ) | $ | (52,671,434 | ) | |||||
|
Basic
and diluted loss per common
share
|
$ | (0.05 | ) | $ | (0.05 | ) | $ | (0.15 | ) | $ | (0.16 | ) | ||||||||
|
Weighted
average number of common shares outstanding – basic and
diluted
|
51,576,330 | 46,432,567 | 50,817,198 | 45,436,240 | ||||||||||||||||
See
accompanying notes to consolidated financial statements.
2
PROVECTUS PHARMACEUTICALS, INC.
(A
Development-Stage Company)
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
|
Common
Stock
|
||||||||||||||||||||
|
Number
of shares
|
Par
value
|
Paid-in
capital
|
Accumulated
deficit
|
Total
|
||||||||||||||||
|
Balance,
at January 17, 2002
|
$ | -- | $ | -- | $ | -- | $ | -- | $ | -- | ||||||||||
|
Issuance
to founding shareholders
|
6,000,000 | 6,000 | (6,000 | ) | -- | -- | ||||||||||||||
|
Sale
of stock
|
50,000 | 50 | 24,950 | -- | 25,000 | |||||||||||||||
|
Issuance
of stock to employees
|
510,000 | 510 | 931,490 | -- | 932,000 | |||||||||||||||
|
Issuance
of stock for services
|
120,000 | 120 | 359,880 | -- | 360,000 | |||||||||||||||
|
Net
loss for the period from January 17, 2002 (inception) to April 23,
2002 (date of reverse merger)
|
-- | -- | -- | (1,316,198 | ) | (1,316,198 | ) | |||||||||||||
|
Balance,
at April 23, 2002
|
$ | 6,680,000 | $ | 6,680 | $ | 1,310,320 | $ | (1,316,198 | ) | $ | 802 | |||||||||
|
Shares
issued in reverse merger
|
265,763 | 266 | (3,911 | ) | -- | (3,645 | ) | |||||||||||||
|
Issuance
of stock for services
|
1,900,000 | 1,900 | 5,142,100 | -- | 5,144,000 | |||||||||||||||
|
Purchase
and retirement of stock
|
(400,000 | ) | (400 | ) | (47,600 | ) | -- | (48,000 | ) | |||||||||||
|
Stock
issued for acquisition of Valley Pharmaceuticals
|
500,007 | 500 | 12,225,820 | -- | 12,226,320 | |||||||||||||||
|
Exercise
of warrants
|
452,919 | 453 | -- | -- | 453 | |||||||||||||||
|
Warrants
issued in connection with convertible debt
|
-- | -- | 126,587 | -- | 126,587 | |||||||||||||||
|
Stock
and warrants issued for acquisition of Pure-ific
|
25,000 | 25 | 26,975 | -- | 27,000 | |||||||||||||||
|
Net
loss for the period from April 23, 2002 (date of reverse merger) to
December 31, 2002
|
-- | -- | -- | (5,749,937 | ) | (5,749,937 | ) | |||||||||||||
|
Balance,
at December 31, 2002
|
$ | 9,423,689 | $ | 9,424 | $ | 18,780,291 | $ | (7,066,135 | ) | $ | 11,723,580 | |||||||||
|
Issuance
of stock for services
|
764,000 | 764 | 239,036 | -- | 239,800 | |||||||||||||||
|
Issuance
of warrants for services
|
-- | -- | 145,479 | -- | 145,479 | |||||||||||||||
|
Stock
to be issued for services
|
-- | -- | 281,500 | -- | 281,500 | |||||||||||||||
|
Employee
compensation from stock options
|
-- | -- | 34,659 | -- | 34,659 | |||||||||||||||
|
Issuance
of stock pursuant to Regulation S
|
679,820 | 680 | 379,667 | -- | 380,347 | |||||||||||||||
|
Beneficial
conversion related to convertible debt
|
-- | -- | 601,000 | -- | 601,000 | |||||||||||||||
|
Net
loss for the year ended December 31, 2003
|
-- | -- | -- | (3,155,313 | ) | (3,155,313 | ) | |||||||||||||
|
Balance,
at December 31, 2003
|
$ | 10,867,509 | $ | 10,868 | $ | 20,461,632 | $ | (10,221,448 | ) | $ | 10,251,052 | |||||||||
|
Issuance
of stock for services
|
733,872 | 734 | 449,190 | -- | 449,923 | |||||||||||||||
|
Issuance
of warrants for services
|
-- | -- | 495,480 | -- | 495,480 | |||||||||||||||
|
Exercise
of warrants
|
132,608 | 133 | 4,867 | -- | 5,000 | |||||||||||||||
|
Employee
compensation from stock options
|
-- | -- | 15,612 | -- | 15,612 | |||||||||||||||
|
Issuance
of stock pursuant to Regulation S
|
2,469,723 | 2,469 | 790,668 | -- | 793,137 | |||||||||||||||
|
Issuance
of stock pursuant to Regulation D
|
1,930,164 | 1,930 | 1,286,930 | -- | 1,288,861 | |||||||||||||||
|
Beneficial
conversion related to convertible debt
|
-- | -- | 360,256 | -- | 360,256 | |||||||||||||||
|
Issuance
of convertible debt with warrants
|
-- | -- | 105,250 | -- | 105,250 | |||||||||||||||
|
Repurchase
of beneficial conversion feature
|
-- | -- | (258,345 | ) | -- | (258,345 | ) | |||||||||||||
|
Net
loss for the year ended December 31, 2004
|
-- | -- | -- | (4,344,525 | ) | (4,344,525 | ) | |||||||||||||
|
Balance,
at December 31, 2004
|
