Provectus Biopharmaceuticals, Inc 10-Q for FY2021 Q2
Provectus Biopharmaceuticals, Inc. (PVCT)
About this 10-Q
Provectus Biopharmaceuticals, Inc filed this 10-Q on August 12, 2021, covering the quarter ended June 30, 2021 (FY2021 Q2).
Headline figures
Quarter ended June 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $1.58M
- compared with a net loss of $1.61M a year earlier
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
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(Exact name of registrant as specified in its charter)
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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. ☒
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. ☐
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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 August 12, 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 June 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
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Short-term receivables - legal fees, settlement and other, net | ||||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Equipment and furnishings, less accumulated depreciation of $ |
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| Operating lease right-of-use asset | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Deficiency | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable - trade | $ | $ | ||||||
| Other accrued expenses | ||||||||
| Current portion of accrued interest | - | |||||||
| Current portion of accrued interest - related parties | - | |||||||
| Current portion of note payable | ||||||||
| Current portion of convertible notes payable | - | |||||||
| Current portion of convertible notes payable - related parties | - | |||||||
| Current portion of operating lease liability | ||||||||
| Total Current Liabilities | ||||||||
| Note payable, non-current portion | - | |||||||
| Operating lease liability, non-current portion | - | |||||||
| Total Liabilities | ||||||||
| Commitments and contingencies (Note 10) | - | - | ||||||
| Stockholders’ Deficiency: | ||||||||
Preferred stock; par value $ per share; shares authorized: Series
B Convertible Preferred Stock; shares designated; shares issued and outstanding at June 30, 2021 and December
31, 2020; aggregate liquidation preference of $ | - | - | ||||||
| Series D Convertible Preferred Stock; shares designated; and shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively; aggregate liquidation preference of $and $at June 30, 2021 and December 31, 2020, respectively (See Note 4. Convertible Notes Payable – Liquidation Preference) | - | |||||||
| Series D-1 Convertible Preferred Stock; shares designated; and shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively; aggregate liquidation preference of $and $at June 30, 2021 and December 31, 2020, respectively (See Note 4. Convertible Notes Payable – Liquidation Preference) | - | |||||||
| Preferred stock, value | - | |||||||
| Common stock; par value $ per share; shares authorized; and shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficiency | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Deficiency | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
| 2 |
PROVECTUS BIOPHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Operating Expenses: | ||||||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| General and administrative | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Total Operating Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income/(Expense): | ||||||||||||||||
| EIDL grant | - | - | ||||||||||||||
| Research and development tax credit | ||||||||||||||||
| Investment and interest income | - | |||||||||||||||
| Gain from extinguishment | - | - | ||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total Other Expense, Net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and Diluted Loss Per Common Share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted Average Number of Common Shares Outstanding - Basic and Diluted | |
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See accompanying notes to condensed consolidated financial statements.
| 3 |
PROVECTUS BIOPHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| 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’ DEFICIENCY
(Unaudited)
FOR THE SIX MONTHS ENDED JUNE 30, 2021
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Total | |||||||||||||||||||||||||||||||||||||
| 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 | $ | $ | $ | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Common stock issued upon exercise of warrants | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for service | ||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services, shares | ||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Comprehensive loss: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||
| Common stock issued upon exercise of warrants | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Warrants | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||
| Conversion of PRH Notes to Series D Preferred Stock | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Conversion of PRH Notes to Series D-1 Preferred Stock | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Comprehensive loss: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | - | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | - | - | - | - | - | - | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
FOR THE SIX MONTHS ENDED JUNE 30, 2020
| Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Preferred Stock | Additional | Other | ||||||||||||||||||||||||||||||||||||||||||||
| Series B | Series D | Series D1 | Common Stock | Paid-In | Comprehensive | Accumulated | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Total | |||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2020 | $ | - | - | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Common stock issued upon exercise of warrants | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||
