PVCT 10-Q
Provectus Biopharmaceuticals, Inc. (PVCT)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
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
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
(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. ☒
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). ☒
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 | ☐ |
| ☒ | 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 ☒
The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of May 11, 2023, 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, 2022), and:
| ● | The uncertainty of generating (i) sales from rose bengal sodium-based drug product candidates, PV-10® and PH-10®, and/or any other halogenated xanthene-based drug product candidates (if and when approved), (ii) licensing, milestone, royalty, and/or other payments related to these drug product candidates, and/or (iii) payments from the Company’s liquidation, dissolution, or winding up, or any sale, lease, conveyance, or other disposition of any intellectual property relating to these drug product candidates and/or rose bengal sodium- and other halogenated xanthene-based drug substances; | |
| ● | The uncertainty of raising additional capital through the proceeds of private placement transactions of debt and/or equity securities, the exercise of existing warrants and outstanding stock options, and/or public offerings of debt and/or equity securities; | |
| ● | The disruptions from the widespread outbreak of an illness or communicable/infectious disease, such as severe acute respiratory syndrome coronavirus 2, or another public health crisis to our business that could adversely affect our operations and financial condition; and | |
| ● | The disruptions, shortages, and other supply chain-related issues that many companies across different industry sectors have reported and continue to report. In the biopharmaceutical sector, delays and interruptions in the supply chain have been particularly pronounced. During this first quarter of 2023, we were able to effectively manage our supply of drug product candidates and drug substance in a manner that avoided any significant interruptions to our clinical development and drug discovery programs. |
| 1 |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
PROVECTUS BIOPHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Short-term receivables | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Equipment and furnishings, less accumulated
depreciation of $ | ||||||||
| Operating lease right-of-use asset | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Unearned grant revenue | ||||||||
| Other accrued expenses | ||||||||
| Accrued interest | ||||||||
| Accrued interest - related parties | ||||||||
| Notes payable | ||||||||
| Convertible notes payable | ||||||||
| Convertible notes payable - related parties | ||||||||
| Operating lease liability, current portion | ||||||||
| Total Current Liabilities | ||||||||
| Operating lease liability, non-current portion | ||||||||
| Total Liabilities | ||||||||
| Commitments, contingencies, and litigations (Note 12) | ||||||||
| Stockholders’ Deficit: | ||||||||
| Preferred stock; par value $ per share; shares authorized; | ||||||||
| Series D Convertible Preferred
Stock; shares designated; shares issued and outstanding at March 31, 2023 and December 31, 2022; aggregate
liquidation preference of $ | ||||||||
| Series D-1 Convertible
Preferred Stock; shares designated; and shares issued and outstanding at March 31, 2023 and December
31, 2022, respectively; aggregate liquidation preference of $ | ||||||||
| Common stock; par value $ per share; shares authorized; shares issued and outstanding at March 31, 2023 and December 31, 2022 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
| 2 |
PROVECTUS BIOPHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Grant Revenue | $ | $ | ||||||
| Operating Expenses: | ||||||||
| Research and development | ||||||||
| General and administrative | ||||||||
| Total Operating Expenses | ||||||||
| Total Operating Loss | ( | ) | ( | ) | ||||
| Other Income/(Expense): | ||||||||
| Interest expense, net | ( | ) | ( | ) | ||||
| Total Other Expense, Net | ( | ) | ( | ) | ||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Basic and Diluted Loss Per Common Share | $ | ( | ) | $ | ( | ) | ||
| Weighted Average Number of Common Shares Outstanding - Basic and Diluted | ||||||||
See accompanying notes to condensed consolidated financial statements.
| 3 |
PROVECTUS BIOPHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Other Comprehensive Income (Loss): | ||||||||
| Foreign currency translation adjustments | ( | ) | ||||||
| Total Comprehensive Loss | $ | ( | ) | $ | ( | ) | ||
See accompanying notes to condensed consolidated financial statements.
| 4 |
PROVECTUS BIOPHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 2023
| Accumulated | ||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Additional | Other | |||||||||||||||||||||||||||||||||||||
| Series D | Series D-1 | Common Stock | Paid-In | Comprehensive | Accumulated | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Total | |||||||||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Conversion of 2021 Note to Series D-1 Preferred Stock | - | - | ||||||||||||||||||||||||||||||||||||||
| Comprehensive loss: | ||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | - | |||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
FOR THE THREE MONTHS ENDED MARCH 31, 2022
| Preferred Stock | Preferred Stock | Accumulated | ||||||||||||||||||||||||||||||||||||||
| Series D | Series D-1 | Common Stock | Additional Paid-In | Other Comprehensive | Accumulated | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Total | |||||||||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Series D-1 Preferred Stock issued for cash | - | - | ||||||||||||||||||||||||||||||||||||||
| Comprehensive loss: | ||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 5 |
PROVECTUS BIOPHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Three Months Ended | ||||||||
| March 31. | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Non-cash lease expense | ||||||||
| Depreciation | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Short term receivables | ( | ) | ||||||
| Prepaid expenses and other current assets | ||||||||
| Accounts payable | ( | ) | ||||||
| Unearned grant revenue | ( | ) | ( | ) | ||||
| Other accrued expenses | ||||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Accrued interest | ||||||||
| Net Cash Used In Operating Activities | ( | ) | ( | ) | ||||
| Cash Flows From Financing Activities: | ||||||||
| Proceeds from issuance of convertible notes payable | ||||||||
| Proceeds from issuance of convertible notes payable - related parties | ||||||||
| Repayment of short-term note payable | ( | ) | ( | ) | ||||
| Net Cash Provided By Financing Activities | ( | ) | ||||||
| Effect of exchange rates on cash and restricted cash | ( | ) | ( | ) | ||||
| Net Decrease In Cash and Restricted Cash | ( | ) | ( | ) | ||||
| Cash and Restricted Cash, Beginning of Period | ||||||||
| Cash and Restricted Cash, End of Period | $ | $ | ||||||
| Cash and restricted cash consisted of the following: | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| $ | $ | |||||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Conversion of 2021 Notes and related accrued interest to Series D-1 Preferred Stock | $ | $ | ||||||
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 that are based on a class of synthetic small molecule immuno-catalysts called halogenated xanthenes (“HXs”). Our lead molecule is named rose bengal sodium (“RBS”).
