United States Securities And Exchange Commission
Washington, DC 20549
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FORM 10-QSB
Amendment No. 1
(Mark One)
|X| Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 2003
OR
|_| Transition Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from __________ to _______________
Commission file number: 0-9410
Provectus Pharmaceuticals, Inc.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Nevada 90-0031917
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7327 Oak Ridge Highway Suite A, Knoxville, TN 37931
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(Address of Principal Executive Offices) (Zip Code)
865/769-4011
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(Issuer's Telephone Number, Including Area Code)
N/A
--------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes |X| No |_|
The number of shares outstanding of the issuer's stock, $0.001 par value
per share, as of May 6, 2003 was 9,487,689.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
Table of Contents
Page
Part I Financial Information...................................................1
Item 1. Financial Statements.............................................1
Index To Consolidated Financial Statements..............................1
Consolidated Balance Sheets.............................................2
Consolidated Statements of Operations...................................3
Consolidated Statements of Stockholders' Equity.........................4
Consolidated Statements of Cash Flows...................................5
Notes to Consolidated Financial Statements..............................6
Item 2. Management's Discussion and Analysis or Plan of Operation........8
Overview................................................................8
Going Concern..........................................................10
Plan of Operation......................................................11
Forward-Looking Statements.............................................11
Item 3. Controls and Procedures.........................................12
Part II Other Information.....................................................13
Item 1. Legal Proceedings...............................................13
Item 2. Changes in Securities and Use of Proceeds.......................13
Item 3. Defaults Upon Senior Securities.................................15
Item 4. Submission of Matters to a Vote of Security Holders.............15
Item 5. Other Information...............................................15
Item 6. Exhibits and Reports on Form 8-K................................15
Signatures....................................................................16
Exhibit Index................................................................X-1
Part I
Financial Information
Item 1. Financial Statements.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Consolidated Balance Sheets...............................................2
Consolidated Statements of Operations.....................................3
Consolidated Statements of Stockholders' Equity...........................4
Consolidated Statements of Cash Flows.....................................5
Notes to Consolidated Financial Statements................................6
Provectus Pharmaceuticals, Inc.
(A Development-Stage Company)
Consolidated Balance Sheets
March 31, December 31,
2003 2002
------------------------------------------------------------------------------------------------------------------
(Unaudited) (Audited)
Assets
Current Assets
Cash $ 140,261 $ 717,833
Prepaid expenses 32,982 35,481
Prepaid consulting expense (Note 6(b)) 74,917 -
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Total Current Assets 248,160 753,314
Equipment and Furnishings, less accumulated depreciation of
$123,327 and $39,446 390,849 471,429
Patents, net of amortization of $420,879 and $133,916 19,616,681 19,903,644
Other Assets 27,000 27,000
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$ 20,282,690 $ 21,155,387
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Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable - trade $ 52,572 $ 98,874
Accrued expenses 85,250 77,781
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Total Current Liabilities 137,822 176,655
Loan From Stockholder 109,000 109,000
Convertible Long-Term Debt (net of debt discount of $104,774
and $120,344) (Note 5) 921,185 879,656
Stockholders' Equity
Common stock; par value $.001 per share; 100,000,000 shares authorized;
9,487,689 and 9,423,689 shares issued and
outstanding, respectively 9,488 9,424
Paid-in capital 27,219,633 27,102,406
Accumulated deficit (8,114,438) (7,121,754)
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Total Stockholders' Equity 19,114,683 19,990,076
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$ 20,282,690 $ 21,155,387
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See accompanying notes to financial statements.
2
Provectus Pharmaceuticals, Inc.
(A Development-Stage Company)
Consolidated Statements of Operations
Three Three Cumulative
Months Ended Months Ended Through
March 31, March 31, March 31,
2003 2002 2003
-------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
Operating Expenses
Research and development $ 155,783 $ 1,000 $ 206,497
General and administrative 511,917 10,000 7,434,863
Amortization 286,963 - 420,879
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Total operating loss (954,663) (11,000) (8,062,239)
Net interest (expense) income (38,021) 34 (52,199)
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Net Loss Applicable to Common
Stockholders $ (992,684) $ (10,966) $(8,114,438)
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Basic and Diluted Loss Per Common Share (0.11) -
-------------------------------------------------------------------------------------------------
Weighted Average Number of Common
Shares Outstanding - Basic and Diluted 9,451,667 6,230,137
-------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
3
Provectus Pharmaceuticals, Inc.