$ | 16,133,876 | $ | 16,134 | $ | 23,711,540 | $ | (14,565,973 | ) | $ | 9,161,701 | |||||||||
|
Issuance
of stock for services
|
226,733 | 227 | 152,058 | -- | 152,285 | |||||||||||||||
|
Issuance
of stock for interest payable
|
263,721 | 264 | 195,767 | -- | 196,031 | |||||||||||||||
|
Issuance
of warrants for services
|
-- | -- | 1,534,405 | -- | 1,534,405 | |||||||||||||||
|
Issuance
of warrants for contractual obligations
|
-- | -- | 985,010 | -- | 985,010 | |||||||||||||||
|
Exercise
of warrants and stock options
|
1,571,849 | 1,572 | 1,438,223 | -- | 1,439,795 | |||||||||||||||
|
Employee
compensation from stock options
|
-- | -- | 15,752 | -- | 15,752 | |||||||||||||||
|
Issuance
of stock pursuant to Regulation D
|
6,221,257 | 6,221 | 6,506,955 | -- | 6,513,176 | |||||||||||||||
|
Debt
conversion to common stock
|
3,405,541 | 3,405 | 3,045,957 | -- | 3,049,795 | |||||||||||||||
|
Issuance
of warrants with convertible debt
|
-- | -- | 1,574,900 | -- | 1,574,900 | |||||||||||||||
|
Beneficial
conversion related to convertible debt
|
-- | -- | 1,633,176 | -- | 1,633,176 | |||||||||||||||
|
Beneficial
conversion related to interest expense
|
-- | -- | 39,259 | -- | 39,529 | |||||||||||||||
|
Repurchase
of beneficial conversion feature
|
-- | -- | (144,128 | ) | -- | (144,128 | ) | |||||||||||||
|
Net
loss for the year ended 2005
|
-- | -- | -- | (11,763,853 | ) | (11,763,853 | ) | |||||||||||||
|
Balance,
at December 31, 2005
|
$ | 27,822,977 | $ | 27,823 | $ | 40,689,144 | $ | (26,329,826 | ) | $ | 14,387,141 | |||||||||
|
Issuance
of stock for services
|
719,246 | 719 | 676,024 | -- | 676,743 | |||||||||||||||
|
Issuance
of stock for interest payable
|
194,327 | 195 | 183,401 | -- | 183,596 | |||||||||||||||
|
Issuance
of warrants for services
|
-- | -- | 370,023 | -- | 370,023 | |||||||||||||||
|
Exercise
of warrants and stock options
|
1,245,809 | 1,246 | 1,188,570 | -- | 1,189,816 | |||||||||||||||
|
Employee
compensation from stock options
|
-- | -- | 1,862,456 | -- | 1,862,456 | |||||||||||||||
|
Issuance
of stock pursuant to Regulation D
|
10,092,495 | 10,092 | 4,120,329 | -- | 4,130,421 | |||||||||||||||
|
Debt
conversion to common stock
|
2,377,512 | 2,377 | 1,573,959 | -- | 1,576,336 | |||||||||||||||
|
Beneficial
conversion related to interest expense
|
-- | -- | 16,447 | -- | 16,447 | |||||||||||||||
|
Net
loss for the year ended 2006
|
-- | -- | -- | (8,870,579 | ) | (8,870,579 | ) | |||||||||||||
|
Balance,
at December 31, 2006
|
$ | 42,452,366 | $ | 42,452 | $ | 50,680,353 | $ | (35,200,405 | ) | $ | 15,522,400 | |||||||||
3
|
Issuance
of stock for services
|
150,000 | 150 | 298,800 | -- | 298,950 | |||||||||||||||
|
Issuance
of stock for interest payable
|
1,141 | 1 | 1,257 | -- | 1,258 | |||||||||||||||
|
Issuance
of warrants for services
|
-- | -- | 472,635 | -- | 472,635 | |||||||||||||||
|
Exercise
of warrants and stock options
|
3,928,957 | 3,929 | 3,981,712 | -- | 3,985,641 | |||||||||||||||
|
Employee
compensation from stock options
|
-- | -- | 2,340,619 | -- | 2,340,619 | |||||||||||||||
|
Issuance
of stock pursuant to Regulation D
|
2,376,817 | 2,377 | 1,845,761 | -- | 1,848,138 | |||||||||||||||
|
Debt
conversion to common stock
|
490,000 | 490 | 367,010 | -- | 367,500 | |||||||||||||||
|
Net
loss for the year ended 2007
|
-- | -- | -- | (10,005,631 | ) | (10,005,631 | ) | |||||||||||||
|
Balance,
at December 31, 2007
|
$ | 49,399,281 | $ | 49,399 | $ | 59,988,147 | $ | (45,206,036 | ) | $ | 14,831,510 | |||||||||
|
Issuance
of stock for services
|
175,000 | 175 | 205,575 | -- | 205,750 | |||||||||||||||
|
Issuance
of warrants for services
|
-- | -- | 133,356 | -- | 133,356 | |||||||||||||||
|
Exercise
of warrants and stock options
|
2,997,629 | 2,998 | 2,402,047 | -- | 2,405,045 | |||||||||||||||
|
Employee
compensation from stock options
|
-- | -- | 1,580,316 | -- | 1,580,316 | |||||||||||||||
|
Net loss
for the nine months ended September 30, 2008
|
-- | -- | -- | (7,465,398 | ) | (7,465,398 | ) | |||||||||||||
|
Balance,
at September 30, 2008
|
$ | 52,571,910 | $ | 52,572 | $ | 64,309,441 | $ | (52,671,434 | ) | $ | 11,690,579 |
See
accompanying notes to consolidated financial statements.