| Comprehensive loss: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2020 | $ | - | - | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Beginning Balance | $ | - | - | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive loss: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | ( | ( | ||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2020 | $ | - | - | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Ending Balance | $ | - | - | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 5 |
PROVECTUS BIOPHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| 2021 | 2020 | |||||||
| For the Six Months Ended | ||||||||
| June 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation | ||||||||
| Noncash lease expense | ||||||||
| Depreciation | ||||||||
| Amortization of patents | - | |||||||
| Forgiveness of PPP Loan | ( | ) | - | |||||
| Changes in operating assets and liabilities | ||||||||
| Short term receivables | ( | ) | ||||||
| Prepaid expenses | ||||||||
| Accounts payable - trade | ||||||||
| Loan payable | ( | ) | - | |||||
| Other accrued expenses | ||||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Accrued interest expense | ||||||||
| 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 | ( | ) | - | |||||
| Proceeds from note payable | - | |||||||
| Proceeds from exercise of warrants | ||||||||
| Net Cash Provided By Financing Activities | ||||||||
| Effect of Exchange Rate Changes on Cash | ( | ) | ||||||
| Net (Decrease)/Increase In Cash and Cash Equivalents | ( | ) | ||||||
| Cash and Cash Equivalents, Beginning of Period | ||||||||
| Cash and Cash Equivalents, End of Period | $ | $ | ||||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Conversion of 2017 Notes and 2020 Notes to Convertible Preferred Stock Series D and D-1 | - | |||||||
| Purchase of insurance policies financed by short-term note payable | ( | ) | - | |||||
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 an entire, wholly owned, family 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. | |
| ● | 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). | |
| ● | 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”). | |
| ● | 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 six months ended June 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 June 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.
Basic and Diluted Loss Per Common Share
Basic loss per common share is computed by dividing net loss by the weighted average number of vested common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other instruments to issue common stock were exercised or converted into common stock. The following securities are excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive:
| June 30, | June 30, | |||||||
| 2021 | 2020 | |||||||
| Warrants | ||||||||
| Options | ||||||||
| Convertible preferred stock | ||||||||
| Total potentially dilutive shares | ||||||||
2. Liquidity and Going Concern
The
Company’s cash and cash equivalents were $
The Company plans to access capital resources through possible public or private equity offerings, exchange offers, debt financings, corporate collaborations, or other means. In addition, the Company continues to explore opportunities to strategically monetize its lead drug candidates, PV-10 and PH-10, through potential co-development and licensing transactions, although there can be no assurance that the Company will be successful with such plans. The Company has historically been able to raise capital through equity offerings, although no assurance can be provided that it will continue to be successful in the future. If the Company is unable to raise sufficient capital, it will not be able to pay its obligations as they become due.
| 8 |
During
the six months ended June 30, 2021, warrant holders exercised warrants to purchase an aggregate of shares of common stock at a price of $per share. In connection with these exercises,
the Company received aggregate cash proceeds of $
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
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 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. ASU 2019-12 will be effective for the Company’s fiscal year beginning after December 15, 2020, with early adoption permitted. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period. The Company adopted ASU 2019-12 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.
| 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 $
2020 Financing
On
December 31, 2019, the Board approved a Definitive Financing Term Sheet (the “2020 Term Sheet”), which sets forth the terms
under which the Company will use its best efforts to arrange for financing of a maximum of $
Firm Commitment
Previously, the Company
had not designated the Series D Preferred Stock into which the 2017 Notes and the 2020 Notes (collectively the “Notes”) were
convertible into. As a result, the Company did not analyze the Notes for a potential beneficial conversion feature as the definition
of a firm commitment had not been met since the Notes were not yet convertible. On June 17, 2021, the required Certificates
of Designation were filed with the Delaware Secretary of State. Accordingly, a firm commitment was achieved. The Company
analyzed the Notes for a beneficial conversion feature and determined that there was none because the Notes have an effective conversion
price of $
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, $0.001 par value per share (“Common Stock”).
In order to ensure that the Company had sufficient authorized shares of Preferred Stock into which the 2017 Notes would convert, yet keep the economic terms of the 2017 Notes substantially equivalent, the Company entered into amendments (the “Amendments”) to the 2017 Notes (as amended, the “Amended 2017 Notes”) with a large majority of the holders of 2017 Notes to increase the conversion price by 10 times from $ 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 $
As a result of the conversion of the 2017 Notes and 2020 Notes into convertible preferred stock, all the security interests of these notes in the Company’s intellectual property were released.