(A Development-Stage Company)
Consolidated Statements of Stockholders' Equity
(unaudited)
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Common Stock
------------------------------
Number of Paid-in Accumulated
Shares Par Value Capital Deficit Total
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Balance, at January 17, 2002 - $ - $ - $ - $ -
Issuance to founding stockholders 6,000,000 6,000 (6,000) - -
Sale of stock 50,000 50 24,950 - 25,000
Issuance of stock to employees 510,000 510 931,490 - 932,000
Issuance of stock for services 120,000 120 359,880 - 360,000
Net loss for the period from January 17, 2002
(inception)
to April 23, 2002 (date of reverse merger) - - - (1,316,198) (1,316,198)
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Balance, at April 23, 2002 6,680,000 6,680 1,310,320 (1,316,198) 802
Shares issued in reverse merger 265,763 266 (3,911) - (3,645)
Issuance of stock for services 1,900,000 1,900 5,142,100 - 5,144,000
Purchase and retirement of stock (400,000) (400) (47,600) - (48,000)
Stock issued for acquisition of Valley
Pharmaceuticals 500,007 500 20,547,935 - 20,548,435
Exercise of warrants 452,919 453 - - 453
Warrants issued in connection with convertible debt - - 126,587 - 126,587
Stock and warrants issued for acquisition of
Pure-ific 25,000 25 26,975 - 27,000
Net loss for the period from April 23, 2002 (date
of reverse merger) to December 31, 2002 - - - (5,805,556) (5,805,556)
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Balance, at December 31, 2002 9,423,689 9,424 27,102,406 (7,121,754) 19,990,076
Issuance of stock for services 64,000 64 22,736 - 22,800
Issuance of warrants for services - - 94,491 - 94,491
Net loss for the three months ended March 31, 2003 - - - (992,684) (992,684)
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9,487,689 $ 9,488 $ 27,219,633 $(8,114,438) $19,114,683
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See accompanying notes to financial statements.
4
Provectus Pharmaceuticals, Inc.
(A Development-Stage Company)
Consolidated Statements of Cash Flows
For the Period Cumulative
Three From January 17, Amounts From
Months Ended 2002 (Inception) to January 17, 2002
March 31, 2003 March 31, 2002 (Inception)
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(Unaudited) (Unaudited) (Unaudited)
Cash Flows From Operating Activities
Net loss $ (992,684) $ (10,966) $(8,114,438)
Adjustments to reconcile net income to
net cash used in operating activities
Depreciation 83,881 - 123,327
Amortization of patents 286,963 - 420,879
Amortization of original issue discount 15,570 - 21,813
Compensation through issuance of
stock - - 932,000
Issuance of stock for services 22,800 - 5,526,800
Issuance of warrants for services 19,574 - 19,574
(Increase) decrease in assets
Prepaid expenses 2,499 - (32,982)
Increase (decrease) in liabilities
Accounts payable (46,302) - 48,927
Accrued expenses 7,469 - 85,250
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Net cash used in operating activities (600,230) (10,966) (968,850)
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Cash Flows From Investing Activities
Capital expenditures (3,301) - (3,301)
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Net cash used in investing activities (3,301) - (3,301)
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Cash Flows From Financing Activities
Proceeds from loans from stockholder - - 109,000
Proceeds from convertible debt 25,959 - 1,025,959
Proceeds from sale of common stock - 25,000 25,000
Proceeds from exercise of warrants - - 453
Purchase and retirement of common stock - - (48,000)
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Net cash provided by financing activities 25,959 25,000 1,112,412
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Net Change in Cash $ (577,572) $ 14,034 $ 140,261
Cash, at beginning of period 717,833 - -
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Cash, at end of period $ 140,261 $ 14,034 $ 140,261
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Supplemental Noncash Financing Activities
Warrants issued to consultants for prepaid services of $74,917 in 2003.
See accompanying notes to financial statements.
5
Provectus Pharmaceuticals, Inc.
(A Development-Stage Company)
Notes to Consolidated Financial Statements
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information pursuant to Regulation S-K. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three months ended March 31, 2003 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2003.
