PROVECTUS BIOPHARMACEUTICALS, INC. - Quarter Report: 2008 June (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 June
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 June 30, 2008 was
51,352,855.
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
|
June
30, 2008
(Unaudited)
|
December
31, 2007
(Audited)
|
||||||||
| Assets | |||||||||
| Current Assets | |||||||||
|
Cash
and cash equivalents
|
$ | 5,169 | 352,389 | ||||||
| United States Treasury Notes, total face value $2,806,568 and $6,910,157, respectively | 2,805,308 | 6,907,837 | |||||||
| Cash in escrow | 2,000,000 | -- | |||||||
| Prepaid expenses and other current assets | 46,014 | 99,460 | |||||||
| Total Current Assets | 4,856,491 | 7,359,686 | |||||||
| Equipment and furnishings, less accumulated depreciation of $386,605 and $381,977, respectively | 38,318 | 42,946 | |||||||
|
Patents,
net of amortization of $3,769,457 and $3,433,897,
respectively
|
7,945,988 | 8,281,548 | |||||||
|
Other
assets
|
27,000 | 27,000 | |||||||
| $ | 12,867,797 | $ | 15,711,180 | ||||||
|
Liabilities
and Stockholders' Equity
|
|||||||||
|
Current
Liabilities
|
|||||||||
|
Accounts payable – trade
|
$ | 143,730 | $ | 455,192 | |||||
|
Accrued compensation and payroll taxes
|
109,526 | 274,011 | |||||||
|
Accrued consulting expense
|
70,000 | 102,037 | |||||||
|
Other accrued expenses
|
39,500 | 48,430 | |||||||
|
Total
Current Liabilities
|
362,756 | 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; 51,352,855 and 49,399,281 shares issued
and
outstanding,
respectively
|
51,353 | 49,399 | |||||||
|
Paid in capital
|
62,711,598 | 59,988,147 | |||||||
|
Deficit accumulated during the development stage
|
(50,257,910 | ) | (45,206,036 | ) | |||||
|
Total
Stockholders' Equity
|
12,505,041 | 14,831,510 | |||||||
| $ | 12,867,797 | $ | 15,711,180 |
See
accompanying notes to consolidated financial statements.
2
PROVECTUS
PHARMACEUTICALS, INC.
(A
Development-Stage Company)
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
|
Three
Months
Ended
June
30, 2008
|
Three
Months
Ended
June
30, 2007
|
Six
Months
Ended
June
30, 2008
|
Six
Months
Ended
June
30, 2007
|
Cumulative
Amounts from January 17, 2002 (Inception) Through
June
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
|
1,248,668 | 1,063,282 | 2,311,784 | 2,152,585 | 13,844,949 | |||||||||||||||
|
General and
administrative
|
1,298,446 | 1,160,777 | 2,463,440 | 2,366,008 | 24,429,469 | |||||||||||||||
|
Amortization
|
167,780 | 167,780 | 335,560 | 335,560 | 3,769,457 | |||||||||||||||
|
Total
operating loss
|
(2,714,894 | ) | (2,391,839 | ) | (5,110,784 | ) | (4,854,153 | ) | (42,019,334 | ) | ||||||||||
|
Gain
on sale of fixed assets
|
-- | -- | -- | -- | 55,075 | |||||||||||||||
|
Loss
on extinguishment of debt
|
-- | -- | -- | -- | (825,867 | ) | ||||||||||||||
|
Investment
income
|
19,005 | 84,159 | 58,910 | 169,748 | 630,220 | |||||||||||||||
|
Interest
expense
|
-- | -- | -- | (11,409 | ) | (8,098,004 | ) | |||||||||||||
|
Net
loss
|
$ | (2,695,889 | ) | $ | (2,307,680 | ) | $ | (5,051,874 | ) | $ | (4,695,814 | ) | $ | (50,257,910 | ) | |||||
|
Basic
and diluted loss per
common
share
|
$ | (0.05 | ) | $ | (0.05 | ) | $ | (0.10 | ) | $ | (0.10 | ) | ||||||||
|
Weighted
average number of common shares outstanding – basic and
diluted
|
50,981,758 | 45,597,872 | 50,433,460 | 44,929,819 | ||||||||||||||||
See
accompanying notes to consolidated financial statements.
3
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 | ||||||||||
4
|
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
|
112,500 | 113 | 135,387 | -- | 135,500 | |||||||||||||||
|
Issuance
of warrants for services
|
-- | -- | 111,333 | -- | 111,333 | |||||||||||||||
|
Exercise
of warrants and stock options
|
1,841,074 | 1,841 | 1,321,500 | -- | 1,323,341 | |||||||||||||||
|
Employee
compensation from stock options
|
-- | -- | 1,155,231 | -- | 1,155,231 | |||||||||||||||
|
Net
loss for the six months ended June 30, 2008
|
-- | -- | -- | (5,051,874 | ) | (5,051,874 | ) | |||||||||||||
|
Balance,
at June 30, 2008
|
51,352,855 | $ | 51,353 | $ | 62,711,598 | $ | (50,257,910 | ) | $ | 12,505,041 |
See
accompanying notes to consolidated financial statements.