The Company’s proprietary, patented, pharmaceutical-grade RBS is the active pharmaceutical ingredient in the drug product candidates of our current clinical development programs and the preclinical formulations of our current drug discovery programs. Importantly, our pharmaceutical-grade RBS displays different therapeutic effects at different concentrations and can be formulated for delivery by different routes of administration,
The Company believes that RBS targets disease in a bifunctional manner. First, direct contact may lead to cell death or repair depending on the disease being treated and the concentration of the RBS utilized in the treatment. Secondly, multivariate immune signaling, activation, and response may follow that may manifest as stimulatory, inhibitory, or both.
The Company believes that it is the first entity to advance an RBS formulation into clinical trials for the treatment of a disease, such as those trials reported on the clinical trials registry ClinicalTrials.gov.
The Company believes that it is the first and only entity to date to successfully, reproducibly, and consistently make pharmaceutical-grade RBS at a purity of nearly 100%.
The Company’s small molecule HX medical science platform comprises a number of different drug product candidates and preclinical pharmaceutical-grade RBS formulations using different concentrations and delivered by different routes of administration specific to each disease area and/or indication. The Company’s HX medical science platform includes clinical development programs in oncology, dermatology, and ophthalmology; proof-of-concept in vivo drug discovery programs in oncology, hematology, wound healing, and animal health; and preclinical in vitro drug discovery programs in infectious diseases and tissue regeneration and repair.
Risks and Uncertainties
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 |
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“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, 2022 filed with the SEC on March 30, 2023. 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 months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.
2. Liquidity and Going Concern
To date, the Company has not generated any revenues or profits from planned principal operations.
The
Company’s cash and restricted cash were $
The Company plans to access capital resources through possible public or private equity offerings, including the 2022 financing (see Note 5), exchange offers, debt financings, corporate collaborations, or other means. In addition, the Company continues to explore opportunities to strategically monetize its lead drug candidates, PV-10 and PH-10, through potential co-development and licensing transactions, although there can be no assurance that the Company will be successful with such plans. The Company has historically been able to raise capital through equity offerings, although no assurance can be provided that it will continue to be successful in the future. If the Company is unable to raise sufficient capital, it will not be able to pay its obligations as they become due.
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 2023 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. Significant Accounting Policies
Since the date the Company’s December 31, 2022 consolidated financial statements were issued in its 2022 Annual Report, there have been no material changes to the Company’s significant accounting policies.
Principles of Consolidation
Intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s significant estimates and assumptions include the recoverability and useful lives of long-lived assets, stock-based compensation, accrued liabilities and the valuation allowance related to the Company’s deferred tax assets.
Restricted Cash
Restricted
cash consists of a grant award of $
Cash Concentrations
Cash
and restricted cash are maintained at financial institutions and, at times, balances may exceed federally insured limits of $
| 8 |
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:
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Warrants | ||||||||
| Options | ||||||||
| Convertible preferred stock | ||||||||
| 2021 unsecured convertible notes | ||||||||
| 2022 unsecured convertible notes | ||||||||
| Total potentially dilutive shares | ||||||||
Recently Adopted Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, to clarify the accounting for certain financial instruments with characteristics of liabilities and equity. The amendments in this update reduce the number of accounting models for convertible debt instruments and convertible preferred stock by removing the cash conversion model and the beneficial conversion feature model. Limiting the accounting models will result in fewer embedded conversion features being separately recognized from the host contract. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in-capital. In addition, this ASU improves disclosure requirements for convertible instruments and earnings-per-share guidance. The ASU also revises the derivative scope exception guidance to reduce form-over-substance-based accounting conclusions driven by remote contingent events. The amendments in this update are effective for our fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption will be permitted, but no earlier than for fiscal years beginning after December 15, 2020. The Company early adopted ASU 2020-06 effective January 1, 2023 which eliminated the need to assess whether a beneficial conversion feature needs to be recognized upon the issuance of new convertible instruments.