2. GOING CONCERN
The Company will continue to require additional capital to develop its
products and develop sales and distribution channels for its products. However,
the Company believes it lacks sufficient working capital to fund operations for
the entire fiscal year ending December 31, 2003. Management believes there are a
number of potential alternatives available to meet the Company's continuing
capital requirements, including proceeding as rapidly as possible with the
development of over-the-counter products that can be sold with a minimum of
regulatory compliance and developing revenue sources through licensing of the
Company's existing intellectual property portfolio. In addition, the Company is
pursuing actively additional debt and/or equity capital in order to support
ongoing operations. There can be no assurance that the Company will be able to
obtain sufficient additional working capital on commercially reasonable terms or
conditions, or at all.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. Continuing as a going concern is
dependent upon successfully obtaining additional working capital as described
above. The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets and
amounts and classifications of liabilities that might result from the outcome of
this uncertainty.
3. RECAPITALIZATION AND MERGER
On April 23, 2002, Provectus Pharmaceutical, Inc., a Nevada corporation and
a "blank check" public company, acquired Provectus Pharmaceuticals, Inc., a
privately held Tennessee corporation ("PPI"), by issuing 6,680,000 shares of
common stock of Provectus Pharmaceutical to the stockholders of PPI in exchange
for all of the issued and outstanding shares of PPI, as a result of which
Provectus Pharmaceutical changed its name to Provectus Pharmaceuticals, Inc.
(the "Company") and PPI became a wholly owned subsidiary of the Company.
For financial reporting purposes, the transaction has been reflected in the
accompanying financial statements as a recapitalization of PPI and the financial
statements reflect the historical financial information of PPI, which was
incorporated on January 17, 2002.
The issuance of 6,680,000 shares of common stock of Provectus
Pharmaceutical, Inc. to the stockholders of PPI in exchange for all of the
issued and outstanding shares of PPI was done in anticipation of PPI acquiring
Valley Pharmaceuticals, Inc., which owned the intellectual property to be used
in the Company's operations.
4. BASIC AND DILUTED LOSS PER COMMON SHARE
Basic and diluted loss per common share is computed based on the weighted
average number of common shares outstanding. Loss per share excludes the impact
of outstanding options, warrants, and convertible debt as they are antidilutive.
Potential common shares excluded from the calculation at March 31, 2003 are
385,000 warrants and 1,442,984 shares issuable upon conversion of convertible
debt and interest. Additionally, the Company is committed to issue 80,000
warrants.
6
5. LONG-TERM CONVERTIBLE DEBT
On January 31, 2003, the Convertible Secured Promissory Note and Warrant
Agreement between the Company and Gryffindor Capital Partners I, L.L.C. was
amended to increase the $1,000,000 principal amount to $1,025,959.
6. EQUITY TRANSACTIONS
(a) In the first quarter of 2003, the Company issued 64,000 shares to
consultants in exchange for services rendered. Consulting costs charged to
operations were $22,800.
(b) The Company applies the recognition provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," in accounting for stock options and
warrants issued to nonemployees. In the first quarter of 2003, the Company
issued 385,000 warrants in exchange for consulting services rendered. As the
fair market value of these services was not readily determinable, these services
were valued based on the fair market value, determined using the Black-Scholes
option pricing model. Fair market value for warrants ranged from $0.07 to $0.24.
Consulting costs charged to operations were $19,574. At March 31, 2003, $74,917
has been classified as prepaid consulting expense as this amount represents
payments for services to be provided in the future.
7. CONTINGENCIES
On April 17, 2003, a suit was filed in the Third Judicial District Court,
Salt Lake County, Utah by Kelly Adams, on behalf of himself and "as
representatives of certain stockholders of Provectus Pharmaceuticals, Inc., a
Nevada corporation." The suit names PPI and Michael L. Labertew, an attorney in
Salt Lake City, Utah, as defendants, and seeks to rescind the Agreement and Plan
of Reorganization dated April 22, 2002 by which the Company acquired PPI and
PPI's former stockholders acquired majority ownership of the Company's common
stock. On April 29, 2003, without giving the Company or PPI notice of the motion
or an opportunity to respond to it, the Utah court granted Mr. Adams's motion
for a 10-day temporary restraining order (the "TRO"), preventing the Company
from issuing additional shares of stock for a 10-day period commencing on April
29, 2003 and ending on May 9, 2003.
7
Item 2. Management's Discussion and Analysis or Plan of Operation.
The following discussion is intended to assist in the understanding and
assessment of significant changes and trends related to our results of
operations and our financial condition together with our consolidated
subsidiaries. This discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto included elsewhere in
this Quarterly Report on Form 10-QSB. Historical results and percentage
relationships set forth in the statement of operations, including trends which
might appear, are not necessarily indicative of future operations.