The rights, preferences and privileges of the Series D Convertible Preferred Stock are set forth in a Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock (the “Series D Certificate of Designation”). The rights, preferences and privileges of the Series D-1 Convertible Preferred Stock are set forth in a Certificate of Designation of Preferences, Rights and Limitations of Series D-1 Convertible Preferred Stock (the “Series D-1 Certificate of Designation”). The Board of Directors of the Company approved each of the Series D Certificate of Designation and Series D-1 Certificate of Designation on June 16, 2021, and each of the Series D Certificate of Designation and Series D-1 Certificate of Designation were filed with the Delaware Secretary of State on June 17, 2021. The Series D Certificate of Designation and Series D-1 Certificate of Designation are the same, other than certain key differences to account solely for the different conversion ratios for the holders of 2017 Notes who did not execute Amendments compared to the holders of Amended 2017 Notes and the holders of 2020 Notes.
Number of Shares
The Series D Certificate of Designation established and designated 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 $
Voting Rights
The Company is not permitted to amend, alter or repeal its Certificate of Incorporation or Bylaws in a manner adverse to the relative rights, preferences, qualifications, limitations or restrictions of the Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock without the affirmative vote of a majority of the votes entitled to be cast by holders of outstanding shares of Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock, voting together as a single class with each share of Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock having a number of votes equal to the number of shares of Common Stock then issuable upon conversion of such share of Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock.
Conversion
The Series D Convertible Preferred Stock is convertible at the option of the holders thereof into shares of Common Stock based on a one-for-one conversion ratio. The Series D-1 Convertible Preferred Stock is convertible at the option of the holders thereof into shares of Common Stock based on a one-for-10 conversion ratio. The conversion ratio of the Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock is subject to adjustment for stock splits and combinations, recapitalizations, reclassifications, reorganizations, mergers and consolidations. The Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock will automatically convert into shares of Common Stock upon the fifth anniversary of the Date of Issuance.
5. Notes Payable
On
April 20, 2020, the Company received a $
The
Company obtained short-term financing from AFCO Insurance Premium Finance for our commercial insurance policies. As of June 30, 2021
and December 31, 2020, the balance of the note payable was $
| 10 |
6. Related Party Transactions
During
the three months ended June 30, 2021 and June 30, 2020, the Company paid Mr. Bruce Horowitz (Capital Strategists) consulting fees
of $
During the
six months ended June 30, 2021 and June 30, 2020, the Company paid Mr. Bruce Horowitz (Capital Strategists) consulting fees of $
Accrued
director fees for Mr. Horowitz as of June 30, 2021 and December 31, 2020 were $
See Note 4 for details of other related party transactions.
Director
fees during the three months ended June 30, 2021 and June 30, 2020 were $
Director
fees during the six months ended June 30, 2021 and June 30, 2020 were $
Accrued directors’ fees as of June 30, 2021 and
December 31, 2020 were $
7. Short-term Receivables
The following table summarizes the receivables at June 30, 2021 and December 31, 2020:
Summary of Short-term Receivables
| June 30, 2021 | ||||||||||||||||
| Tax Credit | Legal Fees | Settlement | Total | |||||||||||||
| Provectus Australia Tax Credit | $ | $ | $ | $ | ||||||||||||
| Gross receivable | ||||||||||||||||
| Reserve for uncollectibility | ( | ) | ( | ) | ( | ) | ||||||||||
| Net receivable | $ | $ | $ | $ | ||||||||||||
| December 31, 2020 | ||||||||||||||||
| Tax Credit | Legal Fees | Settlement | Total | |||||||||||||
| Provectus Australia Tax Credit | $ | $ | $ | $ | ||||||||||||
| Gross receivable | ||||||||||||||||
| Reserve for uncollectibility | ( | ) | ( | ) | ( | ) | ||||||||||
| Net receivable | $ | $ | $ | $ | ||||||||||||
8. Stockholders’ Deficiency
Common Stock
During
the six months ended June 30, 2021, the Company issued an aggregate of shares of immediately vested restricted common
stock with a grant date value of $
During
the six months ended June 30, 2021, the Company issued an aggregate of shares of immediately vested restricted common
stock to an advisory board member with a grant date value of $
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.