| 9 |
4. Other Accrued Expenses
The following table summarizes the other accrued expenses at March 31, 2023 and December 31, 2022:
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Accrued payroll and taxes | $ | $ | ||||||
| Accrued vacation | ||||||||
| Accrued directors’ fees | ||||||||
| Accrued other expenses | ||||||||
| Total Other Accrued Expenses | $ | $ | ||||||
5. Convertible Notes Payable
2021 Financing
| Non-Related Party | Related Party | |||||||||||
| Face Amount | Face Amount | Total | ||||||||||
| Balance as of January 1, 2023 | $ | $ | $ | |||||||||
| Conversion | ( | ) | ( | ) | ||||||||
| Balance as of March 31, 2023 | $ | $ | $ | |||||||||
As
of March 31, 2023, the Company had received 2021 Notes with aggregate proceeds of $
2022 Financing
| Non-Related Party | Related Party | |||||||||||
| Face Amount | Face Amount | Total | ||||||||||
| Balance as of January 1, 2023 | $ | $ | $ | |||||||||
| Issued | ||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | |||||||||
As
of March 31, 2023, the Company had received 2022 Notes with aggregate proceeds of $
For further details on the terms of the 2021 and 2022 Notes, refer to our Form 10-K as filed with the SEC on March 30, 2023.
2023 Conversions of 2021 Notes into Preferred Stock
The following summarizes the conversion activity during the quarter ended March 31, 2023:
| Series D-1 | ||||
Preferred Stock | ||||
| Principal converted | $ | |||
| Accrued interest converted | ||||
| Total converted | $ | |||
| Conversion price | $ | |||
| Total shares | ||||
During
the three months ended March 31, 2023, principal and interest in the aggregate amount of $
| 10 |
6. Notes Payable
The
Company obtained short-term financing from AFCO Insurance Premium Finance for our commercial insurance policies. As of March 31, 2023
and December 31, 2022, the balance of the note payable was $
7. Related Party Transactions
During
the three months ended March 31, 2023 and March 31, 2022, the Company paid Mr. Bruce Horowitz (Capital Strategists) consulting fees
of $
The
amounts owed to Capital Strategists for consulting fees as of March 31, 2023 and December 31, 2022 were $
See Note 5 for details of other related party transactions.
Director
fees during the three months ended March 31, 2023 and March 31, 2022 were $
8. Stockholders’ Deficit
Preferred Stock
During
the three months ended March 31, 2023, the Company issued shares of restricted Series D-1 Convertible Preferred Stock upon the conversion of $
Options
During the three months ended March 31, 2023, the Company did not have any grants, forfeitures, or exercises of options.
| Exercise Price | Outstanding and Exercisable | Weighted Average Remaining Contractual Life | Intrinsic Value | |||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | ||||||||||||||
Warrants
During the three months ended March 31, 2023, the Company did not have any grants, forfeitures, or exercises -of warrants.
The following table summarizes information about warrants outstanding and exercisable at March 31, 2023:
| Exercise Price | Outstanding and Exercisable | Weighted
Average Remaining Contractual Life |
Intrinsic Value | |||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | ||||||||||||||
| 11 |
Holders of the outstanding warrants are not entitled to vote and the exercise prices of such warrants are subject to customary anti-dilution provisions.
9. Leases
The
Company currently leases
Total
operating lease expense for the three months ended March 31, 2023 was $
A summary of the Company’s right-of-use assets and liabilities is as follows:
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows used in operating leases | $ | $ | ||||||
| Right-of-use assets obtained in exchange for lease obligations: | ||||||||
| Operating leases | $ | $ | ||||||
| Weighted Average Remaining Lease Term | ||||||||
| Operating leases | ||||||||
| Weighted Average Discount Rate | ||||||||
| Operating leases | % | % | ||||||
Future minimum payments under the Company’s non-cancellable lease obligations as of March 31, 2023 were as follows:
| Future Minimum Payments | ||||
| Years | Amount | |||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| Total lease payments | ||||
| Less: amount representing imputed interest | ( | ) | ||
| Present value of lease liability | ||||
| Less: current portion | ( | ) | ||
| Lease liability, non-current portion | $ | |||
| 12 |
10. Grants
On
October 25, 2021, the Company received a grant award of $
11. License Transactions
On
February 16, 2022, and later amended on May 11, 2022, the Company entered into an option agreement with the University of Miami (“UM”)
for an exclusive worldwide license of intellectual property (“IP”) developed by the Ophthalmic Biophysics Center (“OBC”)
of Bascom Palmer Eye Institute (“BPEI”) that included the use of OBC’s ophthalmic photodynamic antimicrobial therapy
(“PDAT”) medical device in combination with formulations of the Company’s pharmaceutical-grade RBS for the treatment
of bacterial, fungal, and viral infections of the eye.
12. Commitments, Contingencies and Litigation
The Company may, from time to time, be involved in litigation arising from the ordinary course of business and/or that 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.
13. 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.
Subsequent
to March 31, 2023, the Company entered into a 2022 Note with a related party investor (a director of the Company) in the
aggregate principal amount of $
Subsequent to March 31, 2023, principal and interest in
the aggregate amount of $
| 13 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion is intended to assist in the understanding and assessment of significant changes and trends related to our results of operations and our financial condition together with our consolidated subsidiaries. This discussion and analysis should be read in conjunction with the accompanying unaudited condensed financial statements and our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 30, 2023 (“2022 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.