OVERVIEW
History
Provectus Pharmaceuticals, Inc., formerly known as "Provectus
Pharmaceutical, Inc." and "SPM Group, Inc.," was incorporated under Colorado law
on May 1, 1978. SPM Group, Inc. ceased operations in 1991, and became a
development-stage company effective January 1, 1992, with the new corporate
purpose of seeking out acquisitions of properties, businesses, or merger
candidates, without limitation as to the nature of the business operations or
geographic location of the acquisition candidate.
On April 1, 2002, SPM Group, Inc. changed its name to "Provectus
Pharmaceutical, Inc." and reincorporated in Nevada in preparation for a
transaction with Provectus Pharmaceuticals, Inc., a privately-held Tennessee
corporation ("PPI"). On April 23, 2002, an Agreement and Plan of Reorganization
between Provectus Pharmaceutical and PPI was approved by the written consent of
a majority of the outstanding shares of Provectus Pharmaceutical, pursuant to
which 6,680,000 shares of common stock of Provectus Pharmaceutical were
exchanged for all of the issued and outstanding shares of PPI. As part of the
acquisition, Provectus Pharmaceutical changed its name to "Provectus
Pharmaceuticals, Inc." and PPI became a wholly owned subsidiary of the Company.
For accounting purposes, this transaction was treated as a recapitalization of
PPI and the issuance of shares of PPI for Provectus Pharmaceutical, Inc. The
historical financial information set forth in this report is PPI's historical
financial statements from the date of PPI's incorporation, January 17, 2002.
On November 19, 2002, Provectus Pharmaceuticals acquired Valley
Pharmaceuticals, Inc. ("Valley"), a privately-held Tennessee corporation
formerly known as Photogen, Inc., by merging its subsidiary PPI with and into
Valley and naming the surviving corporation "Xantech Pharmaceuticals, Inc." By
acquiring Valley, we acquired our most important intellectual property,
including issued U.S. patents and patentable inventions, which we intend to use
to develop:
o prescription drugs, medical and other devices (including laser
devices) and over-the-counter pharmaceutical products in the fields of
dermatology and oncology, and
o technologies for the preparation of human and animal vaccines,
diagnosis of infectious diseases and enhanced production of
genetically engineered drugs.
Prior to its acquisition, Valley was considered to be in the development
stage and had not generated any revenues from the assets we acquired.
On December 5, 2002, Provectus Pharmaceuticals acquired the assets of
Pure-ific L.L.C., a Utah limited liability company, and created a wholly owned
subsidiary, Pure-ific Corporation, to operate that business. By acquiring
Pure-ific L.L.C., we acquired the product formulations for Pure-ific personal
sanitizing sprays, along with the "Pure-ific" trademarks. With this acquisition,
we intend to continue development and begin to market a line of personal
sanitizing sprays and related products to be sold over the counter under the
"Pure-ific" brand name.
Description Of Business
Provectus Pharmaceuticals, Inc., a Nevada corporation ("Provectus"), and
its two wholly owned subsidiaries, Xantech Pharmaceuticals, Inc. ("Xantech") and
Pure-ific Corporation ("Pure-ific"), develop, license and market and plan to
sell products in three sectors of the healthcare industry:
8
o Over-the-counter ("OTC") products;
o Prescription drugs; and
o Medical device systems
We manage Provectus, Xantech and Pure-ific on an integrated basis, and when
we refer to "we" or "us" or "the Company" in this Quarterly Report on Form
10-QSB, we refer to all three corporations considered as a single unit. Our
principal executive offices are located at 7327 Oak Ridge Highway, Suite A,
Knoxville, Tennessee 37931, telephone 865/769-4011.
Through discovery and use of state-of-the-art scientific and medical
technologies, the founders of our pharmaceutical business have developed a suite
of core technologies that support multiple products in the prescription drug,
medical device and OTC products categories. Our prescription drug products
encompass the areas of dermatology and oncology and involve several types of
drugs, including those produced by advanced biotechnology methods. Our medical
device systems include therapeutic and cosmetic lasers, while our OTC products
address markets primarily involving skincare applications. Because our
prescription drug candidates and medical device systems are in the early stages
of development, they are not yet on the market and there is no assurance that
they will advance to the point of commercialization.
