PROVECTUS BIOPHARMACEUTICALS, INC. - Quarter Report: 2021 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2021
or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-36457
PROVECTUS BIOPHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 90-0031917 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
10025 Investment Drive, Suite 250 Knoxville, Tennessee |
37932 | |
| (Address of principal executive offices) | (Zip Code) |
866-594-5999
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of November 9, 2021, was .
TABLE OF CONTENTS
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” as defined under U.S. federal securities laws. These statements reflect management’s current knowledge, assumptions, beliefs, estimates, and expectations. These statements also express management’s current views of future performance, results, and trends and may be identified by their use of terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “plan,” “predict,” “project,” “should,” “strategy,” “will,” and other similar terms. Forward-looking statements are subject to a number of risks and uncertainties that could cause our actual results to materially differ from those described in the forward-looking statements. Readers should not place undue reliance on forward-looking statements. Such statements are made as of the date of this Quarterly Report on Form 10-Q, and we undertake no obligation to update such statements after this date, unless otherwise required by law.
Risks and uncertainties that could cause our actual results to materially differ from those described in forward-looking statements include those discussed in our filings with the U.S. Securities and Exchange Commission (the “SEC”) (including those described in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2020), and Item 1A of Part II of this Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, and:
| ● | Our potential receipt of sales from investigational drug products PV-10® and PH-10®, and/or any other halogenated xanthene-based drug products (if and when approved); and licensing, milestone, royalty, and/or other payments related to these investigational drug products and/or the Company’s liquidation, dissolution, or winding up, or any sale, lease, conveyance, or other disposition of any intellectual property relating to halogenated xanthene-based investigational drug products and/or drug substances, |
| ● | Our ability to raise additional capital through the proceeds of private placement transactions, the exercise of existing warrants and outstanding stock options, and/or public offerings of debt or equity securities, and | |
| ● | The widespread outbreak of an illness or communicable/infectious disease, such as severe acute respiratory syndrome coronavirus 2, or a public health crisis, could disrupt our business and adversely affect our operations and financial condition. |
| 1 |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
PROVECTUS BIOPHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 254,083 | $ | 97,231 | ||||
| Short-term receivables - legal fees, settlement and other, net | 1,354 | 3,930 | ||||||
| Prepaid expenses | 251,111 | 322,518 | ||||||
| Total Current Assets | 506,548 | 423,679 | ||||||
| Equipment and furnishings, less accumulated depreciation of $87,962 and $78,313, respectively | 35,052 | 44,701 | ||||||
| Operating lease right-of-use asset | 58,736 | 120,821 | ||||||
| Total Assets | $ | 600,336 | $ | 589,201 | ||||
| Liabilities and Stockholders’ Deficiency | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable - trade | $ | 1,259,623 | $ | 956,860 | ||||
| Deposit for purchase of Series D-1 Preferred Stock | 150,000 | $ | ||||||
| Other accrued expenses | 1,806,000 | 1,500,782 | ||||||
| Current portion of accrued interest | - | 2,774,968 | ||||||
| Current portion of accrued interest - related parties | 2,044 | 1,766,493 | ||||||
| Current portion of note payable | 68,392 | 236,228 | ||||||
| Current portion of convertible notes payable | - | 16,622,000 | ||||||
| Current portion of convertible notes payable - related parties | 200,000 | 6,770,000 | ||||||
| Current portion of operating lease liability | 62,920 | 84,383 | ||||||
| Total Current Liabilities | 3,548,979 | 30,711,714 | ||||||
| Note payable, non-current portion | - | 39,061 | ||||||
| Operating lease liability, non-current portion | - | 44,783 | ||||||
| Total Liabilities | 3,548,979 | 30,795,558 | ||||||
| Commitments and contingencies (Note 10) | ||||||||
| Stockholders’ Deficiency: | ||||||||
| Preferred stock; par value $ per share; shares authorized; Series B Convertible Preferred Stock; shares designated; and shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively; aggregate liquidation preference of $0 and $3,500 at September 30, 2021 and December 31, 2020, respectively | - | - | ||||||
| Series D Convertible Preferred Stock; shares designated; and shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively; aggregate liquidation preference of $14,164,889 and $0 at September 30, 2021 and December 31, 2020, respectively; (See Note 4. Convertible Notes Payable – Liquidation Preference) | 12,373 | - | ||||||
| Series D-1 Convertible Preferred Stock; shares designated; and shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively; aggregate liquidation preference of $105,532,804 and $0 at September 30, 2021 and December 31, 2020, respectively; (See Note 4. Convertible Notes Payable – Liquidation Preference) | 9,219 | - | ||||||
| Common stock; par value $per share; shares authorized; and shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively | 419,448 | 398,808 | ||||||
| Additional paid-in capital | 241,440,106 | 209,923,347 | ||||||
| Accumulated other comprehensive loss | (34,574 | ) | (34,097 | ) | ||||
| Accumulated deficit | (244,795,215 | ) | (240,494,415 | ) | ||||
| Total Stockholders’ Deficiency | (2,948,643 | ) | (30,206,357 | ) | ||||
| Total Liabilities and Stockholders’ Deficiency | $ | 600,336 | $ | 589,201 | ||||
See accompanying notes to condensed consolidated financial statements.
| 2 |
PROVECTUS BIOPHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Operating Expenses: | ||||||||||||||||
| Research and development | $ | 608,653 | $ | 667,523 | $ | 1,866,776 | $ | 2,273,423 | ||||||||
| General and administrative | 438,578 | 434,355 | 1,583,148 | 1,487,543 | ||||||||||||
| Total Operating Expenses | 1,047,231 | 1,101,878 | 3,449,924 | 3,760,966 | ||||||||||||
| Total Operating Loss | (1,047,231 | ) | (1,101,878 | ) | (3,449,924 | ) | (3,760,966 | ) | ||||||||
| Other Income/(Expense): | ||||||||||||||||
| EIDL grant | - | - | - | 3,000 | ||||||||||||
| Research and development tax credit | (507 | ) | 1 | 31,637 | 27,187 | |||||||||||
| Investment and interest income | 1 | 823 | 2 | 3,414 | ||||||||||||
| Gain from extinguishment | - | - | 63,094 | - | ||||||||||||
| Interest expense | (3,522 | ) | (463,390 | ) | (945,609 | ) | (1,278,945 | ) | ||||||||
| Total Other Expense, Net | (4,028 | ) | (462,566 | ) | (850,876 | ) | (1,245,344 | ) | ||||||||
| Net Loss | $ | (1,051,259 | ) | $ | (1,564,444 | ) | $ | (4,300,800 | ) | $ | (5,006,310 | ) | ||||
| Basic and Diluted Loss Per Common Share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||||
| Weighted Average Number of Common Shares Outstanding - Basic and Diluted | 409,961,614 | 393,495,431 | 405,286,784 | 393,443,141 | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 3 |
PROVECTUS BIOPHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net Loss | $ | (1,051,259 | ) | $ | (1,564,444 | ) | $ | (4,300,800 | ) | $ | (5,006,310 | ) | ||||
| Other Comprehensive Loss: | ||||||||||||||||
| Foreign currency translation adjustments | (193 | ) | (1,652 | ) | (477 | ) | (8,446 | ) | ||||||||
| Total Comprehensive Loss | $ | (1,051,452 | ) | $ | (1,566,096 | ) | $ | (4,301,277 | ) | $ | (5,014,756 | ) | ||||
See accompanying notes to condensed consolidated financial statements.