Clinical Development and Drug Discovery
The Company’s small molecule HX medical science platform, which comprises a number of different drug product candidates and preclinical formulations made from pharmaceutical-grade RBS using different concentrations and delivered by different routes of administration specific to each disease area and/or indication, includes:
Clinical Development Programs
| ● | Oncology: Intratumoral (“ITU”) formulation PV-10® (“ITU PV-10”) has undergone and is undergoing multiple, monotherapy and combination therapy, early- to late-stage clinical trials, expanded access programs (“EAPs”) for groups of and individual patients, and/or quality of life (“QOL”) study at multiple clinical sites in Australia, Europe, and the U.S. for the treatments of Stage III and IV melanoma and different types of liver cancers. ITU PV-10 has undergone and is undergoing clinical monotherapy and combination therapy mechanism of action and mechanism of immune response study for melanoma, metastatic uveal melanoma, and metastatic neuroendocrine tumors at and/or with Moffitt Cancer Center (“Moffitt”) in Tampa, Florida, The Queen Elizabeth Hospital in Adelaide, Australia, and MD Anderson Cancer Center in Houston, Texas. | |
| ● | Dermatology: Topical (“TOP”) formulation PH-10® (“TOP PH-10”) has undergone multiple mid-stage, monotherapy clinical trials for the treatments of psoriasis and atopic dermatitis at different clinical sites in the U.S. TOP PH-10 has undergone clinical monotherapy mechanism of action and mechanism of immune response study for psoriasis at The Rockefeller University in New York, New York (“TRU”).
Different formulations have undergone preclinical combination therapy study for psoriasis and are undergoing preclinical monotherapy study for skin inflammation at TRU. | |
| ● | Ophthalmology: The Company believes that clinical monotherapy proof-of-concept (“POC”) of TOP administration of non-pharmaceutical grade rose bengal for the treatment of infectious keratitis has been shown by clinicians and researchers at the University of Miami’s Bascom Palmer Eye Institute (“BPEI”) in Miami, Florida, who are now collaborating with the Company to evaluate the potential use of our pharmaceutical-grade RBS.
TOP PV-305 is undergoing preclinical monotherapy study for diseases and disorders of the eye, such as infectious keratitis at BPEI. |
| 14 |
Proof-of-Concept In Vivo Drug Discovery Programs
| ● | Oncology: ITU PV-10 has undergone and is underdoing preclinical monotherapy and combination therapy study for the treatment of pancreatic cancer and human papillomavirus-positive and negative head and neck squamous cell carcinoma at Moffitt. ITU PV-10 has undergone preclinical monotherapy and combination therapy study for the treatment of relapsed and refractory pediatric solid tumor cancers at the University of Calgary’s Cumming School of Medicine in Calgary, Canada (“UCal”). The Company believes that the UCal researchers have achieved monotherapy POC in vivo of ITU administration. | |
| Oral (“PO”) formulations are undergoing preclinical monotherapy study for high-risk and refractory adult solid tumor cancers at UCal. The Company believes that the UCal researchers and the Company have both achieved monotherapy POC in vivo of PO administration, that the Company has achieved monotherapy proof-of-concept in vivo of PO administration in prophylactic and therapeutic settings, and that the Company has achieved monotherapy POC in vivo of intravenous (“IV”) administration. | ||
| ● | Hematology: PO formulations are undergoing preclinical monotherapy study for the treatment of refractory and relapsed pediatric and other blood cancers, including leukemias, at UCal. The Company believes that the UCal researchers have achieved POC in vivo of PO administration. | |
| ● | Wound Healing: Different formulations are undergoing preclinical monotherapy study for the healing of full-thickness cutaneous wounds. The Company believes that monotherapy POC in vivo of TOP administration of non-pharmaceutical grade rose bengal for the treatment of this indication has been shown by researchers at the University of Texas Medical Branch in Galveston, Texas, who are now collaborating with the Company to use our pharmaceutical-grade RBS. | |
| ● | Animal Health: Different formulations are undergoing preclinical monotherapy study for the treatment of cutaneous canine cancers at the University of Tennessee’s College of Veterinary Medicine in Knoxville, Tennessee. The Company believes that it has achieved monotherapy POC in canines of ITU administration. |
Preclinical In Vitro Drug Discovery Programs
| ● | Infectious Diseases: PO and intranasal (“IN”) formulations have undergone and are undergoing preclinical monotherapy study for the treatment of SARS-CoV-2 at UCal, another Canadian academic research center, the University of Tennessee Health Science Center (“UTHSC”) in Memphis, Tennessee, and a U.S. contract research organization. | |
| Different formulations have undergone preclinical monotherapy and combination therapy study for the treatment of gram-positive and gram-negative bacterial infections (including multi-drug resistant strains) and are undergoing preclinical monotherapy study for the treatment of oral bacterial infections at UTHSC. | ||
| Different formulations are undergoing preclinical monotherapy study for the treatment of fungal infections at UTHSC. | ||
| ● | Tissue Regeneration and Repair: Different formulations are undergoing preclinical monotherapy study for vertebrate development, wound healing, and tissue regrowth at the University of Nevada, Las Vegas in Las Vegas, Nevada. |
Business Strategy
The Company is selectively continuing ongoing and planning to initiate new monotherapy and combination therapy ITU PV-10 clinical trials in melanoma and liver cancer indications to generate more and/or new clinical data and appropriately utilizing clinical data from historical ITU PV-10 trials, EAPs, and/or QOL study of these oncology indications. Our goals are to pursue drug approval pathways and/or co-development relationships with commercial pharmaceutical companies for ITU PV-10 based on these indications and data.