4
PROVECTUS
PHARMACEUTICALS, INC.
(A
Development-Stage Company)
CONSOLIDATED
STATEMENTS OF CASH FLOW
(Unaudited)
|
Nine
Months Ended
September 30,
2008
|
Nine
Months Ended
September 30,
2007
|
Cumulative
Amounts from January 17, 2002 (Inception) through
September 30,
2008
|
||||||||||
|
Cash
Flows From Operating Activities
|
||||||||||||
|
Net
loss
|
$ | (7,465,398 | ) | $ | (7,409,743 | ) | $ | (52,671,434 | ) | |||
|
Adjustments to
reconcile net loss to net cash used in operating
activities
|
||||||||||||
|
Depreciation
|
6,942 | 6,942 | 411,920 | |||||||||
|
Amortization of
patents
|
503,340 | 503,340 | 3,937,237 | |||||||||
|
Amortization of
original issue discount
|
-- | 2,797 | 3,845,721 | |||||||||
|
Amortization of
commitment fee
|
-- | -- | 310,866 | |||||||||
|
Amortization of
prepaid consultant expense
|
-- | 84,019 | 1,295,226 | |||||||||
|
Amortization of
deferred loan costs
|
-- | 3,713 | 2,261,584 | |||||||||
|
Accretion of United States
Treasury Notes
|
(16,451 | ) | (142,314 | ) | (373,295 | ) | ||||||
|
Loss on
extinguishment of debt
|
-- | -- | 825,867 | |||||||||
|
Loss on
exercise of warrants
|
-- | -- | 236,146 | |||||||||
|
Beneficial
conversion of convertible interest
|
-- | -- | 55,976 | |||||||||
|
Convertible
interest
|
-- | 1,258 | 389,950 | |||||||||
|
Compensation
through issuance of stock options
|
1,580,316 | 1,847,397 | 5,849,414 | |||||||||
|
Compensation
through issuance of stock
|
-- | -- | 932,000 | |||||||||
|
Issuance of
stock for services
|
205,750 | 230,617 | 6,528,398 | |||||||||
|
Issuance of
warrants for services
|
133,356 | 459,460 | 1,149,160 | |||||||||
|
Issuance of
warrants for contractual obligations
|
-- | -- | 985,010 | |||||||||
|
Gain on
sale of equipment
|
-- | -- | (55,075 | ) | ||||||||
|
(Increase)
decrease in assets
|
||||||||||||
|
Prepaid
expenses and other current assets
|
35,159 | 71,173 | (64,301 | ) | ||||||||
|
Increase
(decrease) in liabilities
|
||||||||||||
|
Accounts
payable
|
(331,783 | ) | (31,831 | ) | 119,764 | |||||||
|
Accrued
expenses
|
118,686 | 301,288 | 692,794 | |||||||||
|
Net cash
used in operating activities
|
(5,230,083 | ) | (4,071,884 | ) | (23,337,072 | ) | ||||||
|
Cash
Flows from Investing Activities
|
||||||||||||
|
Proceeds from
sale of fixed asset
|
-- | -- | 180,075 | |||||||||
|
Capital
expenditures
|
-- | (22,127 | ) | (62,049 | ) | |||||||
|
Increase in
investment in preferred units in investment company
|
(2,000,000 | ) | -- | (2,000,000 | ) | |||||||
|
Proceeds from
investments
|
14,043,000 | 14,760,644 | 44,524,644 | |||||||||
|
Purchase of
investments
|
(9,121,544 | ) | (15,421,173 | ) | (46,154,181 | ) | ||||||
|
Net cash
provided by (used in) investing activities
|
2,921,456 | (682,656 | ) | (3,511,511 | ) | |||||||
|
Cash
Flows from Financing Activities
|
||||||||||||
|
Net
proceeds from loans from stockholder
|
-- | -- | 174,000 | |||||||||
|
Proceeds from
convertible debt
|
-- | -- | 6,706,795 | |||||||||
|
Net
proceeds from sale of common stock
|
-- | 1,830,588 | 14,979,081 | |||||||||
|
Proceeds from
exercise of warrants and stock options
|
2,405,045 | 2,624,569 | 8,789,604 | |||||||||
|
Cash
paid to retire convertible debt
|
-- | -- | (2,385,959 | ) | ||||||||
|
Cash
paid for deferred loan costs
|
-- | -- | (747,612 | ) | ||||||||
|
Premium
paid on extinguishments of debt
|
-- | -- | (170,519 | ) | ||||||||
|
Purchase and
retirement of common stock
|
-- | -- | (48,000 | ) | ||||||||
|
Net cash
provided by financing activities
|
2,405,045 | 4,455,157 | 27,297,390 | |||||||||
|
Net
change in cash and cash equivalents
|
$ | 96,418 | $ | (299,383 | ) | $ | 448,807 | |||||
|
Cash and
cash equivalents, at beginning of period
|
$ | 352,389 | $ | 638,334 | $ | -- | ||||||
|
Cash and
cash equivalents, at end of period
|
$ | 448,807 | $ | 338,951 | $ | 448,807 | ||||||
Supplemental
Disclosure of Noncash Investing and Financing Activities:
September
30, 2008
None
September
30, 2007
1.