5
PROVECTUS
PHARMACEUTICALS, INC.
(A
Development-Stage Company)
CONSOLIDATED
STATEMENTS OF CASH FLOW
(Unaudited)
|
Six
Months Ended
June 30, 2008
|
Six
Months Ended
June 30, 2007
|
Cumulative
Amounts from January 17, 2002 (Inception) through
June 30, 2008
|
||||||||||
|
Cash
Flows From Operating Activities
|
||||||||||||
|
Net
loss
|
$ | (5,051,874 | ) | $ | (4,695,814 | ) | $ | (50,257,910 | ) | |||
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
||||||||||||
|
Depreciation
|
4,628 | 4,628 | 409,606 | |||||||||
|
Amortization
of patents
|
335,560 | 335,560 | 3,769,457 | |||||||||
|
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 | ) | (101,167 | ) | (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
|
1,155,231 | 1,426,190 | 5,424,329 | |||||||||
|
Compensation
through issuance of stock
|
-- | -- | 932,000 | |||||||||
|
Issuance
of stock for services
|
135,500 | 110,667 | 6,458,148 | |||||||||
|
Issuance
of warrants for services
|
111,333 | 174,118 | 1,127,137 | |||||||||
|
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
|
53,446 | 47,870 | (46,014 | ) | ||||||||
|
Increase
(decrease) in liabilities
|
||||||||||||
|
Accounts
payable
|
(311,462 | ) | 18,461 | 140,085 | ||||||||
|
Accrued
expenses
|
(205,452 | ) | 8,717 | 368,656 | ||||||||
|
Net
cash used in operating activities
|
(3,789,541 | ) | (2,578,983 | ) | (21,896,530 | ) | ||||||
|
Cash
Flows from Investing activities
|
||||||||||||
|
Proceeds
from sale of fixed asset
|
-- | -- | 180,075 | |||||||||
|
Capital
expenditures
|
-- | (22,127 | ) | (62,049 | ) | |||||||
|
Increase
in Cash in escrow
|
(2,000,000 | ) | -- | (2,000,000 | ) | |||||||
|
Proceeds
from investments
|
9,230,000 | 10,005,000 | 39,711,644 | |||||||||
|
Purchase
of investments
|
(5,111,020 | ) | (9,972,814 | ) | (42,143,657 | ) | ||||||
|
Net
cash provided by (used in) investing activities
|
2,118,980 | 10,059 | (4,313,987 | ) | ||||||||
|
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
|
1,323,341 | 332,912 | 7,707,900 | |||||||||
|
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 | ) | ||||||||
6
|
Net
cash provided by financing activities
|
1,323,341 | 2,163,500 | 26,215,686 | |||||||||
|
Net
change in cash and cash equivalents
|
$ | (347,220 | ) | $ | (405,424 | ) | $ | 5,169 | ||||
|
Cash
and cash equivalents, at beginning of period
|
$ | 352,389 | $ | 638,334 | $ | -- | ||||||
|
Cash
and cash equivalents, at end of period
|
$ | 5,169 | $ | 232,910 | $ | 5,169 |
Supplemental
Disclosure of Noncash Investing and Financing Activities:
June 30,
2008
None
June 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 $26,667 accrued at June 30, 2007
See
accompanying notes to consolidated financial statements.
7
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 six months ended June
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, warrants, and convertible debt as they are antidilutive. Potential
common shares excluded from the calculation at June 30, 2008 and 2007 relate to
21,655,672 and 26,563,081 of warrants, and 8,915,093 and 9,084,419 of
options.
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.
(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.
8
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 June 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 June 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 six months ended June 30, 2008, is $661,000 and $1,155,231,
respectively, of stock-based compensation expense which relates to the fair
value of stock options. Included in the results for the three and six
months ended June 30, 2007, is $852,795 and $1,426,190, respectively, of
stock-based compensation expense which relates to the fair value of stock
options.
6.
Cash in Escrow
The Company invested the Cash held in
Escrow at June 30, 2008 into preferred units on July 1, 2008 and the
investment was liquidated on August 7, 2008.