The Company is developing a systemically-administered formulation of pharmaceutical-grade RBS for the treatment of cancer. Our goals, when this work is complete, are to file an investigational new drug application (“IND”) with the U.S. Food and Drug Administration (“FDA”), take an initial systemic drug product candidate into an early-stage clinic trial for an initial oncology or hematology indication, and/or pursue a co-development collaboration or out-license arrangement for this route of administration and disease area.
The Company is developing different formulations of pharmaceutical-grade RBS using different concentrations and different routes of administration (e.g., PO, IV, IN) for other disease areas by endeavoring to show preclinical activity and lack of toxicity. Our goals, when each task of this work is completed, are to file an IND with the FDA, take an initial drug product candidate into an early-stage clinic trial for an initial indication, and/or pursue a co-development collaboration or out-license arrangement for the respective disease area and route of administration.
The Company is endeavoring to fully elucidate the traits and characteristics of the RBS molecule using different academic medical centers under sponsored research and testing agreements. Our goal is to gain and communicate additional knowledge of the RBS molecule’s targeting, mechanism, signaling, immune response, and other features that are common to and/or different from each disease area and indication under research.
The Company is doing rigorous, chemical analytical comparisons of non-pharmaceutical grades of rose bengal from specialty chemical suppliers against the Company’s pharmaceutical-grade RBS. Our goal is to demonstrate the proprietary nature of the Company’s pharmaceutical-grade RBS and that our pharmaceutical-grade RBS meets the necessary uniformity and purity requirements for commercial pharmaceutical use.
| 15 |
RBS Drug Substance and Drug Product Candidate Manufacturing
Our pharmaceutical-grade RBS resulted from the Company’s innovation of a proprietary, patented, commercial-scale process to synthesize and utilize the RBS molecule into a viable active pharmaceutical ingredient (“API”) for commercial pharmaceutical use; the development of unique chemistry, manufacturing, and control (“CMC”) specifications for drug substance and drug product candidate manufacturing processes; the production and multi-year stability testing of multiple drug substance and drug product candidate lots; the comprehensive documentation of lot composition and reproducibility; and the review and acceptance of CMC data from these lots by seven different national drug regulatory agencies for use in a prior, multi-country, multi-center Phase 3 randomized control trial of the Company.
The Company’s drug substance and drug product candidate manufacturing processes employ Quality-by-Design principles, current good manufacturing practice (“cGMP”) regulations, and the guidelines of The International Council for Harmonization (ICH) of Technical Requirements for Pharmaceuticals for Human Use. These processes utilize controls that eliminate the formation of historical impurities and avoid the introduction of potentially hazardous impurities that the Company believes may have been and could be present in uncontrolled and unreported amounts in non-pharmaceutical-grades of rose bengal.
The Company’s processes of synthesizing the RBS molecule into pharmaceutical-grade RBS and manufacturing RBS drug substance and ITU PV-10 drug product candidate, the processes’ CMC specifications, and the CMC data from the production of stability lots of drug substance and drug product candidate have been reviewed by multiple national drug regulatory agencies prior to granting clinical trial authorizations for the Company to commence a historical Phase 3 study of ITU PV-10 for the treatment of locally advanced cutaneous melanoma, including the U.S. FDA, Germany’s Bundesinstitut für Arzneimittel und Medizinprodukte (BfArM), Australia’s Therapeutic Goods Administration (TGA) under a clinical trial notification, France’s Agence Nationale de Sécurité du Médicament et des Produits de Santé (ANSM), Italy’s Agenzia Italiana del Farmaco (AIFA), Mexico’s Comisión Federal para la Protección contra Riesgos Sanitarios (COFEPRIS), and Argentina’s Administración Nacional de Medicamentos, Alimentos y Tecnología Médica (ANMAT).
RBS Nonproprietary Name
The RBS name for the Company’s pharmaceutical-grade API was selected by and passed the review of the World Health Organization (“WHO”) Expert Advisory Panel on the International Pharmacopoeia and Pharmaceutical Preparations after the Company applied for the non-proprietary name in the third quarter of 2020 and reached the status of recommended International Nonproprietary Names (“INN”). INN Recommended List 88, which includes the RBS name, was published with the No. 3 issue of the WHO Drug Information, Volume 36 in the fourth quarter of 2022.
| 16 |
Non-Pharmaceutical Grades of Rose Bengal
Commercial-Grade
This material may be purchased from specialty chemical suppliers in the U.S. and from other parts of the world; however, the Company believes that the material itself is almost exclusively made in China and India under non-cGMP conditions. Commercial-grade rose bengal appears to have reported purity that may vary between approximately 80% and 95%, and that may contain substantial amounts of unreported impurities and/or gross contaminants. Commercial-grade rose bengal is typically used by researchers unaffiliated with the Company for preclinical study of the rose bengal molecule for potential biomedical therapeutic applications.
We believe that commercial-grade rose bengal is still manufactured using the historical process (or a variant thereof) that was developed by the synthetic molecule’s Swiss creator Rudolph Gnehm in 1881. Some manufacturers may, however, apply purification techniques that the Company believes still result in material that may possess questionable purity and contaminants and may also be subject to substantial lot-to-lot manufacturing variability.