Warrants
During
the six months ended June 30, 2021, warrant holders exercised warrants to purchase an aggregate of shares of common stock at a price of $per share. In connection with these exercises,
the Company received aggregate cash proceeds of $
During
the six months ended June 30, 2021, the Company issued three-year immediately vested warrants to purchase an aggregate of shares of common stock with an exercise price
of $per share to an advisory board member. The warrants
had an issuance date fair value of an aggregate of $
| 11 |
9. Leases
The
Company currently leases
Total
operating lease expense for the three months ended June 30, 2021 was $
Total
operating lease expense for the six months ended June 30, 2021 was $
As of June 30, 2021, the Company had no leases that were classified as a financing lease. As of June 30, 2021, the Company did not have additional operating and financing leases that have not yet commenced.
A summary of the Company’s right-of-use assets and liabilities is as follows:
| For The Six Months Ended | ||||||||
| June 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows used in operating leases | $ | $ | ||||||
| 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 June 30, 2021 were as follows:
Schedule of Future Minimum Payment for Lease
| Years | Amount | |||
| 2021 | ||||
| 2022 | $ | |||
| Total future minimum lease payments | ||||
| Less: amount representing imputed interest | ( | ) | ||
| Total | $ | |||
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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.
Series D-1 Convertible Preferred Stock
Subsequent to June 30, 2021, the Company received total investments of $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.
Common Stock
Subsequent to June 30, 2021, the Company issued an aggregate of shares of immediately vested restricted common stock to a consultant for services.
Warrants
Subsequent to June 30, 2021, warrant holders exercised warrants to purchase an aggregate of shares of common stock at a price of $per share.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion is intended to assist in the understanding and assessment of significant changes and trends related to our results of operations and our financial condition together with our consolidated subsidiaries. This discussion and analysis should be read in conjunction with the accompanying unaudited condensed financial statements and our Annual Report on Form 10-K for the year ended December 31, 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 June 30, 2021.
Our Science and Technology
Oncology. IL PV-10 drug product is Provectus’ cGMP injectable formulation of the Company’s pharmaceutical-grade (cGMP) RBD (4,5,6,7-tetrachloro-2’,4’,5’,7’-tetraiodofluorescein disodium salt) drug substance. RBD selectively accumulates in the lysosomes of cancer cells. Cancer cells, particularly advanced cancer cells, are very dependent on effective lysosomal functioning (Piao et al., Ann N Y Acad Sci 2016). Cancer progression and metastasis are associated with lysosomal compartment changes (Nishimura et al., Pathol Oncol Res 1998; Gocheva et al., Genes Dev 2006), which are closely correlated with, among other things, invasive growth, angiogenesis, and drug resistance (Fahrenbacher et al., Cancer Res 2005).
Lysosomes are the central organelles for intracellular degradation of biological macromolecules and organelles. Discovered by Christian de Duve, M.D. in 1955, lysosomes have been linked with a number of biological processes like cell death, inflammasome activation, and immune response. In 1959, Dr. de Duve described lysosomes as “suicide bags,” because their rupture led to cell death and tissue autolysis. Lysosomes have been shown to play a role in each of the primary pathways of cell death, which are apoptosis, autophagy, and necrosis. He was awarded the Nobel Prize in 1974 for discovering and characterizing lysosomes.
| 14 |
Provectus showed that RBD selectively accumulates in the lysosomes of cancer cells and disrupts them, causing the cancer cells to die. RBD has also been shown by Provectus and independent researchers to trigger each major, distinct form of lysosomal cell death; that is, apoptosis, autophagy, and necrosis.