| 4 |
PROVECTUS BIOPHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIENCY
(Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
| Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Preferred Stock | Additional | Other | ||||||||||||||||||||||||||||||||||||||||||||
| Series B | Series D | Series D-1 | Common Stock | Paid-In | Comprehensive | Accumulated | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Total | |||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2021 | 100 | $ | $ | $ | 398,807,037 | $ | 398,808 | $ | 209,923,347 | $ | (34,097 | ) | $ | (240,494,415 | ) | $ | (30,206,357 | ) | ||||||||||||||||||||||||||||||
| Common stock issued upon exercise of warrants | - | - | - | 4,500,000 | 4,500 | 235,350 | 239,850 | |||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock | - | - | - | 250,000 | 250 | 19,500 | 19,750 | |||||||||||||||||||||||||||||||||||||||||
| Comprehensive loss: | - | |||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | (1,669,950 | ) | (1,669,950 | ) | ||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | 837 | 837 | ||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | 100 | $ | $ | $ | 403,557,037 | $ | 403,558 | $ | 210,178,197 | $ | (33,260 | ) | $ | (242,164,365 | ) | $ | (31,615,870 | ) | ||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | - | 25,000 | 25 | 1,650 | 1,675 | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued upon exercise of warrants | - | - | - | 200,000 | 200 | 10,460 | 10,660 | |||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Warrants | - | - | - | - | 488 | 488 | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of PRH Notes to Series D Preferred Stock | - | 12,373,247 | 12,373 | - | - | 3,528,849 | 3,541,222 | |||||||||||||||||||||||||||||||||||||||||
| Conversion of PRH Notes to Series D-1 Preferred Stock | - | - | 9,440,594 | 9,441 | - | 27,022,417 | 27,031,858 | |||||||||||||||||||||||||||||||||||||||||
| Comprehensive loss: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | (1,579,591 | ) | (1,579,591 | ) | ||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | (1,121 | ) | (1,121 | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | 100 | $ | 12,373,247 | $ | 12,373 | 9,440,594 | $ | 9,441 | 403,782,037 | $ | 403,783 | $ | 240,742,061 | $ | (34,381 | ) | $ | (243,743,956 | ) | $ | (2,610,679 | ) | ||||||||||||||||||||||||||
| Common stock issued upon exercise of warrants | - | - | - | 13,352,966 | 13,353 | 698,360 | 711,713 | |||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock | - | - | - | 25,000 | 25 | 1,750 | 1,775 | |||||||||||||||||||||||||||||||||||||||||
| Conversion of Series B Preferred Stock to Common Stock | (100 | ) | - | - | 65,666 | 66 | (66 | ) | ||||||||||||||||||||||||||||||||||||||||
| Conversion of Series D-1 Preferred Stock to Common Stock | - | - | (222,145 | ) | (222 | ) | 2,221,450 | 2,221 | (1,999 | ) | ||||||||||||||||||||||||||||||||||||||
| Comprehensive loss: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | (1,051,259 | ) | (1,051,259 | ) | ||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | (193 | ) | (193 | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | 12,373,247 | $ | 12,373 | 9,218,449 | $ | 9,219 | 419,447,119 | $ | 419,448 | $ | 241,440,106 | $ | (34,574 | ) | $ | (244,795,215 | ) | $ | (2,948,643 | ) | |||||||||||||||||||||||||||
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020
| Accumulated | ||||||||||||||||||||||||||||||||
| Preferred Stock | Additional | Other | ||||||||||||||||||||||||||||||
| Series B | Common Stock | Paid-In | Comprehensive | Accumulated | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Total | |||||||||||||||||||||||||
| Balance at January 1, 2020 | 100 | $ | 389,889,475 | $ | 389,889 | $ | 209,378,835 | $ | (24,008 | ) | $ | (233,816,828 | ) | $ | (24,072,112 | ) | ||||||||||||||||
| Common stock issued upon exercise of warrants | - | - | 800,000 | 800 | 41,840 | - | - | 42,640 | ||||||||||||||||||||||||
| Comprehensive loss: | - | |||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (1,827,061 | ) | (1,827,061 | ) | ||||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | (9,027 | ) | - | (9,027 | ) | ||||||||||||||||||||||
| Balance at March 31, 2020 | 100 | $ | 390,689,475 | $ | 390,689 | $ | 209,420,675 | $ | (33,035 | ) | $ | (235,643,889 | ) | $ | (25,865,560 | ) | ||||||||||||||||
| Common stock issued for services | - | - | 25,000 | 25 | 1,125 | - | - | 1,150 | ||||||||||||||||||||||||
| Comprehensive loss: | ||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (1,614,805 | ) | (1,614,805 | ) | ||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | 2,233 | - | 2,233 | ||||||||||||||||||||||||
| Balance at June 30, 2020 | 100 | $ | 390,714,475 | $ | 390,714 | $ | 209,421,800 | $ | (30,802 | ) | $ | (237,258,694 | ) | $ | (27,476,982 | ) | ||||||||||||||||
| Common stock issued for services | - | - | 37,500 | 38 | 2,775 | - | - | 2,813 | ||||||||||||||||||||||||
| Warrants issued for services | - | - | - | - | 865 | - | - | 865 | ||||||||||||||||||||||||
| Common stock issued upon exercise of warrants | - | - | 6,105,062 | 6,105 | 319,296 | - | - | 325,401 | ||||||||||||||||||||||||
| Comprehensive loss: | ||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (1,564,444 | ) | (1,564,444 | ) | ||||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | (1,652 | ) | - | (1,652) | |||||||||||||||||||||||
| Balance at September 30, 2020 | 100 | $ | 396,857,037 | $ | 396,857 | $ | 209,744,736 | $ | (32,454 | ) | $ | (238,823,138 | ) | $ | (28,713,999 | ) | ||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 5 |
PROVECTUS BIOPHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net loss | $ | (4,300,800 | ) | $ | (5,006,310 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation | 23,688 | 4,828 | ||||||
| Non-cash lease expense | 62,085 | 55,190 | ||||||
| Depreciation | 9,648 | 10,467 | ||||||
| Amortization of patents | - | 228,107 | ||||||
| Forgiveness of PPP Loan | (62,500 | ) | - | |||||
| Changes in operating assets and liabilities | ||||||||
| Short term receivables | 2,448 | 47,250 | ||||||
| Prepaid expenses | 145,639 | 185,329 | ||||||
| Accounts payable - trade | 302,978 | (61,026 | ) | |||||
| Other accrued expenses | 306,116 | 187,705 | ||||||
| Operating lease liability | (66,246 | ) | (58,437 | ) | ||||
| Accrued interest expense | 941,663 | 1,278,665 | ||||||
| Net Cash Used In Operating Activities | (2,635,281 | ) | (3,128,232 | ) | ||||
| Cash Flows From Financing Activities: | ||||||||
| Proceeds from issuance of convertible notes payable | 1,700,000 | 3,000,000 | ||||||
| Proceeds from issuance of convertible notes payable - related parties | 200,000 | 100,000 | ||||||
| Deposit for purchase of Series D-1 Preferred Stock | 150,000 | - | ||||||
| Repayment of short-term note payable | (219,172 | ) | - | |||||
| Proceeds from note payable | - | 62,500 | ||||||
| Proceeds from exercise of warrants | 962,223 | 368,040 | ||||||
| Net Cash Provided By Financing Activities | 2,793,051 | 3,530,540 | ||||||
| Effect of Exchange Rate Changes on Cash | (918 | ) | (6,492 | ) | ||||
| Net Increase In Cash and Cash Equivalents | 156,852 | 395,816 | ||||||
| Cash and Cash Equivalents, Beginning of Period | 97,231 | 590,706 | ||||||
| Cash and Cash Equivalents, End of Period | $ | 254,083 | $ | 986,522 | ||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Purchase of insurance policies financed by short-term note payable | $ | (282,667 | ) | $ | ||||
| Conversion of non-amended 2017 Notes to Series D Preferred Stock | $ | 3,541,222 | $ | |||||
| Conversion of amended 2017 Notes and 2020 Notes to Series D-1 Preferred Stock | $ | 27,031,858 | $ | |||||
| Conversion of Series D-1 Preferred Stock to Common Stock | $ | 222 | $ | |||||
See accompanying notes to condensed consolidated financial statements.
| 6 |
PROVECTUS BIOPHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Business Organization, Nature of Operations and Basis of Presentation
Provectus Biopharmaceuticals, Inc., a Delaware corporation (together with its subsidiaries, “Provectus” or the “Company”), is a clinical-stage biotechnology company developing immunotherapy medicines for different diseases, with the aim of maximizing the curative impact of these medicines and achieving immunity from treated disease. These investigational drugs are based on a wholly owned class of small molecules called halogenated xanthenes (“HXs”). Our lead HX molecule is named rose bengal disodium (“RBD”).
| ● | Oncology: PV-10®, an investigational cancer immunotherapy administered by intralesional (“IL”) injection and an injectable formulation of cGMP RBD, is undergoing clinical study for adult solid tumor cancers, such as melanoma and gastrointestinal (“GI”) tumors (including hepatocellular carcinoma (“HCC”), colorectal cancer metastatic to the liver (“mCRC”), neuroendocrine tumors (“NET”) metastatic to the liver (“mNET”), and uveal melanoma metastatic to the liver (“mUM”), among others). Orphan drug designation (“ODD”) status was granted to PV-10 by the U.S. Food and Drug Administration (the “FDA”) for metastatic melanoma in 2006, HCC in 2011, and ocular melanoma (including uveal melanoma) in 2019.
Oral formulations of cGMP RBD are also undergoing preclinical study as prophylactic and therapeutic treatments for high-risk and refractory adult solid tumor cancers, such as head and neck, breast, colorectal, and testicular cancers. In vivo data of a colorectal tumor murine model that continuously promotes abnormal cell proliferation and transformation into cancer indicate increased survival in both prophylactic and therapeutic settings. | |
| ● | Pediatric Oncology: IL PV-10 is also undergoing preclinical study for pediatric solid tumor cancers (including neuroblastoma, Ewing sarcoma, rhabdomyosarcoma, and osteosarcoma). ODD status was granted to PV-10 by the FDA for neuroblastoma in 2018. | |
| ● | Hematology: Oral formulations of cGMP RBD are undergoing preclinical study for refractory and relapsed pediatric blood cancers (including leukemias). In vivo data of an acute lymphoblastic leukemia murine model indicated increased survival. | |
| ● | Virology: Systemically administered formulations of cGMP RBD are undergoing preclinical study for the novel strain of coronavirus (“CoV”): severe acute respiratory syndrome (“SARS”) CoV 2 (“SARS-CoV-2”). In silico data indicate docking-based binding affinity to SARS-CoV-2’s main protease, spike protein, and different variants of the spike protein. In vitro data indicate activity against SARS-CoV-2 in African green monkey kidney cell (Vero) and human lung epithelial cell (Calu-3) models, and synergistic activity with remdesivir in a Vero cell model. | |
| ● | Microbiology: Different formulations of cGMP RBD are undergoing preclinical study as potential treatments for multi-drug resistant (“MDR”) bacteria, such as gram-positive and gram-negative. | |
| ● | Ophthalmology: Topical formulations of cGMP RBD are undergoing preclinical study as potential treatments for diseases of the eye, such as infectious keratitis. | |
| ● | Dermatology: PH-10®, an investigational immuno-dermatology agent administered as a topical gel and formulation of cGMP RBD, is undergoing monotherapy clinical study and preclinical study of combination therapy with approved drugs for inflammatory dermatoses (including psoriasis and atopic dermatitis). | |
| ● | Animal Health: Different formulations of cGMP RBD are undergoing development as potential treatments for animal cancers and dermatological disorders. |
To date, the Company has not generated any revenues or profits from planned principal operations. The Company’s activities are subject to significant risks and uncertainties, including failing to successfully develop and license or commercialize the Company’s prescription drug candidates.
| 7 |
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information pursuant to Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be reviewed in conjunction with the Company’s audited consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 2020 filed with the SEC on March 2, 2021. 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, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
SARS-CoV-2 was reportedly first identified in late-2019 and subsequently declared a global pandemic by the World Health Organization on March 11, 2020. As a result of the SARS-CoV-2 pandemic, many companies have experienced disruptions of their operations and the markets they serve. The Company has taken several temporary precautionary measures intended to help ensure the well-being of its employees and contractors and to minimize business disruption. The Company considered the impact of SARS-CoV-2 pandemic on its business and operational assumptions and estimates, and determined there were no material adverse impacts on the Company’s results of operations and financial position at September 30, 2021.