Over-the-Counter Pharmaceuticals
Our OTC products are designed to be safer and more specific than competing
products. Our technologies offer practical solutions for a number of intractable
maladies, using ingredients that have limited or no side effects compared with
existing products.
We have developed GloveAid, a hand cream with both antiperspirant and
antibacterial properties, to increase the comfort of users' hands during and
after the wearing of disposable gloves.
Our Pure-ific line of products includes two quick-drying sprays, Pure-ific
and Pure-ific Kids, that immediately kill up to 99.9% of germs on skin and
prevent regrowth for 6 hours. Pure-ific products help prevent the spread of
germs and thus complement our other OTC products designed to treat irritated
skin or skin conditions such as acne, eczema, dandruff and fungal infections. We
are beginning limited distribution of Pure-ific during the first quarter of
2003. We intend to continue developing our distribution network for these
products and expect to expand the Pure-ific product line to include additional
applications.
A number of dermatological conditions, including psoriasis, eczema, and
acne, result from a superficial infection which triggers an overwhelming immune
response. We anticipate developing OTC products similar to the GloveAid line for
the treatment of mild to moderate cases of psoriasis, eczema, and acne.
Prescription Drugs
We are developing a number of prescription drugs which we expect will
provide minimally invasive treatment of chronic severe skin afflictions such as
psoriasis, eczema, and acne; and several life-threatening cancers such as those
of the liver, breast and prostate. We believe that our products will be safer
and more specific than currently existing products. Use of topical or other
direct delivery formulations allows these potent products to be conveniently and
effectively delivered only to diseased tissues, thereby enhancing both safety
and effectiveness. All of these products are in the pre-clinical or clinical
trial stage.
Our most advanced prescription drug candidate for treatment of topical
diseases on the skin is Xantryl, a topical gel. PV-10, the active ingredient in
Xantryl, is "photoactive": it reacts to light of certain wavelengths, increasing
its therapeutic effects. PV-10 also concentrates in diseased or damaged tissue
but quickly dissipates from healthy tissue. By developing a "photodynamic"
treatment regimen (one which combines a photoactive substance with activation by
a source emitting a particular wavelength of light) around these two properties
of PV-10, we can deliver a higher therapeutic effect at lower dosages of active
9
ingredient, thus minimizing potential side effects including damage to nearby
healthy tissues. PV-10 is especially responsive to green light, which is
strongly absorbed by the skin and thus only penetrates the body to a depth of
about three to five millimeters. For this reason, we have developed Xantryl
combined with green-light activation for topical use in surface applications
where serious damage could result if medicinal effects were to occur in deeper
tissues. We are researching the use of Xantryl with green-light activation to
treat multiple dermatological conditions, including acute psoriasis, actinic
keratosis, and severe acne.
Oncology
Oncology is another major market where our planned products may afford
competitive advantage compared to currently available options. We are developing
Provecta, a sterile injectible form of PV-10, for direct injection into tumors.
Because PV-10 is retained in diseased or damaged tissue but quickly dissipates
from healthy tissue, we believe we can develop therapies that confine treatment
to cancerous tissue and reduce collateral impact on healthy tissue. We are
researching the use of PV-10 for the treatment of cancers of the liver, breast
and prostate.
Medical Devices
We are developing medical devices to address two major markets:
o cosmetic treatments, such as reduction of wrinkles and elimination of
spider veins and other cosmetic blemishes; and
o therapeutic uses, including photoactivation of Xantryl other
prescription drugs and non-surgical destruction of certain skin
cancers.
We expect to develop medical devices through partnerships with third-party
device manufacturers or, if appropriate opportunities arise, through acquisition
of one or more device manufacturers.
Research and Development
We have placed most research activities on hold as we attempt to conserve
available capital and achieve full capitalization of the Company through equity
and convertible debt offerings, generation of product revenues, and other means.
In the interim, we are maintaining our research facilities in anticipation of a
resumption of our research programs. All ongoing research and development
activities are directed toward supporting our OTC product launches and
maintaining our intellectual property portfolio.
GOING CONCERN
In connection with their audit report on our consolidated financial
statements as of December 31, 2002, BDO Seidman LLP, our independent certified
public accountants, expressed substantial doubt about our ability to continue as
a going concern because such continuance is dependent upon our ability to raise
capital or achieve profitable operations.