Debt converted to common stock of $367,500
2.
Payment of accrued interest through the issuance of stock of $1,258
3.
Issuance of stock for stock issuance costs of $17,550 incurred in 2006
4.
Stock committed to be issued for services of $41,667 accrued at September 30,
2007
See
accompanying notes to consolidated financial statements.
5
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of
Presentation
The accompanying
unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information pursuant to Regulation
S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. 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 nine months ended
September 30, 2008 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2008.
2. Recapitalization and
Merger
Provectus Pharmaceuticals, Inc.,
formerly known as "Provectus Pharmaceutical, Inc." and "SPM Group, Inc.," was
incorporated under Colorado law on May 1, 1978. SPM Group ceased
operations in 1991, and became a development-stage company effective January 1,
1992, with the new corporate purpose of seeking out acquisitions of properties,
businesses, or merger candidates, without limitation as to the nature of the
business operations or geographic location of the acquisition
candidate.
On April 1, 2002, SPM Group changed its
name to "Provectus Pharmaceutical, Inc." and reincorporated in Nevada in
preparation for a transaction with Provectus Pharmaceuticals, Inc., a
privately-held Tennessee corporation ("PPI"). On April 23, 2002, an Agreement
and Plan of Reorganization between Provectus Pharmaceutical and PPI was approved
by the written consent of a majority of the outstanding shares of Provectus
Pharmaceutical. As a result, Provectus Pharmaceuticals, Inc. issued
6,680,000 shares of common stock in exchange for all of the issued and
outstanding shares of PPI. As part of the acquisition, Provectus
Pharmaceutical changed its name to "Provectus Pharmaceuticals, Inc." and PPI
became a wholly-owned subsidiary of Provectus. This transaction was
recorded as a recapitalization of PPI.
On November 19, 2002, the Company acquired Valley Pharmaceuticals, Inc., a
privately-held Tennessee corporation formerly known as Photogen, Inc., by
merging PPI with and into Valley and naming the surviving corporation "Xantech
Pharmaceuticals, Inc." Photogen, Inc. was separated from Photogen Technologies,
Inc. in a non-pro rata split-off to some of its shareholders. The
assets of Photogen, Inc. consisted primarily of the equipment and intangibles
related to its therapeutic activity and were recorded at their fair
value. The majority shareholders of Valley were also the majority
shareholders of Provectus. Valley had no revenues prior to the
transaction with the Company. By acquiring Valley, the Company
acquired its intellectual property, including issued U.S. patents and patentable
inventions.
3. Basic and Diluted Loss Per Common
Share
Basic
and diluted loss per common share is computed based on the weighted average
number of common shares outstanding. Loss per share excludes the
impact of outstanding options, and warrants as they are antidilutive. Potential
common shares excluded from the calculation at September 30, 2008 and 2007
relate to 20,520,617 and 24,392,325 of warrants, and 8,915,093 and 8,959,419 of
options, respectively.
4.
Equity and Debt Transactions
(a) During the three months
ended March 31, 2008, the Company issued 100,000 shares of common stock to
consultants
in exchange for services. Consulting costs charged to operations were
$122,500. During the three months ended June 30, 2008, the Company issued
12,500 shares of common stock to consultants in exchange for
services. Consulting costs charged to operations were
$13,000. During the three months ended September 30, 2008, the Company
issued 62,500 shares of common stock to consultants in exchange for
services. Consulting costs charged to operations were
$70,250.