The full extent of the SARS-CoV-2 pandemic impacts on the Company’s operations and financial condition is uncertain. The Company has experienced slower than normal enrollment and treatment of patients, and a prolonged SARS-CoV-2 pandemic could have a material adverse impact on the Company’s business and financial results, including the timing and ability of the Company to raise capital, initiate and/or complete current and/or future preclinical studies and/or clinical trials; disrupt the Company’s regulatory activities; and/or have other adverse effects on the Company’s clinical development.
2. Liquidity and Going Concern
The Company’s cash and cash equivalents were $254,083 at September 30, 2021. The Company continues to incur significant operating losses. Management expects that significant on-going operating expenditures will be necessary to successfully implement the Company’s business plan and develop and market its products. These circumstances raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these unaudited condensed consolidated financial statements are issued. Implementation of the Company’s plans and its ability to continue as a going concern will depend upon the Company’s ability to develop PV-10, PH-10, and/or any other halogenated xanthene-based drug products, and to raise additional capital.
The Company plans to access capital resources through possible public or private equity offerings, including the 2021 financing (as defined in Note 4), exchange offers, debt financings, corporate collaborations, or other means. In addition, the Company continues to explore opportunities to strategically monetize its lead drug candidates, PV-10 and PH-10, through potential co-development and licensing transactions, although there can be no assurance that the Company will be successful with such plans. The Company has historically been able to raise capital through equity offerings, although no assurance can be provided that it will continue to be successful in the future. If the Company is unable to raise sufficient capital, it will not be able to pay its obligations as they become due.
| 8 |
The primary business objective of management is to build the Company into a commercial-stage biotechnology company; however, the Company cannot assure that it will be successful in co-developing, licensing, and/or commercializing PV-10, PH-10, and/or any other halogenated xanthene-based drug candidate developed by the Company or entering into any financial transaction. Moreover, even if the Company is successful in improving its current cash flow position, the Company nonetheless plans to seek additional funds to meet its long-term requirements in 2021 and beyond. The Company anticipates that these funds will otherwise come from the proceeds of private placement transactions, the exercise of existing warrants and outstanding stock options, or public offerings of debt or equity securities. While the Company believes that it has a reasonable basis for its expectation that it will be able to raise additional funds, the Company cannot provide assurance that it will be able to complete additional financing in a timely manner. In addition, any such financing may result in significant dilution to stockholders.
3. Critical Accounting Policies
Since the date the Company’s December 31, 2020 consolidated financial statements were issued in its 2020 Annual Report, there have been no material changes to the Company’s significant accounting policies, except as disclosed below.
Recently Adopted Accounting Standards
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2019-12, Simplifying the Accounting for Income Taxes. The amendments in ASU 2019-12 simplify the accounting for income taxes by removing certain exceptions to the general principles in Accounting Standards Codification (“ASC”) Topic 740, Income Taxes. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The Company adopted ASU 2019-12 on January 1, 2021 and there was no material impact on the Company’s financial statements or disclosures.
Convertible Instruments
The Company evaluates its convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for in accordance with ASC Topic 815: Derivatives and Hedging. The accounting treatment of derivative financial instruments requires that the Company record embedded conversion options and any related freestanding instruments at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. Embedded conversion options and any related freestanding instruments are recorded as a discount to the host instrument.
If the instrument is determined to not be a derivative liability, the Company then evaluates for the existence of a beneficial conversion feature by comparing the commitment date fair value to the effective conversion price of the instrument.
Preferred Stock
The Company applies the accounting standards for distinguishing liabilities from equity when determining the classification and measurement of its preferred stock. Preferred shares subject to mandatory redemption are classified as liability instruments and are measured at fair value. Conditionally redeemable preferred shares (including preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, preferred shares are classified as stockholders’ deficiency.
Basic loss per common share is computed by dividing net loss by the weighted average number of vested common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other instruments to issue common stock were exercised or converted into common stock. The following securities are excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive:
| September 30, | September 30, | |||||||
| 2021 | 2020 | |||||||
| Warrants | 512,500 | 89,699,866 | ||||||
| Options | 3,625,000 | 2,275,000 | ||||||
| Convertible preferred stock | 104,557,737 | 65,666 | ||||||
| Total potentially dilutive shares | 108,695,237 | 92,040,532 | ||||||
| 9 |
4. Convertible Notes Payable
2017 Financing
On March 23, 2017, the Company entered into a 2017 Term Sheet with the PRH Group that set forth the terms on which the PRH Group would use their best efforts to arrange for a financing of a minimum of $10,000,000 and maximum of $20,000,000 (the “2017 Financing”). The 2017 Financing was in the form of a secured convertible loan from the PRH Group and other investors in the 2017 Financing, which were evidenced by secured convertible promissory notes (individually a “2017 Note” and collectively, the “2017 Notes”) from the Company to the PRH Group and other investors. Cumulatively through September 30, 2021 and December 31, 2020, the Company had received aggregate proceeds of $20,067,000 from the issuance of the 2017 Notes, respectively, of which $6,770,000 was received from related parties.
2020 Financing
On December 31, 2019, the Board approved a Definitive Financing Term Sheet (the “2020 Term Sheet”), which sets forth the terms under which the Company would use its best efforts to arrange for financing of a maximum of $20,000,000 (the “2020 Financing”). The 2020 Financing was in the form of secured convertible loans from investors that were evidenced by secured convertible promissory notes (the “2020 Notes”). The 2020 Term Sheet was similar to the 2017 Term Sheet. Subject to the terms and conditions of the 2020 Term Sheet, the Company used its best efforts to arrange for the 2020 Financing, which amounts were obtained in several tranches. Cumulatively through September 30, 2021 and December 31, 2020, the Company had received proceeds of $5,025,000 and $3,325,000, respectively, in connection with the 2020 Financing, of which $100,000 was received from related parties.
Firm Commitment
Previously, the Company had not designated the Series D Preferred Stock into which the 2017 Notes and the 2020 Notes (collectively the “Notes”) were convertible into. As a result, the Company did not analyze the Notes for a potential beneficial conversion feature as the definition of a firm commitment had not been met since the Notes were not yet convertible. On June 17, 2021, the required Certificates of Designation were filed with the Delaware Secretary of State. Accordingly, a firm commitment was achieved. The Company analysed the Notes for a beneficial conversion feature and determined that there was none because the Notes have an effective conversion price of $0.2862 per share of underlying common stock, which exceeds the $ per share commitment date closing market price of the common stock.
The Series D and D-1 Convertible Preferred Stock
The 2017 Notes originally provided that they were convertible into a new class of the Company’s preferred stock, $ par value per share (“Preferred Stock”), at a price per share equal to $ (the “Original Conversion Price”), which would be convertible into one share (the “Original Conversion Ratio”) of the Company’s common stock, $ par value per share (“Common Stock”).
In order to ensure that the Company had sufficient authorized shares of Preferred Stock into which the 2017 Notes would convert, yet keep the economic terms of the 2017 Notes substantially equivalent, the Company entered into amendments (the “Amendments”) to the 2017 Notes (as amended, the “Amended 2017 Notes”) with a large majority of the holders of 2017 Notes to increase the conversion price by 10 times from $ to $ (the “New Conversion Price”) and to change the conversion ratio by providing that one share of Preferred Stock would be convertible into 10 shares of Common Stock (the “New Conversion Ratio”). The impact of the Amendments was to reduce by 10 times the number of shares of Preferred Stock into which the 2017 Notes would convert, while keeping the economic terms the same by increasing the conversion ratio into Common Stock by 10 times. The 2020 Notes had substantially similar terms to the Amended 2017 Notes, including being convertible into Preferred Stock at the New Conversion Price, with the Preferred Stock being convertible into Common Stock at the New Conversion Ratio.
In order to (i) address the fact that a small minority of the holders of 2017 Notes did not execute the Amendments and (ii) ensure economic fairness for all of the holders of the 2017 Notes and 2020 Notes, the Company designated two separate classes of Preferred Stock into which the 2017 Notes and 2020 Notes would convert: (i) the Company’s Series D Convertible Preferred Stock, par value $ per share (the “Series D Convertible Preferred Stock”), was designated for the holders of 2017 Notes who did not execute the Amendments and (ii) the Company’s Series D-1 Convertible Preferred Stock, par value $ per share (the “Series D-1 Convertible Preferred Stock”), was designated for the holders of Amended 2017 Notes (i.e., who did execute the Amendments) and the holders of the 2020 Notes.