Diagnostic-Grade
The Company coined this phrase to describe non-approved rose bengal that is used as an ingredient in historical or current ophthalmic solutions and strips, has been historically or is presently compounded by pharmacists for ophthalmic use, and has been or is in other non-ophthalmic diagnostic tests such as the rose bengal test in human brucellosis.
We presume, but have not yet confirmed, that diagnostic-grade rose bengal is derived from commercial-grade rose bengal that may have undergone a form of purification and/or may have been compounded under cGMP regulations by a pharmacist, academic medical researcher, or commercial entity. Here too, the Company believes that purification may not sufficiently improve the amounts and accuracy of rose bengal purity and lot contents and may not adequately reduce or eliminate lot-to-lot manufacturing variability.
Chemical Analytical Comparison
In the first quarter of 2022, the Company began work with a U.S. contract development and manufacturing organization to rigorously and methodically assess three lots of commercial-grade rose bengal, one each from three different specialty chemical suppliers, and compare and contrast these non-pharmaceutical grade materials with the Company’s pharmaceutical-grade RBS. This chemical analytical work was substantially completed by the end of the third quarter of 2022. The Company believes that the preliminary results of these analyses indicate that all three lots of commercial-grade rose bengal had rose bengal purity that was drastically different from what was represented on their respective certificates of analysis (“CofAs”), and that one of the three lots contained gross contaminants that were not represented on its CofA.
Potential Barriers to Entry
The Company believes that the Company’s proprietary, patented, pharmaceutical-grade RBS possesses several competitive advantages over non-pharmaceutical-grades of rose bengal that researchers, clinicians, and academic, business, and/or governmental competitors have used, are using, and/or may attempt to use for potential biomedical applications. The Company believes that non-pharmaceutical-grades of rose bengal may suffer from the uncontrolled presence of substance-related impurities and/or gross contaminants, substantial lot-to-lot manufacturing variability, inaccurately reported and/or misrepresented purity and contents, and the lack of reproducible, consistent, and fulsome CMC specifications and documentation.
| 17 |
The Company believes that historical and potentially hazardous impurities and other manufacturing and handling issues facing non-pharmaceutical-grades of rose bengal may pose significant scientific, technological, and economic challenges to overcome and validate for compliance with modern drug regulatory standards.
Components of Operating Results
Grant Revenue
Grant revenue is recognized when qualifying costs are incurred and there is reasonable assurance that the conditions of the grant have been met. Cash received from grants in advance of incurring qualifying costs is recorded as unearned grant revenue and recognized as grant revenue when qualifying costs are incurred.
Research and Development Expenses
A large component of our total operating expenses is the Company’s investment in research and development activities, including the clinical development of our product candidates. Research and development expenses represent costs incurred to conduct research and undertake clinical trials to develop our drug product candidates. These expenses consist primarily of:
| ● | Costs of conducting clinical trials, including amounts paid to clinical centers, clinical research organizations and consultants, among others; | |
| ● | Salaries and related expenses for personnel, including stock-based compensation expense; | |
| ● | Other outside service costs including cost of contract manufacturing; | |
| ● | The costs of supplies and reagents; and, | |
| ● | Occupancy and depreciation charges. |
We expense research and development costs as incurred.
Research and development activities are central to our business model. We expect our research and development expenses to increase in the future as we advance our existing product candidates through clinical trials and pursue their regulatory approval. Undertaking clinical development and pursuing regulatory approval are both costly and time-consuming activities. As a result of known and unknown uncertainties, we are unable to determine the duration and completion costs of our research and development activities, or if, when, and to what extent we will generate revenue from any subsequent commercialization and sale of our drug product candidates.
General and Administrative Expenses
General and administrative expense consists primarily of salaries, stock-based compensation expense and other related costs for personnel in executive, finance, accounting, business development, legal, information technology and corporate communication functions. Other costs include facility costs not otherwise included in research and development expense, insurance, and professional fees for legal, patent and accounting services.
| 18 |
Results of Operations
Comparison of the Three Months Ended March 31, 2023 and March 31, 2022
Overview
Grant revenue was $205,025 for the three months ended March 31, 2023, an increase of $17,420 or 9.3% compared to the three months ended March 31, 2022. Total operating expenses were $987,238 for the three months ended March 31, 2023, a decrease of $200,425 or 16.9% compared to the three months ended March 31, 2022. The decrease was driven primarily by (i) decreased clinical trial cost, (ii) decrease in payroll and taxes and (iii) lower rent and utilities cost, partially offset by (iv) higher insurance cost. Net loss for the three months ended March 31, 2023 was $827,454, a decrease of $203,468, or 19.7% compared to the three months ended March 31, 2022. The decrease is primarily attributable to lower operating expenses.