9
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 assure you 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 six 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. Our expanded Phase 1 metastatic melanoma
clinical trial and the second group of our expanded Phase 1 breast carcinoma
clinical trial was completed in April 2007 for approximately $1,000,000 in the
aggregate, most of which has been expended in 2005 and 2006. The
planning phase for the expected Phase 2 trial in metastatic melanoma has been
completed which will cost approximately $3,000,000 through 2008. This
includes expenditures in 2008 to significantly advance the Phase 2 trial in
metastatic melanoma that commenced in August 2007 and which may provide pivotal
efficacy. Additionally, we planned $1,000,000 of expenditures in 2007
and 2008 to substantially advance our work with other oncology indications which
included the initiation of the third group of our expanded Phase 1 breast
carcinoma clinical trial. Our Phase 2 psoriasis trial commenced in
November 2007 and will cost approximately $1,500,000 over 12
months. 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 shortly in 2008. Total research and development
project expense in 2007 was approximately $3,000,000. We anticipate
expending the same amount in 2008. The remaining research and
development expense in 2007 does not specifically relate to the above project
expense in 2007.
10
Comparison of Three and Six Months
Ended June 30, 2008 and June 30, 2007.
Revenues
OTC Product Revenue was $-0- in both
the three and six months ended June 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 six months ended June 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.
Research and development
Research and development costs of
$1,248,668 for the three months ended June 30, 2008 included depreciation
expense of $2,314, consulting and contract labor of $355,049, lab supplies and
pharmaceutical preparations of $45,889, insurance of $18,456, legal of $50,618,
payroll of $757,808, and rent and utilities of $18,534. Research and
development costs of $1,063,282 for the three months ended June 30, 2007
included depreciation expense of $2,314, consulting and contract labor of
$166,755, lab supplies and pharmaceutical preparations of $84,263, insurance of
$24,088, legal of $90,925, payroll of $680,016, and rent and utilities of
$14,921. 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 increase in payroll is the
result of bonuses.
Research and development costs of
$2,311,784 for the six months ended June 30, 2008 included depreciation expense
of $4,628, consulting and contract labor of $531,094, lab supplies and
pharmaceutical preparations of $65,381, insurance of $36,978, legal of $142,566,
payroll of $1,491,809, and rent and utilities of $39,328. Research
and development costs of $2,152,585 for the six months ended June 30, 2007
included depreciation expense of $4,628, consulting and contract labor of
$304,493, lab supplies and pharmaceutical preparations of $99,011, insurance of
$43,656, legal of $143,755, payroll of $1,525,984, and rent and utilities of
$31,058. 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.
General and administrative
General and administrative expenses
increased by $137,669 in the three months ended June 30, 2008 to $1,298,446 from
$1,160,777 for the three months ended June 30, 2007. The increase
resulted primarily from higher payroll expenses for general corporate purposes
as a result of raises and bonuses.
General and administrative expenses
increased by $97,432 in the six months ended June 30, 2008 to $2,463,440 from
$2,366,008 for the six months ended June 30, 2007. The components of
general and administrative expenses are consistent and comparable during the six
months ended June 30, 2008 and 2007.
Cash Flow
As of June 30, 2008, we held
approximately $4,800,000 in cash and short-term United States Treasury
Notes. 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 2008 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.
11
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 per year 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 June 30, 2008 we have estimated that an additional $150,836 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 expired at June 30, 2008 and it was subsequently renewed
in August 2008 with an expiration of June 30, 2009.
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.
12
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 June 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.
13
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.
(a) Our
annual meeting of shareholders was held on June 19, 2008.
(b) The
following is a list of all nominees for Director of the Company who were elected
at the annual meeting and whose term of office continued after
the annual meeting:
H.
Craig Dees
Timothy
D. Scott
Eric
A. Wachter
Stuart
R. Fuchs
(c) There
were present at the annual meeting in person or by proxy 26,375,922
(representing 52%) shares of our common stock out of a total of 50,930,931
shares of our common stock issued and outstanding and entitled to vote at the
annual meeting.
(d) The
results of the vote of the shareholders taken at the annual meeting by ballot
and by proxy as solicited by us on behalf of the board of directors for the
election of the nominees for our board of directors were as follows:
|
Nominee
|
For
|
Against
|
Withheld
Authority
|
|
H.
Craig Dees
|
26,337,022
|
400
|
38,500
|
|
Timothy
C. Scott
|
26,337,022
|
400
|
38,500
|
|
Eric
A. Wachter
|
26,337,022
|
400
|
38,500
|
|
Stuart
Fuchs
|
26,337,022
|
400
|
38,500
|
Item
5. Other Information.
None.
Item
6. Exhibits
31.1
Certification Pursuant to Rule 13a-14(a) (Section 302
Certification), dated August 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
August 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
August 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.
14
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:
August 14, 2008
|
By:
|
/s/ H. Craig Dees, Ph.D. | |
| H. Craig Dees, Ph.D. | |||
| Chief Executive Officer | |||
15
EXHIBIT
INDEX
Exhibit
No. Description
31.1
Certification Pursuant to Rule 13a-14(a) (Section 302
Certification), dated August 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
August 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
August 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.
16