RBD’s lysosomal targeting comprises:
| ● | Transiting the plasmalemma (i.e., the cell membrane) of cancer cells. RBD penetrates the cell membrane of cancerous cells which normally protects the cancer cell from its surrounding environment. RBD, however, is excluded from normal cells; | |
| ● | Accumulating in the lysosomes of cancer cells. As noted above, the physicochemical properties of lysosomes trap RBD; | |
| ● | Triggering the release of lysosomal contents. Acute autolysis can occur within 60 minutes. Early preclinical work by Provectus on RBD’s lysosomal targeting showed identical responses in different disease models, such as Hepa1-6 murine hepatocellular carcinoma, HTB-133 human breast carcinoma, and H96Ar human multi-drug resistant small cell lung carcinoma; | |
| ● | Inducing the rapid cell death of cancer cells. Early trypan blue exclusion work by Provectus confirmed cell death within hours; and, | |
| ● | Intracellular pH consistency with the release of acidic lysosomal contents. Early seminaphthorhodafluor-1 (“SNARF-1”) staining work by Provectus confirmed lower intracellular pH upon exposure to RBD. |
Hematology. In primary cells and cell lines derived from pediatric leukemia patients, RBD may lead to stimulator of interferon genes (“STING”) dimerization and the release of interferon gamma, indicating a potential immune activation mechanism of RBD. Heat shock proteins, which chaperone misfolded or abnormally folded proteins, associated with STING dimerization in RBD-treated cells, indicating a mechanism that may lead to enhanced STING activation following RBD-specific treatment.
Virology. The Company’s work in this disease area to identify drug activity and elucidate mechanism(s) of action is ongoing.
Microbiology. The Company’s work in this disease area to identify drug activity and elucidate mechanism(s) of action is ongoing.
Ophthalmology. The Company’s work in this disease area to identify drug activity is ongoing.
Dermatology. For psoriasis, pathways significantly improved by monotherapy PH-10 drug product treatment include published psoriasis transcriptomes and cellular responses mediated by IL-17, IL-22, and interferons. Clinical work has shown that more than 500 disease-related genes were down-regulated after four weeks of application and a wide-range of central psoriasis-related genes, including IL-23, IL-17, IL-22, S100A7, IL-19, IL-36, and CXCL1, were normalized (i.e., treated lesional skin had values in the same range as baseline non-lesional skin).
Animal Health. The Company’s work in this disease area to develop a drug candidate or candidates is ongoing.
| 15 |
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.
| 16 |
Results of Operations
Comparison of the Three Months Ended June 30, 2021 and June 30, 2020
Overview
Total operating expenses were $1,222,017 for the three months ended June 30, 2021, an increase of $11,169 or 0.9% compared to the three months ended June 30, 2020. The increase was driven primarily by higher legal cost relating to our patents. Net loss for the three months ended June 30, 2021 was $1,579,591, a decrease of $35,214 or 2.2% which was primarily attributable to lower costs incurred in connection with our preclinical and clinical trial programs.
| For the Three Months Ended | ||||||||||||||||
| June 30, | ||||||||||||||||
| 2021 | 2020 | Increase/(Decrease) | % Change | |||||||||||||
| Operating Expenses: | ||||||||||||||||
| Research and development | $ | 602,979 | $ | 696,454 | $ | (93,475 | ) | -13.4 | % | |||||||
| General and administrative | 619,038 | 514,394 | 104,644 | 20.3 | % | |||||||||||
| Total Operating Expenses | 1,222,017 | 1,210,848 | 11,169 | 0.9 | % | |||||||||||
| Total Operating Loss | (1,222,017 | ) | (1,210,848 | ) | (11,169 | ) | 0.9 | % | ||||||||
| Other Income/(Expense): | ||||||||||||||||
| EIDL grant | - | 3,000 | (3,000 | ) | 0.0 | % | ||||||||||
| Research and development tax credit | 32,144 | 113 | 32,031 | 28346 | % | |||||||||||
| Investment and interest income | - | 3,334 | (3,334 | ) | 0.0 | % | ||||||||||
| Gain from extinguishment | 63,094 | - | 63,094 | 100.0 | % | |||||||||||
| Interest expense | (452,812 | ) | (410,404 | ) | (42,408 | ) | 10.3 | % | ||||||||
| Total Other Expense, Net | (357,574 | ) | (403,957 | ) | 46,383 | -11.5 | % | |||||||||
| Net Loss | $ | (1,579,591 | ) | $ | (1,614,805 | ) | $ | 35,214 | -2.2 | % | ||||||
Research and Development Expenses
Research and development expenses were $602,979 for the three months ended June 30, 2021, a decrease of $93,475 or 13.4% compared to $696,454 for the three months ended June 30, 2020. 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.