On June 20, 2021, the outstanding non-amended 2017 Notes converted into shares of Series D Convertible Preferred Stock at the Original Conversion Price of $0.2862, and all the outstanding Amended 2017 Notes and outstanding 2020 Notes converted into shares of Series D-1 Convertible Preferred Stock at the New Conversion Price of $2.862.
As a result of the conversion of the 2017 Notes and 2020 Notes into convertible preferred stock, all the security interests of these notes in the Company’s intellectual property were released.
The rights, preferences and privileges of the Series D Convertible Preferred Stock are set forth in a Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock (the “Series D Certificate of Designation”). The rights, preferences and privileges of the Series D-1 Convertible Preferred Stock are set forth in a Certificate of Designation of Preferences, Rights and Limitations of Series D-1 Convertible Preferred Stock (the “Series D-1 Certificate of Designation”). The Board of Directors of the Company approved each of the Series D Certificate of Designation and Series D-1 Certificate of Designation on June 16, 2021, and each of the Series D Certificate of Designation and Series D-1 Certificate of Designation were filed with the Delaware Secretary of State on June 17, 2021. The Series D Certificate of Designation and Series D-1 Certificate of Designation are the same, other than certain key differences to account solely for the different conversion ratios for the holders of 2017 Notes who did not execute Amendments compared to the holders of Amended 2017 Notes and the holders of 2020 Notes.
| 10 |
Number of Shares
The Series D Certificate of Designation established and designated shares of Series D Convertible Preferred Stock. The Series D-1 Certificate of Designation established and designated shares of Series D-1 Convertible Preferred Stock.
Rank
The Series D Convertible Preferred Stock and the Series D-1 Convertible Preferred Stock rank pari passu with each other. The Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock rank senior to the Common Stock and any other class or series of the Company’s capital stock, the terms of which do not provide that shares of such class rank senior to, or pari passu with, the Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock as to dividends and distributions upon a change of control transaction, or the liquidation, winding-up and dissolution of the Company.
Dividends
The Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock do not have any dividend preference but are entitled to receive, on a pari passu basis, dividends, if any, that are declared and paid on the Common Stock and any other class of the Company’s capital stock that ranks junior or on par to the Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock.
Liquidation Preference
Upon the occurrence of the liquidation, winding-up or dissolution of the Company or certain mergers, corporate reorganizations or sales of the Company’s assets (each, a “Company Event”), holders of Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock will be entitled to receive a liquidation preference before any distributions are made to holders of any other class or series of the Company’s capital stock junior to the Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock. If a Company Event occurs within two years of June 20, 2021 (the “Date of Issuance”), the holders of Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock will receive for each share of Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock, respectively, an amount in cash equal to the Original Issue Price (as defined in the Series D Certificate of Designation and Series D-1 Certificate of Designation, respectively) multiplied by four. If a Company Event occurs from and after the second anniversary of the Date of Issuance, the holders of Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock will receive for each share of Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock, respectively, an amount in cash equal to the Original Issue Price multiplied by six. The Original Issue Price for the Series D Convertible Preferred Stock is $0.2862, and the Original Issue Price for the Series D-1 Convertible Preferred Stock is $2.862.
Voting Rights
Holders of shares of Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock will vote together with the holders of Common Stock as a single class. Each share of Series D Convertible Preferred Stock carries the right to one vote per share. Each share of Series D-1 Convertible Preferred Stock carries the right to 10 votes per share.
The Company is not permitted to amend, alter or repeal its Certificate of Incorporation or Bylaws in a manner adverse to the relative rights, preferences, qualifications, limitations or restrictions of the Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock without the affirmative vote of a majority of the votes entitled to be cast by holders of outstanding shares of Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock, voting together as a single class with each share of Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock having a number of votes equal to the number of shares of Common Stock then issuable upon conversion of such share of Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock.
| 11 |
Series D and Series D-1 Conversion
The Series D Convertible Preferred Stock is convertible at the option of the holders thereof into shares of Common Stock based on a one-for-one conversion ratio. The Series D-1 Convertible Preferred Stock is convertible at the option of the holders thereof into shares of Common Stock based on a one-for-10 conversion ratio. The conversion ratio of the Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock is subject to adjustment for stock splits and combinations, recapitalizations, reclassifications, reorganizations, mergers, and consolidations. The Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock will automatically convert into shares of Common Stock upon the fifth anniversary of the Date of Issuance.
During the three months ended September 30, 2021, a holder of shares of Series D-1 Convertible Preferred Stock voluntarily converted the Preferred Stock into shares of common stock.
2021 Financing
On August 13, 2021, the Board approved a Financing Term Sheet (the “2021 Term Sheet”), which sets forth the terms under which the Company will use its best efforts to arrange for financing of a maximum of $ (the “2021 Financing”), which amounts will be obtained in several tranches.
As of September 30, 2021, the Company had received a 2021 Loan, as defined below, of $200,000 from a related party investor in connection with the 2021 Financing.
Pursuant to the 2021 Term Sheet, the 2021 Notes (defined below) will be paid back, convert into shares of the Company’s Series D-1 Preferred Stock, or convert into Company equity securities and/or debt instruments of certain future financings on or before twelve months after the issue date of a 2021 Note, subject to certain exceptions.
The 2021 Financing will be in the form of an unsecured convertible loans (the “2021 Loan”) from the investors (the “2021 Loan Investors”) and evidenced by convertible promissory notes (individually, a “2021 Note” and collectively, the “2021 Notes”). In addition to customary provisions, the 2021 Notes will contain the following provisions:
| (i) | The 2021 Loan will bear interest at the rate of eight percent (8%) per annum on the outstanding principal amount of the Loan that has been funded to the Company; |
| (ii) | In the event there is a change of control of the Board, the term of the 2021 Notes will be accelerated and all amounts due under the 2021 Notes may be immediately due and payable at the 2021 Loan Investors’ option; |
| (iii) | The outstanding principal amount and interest payment under the 2021 Loan may be paid back at maturity at the 2021 Loan Investors’ option; |
| (iv) | The outstanding principal amount and interest payable under the 2021 Loan may be convertible at the 2021 Loan Investors’ option into shares of Series D-1 Convertible Preferred Stock at a price per share equal to $. The Series D-1 Convertible Preferred Stock is convertible into ten () shares of common stock; and |
| (v) | In the event the Company conducts a qualified equity or debt financing and the Company receives gross proceeds in the aggregate amount of $20 million, the note may be converted into the equity securities and/or debt instruments of such financing at the same terms as those investors. |
The embedded conversion options associated with the 2021 Note do not require bifurcation and treatment as a derivative liability and they do not represent a beneficial conversion feature because the effective conversion price is not at a discount to the commitment date market price.
5. Notes Payable
On April 20, 2020, the Company received a $62,500 loan under the CARES Act PPP (the “PPP Loan”). The PPP provides for loans to qualifying businesses for amounts of up to 2.5 times certain of the borrower’s average monthly payroll expenses. On May 20, 2021, the Company applied for forgiveness of the PPP Loan. On June 2, 2021, the Company was awarded full forgiveness of the PPP Loan and accrued interest. The Company recognized a gain on forgiveness of note payable in the period in which it obtained forgiveness and is included in gain from extinguishment on the accompanying condensed consolidated statements of operations.
The Company obtained short-term financing from AFCO Insurance Premium Finance for our commercial insurance policies. As of September 30, 2021 and December 31, 2020, the balance of the note payable was $68,392 and $212,790, respectively.
| 12 |
6. Related Party Transactions
During the three months ended September 30, 2021 and September 30, 2020, the Company paid Mr. Bruce Horowitz (Capital Strategists) consulting fees of $21,200 and $127,200, respectively, for services rendered.
During the nine months ended September 30, 2021 and September 30, 2020, the Company paid Mr. Bruce Horowitz (Capital Strategists) consulting fees of $148,400 and $190,800, respectively, for services rendered.
Accrued director fees for Mr. Horowitz as of September 30, 2021 and December 31, 2020 were $56,250 and $75,000, respectively. Mr. Horowitz serves as both COO and a Director.
See Note 4 for details of other related party transactions.
Director fees during the three months ended September 30, 2021 and September 30, 2020 were $96,250 and $96,250, respectively.
Director fees during the nine months ended September 30, 2021 and September 30, 2020 were $288,750 and $288,750, respectively.
Accrued directors’ fees as of September 30, 2021 and December 31, 2020 were $1,464,339 and $1,175,589, respectively, and are included in other accrued expenses on the accompanying condensed consolidated balance sheet.
7. Short-term Receivables
The following table summarizes the receivables at September 30, 2021 and December 31, 2020:
| September 30, 2021 | ||||||||||||||||
| Tax Credit | Legal Fees | Settlement | Total | |||||||||||||
| Provectus Australia Tax Credit | $ | 1,354 | $ | $ | $ | 1,354 | ||||||||||
| Gross receivable | 455,500 | 1,649,043 | 2,104,543 | |||||||||||||
| Reserve for uncollectibility | (455,500 | ) | (1,649,043 | ) | (2,104,543 | ) | ||||||||||
| Net receivable | $ | 1,354 | $ | $ | $ | 1,354 | ||||||||||
| December 31, 2020 | ||||||||||||||||
| Tax Credit | Legal Fees | Settlement | Total | |||||||||||||
| Provectus Australia Tax Credit | $ | 3,930 | $ | $ | $ | 3,930 | ||||||||||
| Gross receivable | 455,500 | 1,649,043 | 2,104,543 | |||||||||||||
| Reserve for uncollectibility | (455,500 | ) | (1,649,043 | ) | (2,104,543 | ) | ||||||||||
| Net receivable | $ | 3,930 | $ | $ | $ | 3,930 | ||||||||||
| 13 |
8. Stockholders’ Deficiency
Common Stock
During the nine months ended September 30, 2021, the Company issued an aggregate of shares of immediately vested restricted common stock with a grant date value of $23,200 for services.