| For the Three Months Ended | ||||||||||||||||
| March 31, | Increase/ | |||||||||||||||
| 2023 | 2022 | (Decrease) | % Change | |||||||||||||
| Grant Revenue | $ | 205,025 | $ | 187,605 | $ | 17,420 | 9.3 | % | ||||||||
| Operating Expenses: | ||||||||||||||||
| Research and development | 548,393 | 671,116 | (122,723 | ) | -18.3 | % | ||||||||||
| General and administrative | 438,845 | 516,547 | (77,702 | ) | -15.0 | % | ||||||||||
| Total Operating Expenses | 987,238 | 1,187,663 | (200,425 | ) | -16.9 | % | ||||||||||
| Total Operating Loss | (782,213 | ) | (1,000,058 | ) | 217,845 | -21.8 | % | |||||||||
| Other Income/(Expense): | ||||||||||||||||
| Interest expense, net | (45,241 | ) | (30,864 | ) | (14,377 | ) | 46.6 | % | ||||||||
| Total Other Expense, Net | (45,241 | ) | (30,864 | ) | (14,377 | ) | 46.6 | % | ||||||||
| Net Loss | $ | (827,454 | ) | $ | (1,030,922 | ) | $ | 203,468 | -19.7 | % | ||||||
Grant Revenue
For the three months ended March 31, 2023 and March 31, 2022, there was $205,025 and $187,605 respectively, of grant revenue recognized related to qualifying expenses that were incurred and included within research and development on the condensed consolidated statements of operations.
Research and Development Expenses
Research and development expenses were $548,393 for the three months ended March 31, 2023, a decrease of $122,723 or 18.3% compared to $671,116 for the three months ended March 31, 2022. The decrease was primarily due to (i) lower costs of clinical trials (ii) lower payroll and taxes, and (iii) lower rent and utilities, partially offset by (vi) increased insurance cost.
| For the Three Months Ended | ||||||||||||||||
| March 31, | Increase/ | |||||||||||||||
| 2023 | 2022 | (Decrease) | % Change | |||||||||||||
| Operating Expenses: | ||||||||||||||||
| Research and development: | ||||||||||||||||
| Clinical trial and research expenses | $ | 406,595 | $ | 531,691 | $ | (125,096 | ) | -23.5 | % | |||||||
| Depreciation/amortization | 1,487 | 2,164 | (677 | ) | -31.3 | % | ||||||||||
| Insurance | 65,300 | 58,523 | 6,777 | 11.6 | % | |||||||||||
| Payroll and taxes | 66,006 | 67,115 | (1,109 | ) | -1.7 | % | ||||||||||
| Rent and utilities | 9,005 | 11,623 | (2,618 | ) | -22.5 | % | ||||||||||
| Total research and development | $ | 548,393 | $ | 671,116 | $ | (122,723 | ) | -18.3 | % | |||||||
| 19 |
General and Administrative Expenses
General and administrative expenses were $438,845 for the three months ended March 31, 2023, a decrease of $77,702 or 15.0% compared to $516,547 for the three months ended March 31, 2022. The decrease was primarily due to (i) lower legal fees relating to patents, (ii) reduced rent and utilities cost, (iii) lower insurance cost, and (iv) lower other general and administrative cost, partially offset by (v) higher professional fees.
| For the Three Months Ended | ||||||||||||||||
| March 31, | Increase/ | |||||||||||||||
| 2023 | 2022 | (Decrease) | % Change | |||||||||||||
| Operating Expenses: | ||||||||||||||||
| General and administrative: | ||||||||||||||||
| Depreciation | $ | 743 | $ | 1,054 | $ | (311 | ) | -29.5 | % | |||||||
| Directors fees | 96,250 | 96,250 | - | 0.0 | % | |||||||||||
| Insurance | 36,623 | 48,218 | (11,595 | ) | -24.0 | % | ||||||||||
| Legal and litigation | 60,072 | 112,534 | (52,462 | ) | -46.6 | % | ||||||||||
| Other general and administrative cost | (11,080 | ) | 22,859 | (33,939 | ) | -148.5 | % | |||||||||
| Payroll and taxes | 64,839 | 64,299 | 540 | 0.8 | % | |||||||||||
| Professional fees | 186,527 | 166,355 | 20,172 | 12.1 | % | |||||||||||
| Rent and utilities | 4,871 | 5,599 | (728 | ) | -13.0 | % | ||||||||||
| Foreign currency translation | - | (621 | ) | 621 | -100.0 | % | ||||||||||
| Total general and administrative | $ | 438,845 | $ | 516,547 | $ | (77,702 | ) | -15.0 | % | |||||||
Other Income/(Expense)
Interest expense increased by $14,377 from $30,864 for the three months ended March 31, 2022 to $45,241 for the three months ended March 31, 2023. The increase was mainly due to the interest expense costs incurred in connection with the higher balance of 2021 and 2022 Notes entered into in 2022 and 2023.
| For the Three Months Ended | ||||||||||||||||
| March 31, | Increase/ | |||||||||||||||
| 2023 | 2022 | (Decrease) | % Change | |||||||||||||
| Other Income/(Expense): | ||||||||||||||||
| Interest expense, net | (45,241 | ) | (30,864 | ) | (14,377 | ) | 46.6 | % | ||||||||
| Total Other Expenses, Net | $ | (45,241 | ) | $ | (30,864 | ) | $ | (14,377 | ) | 46.6 | % | |||||
| 20 |
Liquidity and Capital Resources
The Company’s cash and restricted cash were $1,321,455 at March 31, 2023 which includes $1,287,302 of restricted cash resulting from a grant received from the State of Tennessee, compared to $1,431,707 at December 31, 2022, which included $1,410,102 of restricted cash. The Company’s working capital deficit was $7,064,779 and $6,293,198 as of March 31, 2023 and December 31, 2022, respectively. The condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q have been prepared on a basis that contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. We have continuing net losses and negative cash flows from operating activities. In addition, we have an accumulated deficit of $250,416,095 as of March 31, 2023. 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.