Our technologies are in early stages of development. We have not generated
revenues from sales or operations and we do not expect to generate sufficient
revenues to enable us to be profitable for several calendar quarters. In
November 2002, we obtained $1 million from Gryffindor Capital Partners I,
L.L.C., a Delaware limited liability company ("Gryffindor") through the sale,
pursuant to a Convertible Secured Promissory Note and Warrant Purchase Agreement
dated November 26, 2002 (the "Gryffindor Agreement") between the Company and
Gryffindor, of our Convertible Secured Promissory Note dated November 26, 2002
in the original principal amount of $1 million (the "Note") and Common Stock
Purchase Warrants dated November 26, 2002 (the "Warrants"). In addition, at
critical junctures during 2002 we obtained approximately $109,000 in additional
funding through short-term loans from Eric A. Wachter, our Vice President -
Pharmaceuticals, a member of our Board of Directors, and a major stockholder.
These funds allowed us to complete our planned corporate reorganization and
acquisitions, complete initial production runs for several of our OTC products,
and maintain our facilities and intellectual property portfolio. We require
additional funding to continue initial production and distribution of OTC
products in order to achieve meaningful sales volumes. In addition, we must
raise substantial additional funds in order to fully implement our integrated
business plan, including execution of the next phases in clinical development of
10
our pharmaceutical products and resumption of research programs currently
suspended.
Ultimately, we must achieve profitable operations if we are to be a viable
entity. We intend to proceed as rapidly as possible with the development of OTC
products that can be sold with a minimum of regulatory compliance and with the
development of revenue sources through licensing of our existing intellectual
property portfolio. Although we believe that there is a reasonable basis for our
expectation that we will successfully raise the needed funds, we cannot assure
you that we will be able to raise sufficient capital to sustain operations
before we can commence revenue generation or that we will be able to achieve, or
maintain, a level of profitability sufficient to meet our operating expenses.
PLAN OF OPERATION
With the reorganization of Provectus and PPI and the acquisition and
integration into the Company of Valley and Pure-ific, we believe we have
obtained a unique combination of OTC products and core intellectual properties.
This combination represents the foundation for a successful operating company
that we believe will provide both short-term profitability and long-term growth.
In 2003, through careful control of expenditures, commencing sales of OTC
products, and issuance of debt and equity, we plan to build on that foundation
to increase stockholder value.
In the short term, we intend to develop our business by marketing,
manufacturing, and distributing our existing OTC products, principally GloveAid
and Pure-ific. In the longer term, we expect to continue the process of
developing, testing and obtaining FDA approval of prescription drugs and medical
devices. Additionally, we intend to restart our research programs that will
identify additional conditions that our intellectual properties may be used to
treat and additional treatments for those and other conditions.
Our research and development costs comprising the total of $155,783 for the
three months ending March 31, 2003 include depreciation expense $83,841,
consulting of $14,888, office and other expense of $455, payroll of $47,011,
rent and utilities of $8,400, and taxes and fees of $1,188.
Cash Flow
As of March 31, 2003, we held approximately $140,000 in cash. At our
current cash expenditure rate, this amount will be sufficient to meet our needs
until the middle of June 2003. We have reduced our expenditure rate by
suspending most of our research programs; in addition, we are seeking to improve
our cash flow by commencing sales of OTC products. However, we cannot assure
that we will be successful either in commencing sales of OTC products or in
reducing expenditures. Moreover, even if we are successful in improving our
current cash flow position, we nonetheless will require additional funds to meet
our short-term and long-term needs. We anticipate these funds will come from the
proceeds of private placements or public offerings of debt or equity securities,
but we cannot assure you that we will be able to obtain such funds.
Capital Resources
As noted above, our present cash flow is not sufficient to meet our
short-term operating needs for initial production and distribution of OTC
products in order to achieve meaningful sales volumes, much less to meet our
longer-term needs for investment in our business through execution of the next
phases in clinical development of our pharmaceutical products and resumption of
our currently suspended research programs. We anticipate that the majority of
the funds for our operating and development needs in 2003 will come from the
proceeds of private placements or public offerings of debt or equity securities.
We are currently in discussions with multiple funding sources and feel confident
adequate operating funding and development funding will result. While we believe
that we have reasonable basis for our expectation that we will be able to raise
additional funds, we cannot give you an assurances that we will be able to do so
on commercially reasonable terms. In addition, any such financing may result in
significant dilution to stockholders.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB contains forward-looking statements
regarding, among other things, our anticipated financial and operating results.