The following table summarizes our research and development expenses incurred during the three months ended June 30, 2021 and June 30, 2020:
| For the Three Months Ended | ||||||||||||||||
| June 30, | ||||||||||||||||
| 2021 | 2020 | Increase/(Decrease) | % Change | |||||||||||||
| Operating Expenses: | ||||||||||||||||
| Research and development: | ||||||||||||||||
| Clinical trial and research expenses | $ | 465,627 | $ | 477,384 | $ | (11,757 | ) | -2.5 | % | |||||||
| Depreciation/amortization | 2,162 | 62,489 | (60,327 | ) | -96.5 | % | ||||||||||
| Insurance | 51,393 | 72,685 | (21,292 | ) | -29.3 | % | ||||||||||
| Payroll and taxes | 67,706 | 68,282 | (576 | ) | -0.8 | % | ||||||||||
| Rent and utilities | 16,091 | 15,614 | 477 | 3.1 | % | |||||||||||
| Total research and development | $ | 602,979 | $ | 696,454 | $ | (93,475 | ) | -13.4 | % | |||||||
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General and Administrative Expenses
General and administrative expenses were $619,038 for the three months ended June 30, 2021, an increase of $104,644 or 20.3% compared to $514,394 for the three months ended June 30, 2020. The increase was primarily due to (i) higher professional fees, (ii) higher legal fees relating to patents, (iii) an increase in payroll and related taxes due to addition of employee, partially offset by (iv) lower insurance cost.
The following table summarizes our general and administrative expenses incurred during the three months ended June 30, 2021 and June 30, 2020:
| For the Three Months Ended | ||||||||||||||||
| June 30, | ||||||||||||||||
| 2021 | 2020 | Increase/(Decrease) | % Change | |||||||||||||
| Operating Expenses: | ||||||||||||||||
| General and administrative: | ||||||||||||||||
| Depreciation | $ | 1,055 | $ | 1,362 | $ | (307 | ) | -22.5 | % | |||||||
| Directors fees | 96,250 | 96,250 | - | 0.0 | % | |||||||||||
| Insurance | 42,262 | 53,610 | (11,348 | ) | -21.2 | % | ||||||||||
| Legal and litigation | 216,723 | 129,563 | 87,160 | 67.3 | % | |||||||||||
| Other general and administrative cost | 15,583 | 18,766 | (3,183 | ) | -17.0 | % | ||||||||||
| Payroll and taxes | 62,540 | 48,436 | 14,104 | 29.1 | % | |||||||||||
| Professional fees | 172,759 | 158,318 | 14,441 | 9.1 | % | |||||||||||
| Rent and utilities | 8,219 | 8,078 | 141 | 1.7 | % | |||||||||||
| Foreign currency translation | 3,647 | 11 | 3,636 | 0.0 | % | |||||||||||
| Total general and administrative | $ | 619,038 | $ | 514,394 | $ | 104,644 | 20.3 | % | ||||||||
Other Income/(Expense)
Other income increased by $88,791 from $6,447 for the three months ended June 30, 2020 to $95,238 for the three months ended June 30, 2021. The increase was mainly due to the PPP loan forgiveness and the research and development tax credit in Australia.
Interest expense increased by $42,408 from $410,404 for the three months ended June 30, 2020 to $452,812 for the three months ended June 30, 2021. The increase was due to the increased principal balance of convertible notes payable outstanding during the period relating to the 2020 Notes.