(b) During the three months
ended March 31, 2008, the Company issued 60,000 warrants to consultants in
exchange for services. Consulting
costs charged to operations were $40,657. During the three months ended
March 31, 2008, 197,013 warrants were exercised for $184,402 resulting in
197,013 shares being issued. 24,050 of the warrants exercised had an
exercise price of $1.00 that was reduced to $0.80. Additional
consulting costs of $4,810 were charged to operations as a result of the
reduction of the exercise price of the 24,050 warrants. During the
three months ended March 31, 2008, 143,999 warrants were
forfeited. Additionally, 330,881 shares committed to be issued as of
December 31, 2007 were issued January 2, 2008. During the three months
ended June 30, 2008, the Company issued 12,000 warrants to consultants in
exchange for services. Consulting costs charged to operations were
$5,254. During the three months ended June 30, 2008, 1,075,104
warrants were exercised for $980,064 resulting in 1,075,104 shares being
issued. 576,012 of the warrants exercised had an exercise price of
$1.00 that was reduced to $0.90. Additional consulting costs of
$57,602 were charged to operations as a result of the reduction of the exercise
price of the 576,012 warrants. 15,050 of the warrants exercised had
an exercise price of $1.00 that was reduced to $0.80. Additional
consulting costs of $3,010 were charged to operations as a result of the
reduction of the exercise price of the 15,050 warrants. During the
three months ended September 30, 2008, the Company issued 21,500 warrants to
consultants in exchange for services. Consulting costs charged to
operations were $22,023. During the three months ended
September 30, 2008, 1,156,555 warrants were exercised for $1,081,704 resulting
in 1,156,555 shares being issued.
6
5. Stock-Based
Compensation
One employee of the
Company exercised a total of 193,281 options during the three months ended June
30, 2008 at exercise prices ranging from $0.32 to $1.02 per share of
common stock for $109,600. Another employee of the Company exercised
a total of 44,795 options during the three months ended June 30, 2008 at an
exercise price of $1.10 per share of common stock for $49,275. On
June 3, 2008, the Company issued 50,000 stock options to a newly appointed
Member of the Board. The options vested on the date of
grant. The exercise price is the fair market price on the date of
issuance, and all options were outstanding at September 30, 2008. On
June 27, 2008, the Company issued 200,000 stock options to its re-elected
Members of the Board. The options vested on the date of
grant. The exercise price is the fair market price on the date of
issuance, and all options were outstanding at September 30, 2008.
Effective January 1,
2006, the Company adopted FASB 123R. This change in accounting replaces existing
requirements under FASB 123 and eliminates the ability to account for
share-based compensation transaction using APB 25. The compensation cost
relating to share-based payment transactions is measured based on the fair value
of the equity or liability instruments issued. For purposes of estimating the
fair value of each stock option on the date of grant, the Company utilized the
Black-Scholes option-pricing model. The Black-Scholes option valuation model was
developed for use in estimating the fair value of traded options, which have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the expected
volatility factor of the market price of the company’s common stock (as
determined by reviewing its historical public market closing prices). Because
the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options. Included in the results
for the three and nine months ended September 30, 2008, is $425,085 and
$1,580,316, respectively, of stock-based compensation expense which relates to
the fair value of stock options. Included in the results for the
three and nine months ended September 30, 2007, is $421,207 and $1,847,397,
respectively, of stock-based compensation expense which relates to the fair
value of stock options.
6. Investment in Preferred Units in
Investment Company
On
September 15, 2008, the Company invested $2,000,000 in two preferred units in an
investment company. This investment is redeemable at par at the option of
the Company on December 15, 2008. In addition, the investment is
redeemable at the option of the Company on October 15 and November 15, 2008 in
the event the return on the investment is less than 1%.
7. Fair Value Measurements
As
of January 1, 2008, the Company adopted SFAS No. 157 (“FAS 157”), Fair
Value Measurements. This Statement defines fair value, establishes a framework
for measuring fair value and expands disclosures about fair value measurements.
The adoption of FAS 157 did not have a material impact on the Company’s
consolidated financial statements. On October 10, 2008, the FASB issued FSP
FAS No. 157-3 to clarify the application of fair value measurements of a
financial asset when the market for that asset is not active. This clarifying
guidance became effective upon issuance, including prior periods for which
financial statements had not been issued, such as the period ended
September 30, 2008 for the Company. The adoption of FSP FAS 157-3 had no
impact on the Company’s results of operations or financial position. See below
for additional disclosures about fair value measurement.
As
defined in FAS 157, fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The Company holds United States
Treasury Notes and two preferred units in an investment company that are carried
at fair value.
Fair value
measurements are generally based upon observable and unobservable inputs.
Observable inputs reflect market data obtained from independent sources, while
unobservable inputs reflect the Company’s view of market assumptions in the
absence of observable market information. FAS 157 requires all assets
and liabilities carried at fair value to be classified and disclosed in one of
the following three categories:
7
- Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
- Level 2 – Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly; and
- Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
The Company's fair
value investments are categorized into the following levels:
Level 1 consists of
U. S. Treasury Notes whose value is based on quoted market prices.
Level 2 is not
applicable for the Company at this time.
Level 3 consists of
two preferred units in an investment company where the Company cannot
corroborate the significant valuation inputs with market observable
data. However, the Company has determined that the carrying value of
the investment approximates fair value given the short-term redemption
period.
The Company reviews
the fair value hierarchy classifications each reporting period. Changes in the
observability of the valuation attributes may result in a reclassification of
certain financial assets. Such reclassifications, if any, are reported as
transfers in and out of Level 3 at the beginning fair value for the reporting
period in which the changes occur.