During the nine months ended September 30, 2021, the Company issued shares of common stock upon the voluntary conversion of Series D-1 Convertible Preferred Stock.
During the nine months ended September 30, 2021, the Company issued shares of common stock upon the automatic conversion of Series B Convertible Preferred Stock.
Preferred Stock
On June 20, 2021, the Company issued and shares of Series D and D-1 Convertible Preferred Stock, respectively. See Note 4 - Convertible Notes Payable.
During the nine months ended September 30, 2021, the Company received total investments of $150,000 from non-related party investors in exchange for an aggregate of shares of restricted Series D-1 Convertible Preferred Stock that have not yet been issued.
Options
During the nine months ended September 30, 2021, a total of options to purchase the Company’s common stock expired.
| Weighted Average | ||||||||
| Shares | Exercise Price | |||||||
| Outstanding and exercisable at January 1, 2021 | 4,800,000 | $ | 0.46 | |||||
| Granted | ||||||||
| Exercised | ||||||||
| Forfeited | (1,175,000 | ) | 0.98 | |||||
| Outstanding and exercisable at September 30, 2021 | 3,625,000 | $ | 0.32 | |||||
| Number Outstanding and Exercisable | Weighted Average | Intrinsic Value | ||||||||||||
| at September 30, | Remaining Contractual | at September 30, | ||||||||||||
| Exercise Price | 2021 | Life | 2021 | |||||||||||
| $ | 0.12 | 2,425,000 | 4.10 | $ | ||||||||||
| $ | 0.29 | 100,000 | 4.10 | $ | ||||||||||
| $ | 0.67 | 200,000 | 1.90 | $ | ||||||||||
| $ | 0.75 | 550,000 | 4.20 | $ | ||||||||||
| $ | 0.84 | 150,000 | 0.70 | $ | ||||||||||
| $ | 0.88 | 150,000 | 2.80 | $ | ||||||||||
| $ | 0.93 | 50,000 | 0.60 | $ | ||||||||||
| 3,625,000 | 3.77 | $ | ||||||||||||
| 14 |
Warrants
During the nine months ended September 30, 2021, the Company granted three-year immediately vested warrants to purchase an aggregate of 25,000 shares of common stock with an exercise price of $0.2862 per share to an advisory board member. The warrants had an issuance date fair value of an aggregate of $488, which was recognized immediately and is included in general and administrative expenses on the condensed consolidated statements of operations.
During the nine months ended September 30, 2021, warrant holders exercised warrants to purchase an aggregate of 18,052,966 shares of common stock at a price of $0.0533 per share. In connection with these exercises, the Company received aggregate cash proceeds of $962,223. On August 30, 2021, a total of of August 2016 warrants expired.
The following table summarizes warrant activity during the nine months ended September 30, 2021:
| Weighted Average | ||||||||
| Shares | Exercise Price | |||||||
| Outstanding and exercisable at January 1, 2021 | 87,264,164 | $ | 0.02 | |||||
| Granted | 25,000 | 0.29 | ||||||
| Exercised | (18,052,966 | ) | 0.05 | |||||
| Forfeited | (68,723,698 | ) | 0.05 | |||||
| Outstanding and exercisable at September 30, 2021 | 512,500 | $ | 0.92 | |||||
The following table summarizes information about warrants outstanding at September 30, 2021:
| Number Outstanding | ||||||||||||||
and Exercisable at September 30, | Weighted Average Remaining Contractual | Intrinsic Value at September 30, | ||||||||||||
| Exercise Price | 2021 | Life | 2021 | |||||||||||
| $ | 0.29 | 125,000 | 1.75 | $ | ||||||||||
| $ | 1.00 | 18,000 | 2.64 | $ | ||||||||||
| $ | 1.12 | 366,000 | 2.64 | $ | ||||||||||
| $ | 2.00 | 3,500 | 2.64 | $ | ||||||||||
| 512,500 | 2.42 | $ | ||||||||||||
Holders of the outstanding warrants are not entitled to vote and the exercise prices of such warrants are subject to customary anti-dilution provisions.
| 15 |
9. Leases
The Company currently leases 4,500 square feet of corporate office space in Knoxville, Tennessee through an operating lease agreement for a term of five years ending on June 30, 2022. Payments are approximately $7,900 per month.
On August 13, 2021, the Company negotiated a reduced rent from July 1, 2021 through December 31, 2021 in the amount of $6,100 per month.
Total operating lease expense for the three months ended September 30, 2021 was $15,887, of which, $10,591 was included within research and development and $5,296 was included within general and administrative expenses on the condensed consolidated statement of operations. Total operating lease expense for the three months ended September 30, 2020 was $24,446, of which, $16,297 was included within research and development and $8,149 was included within general and administrative expenses on the condensed consolidated statement of operations.
Total operating lease expense for the nine months ended September 30, 2021 was $63,693, of which, $42,462 was included within research and development and $21,231 was included within general and administrative expenses on the condensed consolidated statement of operations. Total operating lease expense for the nine months ended September 30, 2020 was $68,080, of which, $45,387 was included within research and development and $22,693 was included within general and administrative expenses on the condensed consolidated statement of operations.
A summary of the Company’s right-of-use assets and liabilities is as follows:
| For The Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows used in operating leases | $ | 64,231 | $ | 67,774 | ||||
| Right-of-use assets obtained in exchange for lease obligations: | ||||||||
| Operating leases | $ | $ | ||||||
| Weighted Average Remaining Lease Term | ||||||||
| Operating leases | 9 months | 1 year 9 months | ||||||
| Weighted Average Discount Rate | ||||||||
| Operating leases | 8.0 | % | 8.0 | % | ||||
Future minimum payments under the Company’s non-cancellable lease obligations as of September 30, 2021 were as follows:
| Years | Amount | |||
| 2021 | $ | 18,447 | ||
| 2022 | 46,687 | |||
| Total future minimum lease payments | 65,134 | |||
| Less: amount representing imputed interest | (2,214 | ) | ||
| Total | $ | 62,920 | ||
10. Commitments, Contingencies and Litigation
The Company may, from time to time, be involved in litigation arising in the ordinary course of business or which may be expected to be covered by insurance. The Company is not aware of any pending or threatened litigation that, if resolved against the Company, would have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
11. Subsequent Events
The Company has evaluated events that have occurred after the balance sheet and through the date the financial statements were issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements, except as disclosed below.
On October 25, 2021, the Company’s grant award of $from the State of Tennessee for the study of animal cancers and dermatological disorders for the period October 15, 2021 to June 30, 2022 was funded.
| 16 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion is intended to assist in the understanding and assessment of significant changes and trends related to our results of operations and our financial condition together with our consolidated subsidiaries. This discussion and analysis should be read in conjunction with the accompanying unaudited condensed financial statements and our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 2, 2021 (“2020 Form 10-K”), which includes additional information about our critical accounting policies and practices and risk factors. Historical results and percentage relationships set forth in the consolidated statement of operations, including trends which might appear, are not necessarily indicative of future operations.
Overview
Provectus is a clinical-stage biotechnology company developing immunotherapy medicines based on an entire, wholly owned, family of small molecules called HXs. The Company’s lead HX molecule is proprietary cGMP RBD. IL PV-10, a cancer immunotherapy and injectable formulation of cGMP RBD, can induce immunogenic cell death (“ICD”), and is undergoing clinical study for adult solid tumor cancers, such as melanoma and GI tumors (e.g., HCC, mCRC, mNET, mUM), and preclinical study for pediatric solid tumor cancers (e.g., neuroblastoma, Ewing sarcoma, rhabdomyosarcoma, osteosarcoma). Topically administered PH-10, an immune-modulatory agent and formulation of cGMP RBD, is undergoing clinical study for inflammatory dermatoses (e.g., psoriasis, atopic dermatitis). New formulations of and routes of administration for cGMP RBD are being investigated for hematology (e.g., acute myeloid leukemia, acute monocytic leukemia), virology (e.g., SARS-CoV-2), oncology (e.g., high-risk and refractory adult solid tumor cancers), microbiology (e.g., MDR bacteria), and ophthalmology (e.g., infectious keratitis).
The SARS-CoV-2 pandemic has already caused significant disruptions in the financial markets, and may continue to cause such disruptions, which could impact our ability to raise additional funds and may also impact the volatility of our stock price and trading in our stock. Moreover, the pandemic has also significantly impacted economies worldwide, which could result in adverse effects on our business and operations. We cannot be certain what the overall impact of the SARS-CoV-2 pandemic will be on our business. It has the potential to adversely affect our business, financial condition, results of operations, and prospects. We have taken several temporary precautionary measures intended to help ensure the well-being of our employees and contractors and to minimize disruption to our business. We considered the impact of the SARS-CoV-2 pandemic on our business and operational assumptions and estimates, and determined there were no material adverse impacts on our results of operations and financial position at September 30, 2021.