Comparison of the Six Months Ended June 30, 2021 and June 30, 2020
Overview
Total operating expenses were $2,402,693 for the six months ended June 30, 2021, a decrease of $256,395 or 9.6% compared to the six months ended June 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 and slower recruitment and treatment in clinical trials due to the effects of SARS-CoV-2. Net loss for the six months ended June 30, 2021 was $3,249,541, a decrease of $192,325 or 5.6% which was primarily attributable to lower costs incurred in connection with our preclinical and clinical trial programs.
| For the Six Months Ended | ||||||||||||||||
| June 30, | ||||||||||||||||
| 2021 | 2020 | Increase/(Decrease) | % Change | |||||||||||||
| Operating Expenses: | ||||||||||||||||
| Research and development | $ | 1,258,123 | $ | 1,605,900 | $ | (347,777 | ) | -21.7 | % | |||||||
| General and administrative | 1,144,570 | 1,053,188 | 91,382 | 8.7 | % | |||||||||||
| Total Operating Expenses | 2,402,693 | 2,659,088 | (256,395 | ) | -9.6 | % | ||||||||||
| Total Operating Loss | (2,402,693 | ) | (2,659,088 | ) | (256,395 | ) | 9.6 | % | ||||||||
| Other Income/(Expense): | ||||||||||||||||
| EIDL grant | - | 3,000 | (3,000 | ) | -0.0 | % | ||||||||||
| Research and development tax credit | 32,144 | 26,364 | 5,780 | 21.9 | % | |||||||||||
| Investment and interest income | 1 | 3,413 | (3,412 | ) | 0.00 | % | ||||||||||
| Gain from extinguishment | 63,094 | - | 63,094 | 100.0 | % | |||||||||||
| Interest expense | (942,087 | ) | (815,555 | ) | (126,532 | ) | 15.5 | % | ||||||||
| Total Other Expense, Net | (846,848 | ) | (782,778 | ) | (64,070 | ) | 8.2 | % | ||||||||
| Net Loss | $ | (3,249,541 | ) | $ | (3,441,866 | ) | $ | (192,325 | ) | 5.6 | % | |||||
Research and Development Expenses
Research and development expenses were $1,258,123 for the six months ended June 30, 2021, a decrease of $347,777 or 21.7% compared to $1,605,900 for the six months ended June 30, 2020. 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.
The following table summarizes our research and development expenses incurred during the six months ended June 30, 2021 and June 30, 2020:
| For the Six Months Ended | ||||||||||||||||
| June 30, | ||||||||||||||||
| 2021 | 2020 | Increase/(Decrease) | % Change | |||||||||||||
| Operating Expenses: | ||||||||||||||||
| Research and development: | ||||||||||||||||
| Clinical trial and research expenses | $ | 977,207 | $ | 1,061,441 | $ | (84,234 | ) | -7.9 | % | |||||||
| Depreciation/amortization | 4,324 | 232,431 | (228,107 | ) | -98.1 | % | ||||||||||
| Insurance | 102,781 | 146,277 | (43,496 | ) | -29.7 | % | ||||||||||
| Payroll and taxes | 140,040 | 134,761 | 5,279 | 3.9 | % | |||||||||||
| Rent and utilities | 33,771 | 30,990 | 2,781 | 9.0 | % | |||||||||||
| Total research and development | $ | 1,258,123 | $ | 1,605,900 | $ | (347,777 | ) | -21.7 | % | |||||||
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General and Administrative Expenses
General and administrative expenses were $1,144,570 for the six months ended June 30, 2021, an increase of $91,382 or 8.7% compared to $1,053,188 for the six months ended June 30, 2020. The increase was primarily due to (i) higher legal fees relating to patents, (ii) an increase in payroll and related taxes due to addition of employee, partially offset by (iii) a decrease in professional fees.