As of March 31, 2023, cash required for our current liabilities included approximately $4,711,157 for accounts payable and accrued expenses (including lease liabilities) and a $155,097 note payable related to our short-term financing of our commercial insurance policies. Also, if not converted prior to maturity, convertible debt in the amount of $2,377,500 plus accrued interest will mature one year from the date of the notes. As of March 31, 2023, cash required for our long-term liabilities consists of $61,749 for our operating lease. The Company intends to meet these cash requirements from its current cash balance and from future financing.
Management’s plans include selling our equity securities and obtaining other financing, including the issuance of 2022 unsecured convertible notes (the “2022 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.
| 21 |
Access to Capital
Management plans to access capital resources through possible public or private equity offerings, including the 2022 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 2023 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 Estimates and Policies
Since the date the Company’s December 31, 2022 consolidated financial statements were issued in its 2022 Annual Report, there have been no material changes to the Company’s significant accounting policies. Refer to our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 30, 2023 and Note 3 to the condensed consolidated financial statements of this Quarterly Report on Form 10-Q, for a discussion of our significant accounting policies and use of estimates.
Principles of Consolidation
Intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s significant estimates and assumptions include the recoverability and useful lives of long-lived assets, stock-based compensation, accrued liabilities and the valuation allowance related to the Company’s deferred tax assets.
Grant Revenue
Grant revenue is recognized when qualifying costs are incurred and there is reasonable assurance that the conditions of the grant have been met. Cash received from grants in advance of incurring qualifying costs is recorded as unearned grant revenue and recognized as grant revenue when qualifying costs are incurred.
Research and Development
Research and development costs are charged to expense when incurred. An allocation of payroll expenses to research and development is made based on a percentage estimate of time spent. The research and development costs include the following: payroll, consulting and contract labor, lab supplies and pharmaceutical preparations, insurance, rent and utilities, and depreciation and amortization.
Income Taxes
The Company accounts for income taxes under the liability method in accordance with Accounting Standards Codification (“ASC”) 740 “Income Taxes”. Under this method, deferred income tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established if it is more likely than not that all, or some portion, of deferred income tax assets will not be realized. The Company has recorded a full valuation allowance to reduce its net deferred income tax assets to zero. In the event the Company were to determine that it would be able to realize some or all its deferred income tax assets in the future, an adjustment to the deferred income tax asset would increase income in the period such determination was made.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained upon an examination. Any recognized income tax positions would be measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement would be reflected in the period in which the change in judgment occurs. The Company would recognize any corresponding interest and penalties associated with its income tax positions in income tax expense. There were no income taxes, interest or penalties incurred in 2022 or 2021.
| 22 |
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 qualifying 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 classified as derivative liabilities and any related equity classified 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’ deficit.
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”).
Available Information
Our website is located at www.provectusbio.com. We make available free of charge through this website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Reference to our website does not constitute incorporation by reference of the information contained on the site and should not be considered part of this document.
The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC as we do. The website is http://www.sec.gov.
The Company also intends to use press releases, the Company’s website and certain social media accounts as a means of disclosing information and observations about the Company and its business, and for complying with the Company’s disclosure obligations under Regulation FD: the Provectus Substack account (provectus.substack.com), the @ProvectusBio Twitter account (twitter.com/provectusbio), and the Company’s LinkedIn account (linkedin.com/company/provectus-biopharmaceuticals). The information and observations that the Company posts through these social media channels may be deemed material. Accordingly, investors should monitor these social media channels in addition to following the Company’s press releases, SEC filings, and website. The social media channels that the Company intends to use as a means of disclosing the information described above may be updated from time to time.
The contents of the websites provided above are not intended to be incorporated by reference into this Quarterly Report on Form 10-Q or our Annual Report on Form 10-K or in any other report or document we file with the SEC. Further, our references to the URLs for these websites are intended to be inactive textual references only.
| 23 |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Inherent Limitations on Effectiveness of Controls
Even assuming the effectiveness of our controls and procedures, our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error or all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. In general, our controls and procedures are designed to provide reasonable assurance that our control system’s objective will be met, and our principal executive officer and principal financial officer has concluded that our disclosure controls and procedures are effective at the reasonable assurance level. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls in future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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 12.
ITEM 1A. RISK FACTORS.
There have been no material changes to the risk factors that were disclosed in the 2022 Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
2022 Financing
During the three months ended March 31, 2023, the Company received aggregate proceeds of $600,000 pursuant to certain unsecured convertible notes (the “2022 Notes”). As of March 31, 2023, the Company had drawn down $1,352,500 under the 2022 Notes.
For further details on the terms of the 2022 Notes, refer to our Form 10-K as filed with the SEC on March 30, 2023.
Preferred Convertible Stock
During the three months ended March 31, 2023, the Company issued 18,872 shares of restricted Series D-1 Convertible Preferred Stock upon the conversion of $50,000 of principal and $4,010 accrued interest outstanding on the 2021 Notes.
The Company believes that such transactions were exempt from the registration requirements of the Securities Act of 1933, as amended, (the “Securities Act”), in reliance on Section 4(a)(2) of the Securities Act (or Rule 506(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 | |
| 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. | ||
| May 11, 2023 | 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 |