The following table
sets forth the assets of the Company that are measured at fair value on a
recurring basis at September 30, 2008.
|
Financial
assets:
|
Total
|
Level
1
|
Level
2
|
Level
3
|
||||||||||||
|
United
States Treasury Notes
|
$ | 2,002,832 | $ | 2,002,832 | $ | - | $ | - | ||||||||
|
Investment in
preferred units in investment company
|
2,000,000 | - | - | 2,000,000 | ||||||||||||
|
Total
financial assets
|
$ | 4,002,832 | $ | 2,002,832 | $ | - | $ | 2,000,000 | ||||||||
8
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 consolidated financial statements and notes thereto
included elsewhere in this Quarterly Report on Form 10-Q. Historical
results and percentage relationships set forth in the statement of operations,
including trends which might appear, are not necessarily indicative of future
operations.
Capital
Structure
Our ability to continue as a going concern is reasonably assured due to our
financing completed during 2006 and warrants exercised in 2007 and 2008. At the
current rate of expenditures, we do not plan to raise additional capital until
late 2008, although our existing funds are sufficient to meet anticipated needs
throughout 2008 and well into 2009.
We have implemented our integrated
business plan, including execution of the current and next phases in clinical
development of our pharmaceutical products and continued execution of research
programs for new research initiatives.
We intend to proceed as rapidly as possible with the asset sale and
licensure of our OTC products that can be sold with a minimum of regulatory
compliance and with the further development of revenue sources through licensing
of our existing medical device and biotech intellectual property portfolio.
Although we believe that there is a reasonable basis for our expectation that we
will become profitable due to the asset sale and licensure of our OTC products,
we cannot provide assurance that we will be able to achieve, or maintain, a
level of profitability sufficient to meet our operating expenses.
Our current plans include continuing to
operate with our four employees during the immediate future, but we have added
additional consultants and anticipate adding more consultants in the next 12
months. Our current plans also include minimal purchases of new
property, plant and equipment, and increased research and development for
additional clinical trials.
Plan
of Operation
With the reorganization of Provectus and PPI and the acquisition and integration
into the Company of Valley and Pure-ific, we believe we have obtained a unique
combination of core intellectual properties and OTC and other non-core products.
This combination represents the foundation for an operating company that we
believe will provide both profitability and long-term growth. In 2007
and the first nine months of 2008, we continued to carefully control
expenditures in preparation for the asset sale and licensure or spin out of our
OTC products, medical device and biotech technologies, and we will issue equity
only when it makes sense and primarily for purposes of attracting strategic
investors.
In the short term, we intend to develop our business by selling the OTC assets
and licensing our existing OTC products, principally Pure-Stick, GloveAid and
Pure-ific. We are also now considering a spin out of the wholly-owned
subsidiary that contains the OTC assets. We will also sell and/or
license our medical device and biotech technologies and consider a spin out of
those non-core wholly-owned subsidiaries. In the longer term, we
expect to continue the process of developing, testing and obtaining the approval
of the U. S. Food and Drug Administration for prescription drugs in
particular. Additionally, we have restarted our research programs
that will identify additional conditions that our intellectual properties may be
used to treat as well as additional treatments for those and other
conditions.
We have continued to make significant progress with the major research and
development projects expected to be ongoing in the next 12
months. The Phase 2 trial in metastatic melanoma has been
significantly completed which is expected to cost approximately $3,000,000
through 2008 and 2009, of which approximately $1,725,000 has been expended thus
far. Additionally, we planned $1,000,000 of expenditures in 2007 and
2008 to substantially advance our work with other oncology indications which
included the third group of our expanded Phase 1 breast carcinoma clinical
trial. The third group of our expanded Phase 1 breast carcinoma
clinical trial was completed in September 2008 for approximately
$100,000. Our Phase 2 psoriasis trial commenced in November 2007 and
is expected to cost approximately $1,500,000, of which approximately $1,075,000
has been expended thus far. Our Phase 2 atopic dermatitis trial
commenced in May 2008 and the cost is included in the psoriasis trial
budget. Our Phase 1- 2 liver cancer trial is expected to cost
approximately $500,000 in total and is expected to commence at the end of 2008
or early in 2009.
Comparison of Three and Nine Months Ended
September 30, 2008 and September 30, 2007
Revenues
OTC Product Revenue was $-0- in both the three and nine months ended September
30, 2008 and 2007. We discontinued our proof-of-concept program
in November 2006 and have therefore ceased selling our OTC
products. There was no medical device revenue in both the three
and nine months ended September 30, 2008 and 2007. The lack of medical
device revenue resulted due to no emphasis on selling. The Company
has designated the OTC and medical device products as non-core and is
considering the sale of the underlying assets in conjunction with the planned
spin-out of the respective wholly-owned subsidiaries.
9
Research and development
Research and development costs of $1,092,005 for the three months ended
September 30, 2008 included depreciation expense of $2,314, consulting and
contract labor of $369,567, lab supplies and pharmaceutical preparations of
$34,622, insurance of $39,758, legal of $79,733, payroll of $547,769, and rent
and utilities of $18,242. Research and development costs of
$1,079,345 for the three months ended September 30, 2007 included depreciation
expense of $2,314, consulting and contract labor of $157,128, lab supplies and
pharmaceutical preparations of $10,773, insurance of $55,066, legal of $99,628,
payroll of $738,504, and rent and utilities of $15,932. The increase
in consulting and contract labor is primarily the result of expense for the
Phase 2 metastatic melanoma clinical trial and related melanoma study
expenditures. The decrease in payroll is the result of lower bonuses
and stock option expense in 2008 offset partially by higher salaries in
2008.