The following table summarizes our general and administrative expenses incurred during the six months ended June 30, 2021 and June 30, 2020:
| For the Six Months Ended | ||||||||||||||||
| June 30, | ||||||||||||||||
| 2021 | 2020 | Increase/(Decrease) | % Change | |||||||||||||
| Operating Expenses: | ||||||||||||||||
| General and administrative: | ||||||||||||||||
| Depreciation | $ | 2,109 | $ | 2,723 | $ | (614 | ) | -22.5 | % | |||||||
| Directors fees | 192,500 | 192,500 | - | 0.0 | % | |||||||||||
| Insurance | 85,828 | 95,476 | (9,648 | ) | -10.1 | % | ||||||||||
| Legal and litigation | 348,738 | 217,625 | 131,113 | 60.2 | % | |||||||||||
| Other general and administrative cost | 46,588 | 35,773 | 10,815 | 30.2 | % | |||||||||||
| Payroll and taxes | 108,600 | 83,922 | 24,678 | 29.4 | % | |||||||||||
| Professional fees | 338,475 | 408,329 | (69,854 | ) | -17.1 | % | ||||||||||
| Rent and utilities | 16,945 | 15,738 | 1,207 | 7.7 | % | |||||||||||
| Foreign currency translation | 4,787 | 1,102 | 3,685 | 334.4 | % | |||||||||||
| Total general and administrative | $ | 1,144,570 | $ | 1,053,188 | $ | 91,382 | 8.7 | % | ||||||||
Other Income/(Expense)
Other income increased by $62,462 from $32,777 for the six months ended June 30, 2020 to $95,239 for the six months ended June 30, 2021. The increase was mainly due to the PPP loan forgiveness and the research and development tax credit in Australia.
Interest expense increased by $126,532 from $815,555 for the six months ended June 30, 2020 to $942,087 for the six months ended June 30, 2021. The increase was due to the increased principal balance on convertible notes payable outstanding during the period relating to the 2020 Notes.
Liquidity and Capital Resources
Our cash and cash equivalents were $47,407 at June 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 $243,743,959 as of June 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 six months ended June 30, 2021, the Company entered into additional non-related party 2020 Notes in the aggregate principal amount of $1,700,000.
During the six months ended June 30, 2021, warrant holders exercised warrants to purchase an aggregate of 4,700,000 shares of common stock at an exercise price of $0.0533 per share. In connection with these exercises, the Company received aggregate cash proceeds of $250,510.
On June 20, 2021, the outstanding non-amended 2017 Notes converted into 12,373,247 shares of Series D Convertible Preferred Stock at the Original Conversion Price of $0.2862, and all the outstanding Amended 2017 Notes and outstanding 2020 Notes converted into 9,440,594 shares of Series D-1 Convertible Preferred Stock at the New Conversion Price of $2.862. The outstanding non-amended 2017 Notes, Amended 2017 Notes, and 2020 Notes had totaled $30,560,080 in principal and interest.
Management’s plans include selling our equity securities and obtaining other 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 June 30, 2021.
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Access to Capital
Management plans to access capital resources through possible public or private equity offerings, including 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 Issued Accounting Standards
Recently issued 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.
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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.
2020 Financing
During the six months ended June 30, 2021, the Company did not enter into any additional 2020 Notes with related party investors. As of June 30, 2021, the Company had drawn down the entire $100,000 under these notes.
During the six months ended June 30, 2021, the Company entered into additional 2020 Notes with non-related party accredited investors in the aggregate principal amount of $1,700,000. As of June 30, 2021, the Company had drawn down the entire $4,925,000 under these notes.
On June 20, 2021, the outstanding non-amended 2017 Notes converted into 12,373,247 shares of Series D Convertible Preferred Stock at the Original Conversion Price of $0.2862, and all the outstanding Amended 2017 Notes and outstanding 2020 Notes converted into 9,440,594 shares of Series D-1 Convertible Preferred Stock at the New Conversion Price of $2.862. The Series D Convertible Preferred Stock is convertible at the 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 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 of Regulation D promulgated thereunder) as transactions by an issuer not involving a public offering.
For further details on the terms of the 2017 and 2020 Notes, refer to our Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the SEC on March 2, 2021.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. Mine Safety Disclosures.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
** Filed herewith.
*** Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| PROVECTUS BIOPHARMACEUTICALS, INC. | ||
| August 12, 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) | ||
| 23 |