Our Science and Technology
Oncology. IL PV-10 drug product is Provectus’ cGMP injectable formulation of the Company’s pharmaceutical-grade (cGMP) RBD (4,5,6,7-tetrachloro-2’,4’,5’,7’-tetraiodofluorescein disodium salt) drug substance. RBD selectively accumulates in the lysosomes of cancer cells. Cancer cells, particularly advanced cancer cells, are very dependent on effective lysosomal functioning (Piao et al., Ann N Y Acad Sci 2016). Cancer progression and metastasis are associated with lysosomal compartment changes (Nishimura et al., Pathol Oncol Res 1998; Gocheva et al., Genes Dev 2006), which are closely correlated with, among other things, invasive growth, angiogenesis, and drug resistance (Fahrenbacher et al., Cancer Res 2005).
Lysosomes are the central organelles for intracellular degradation of biological macromolecules and organelles. Discovered by Christian de Duve, M.D. in 1955, lysosomes have been linked with a number of biological processes like cell death, inflammasome activation, and immune response. In 1959, Dr. de Duve described lysosomes as “suicide bags,” because their rupture led to cell death and tissue autolysis. Lysosomes have been shown to play a role in each of the primary pathways of cell death, which are apoptosis, autophagy, and necrosis. He was awarded the Nobel Prize in 1974 for discovering and characterizing lysosomes.
| 17 |
Provectus showed that RBD selectively accumulates in the lysosomes of cancer cells and disrupts them, causing the cancer cells to die. RBD has also been shown by Provectus and independent researchers to trigger each major, distinct form of lysosomal cell death; that is, apoptosis, autophagy, and necrosis.
RBD’s lysosomal targeting comprises:
| ● | Transiting the plasmalemma (i.e., the cell membrane) of cancer cells. RBD penetrates the cell membrane of cancerous cells which normally protects the cancer cell from its surrounding environment. RBD, however, is excluded from normal cells; | |
| ● | Accumulating in the lysosomes of cancer cells. As noted above, the physicochemical properties of lysosomes trap RBD; | |
| ● | Triggering the release of lysosomal contents. Acute autolysis can occur within 60 minutes. Early preclinical work by Provectus on RBD’s lysosomal targeting showed identical responses in different disease models, such as Hepa1-6 murine hepatocellular carcinoma, HTB-133 human breast carcinoma, and H96Ar human multi-drug resistant small cell lung carcinoma; | |
| ● | Inducing the rapid cell death of cancer cells. Early trypan blue exclusion work by Provectus confirmed cell death within hours; and, | |
| ● | Intracellular pH consistency with the release of acidic lysosomal contents. Early seminaphthorhodafluor-1 (“SNARF-1”) staining work by Provectus confirmed lower intracellular pH upon exposure to RBD. |
Hematology. In primary cells and cell lines derived from pediatric leukemia patients, RBD may lead to stimulator of interferon genes (“STING”) dimerization and the release of interferon gamma, indicating a potential immune activation mechanism of RBD. Heat shock proteins, which chaperone misfolded or abnormally folded proteins, associated with STING dimerization in RBD-treated cells, indicating a mechanism that may lead to enhanced STING activation following RBD-specific treatment.
Virology. The Company’s work in this disease area to identify drug activity and elucidate mechanism(s) of action is ongoing.
Microbiology. The Company’s work in this disease area to identify drug activity and elucidate mechanism(s) of action is ongoing.
Ophthalmology. The Company’s work in this disease area to identify drug activity is ongoing.
Dermatology. For psoriasis, pathways significantly improved by monotherapy PH-10 drug product treatment include published psoriasis transcriptomes and cellular responses mediated by IL-17, IL-22, and interferons. Clinical work has shown that more than 500 disease-related genes were down-regulated after four weeks of application and a wide-range of central psoriasis-related genes, including IL-23, IL-17, IL-22, S100A7, IL-19, IL-36, and CXCL1, were normalized (i.e., treated lesional skin had values in the same range as baseline non-lesional skin).
Animal Health. The Company’s work in this disease area to develop a drug candidate or candidates is ongoing.
| 18 |
Our Drug Development Strategy
Oncology. The Company’s strategy is to (i) demonstrate the independent action of single-agent IL PV-10; that is, safety and activity in T cell and non-T cell inflamed tumor types, in high and low tumor mutation burden tumor types, and in other tumor type categories, such as gene mutations, (ii) demonstrate the coordinated induction of multiple immune signaling pathways (i.e., functional ICD), (Snyder et al., Sci Immunol 2019) by IL PV-10 treatment, (iii) demonstrate the functional T cell response generated by IL PV-10 treatment, and (iv) contrast and compare IL PV-10 treatment (i.e., safety, activity, and induced immune response) with that of immune checkpoint blockade (“CB”) and other drug classes in single-agent and IL PV-10-based combination therapy settings.
This strategy may quicken the advancement of single-agent IL PV-10 along a pathway-to-approval in solid tumor cancer indications where there is high unmet need, limited activity from other therapies, and the opportunity to display the immune response from IL PV-10 treatment, such as mNET (NCT02693067). This strategy may also permit the Company to develop and advance a cancer combination therapy involving one or more CB and/or other drug classes along a pathway-to-approval in a disease indication where there is high unmet need, limited activity from standard of care (“SOC”) treatment, and the opportunity to display how IL PV-10 augments clinical response to existing or emerging SOCs, such as mUM (i.e., combination therapy with an anti-CTLA-4 agent and an anti-PD-1 agent) (NCT00986661).
Hematology. The Company and research collaborators are undertaking preclinical work on a potential, systemically administered, cGMP RBD leukemia treatment and/or cancer vaccine for pediatric patients.
Virology. The Company and research collaborators are undertaking preclinical work on a potential, systemically administered, cGMP RBD therapy for SARS-CoV-2 and other classes of enveloped and non-enveloped viruses.
Microbiology. The Company and research collaborators are undertaking preclinical work on cGMP RBD therapy for MDR bacteria.
Ophthalmology. The Company and clinical and research collaborators are undertaking preclinical work on potential, topically administered, cGMP RBD therapy for the treatment of infectious keratitis.
Dermatology. The Company’s strategy is to (i) demonstrate 12-week single-agent administration proof-of-concept (“POC”) for topical PH-10 that includes (a) a preclinical safety study of extended 12-week administration (compared to, previously, four weeks), (b) a clinical mechanism of action study in atopic dermatitis, which would be a “book-end” trial to the already completed clinical mechanism study in psoriasis, (c) Phase 2 randomized controlled trials of topical PH-10 for the treatment of psoriasis and atopic dermatitis that may potentially utilize SOC comparators, and (d) end-of-Phase 2 meetings with the FDA upon the completion of the abovementioned Phase 2 trials, and (ii) expand POC topical PH-10 treatment to include dermatology combination therapy. Our goal for this POC work is to achieve Phase 3 trial-ready status for topical PH-10 in both psoriasis and atopic dermatitis.
Animal health. The Company and research collaborators are undertaking work on cGMP RBD therapies for animal cancers and dermatological disorders.
Components of Operating Results
Research and Development Expenses
A large component of our total operating expenses is the Company’s investment in research and development activities, including the clinical development of our product candidates. Research and development expenses represent costs incurred to conduct research and undertake clinical trials to develop our drug product candidates. These expenses consist primarily of:
| ● | Costs of conducting clinical trials, including amounts paid to clinical centers, clinical research organizations and consultants, among others; | |
| ● | Salaries and related expenses for personnel, including stock-based compensation expense; | |
| ● | Other outside service costs including cost of contract manufacturing; | |
| ● | The costs of supplies and reagents; and, | |
| ● | Occupancy and depreciation charges. |
Research and development activities are central to our business model. We expect our research and development expenses to increase in the future as we advance our existing product candidates through clinical trials and pursue their regulatory approval. Undertaking clinical development and pursuing regulatory approval are both costly and time-consuming activities. As a result of known and unknown uncertainties, we are unable to determine the duration and completion costs of our research and development activities, or if, when, and to what extent we will generate revenue from any subsequent commercialization and sale of our drug product candidates.
