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, based on a class of small molecules
called halogenated xanthenes (“HXs”) that is entirely owned by the Company. Our lead HX molecule is named rose bengal sodium
(“RBS”). A second synthesized HX molecule is 4,5,6,7-tetrabromo-3′,6′-dihydroxy-2′,4′,5′,7′-tetraiodo-3H-spiro[isobenz-
ofuran-1,9′-xanthen]-3-one.
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Oncology:
PV-10®, an investigational cancer immunotherapy administered by intralesional
(“IL”) injection and an injectable formulation of cGMP RBS, 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 RBS are also undergoing preclinical study as prophylactic and therapeutic treatments for high-risk and refractory
adult solid tumor cancers, such as head and neck, breast, colorectal, and testicular cancers. In vivo data of a colorectal
tumor murine model that continuously promotes abnormal cell proliferation and transformation into cancer indicate increased survival
in both prophylactic and therapeutic settings. |
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Pediatric
Oncology: IL PV-10 is 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. |
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Hematology:
Oral formulations of cGMP RBS are undergoing preclinical study for refractory and relapsed pediatric blood cancers (including
leukemias). In vivo data of an acute lymphoblastic leukemia murine model indicated increased survival. |
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Virology:
Systemic administration of formulations of cGMP RBS are undergoing preclinical study for the novel strain of coronavirus (“CoV”):
severe acute respiratory syndrome (“SARS”) CoV 2 (“SARS-CoV-2”). In silico data indicate docking-based
binding affinity to SARS-CoV-2’s main protease, spike protein, and different variants of the spike protein. In vitro
data indicate activity against SARS-CoV-2 in African green monkey kidney cell (Vero) and human lung epithelial cell (Calu-3) models,
and synergistic activity with remdesivir in a Vero cell model. |
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Microbiology:
Different formulations of cGMP RBS are undergoing preclinical study as potential treatments for multi-drug resistant (“MDR”)
bacteria, such as gram-positive and gram-negative. In vitro data indicate activity against a battery of gram-positive bacteria,
including MDR strains, under fluorescent, LED, and natural light, and against gram-positive bacterial biofilms. |
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Ophthalmology:
Topical formulations of cGMP RBS are undergoing preclinical study as potential treatments for diseases of the eye, such as infectious
keratitis. |
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Dermatology:
PH-10®, an investigational immune-dermatology agent administered as a topical formulation of cGMP RBS,
is undergoing monotherapy clinical study and preclinical study as a monotherapy and in combination therapy with approved drugs for
inflammatory dermatoses (including psoriasis and atopic dermatitis). |
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Animal
Health: Different formulations of cGMP RBS 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.
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, 2021 filed with the SEC on March 29, 2022. 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, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
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 March 31, 2022.
The
full extent of the SARS-CoV-2 pandemic impacts on the Company’s operations and financial condition is uncertain. The Company has
experienced slower than normal enrollment and treatment of patients, and a prolonged SARS-CoV-2 pandemic could have a material adverse
impact on the Company’s business and financial results, including the timing and ability of the Company to raise capital, initiate
and/or complete current and/or future preclinical studies and/or clinical trials, disrupt the Company’s regulatory activities,
and/or have other adverse effects on the Company’s clinical development.
2.
Liquidity and Going Concern
The
Company’s cash, cash equivalents, and restricted cash were $2,481,009 at
March 31, 2022 which includes the $2,307,395 of
restricted cash resulting from a grant received from the State of Tennessee. The Company’s working capital deficiency was $5,112,713
and $4,258,679
as of March 31, 2022 and December 31, 2021, respectively. The Company continues to incur significant operating losses. Management
expects that significant on-going operating expenditures will be necessary to successfully implement the Company’s business
plan and develop and market its products. These circumstances raise substantial doubt about the Company’s ability to continue
as a going concern within one year after the date that these unaudited condensed consolidated financial statements are issued.
Implementation of the Company’s plans and its ability to continue as a going concern will depend upon the Company’s
ability to develop PV-10, PH-10, and/or any other halogenated xanthene-based drug products, and to raise additional
capital.
The
Company plans to access capital resources through possible public or private equity offerings, including the 2021 financing (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 2022 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, 2021 consolidated financial statements were issued in its 2021 Annual Report, there have been
no material changes to the Company’s significant accounting policies, except as disclosed below.