Research and development costs of $3,403,789 for the nine months ended September
30, 2008 included depreciation expense of $6,942, consulting and contract labor
of $900,661, lab supplies and pharmaceutical preparations of $100,003, insurance
of $76,737, legal of $222,299, payroll of $2,039,578, and rent and utilities of
$57,569. Research and development costs of $3,231,930 for the nine
months ended September 30, 2007 included depreciation expense of $6,942,
consulting and contract labor of $461,621, lab supplies and pharmaceutical
preparations of $109,784, insurance of $98,722, legal of $243,383, payroll of
$2,264,488, and rent and utilities of $46,990. The increase in
consulting and contract labor is primarily the result of expense for the Phase 2
metastatic melanoma clinical trial and related melanoma study
expenditures. The decrease in payroll is the result of lower bonuses
and stock option expense in 2008 offset partially by higher salaries in
2008.
General and administrative
General
and administrative expenses decreased by $374,776 in the three months ended
September 30, 2008 to $1,166,588 from $1,541,364 for the three months ended
September 30, 2007. Most of the decrease resulted primarily from
lower payroll expenses as a result of lower bonuses and stock option expense in
2008 offset partially by higher salaries in 2008. Additionally, part
of the decrease is due to lower IT consulting and corporate legal expense offset
partially by higher travel expenses.
General
and administrative expenses decreased by $277,344 in the nine months ended
September 30, 2008 to $3,630,028 from $3,907,372 for the nine months ended
September 30, 2007. The components of general and administrative
expenses are consistent and comparable during the nine months ended September
30, 2008 and 2007 except for a decrease in payroll expenses which is the result
of lower bonuses and stock option expense in 2008 offset partially by higher
salaries in 2008.
Cash Flow
As of September 30, 2008, we held approximately $2,500,000 in cash and
short-term United States Treasury Notes and $2,000,000 in two preferred units in
an investment company which will convert into cash by December
2008. At our current cash expenditure rate, the Company’s current
funds will be sufficient to meet our current and planned needs in 2008 and well
into 2009. We have been increasing our expenditure rate by accelerating some of
our research programs for new research initiatives; in addition, we are seeking
to improve our cash flow through the asset sale and licensure of our OTC
products as well as other non-core assets. However, we cannot assure you that we
will be successful in selling the OTC and other non-core assets and licensing
our existing OTC products. Moreover, even if we are successful in
improving our current cash flow position, we nonetheless plan to need additional
funds to meet our long-term requirements in 2009 and beyond. We
anticipate that these funds will come from the proceeds of private placements,
the exercise of existing warrants outstanding, or public offerings of debt or
equity securities.
Capital Resources
As noted above, our
present cash flow is currently sufficient to meet our short-term operating
needs. The Company’s cash will be used to finance the current and
next phases in clinical development of our pharmaceutical
products. We anticipate that any required funds for our operating and
development needs beyond mid 2009 will come from the proceeds of private
placements, the exercise of existing warrants outstanding, 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 shareholders. For further information on
funding sources, please see the notes to our financial statements included in
this report.
10
Critical
Accounting Policies
Long-Lived Assets
We review the carrying values of our
long-lived assets for possible impairment whenever an event or change in
circumstances indicates that the carrying amount of the assets may not be
recoverable. Any long-lived assets held for disposal are reported at the lower
of their carrying amounts or fair value less cost to sell.
Patent Costs
Internal patent costs
are expensed in the period incurred. Patents purchased are capitalized and
amortized over the remaining life of the patent. The patents are being amortized
over the remaining lives of the patents, which range from 11-14 years.
Annual amortization of the patents is expected to be approximately $671,000 for
the next five years.
Stock-Based Compensation
We
adopted Financial Accounting Standards Board (“FASB”) Statement No. 123 (revised
2004), “Share-Based Payment” (FASB 123R), effective January 1, 2006 under the
modified prospective method, which recognizes compensation cost beginning with
the effective date (a) based on the requirements of FASB 123R for all
share-based payments granted after the effective date and to awards modified,
repurchased, or cancelled after that date and (b) based on the requirements of
FASB 123 for all awards granted to employees prior to the effective date of FASB
123R that remain unvested on the effective date. There was no cumulative effect
of our initially applying this Statement. At September 30, 2008 we have
estimated that an additional $45,751 will be expensed over the applicable
remaining vesting periods for all share-based payments granted to employees on
or before December 31, 2005 which remained unvested on January 1, 2006.
The compensation cost relating to share-based payment transactions is measured
based on the fair value of the equity or liability instruments issued and is
expensed on a straight-line basis. For purposes of estimating the fair value of
each stock option on the date of grant, we utilized the Black-Scholes
option-pricing model. The Black-Scholes option valuation model was developed for
use in estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including the expected
volatility factor of the market price of the company’s common stock (as
determined by reviewing its historical public market closing prices). Because
our employee stock options have characteristics significantly different from
those of traded options and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management’s opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.