General and Administrative Expenses
General and administrative expense consists primarily of salaries, stock-based compensation expense and other related costs for personnel in executive, finance, accounting, business development, legal, information technology and corporate communication functions. Other costs include facility costs not otherwise included in research and development expense, insurance, and professional fees for legal, patent and accounting services.
| 19 |
Results of Operations
Comparison of the Three Months Ended September 30, 2021 and September 30, 2020
Overview
Total operating expenses were $1,047,231 for the three months ended September 30, 2021, a decrease of $54,647 or 5.0% compared to the three months ended September 30, 2020. The decrease was driven primarily by lower clinical trial cost and professional fees. Net loss for the three months ended September 30, 2021 was $1,051,259, a decrease of $513,185 or 32.8% which was primarily attributable to lower interest expense costs incurred in connection with the 2017 and 2020 Notes which converted to preferred stock on June 20, 2021.
| For the Three Months Ended | ||||||||||||||||
| September 30, | Increase/ | |||||||||||||||
| 2021 | 2020 | (Decrease) | % Change | |||||||||||||
| Operating Expenses: | ||||||||||||||||
| Research and development | $ | 608,653 | $ | 667,523 | $ | (58,870 | ) | -8.8 | % | |||||||
| General and administrative | 438,578 | 434,355 | 4,223 | 1.0 | % | |||||||||||
| Total Operating Expenses | 1,047,231 | 1,101,878 | (54,647 | ) | -5.0 | % | ||||||||||
| Total Operating Loss | (1,047,231 | ) | (1,101,878 | ) | 54,647 | -5.0 | % | |||||||||
| Other Income/(Expense): | ||||||||||||||||
| EIDL grant | - | - | - | 0.0 | % | |||||||||||
| Research and development tax credit | (507 | ) | 1 | (508 | ) | -50800.0 | % | |||||||||
| Investment and interest income | 1 | 823 | (822 | ) | -99.9 | % | ||||||||||
| Gain from extinguishment | - | - | - | 0.0 | % | |||||||||||
| Interest expense | (3,522 | ) | (463,390 | ) | 459,868 | -99.2 | % | |||||||||
| Total Other Expense, Net | (4,028 | ) | (462,566 | ) | 458,538 | -99.1 | % | |||||||||
| Net Loss | $ | (1,051,259 | ) | $ | (1,564,444 | ) | $ | 513,185 | -32.8 | % | ||||||
Research and Development Expenses
Research and development expenses were $608,653 for the three months ended September 30, 2021, a decrease of $58,870 or 8.8% compared to $667,523 for the three months ended September 30, 2020. The decrease was primarily due to (i) reduced cost on clinical trials due to slower recruitment and treatment in clinical trials due to the effects of SARS-CoV-2, (ii) lower payroll and payroll taxes, and (iii) a decrease in rent expense.
| For the Three Months Ended | ||||||||||||||||
| September 30, | Increase/ | |||||||||||||||
| 2021 | 2020 | (Decrease) | % Change | |||||||||||||
| Operating Expenses: | ||||||||||||||||
| Research and development: | ||||||||||||||||
| Clinical trial and research expenses | $ | 497,525 | $ | 527,415 | $ | (29,890 | ) | -5.7 | % | |||||||
| Depreciation/amortization | 2,161 | 2,161 | - | 0.0 | % | |||||||||||
| Insurance | 51,982 | 53,885 | (1,903 | ) | -3.5 | % | ||||||||||
| Payroll and taxes | 45,366 | 66,583 | (21,217 | ) | -31.9 | % | ||||||||||
| Rent and utilities | 11,619 | 17,479 | (5,860 | ) | -33.5 | % | ||||||||||
| Total research and development | $ | 608,653 | $ | 667,523 | $ | (58,870 | ) | -8.8 | % | |||||||
| 20 |
General and Administrative Expenses
General and administrative expenses were $438,578 for the three months ended September 30, 2021, an increase of $4,223 or 1.0% compared to $434,355 for the three months ended September 30, 2020. The increase was primarily due to (i) higher legal fees relating to patents, partially offset by (ii) lower professional fees cost.
| For the Three Months Ended | ||||||||||||||||
| September 30, | Increase/ | |||||||||||||||
| 2021 | 2020 | (Decrease) | % Change | |||||||||||||
| Operating Expenses: | ||||||||||||||||
| General and administrative: | ||||||||||||||||
| Depreciation | $ | 1,054 | $ | 1,259 | $ | (205 | ) | -16.3 | % | |||||||
| Directors fees | 96,250 | 94,315 | 1,935 | 2.1 | % | |||||||||||
| Insurance | 37,138 | 40,796 | (3,658 | ) | -9.0 | % | ||||||||||
| Legal and litigation | 130,683 | 87,122 | 43,561 | 50.0 | % | |||||||||||
| Other general and administrative cost | 9,052 | 16,168 | (7,116 | ) | -44.0 | % | ||||||||||
| Payroll and taxes | 43,981 | 45,102 | (1,121 | ) | -2.5 | % | ||||||||||
| Professional fees | 114,496 | 140,732 | (26,236 | ) | -18.6 | % | ||||||||||
| Rent and utilities | 5,883 | 8,746 | (2,863 | ) | -32.7 | % | ||||||||||
| Foreign currency translation | 41 | 115 | (74 | ) | 0.0 | % | ||||||||||
| Total general and administrative | $ | 438,578 | $ | 434,355 | $ | 4,223 | 1.0 | % | ||||||||
Other Income/(Expense)
Other income decreased by $1,330 from $824 for the three months ended September 30, 2020 to ($506) for the three months ended September 30, 2021. The decrease was mainly due to lower interest income.
Interest expense decreased by $459,868 from $463,390 for the three months ended September 30, 2020 to $3,522 for the three months ended September 30, 2021. The decrease was due to the lower interest expense costs incurred in connection with the 2017 and 2020 Notes which converted to preferred stock on June 20, 2021.
Comparison of the Nine Months Ended September 30, 2021 and September 30, 2020
Overview
Total operating expenses were $3,449,924 for the nine months ended September 30, 2021, a decrease of $311,042 or 8.3% compared to the nine months ended September 30, 2020. The decrease was driven primarily by our continued transformation and process improvement efforts within the Company along with lower amortization due to patents being fully amortized, slower recruitment and treatment in clinical trials due to the effects of SARS-CoV-2 and lower professional fees. Net loss for the nine months ended September 30, 2021 was $4,300,800, a decrease of $705,510 or 14.1% which was primarily attributable to lower costs incurred in connection with our preclinical and clinical trial programs and lower interest expense costs incurred in connection with the 2017 and 2020 Notes which converted to preferred stock on June 20, 2021.
| For the Nine Months Ended | ||||||||||||||||
| September 30, | Increase/ | |||||||||||||||
| 2021 | 2020 | (Decrease) | % Change | |||||||||||||
| Operating Expenses: | ||||||||||||||||
| Research and development | $ | 1,866,776 | $ | 2,273,423 | $ | (406,647 | ) | -17.9 | % | |||||||
| General and administrative | 1,583,148 | 1,487,543 | 95,605 | 6.4 | % | |||||||||||
| Total Operating Expenses | 3,449,924 | 3,760,966 | (311,042 | ) | -8.3 | % | ||||||||||
| Total Operating Loss | (3,449,924 | ) | (3,760,966 | ) | (311,042 | ) | 8.3 | % | ||||||||
| Other Income/(Expense): | ||||||||||||||||
| EIDL grant | - | 3,000 | (3,000 | ) | -100.0 | % | ||||||||||
| Research and development tax credit | 31,637 | 27,187 | 4,450 | 16.4 | % | |||||||||||
| Investment and interest income | 2 | 3,414 | (3,412 | ) | -99.9 | % | ||||||||||
| Gain from extinguishment | 63,094 | - | 63,094 | 0.0 | % | |||||||||||
| Interest expense | (945,609 | ) | (1,278,945 | ) | 333,336 | -26.1 | % | |||||||||
| Total Other Expense, Net | (850,876 | ) | (1,245,344 | ) | 394,468 | -31.7 | % | |||||||||
| Net Loss | $ | (4,300,800 | ) | $ | (5,006,310 | ) | $ | (705,510 | ) | 14.1 | % | |||||
Research and Development Expenses
Research and development expenses were $1,866,776 for the nine months ended September 30, 2021, a decrease of $406,647 or 17.9% compared to $2,273,423 for the nine months ended September 30, 2020. The decrease was primarily due to (i) reduced cost on clinical trials due to slower recruitment and treatment in clinical trials due to the effects of SARS-CoV-2, (ii) lower amortization due to patents being fully amortized, and (iii) a decrease in insurance expense.
| For the Nine Months Ended | ||||||||||||||||
| September 30, | Increase/ | |||||||||||||||
| 2021 | 2020 | (Decrease) | % Change | |||||||||||||
| Operating Expenses: | ||||||||||||||||
| Research and development: | ||||||||||||||||
| Clinical trial and research expenses | $ | 1,474,732 | $ | 1,588,856 | $ | (114,124 | ) | -7.2 | % | |||||||
| Depreciation/amortization | 6,485 | 234,592 | (228,107 | ) | -97.2 | % | ||||||||||
| Insurance | 154,763 | 200,162 | (45,399 | ) | -22.7 | % | ||||||||||
| Payroll and taxes | 185,406 | 201,344 | (15,938 | ) | -7.9 | % | ||||||||||
| Rent and utilities | 45,390 | 48,469 | (3,079 | ) | -6.4 | % | ||||||||||
| Total research and development | $ | 1,866,776 | $ | 2,273,423 | $ | (406,647 | ) | -17.9 | % | |||||||
| 21 |
General and Administrative Expenses
General and administrative expenses were $1,583,148 for the nine months ended September 30, 2021, an increase of $95,605 or 6.4% compared to $1,487,543 for the nine months ended September 30, 2020. The increase was primarily due to (i) higher legal fees relating to patents, (ii) an increase in payroll and related taxes due to an additional employee, partially offset by (iii) a decrease in professional fees.
| For the Nine Months Ended | ||||||||||||||||
| September 30, | Increase/ | |||||||||||||||
| 2021 | 2020 | (Decrease) | % Change | |||||||||||||
| Operating Expenses: | ||||||||||||||||
| General and administrative: | ||||||||||||||||
| Depreciation | $ | 3,163 | $ | 3,982 | $ | (819 | ) | -20.6 | % | |||||||
| Directors fees | 288,750 | 286,815 | 1,935 | 0.7 | % | |||||||||||
| Insurance | 122,966 | 136,272 | (13,306 | ) | -9.8 | % | ||||||||||
| Legal and litigation | 479,421 | 304,747 | 174,674 | 57.3 | % | |||||||||||
| Other general and administrative cost | 55,640 | 51,941 | 3,699 | 7.1 | % | |||||||||||
| Payroll and taxes | 152,581 | 129,024 | 23,557 | 18.3 | % | |||||||||||
| Professional fees | 452,971 | 549,061 | (96,090 | ) | -17.5 | % | ||||||||||
| Rent and utilities | 22,828 | 24,484 | (1,656 | ) | -6.8 | % | ||||||||||
| Foreign currency translation | 4,828 | 1,217 | 3,611 | 296.7 | % | |||||||||||
| Total general and administrative | $ | 1,583,148 | $ | 1,487,543 | $ | 95,605 | 6.4 | % | ||||||||
Other Income/(Expense)
Other income increased by $61,132 from $33,601 for the nine months ended September 30, 2020 to $94,733 for the nine months ended September 30, 2021. The increase was mainly due to the PPP loan forgiveness and the research and development tax credit in Australia.