Recently
Adopted Accounting Standards
In
October 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2020-10 “Codification Improvements”, which improves consistency by amending the Codification to include all disclosure
guidance in the appropriate disclosure sections and clarifies application of various provisions in the Codification by amending and adding
new headings, cross referencing to other guidance, and refining or correcting terminology. The guidance is effective for the Company
beginning in the first quarter of fiscal year 2022 with early adoption permitted. The Company adopted this standard on January 1, 2022
and it did not have a material effect on its condensed consolidated financial statements.
On
May 3, 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50),
Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options.
This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding
equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. This standard
is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Issuers should
apply the new standard prospectively to modifications or exchanges occurring after the effective date of the new standard. Early adoption
is permitted, including adoption in an interim period. If an issuer elects to early adopt the new standard in an interim period, the
guidance should be applied as of the beginning of the fiscal year that includes that interim period. The Company adopted this standard
on January 1, 2022 and it did not have a material effect on its condensed consolidated financial statements.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. As of
March 31, 2022 and December 31, 2021, the Company’s cash equivalents consist of Treasury bills of $42,594.
Restricted
Cash
Restricted
cash consists of a grant award of $2,500,000 received in cash from the State of Tennessee less expenses and deposits to vendors in the
amount of $192,605. See Note 10. Grants.
Cash
Concentrations
Cash,
cash equivalents, and restricted cash are maintained at financial institutions and, at times, balances may exceed federally insured limits
of $250,000, although the Company seeks to minimize this through treasury management. The Company has never experienced any losses related
to these balances although no assurance can be provided that it will not experience any losses in the future. As of March 31, 2022 and
December 31, 2021, the Company had cash, cash equivalent, and restricted cash balances in excess of FDIC insurance limits of $2,231,009
and $2,856,942, respectively.
Reclassifications
Certain
prior year balances have been reclassified in order to conform to current year presentation. These reclassifications had no effect on
previously reported results of operations or loss per share.
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:
Schedule of Securities Excluded from Calculation of Weighted Average Dilutive Common Shares
| |
March
31, | | |
March
31, | |
| |
2022 | | |
2021 | |
Warrants | |
| 512,500 | | |
| 82,764,164 | |
Options | |
| 3,625,000 | | |
| 4,800,000 | |
Convertible
preferred stock | |
| 105,081,847 | | |
| 65,666 | |
2021
unsecured convertible notes | |
| 5,436,408 | | |
| - | |
| |
| | | |
| | |
Total
potentially dilutive shares | |
| 114,655,755 | | |
| 87,629,830 | |
4.
Other Accrued Expenses
The
following table summarizes the other accrued expenses at March 31, 2022 and December 31, 2021:
Schedule of Other Accrued Expenses
| |
March
31, 2022 | | |
December
31, 2021 | |
Accrued
payroll and taxes | |
$ | 244,349 | | |
$ | 174,533 | |
Accrued
vacation | |
| 50,859 | | |
| 42,871 | |
Accrued
directors’ fees | |
| 1,656,839 | | |
| 1,560,589 | |
Accrued
other expenses | |
| 233,714 | | |
| 224,493 | |
Total
Other Accrued Expenses | |
$ | 2,185,761 | | |
$ | 2,002,486 | |
5.
Convertible Notes Payable
2021
Financing
Schedule of Convertible Notes Payable
| |
Non-Related Party | | |
Related Party | | |
| |
| |
Face Amount | | |
Face Amount | | |
Total | |
Balance as of January 1, 2022 | |
$ | 1,260,000 | | |
$ | 200,000 | | |
$ | 1,460,000 | |
| |
| | | |
| | | |
| | |
Issued | |
| 50,000 | | |
| - | | |
| 50,000 | |
| |
| | | |
| | | |
| | |
Balance as of March 31, 2022 | |
$ | 1,310,000 | | |
$ | 200,000 | | |
$ | 1,510,000 | |
For further details on
the terms of the 2021 Notes, refer to our Form 10-K as filed with the SEC on March 29, 2022.
As
of March 31, 2022, the Company had received 2021 Notes proceeds of $1,510,000, of which $200,000 is from a related party investor (an
officer of the Company).