Research and Development
Research and development costs are charged to expense when incurred. An
allocation of payroll expenses is made based on a percentage estimate of
time spent. The research and development costs include the following:
depreciation expense, consulting and contract labor, lab supplies and
pharmaceutical preparations, insurance, legal, payroll, and rent and
utilities.
Accounting
Pronouncement
In September of 2006,
the FASB issued Statement No. 157,
Fair Value Measurements, or SFAS 157. SFAS 157 establishes a
standard framework for measuring fair value in generally accepted accounting
principles (GAAP), clarifies the definition of “fair value” within that
framework, and expands disclosures about the use of fair value
measurements. The Company adopted SFAS 157 which had no impact on our
financial statements.
Contractual
Obligations - Leases
We lease office and laboratory space in Knoxville, Tennessee, on an annual
basis, renewable for one year at our option. Our current lease term was renewed
in August 2008 with an expiration of June 30, 2009. The lease payment
is $4,300 per month.
11
Forward-Looking
Statements
This Quarterly Report on Form 10-Q
contains forward-looking statements regarding, among other things, our
anticipated financial and operating results. Forward-looking statements reflect
our management’s current assumptions, beliefs, and expectations. Words such as
"anticipate," "believe, “estimate," "expect," "intend," "plan," and similar
expressions are intended to identify forward-looking statements. While we
believe that the expectations reflected in our forward-looking statements are
reasonable, we can give no assurance that such expectations will prove correct.
Forward-looking statements are subject to risks and uncertainties that could
cause our actual results to differ materially from the future results,
performance, or achievements expressed in or implied by any forward-looking
statement we make. Some of the relevant risks and uncertainties that could cause
our actual performance to differ materially from the forward-looking statements
contained in this report are discussed below under the heading "Risk Factors"
and elsewhere in this Quarterly Report on Form 10-Q. We caution investors that
these discussions of important risks and uncertainties are not exclusive, and
our business may be subject to other risks and uncertainties which are not
detailed there.
Investors are cautioned not to place
undue reliance on our forward-looking statements. We make forward-looking
statements as of the date on which this Quarterly Report on Form 10-Q is filed
with the SEC, and we assume no obligation to update the forward-looking
statements after the date hereof whether as a result of new information or
events, changed circumstances, or otherwise, except as required by
law.
Item
3. Quantitative and Qualitative Disclosures About Market
Risk.
None.
Item
4T. Controls and Procedures.
(a) Evaluation of Disclosure
Controls and Procedures. Our chief executive officer and chief
financial officer have evaluated the effectiveness of the design and operation
of our "disclosure controls and procedures" (as that term is defined in Rule
13a-15(e) under the Exchange Act) as of September 30, 2008, the end of
the fiscal quarter covered by this Quarterly Report on Form
10-Q. Based on that evaluation, the chief executive officer and chief
financial officer have concluded that our disclosure controls and procedures are
effective to ensure that material information relating to the Company and the
Company's consolidated subsidiaries is made known to such officers by others
within these entities, particularly during the period this Quarterly Report on
Form 10-Q was prepared, in order to allow timely decisions regarding required
disclosure.
(b) Changes in Internal
Controls. 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.
12
PART
II. OTHER INFORMATION
Item
1. Legal Proceedings.
The Company was not involved in any
legal proceedings during the fiscal quarter covered by this Quarterly Report of
Form 10-Q.
Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds.
Recent Sales of Unregistered
Securities
None.
Item
3. Defaults Upon Senior Securities.
None.
Item
4. Submission of Matters to a Vote of Security Holders.
None.
Item
5. Other Information.
None.
Item
6. Exhibits
31.1
Certification Pursuant to Rule 13a-14(a) (Section 302
Certification), dated November 14, 2008, executed by H. Craig Dees,
Ph.D., Chief Executive Officer of the Company.
31.2
Certification Pursuant to Rule 13a-14(a) (Section 302 Certification), dated
November 14, 2008, executed by Peter R. Culpepper, Chief Financial
Officer of the Company.
32.1
Certification Pursuant to 18 U.S.C. ss. 1350 (Section 906 Certification), dated
November 14, 2008, executed by H. Craig Dees, Ph.D., Chief Executive Officer of
the Company, and Peter R. Culpepper, Chief Financial Officer of the
Company.
13
Signatures
In
accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
| Provectus Pharmaceuticals, Inc. | |||
|
Date:
November 14, 2008
|
By:
|
/s/ H. Craig Dees, Ph.D. | |
| Name: H. Craig Dees, Ph.D. | |||
| Title: Chief Executive Officer | |||
14
EXHIBIT
INDEX
Exhibit No. Description
31.1 Certification
Pursuant to Rule 13a-14(a) (Section 302 Certification), dated November 14, 2008,
executed by H. Craig Dees, Ph.D., Chief Executive Officer of the
Company.
31.2 Certification
Pursuant to Rule 13a-14(a) (Section 302 Certification), dated November 14, 2008,
executed by Peter R. Culpepper, Chief Financial Officer of the
Company.
32.1 Certification
Pursuant to 18 U.S.C. ss. 1350 (Section 906 Certification), dated November 14,
2008, executed by H. Craig Dees, Ph.D., Chief Executive Officer of the Company,
and Peter R. Culpepper, Chief Financial Officer of the Company.
15