Interest expense decreased by $333,336 from $1,278,945 for the nine months ended September 30, 2020 to $945,609 for the nine months ended September 30, 2021. The decrease was due to lower interest expense costs incurred in connection with the 2017 and 2020 Notes which converted to preferred stock on June 20, 2021.
Liquidity and Capital Resources
Our cash and cash equivalents were $254,083 at September 30, 2021, compared to $97,231 at December 31, 2020. The condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q have been prepared on a basis that contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. We have continuing net losses and negative cash flows from operating activities. In addition, we have an accumulated deficit of $244,795,217 as of September 30, 2021. These conditions raise substantial doubt about our ability to continue as a going concern for a period within one year from the date that the financial statements included elsewhere in this Quarterly Report on Form 10-Q are issued. Our financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern. Our ability to continue as a going concern depends on our ability to obtain additional financing as may be required to fund current operations.
During the nine months ended September 30, 2021, the Company entered into additional non-related party 2020 Notes in the aggregate principal amount of $1,700,000. On June 20, 2021, the outstanding non-amended 2017 Notes converted into 12,373,247 shares of Series D Convertible Preferred Stock at the Original Conversion Price of $0.2862, and all the outstanding Amended 2017 Notes and outstanding 2020 Notes converted into 9,440,594 shares of Series D-1 Convertible Preferred Stock at the New Conversion Price of $2.862. The outstanding non-amended 2017 Notes, Amended 2017 Notes, and 2020 Notes had totalled $30,573,080 in principal and interest.
During the nine months ended September 30, 2021, the Company received total investments of $150,000 from non-related party investors in exchange for an aggregate of 52,411 shares of restricted Series D-1 Convertible Preferred Stock that have not yet been issued.
During the nine months ended September 30, 2021, warrant holders exercised warrants to purchase an aggregate of 18,052,966 shares of common stock at an exercise price of $0.0533 per share. In connection with these exercises, the Company received aggregate cash proceeds of $962,445.
On August 13, 2021, the Board approved the 2021 Term Sheet, which sets forth the terms under which the Company will use its best efforts to arrange for financing of a maximum of $5,000,000.
On August 16, 2021, the Company received a Loan of $200,000 from a related party investor in connection with the 2021 Financing.
Management’s plans include selling our equity securities and obtaining other financing, including the 2021 financing, to fund our capital requirements and on-going operations; however, there can be no assurance we will be successful in these efforts. The condensed consolidated financial statements do not include any adjustment that might be necessary if we are unable to continue as a going concern. Significant funds will be needed to continue and complete our ongoing and planned clinical trials.
The SARS-CoV-2 pandemic has already caused significant disruptions in the financial markets, and may continue to cause such disruptions, which could impact our ability to raise additional funds and may also impact the volatility of our stock price and trading in our stock. Moreover, the pandemic has also significantly impacted economies worldwide, which could result in adverse effects on our business and operations. We cannot be certain what the overall impact of the SARS-CoV-2 pandemic will be on our business. It has the potential to adversely affect our business, financial condition, results of operations, and prospects. The Company has experienced slower than normal enrollment and treatment of patients, and a prolonged SARS-CoV-2 pandemic could have a material adverse impact on the Company’s business and financial results, including the timing and ability of the Company to raise capital, initiate and/or complete current and/or future preclinical studies and/or clinical trials; disrupt the Company’s regulatory activities; and/or have other adverse effects on the Company’s clinical development. We have taken several temporary precautionary measures intended to help ensure the well-being of our employees and contractors and to minimize disruption to our business. We considered the impact of the SARS-CoV-2 pandemic on our business and operational assumptions and estimates, and determined there were no material adverse impacts on our results of operations and financial position at September 30, 2021.
| 22 |
Access to Capital
Management plans to access capital resources through possible public or private equity offerings, including the 2021 financing, equity financings, debt financings, corporate collaborations, or other means. If we are unable to raise sufficient capital, we will not be able to pay our obligations as they become due.
The primary business objective of management is to build the Company into a commercial-stage biotechnology company; however, we cannot assure you that management will be successful in implementing the Company’s business plan of developing, licensing, and/or commercializing our prescription drug product candidates. Moreover, even if we are successful in improving our current cash flow position, we nonetheless plan to seek additional funds to meet our current and long-term requirements in 2021 and beyond. We anticipate that these funds will otherwise come from the proceeds of private placement transactions, the exercise of existing warrants and outstanding stock options, or public offerings of debt or equity securities. While we believe that we have a reasonable basis for our expectation that we will be able to raise additional funds, we cannot assure you that we will be able to complete additional financing in a timely manner. In addition, any such financing may result in significant dilution to stockholders.
Critical Accounting Policies
For a description of our critical accounting policies, see Note 3 – Critical Accounting Policies in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
Recently Adopted Accounting Standards
Recently adopted accounting standards are included in Note 3 – Critical Accounting Policies in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as special purpose entities (“SPEs”).
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| 23 |
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The information required by this item is incorporated by reference from Part I, Item 1. Financial Statements, Notes to Condensed Consolidated Financial Statements, Note 10.
ITEM 1A. RISK FACTORS.
There have been no material changes to the risk factors that were disclosed in the 2020 Form 10-K, other than set forth below.
Our business, financial condition and results of operations may be adversely affected by the severe acute respiratory syndrome (SARS)-associated CoV-2 (SARS-CoV-2) pandemic or other similar outbreaks of contagious diseases.
Outbreaks of contagious diseases and other adverse public health developments, affecting us and/or the third parties on which we rely, could have a material and adverse effect on our business, financial condition, and results of operations. The severe acute respiratory syndrome (SARS)-associated CoV-2 (SARS-CoV-2) pandemic, which was reported to have begun in late-2019 and has spread worldwide, may affect our ability to initiate and/or complete current and/or or future preclinical studies and/or clinical trials; disrupt our regulatory activities; and/or have other adverse effects on our clinical development. In addition, stay-at-home orders, business closures, travel restrictions, supply chain disruptions and employee or independent contractor illness or quarantines could result in disruptions to our operations, which could adversely impact our results from operations and financial condition. The SARS-CoV-2 pandemic has also caused substantial disruption in capital and financial markets and adversely impacted economies worldwide, any and/or all of which may disrupt our business, negatively impact our ability to raise additional funds, and adversely affect our results of operations and financial condition. Moreover, many risk factors set forth in the 2020 Form 10-K should be interpreted as heightened risks as a result of the impact of the SARS-CoV-2 pandemic. The extent to which the SARS-CoV-2 pandemic may impact our business, financial condition and results of operations will depend on the manner in which this pandemic continues to evolve and future developments in response thereto, which are highly uncertain and cannot be predicted with confidence as of the date of this Form 10-Q.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
2021 Financing
During the three months ended September 30, 2021, the Company had received aggregate Loan of $200,000 from a related party investor in connection with the 2021 Financing. As of September 30, 2021, the Company had drawn down the entire $200,000 under this note.
For further details on the terms of the 2021 Note, refer to our Form 8-K as filed with the SEC on August 18, 2021.
Series D-1 Convertible Preferred Stock
During the three months ended September 30, 2021, the Company received total investments of $150,000 from non-related party investors in exchange for an aggregate of 52,411 shares of restricted Series D-1 Convertible Preferred Stock that have not yet been issued.
Common Stock
During the three months ended September 30, 2021, the Company issued an aggregate of 25,000 shares of immediately vested restricted common stock to a consultant for services.
The Company believes that such transactions were exempt from the registration requirements of the Securities Act of 1933, as amended, (the “Securities Act”), in reliance on Section 4(a)(2) of the Securities Act (or Rule 506(b) of Regulation D promulgated thereunder) as transactions by an issuer not involving a public offering.
| 24 |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. Mine Safety Disclosures.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
| Exhibit No. | Description | |
| 4.1 | Form of Unsecured Convertible Promissory Note (incorporated by reference to Exhibit 4.1 of the Company’s current report on Form 8-K filed on August 18, 2021). | |
| 10.1** | 2021 Financing Term Sheet. | |
| 31.1** | Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) (Section 302 Certification). | |
| 31.2** | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) (Section 302 Certification). | |
| 32*** | Certification of Principal Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 (Section 906 Certification). | |
| 101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
** Filed herewith.
*** Furnished herewith.
| 25 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| PROVECTUS BIOPHARMACEUTICALS, INC. |
| November 10, 2021 | By: | /s/ Bruce Horowitz |
| Bruce Horowitz | ||
| Chief Operating Officer (Principal Executive Officer) | ||
| By: | /s/ Heather Raines | |
| Heather Raines, CPA | ||
| Chief Financial Officer (Principal Financial Officer) |
| 26 |