6.
Notes Payable
The
Company obtained short-term financing from AFCO Insurance Premium Finance for our commercial insurance policies. As of March 31, 2022
and December 31, 2021, the balance of the note payable was $154,925 and $238,452, respectively.
7.
Related Party Transactions
During
the three months ended March 31, 2022 and 2021, the Company paid Mr. Bruce Horowitz (Capital Strategists) consulting fees of $42,400
and $84,800,
respectively, for services rendered. Director fees for Mr. Horowitz for the three months ended March 31, 2022 and 2021 were $18,750
and $18,750,
respectively. Accrued director fees for Mr. Horowitz as of March 31, 2022 and December 31, 2021 were $300,000
and $281,250,
respectively. Total amount owed to Capital Strategists
as of March 31, 2022 and December 31, 2021 were $127,200.
Mr. Horowitz serves as both COO and a Director,
of the Company.
See
Note 5 for details of other related party transactions.
Director
fees during the three months ended March 31, 2022 and 2021 were $96,250
and $96,250,
respectively. Accrued directors’ fees as of March 31, 2022 and December 31, 2021 were $1,656,839
and $1,560,589,
respectively.
8.
Stockholders’ Deficiency
Preferred
Stock
During
the three months ended March 31, 2022, the Company issued 52,411
shares of restricted Series D-1 Convertible Preferred
Stock in exchange for an investment of $150,000
from a non-related party investor.
9.
Leases
The
Company currently leases 4,500
square feet of corporate office space in Knoxville,
Tennessee through an operating lease agreement for a term of five
years ending on June
30, 2022. Payments are approximately $6,100
per month.
On
February 23, 2022, the Company negotiated a continued reduced rent from January 1, 2022 through June 30, 2022 in the amount of $6,100
per month.
Total
operating lease expense for the three months ended March 31, 2022 was $14,959,
of which, $9,973
was included within research and development
and $4,986
was included within general and administrative
expenses on the condensed consolidated statement of operations. Total operating lease expense for the three months ended March 31, 2021
was $24,762,
of which, $16,508
was included within research and development
and $8,254
was included within general and administrative
expenses on the condensed consolidated statement of operations.
A
summary of the Company’s right-of-use assets and liabilities is as follows:
Schedule of Right-of-use Assets and Liabilities
| |
For
The Three Months Ended | |
| |
March
31, | |
| |
2022 | | |
2021 | |
Cash
paid for amounts included in the measurement of lease liabilities: | |
| | | |
| | |
Operating
cash flows used in operating leases | |
$ | 18,447 | | |
$ | 23,831 | |
| |
| | | |
| | |
Right-of-use
assets obtained in exchange for lease obligations: | |
| | | |
| | |
Operating
leases | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
Weighted
Average Remaining Lease Term | |
| | | |
| | |
Operating
leases | |
| 3
months | | |
| 1
year 3 months | |
| |
| | | |
| | |
Weighted
Average Discount Rate | |
| | | |
| | |
Operating
leases | |
| 8.0 | % | |
| 8.0 | % |
Future
minimum payments under the Company’s non-cancellable lease obligations as of March 31, 2022 were as follows:
Schedule of Future Minimum Payments Under Non-cancellable Lease
Years | |
Amount | |
2022 | |
$ | 18,447 | |
Total
future minimum lease payments | |
| 18,447 | |
Less:
amount representing imputed interest | |
| (234 | ) |
Total | |
$ | 18,203 | |
10.
Grants
On
October 25, 2021, the Company received a grant award of $2,500,000 from the State of Tennessee for the study of animal cancers and dermatological
disorders for the period October 15, 2021 to June 30, 2022. As of March 31, 2022, the grant award of $2,312,395 is recorded as unearned
grant revenue liability on the accompanying condensed consolidated balance sheets. The Company recorded $187,605 of grant revenue during
the three months ended March 31, 2022.
11.
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.
12.
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, 2022, the Company entered into a 2021 Note with a non-related party investor in the aggregate principal amount of $500,000
in connection with a 2021 Loan received by the Company for the same amount.
Subsequent
to March 31, 2022, the Company announced it has added Aru Narendran, MD, PhD at the University of Calgary to the Scientific Advisory
Board.