Forward-looking statements reflect our management's current assumptions,
beliefs, and expectations. Words such as "anticipate," "believe, "estimate,"
11
"expect," "intend," "plan," and similar expressions are intended to identify
forward-looking statements. While we believe that the expectations reflected in
our forward-looking statements are reasonable, we can give no assurance that
such expectations will prove correct. Forward-looking statements are subject to
risks and uncertainties that could cause our actual results to differ materially
from the future results, performance, or achievements expressed in or implied by
any forward-looking statement we make. Some of the relevant risks and
uncertainties that could cause our actual performance to differ materially from
the forward-looking statements contained in this report are discussed under the
heading "Risk Factors" and elsewhere in our Annual Report on Form 10-KSB, which
was filed with the SEC on April 15, 2003. We caution investors that these
discussions of important risks and uncertainties are not exclusive, and our
business may be subject to other risks and uncertainties which are not detailed
there.
Investors are cautioned not to place undue reliance on our forward-looking
statements. We make forward-looking statements as of the date on which this
Quarterly Report on Form 10-QSB is filed with the SEC, and we assume no
obligation to update the forward-looking statements after the date hereof
whether as a result of new information or events, changed circumstances, or
otherwise, except as required by law.
Item 3. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures. Our chief executive
officer and chief financial officer have evaluated the effectiveness of the
design and operation of our "disclosure controls and procedures" (as that
term is defined in Rule 13a-14(c) under the Exchange Act) as of a date
within 90 days of the filing date of this Quarterly Report on Form 10-QSB.
Based on that evaluation, the chief executive officer and chief financial
officer have concluded that our disclosure controls and procedures are
effective to ensure that material information relating to the Company and
the Company's consolidated subsidiaries is made known to such officers by
others within these entities, particularly during the period this Quarterly
Report on Form 10-QSB was prepared, in order to allow timely decisions
regarding required disclosure.
(b) Changes in Internal Controls. There have not been any significant changes
in our internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation.
12
Part II
Other Information
Item 1. Legal Proceedings.
On April 17, 2003, subsequent to the end of the fiscal quarter covered by
this Quarterly Report on Form 10-QSB but prior to the date on which we filed
this report with the Securities and Exchange Commission, a suit was filed in the
Third Judicial District Court, Salt Lake County, Utah by Kelly Adams, on behalf
of himself and "as representative of certain Stockholders of Provectus
Pharmaceuticals, Inc., a Nevada corporation." The suit names PPI and Michael L.
Labertew, an attorney in Salt Lake City, Utah, as defendants, and seeks to
rescind the Agreement and Plan of Reorganization dated April 22, 2002 by which
we acquired PPI and PPI's former stockholders acquired majority ownership of our
common stock. (This transaction is discussed in more detail in Part I above
under the heading "Management's Discussion and Analysis or Plan of
Operation.-Overview-History.") On April 29, 2003, without giving the Company or
PPI notice of the motion or an opportunity to respond to it, the Utah court
granted Mr. Adams's motion for a 10-day temporary restraining order (the "TRO"),
preventing us from issuing additional shares of stock for a 10-day period
commencing on April 29, 2003 and ending on May 9, 2003. Mr. Adams also has moved
for a preliminary injunction that would impose the same restrictions until the
completion of the proceedings. The Utah court has scheduled a hearing on the
motion for May 13, 2003, at which the court will determine whether or not to
issue the requested preliminary injunction.
We believe the TRO was issued without reason or due process, and we believe
that the claims made by Mr. Adams and the "certain Stockholders" in their
complaint are groundless. We have retained counsel in Utah, and we intend to
contest vigorously the motion for a preliminary injunction and the remainder of
the suit.
Item 2. Changes in Securities and Use of Proceeds.
Recent Sales of Unregistered Securities
During the three months ended March 31, 2003, we did not sell any
securities which were not registered under the Securities Act of 1933, as
amended (the "Securities Act") except as follows:
1. Pursuant to a letter agreement dated January 8, 2003 between the
Company and Investor-Gate.com ("Investor-Gate"), the Company retained
Investor-Gate to provide investor relations services. For these
services, the Company agreed to pay Investor-Gate a monthly fee of
$7,250 for the first three months of the agreement and a monthly fee
of $6,000 per month thereafter. The monthly fee for the first three
months was paid by the issuance and delivery to Investor-Gate of
29,000 shares of our common stock at an agreed-upon value of $0.75 per
share. In addition, we agreed to grant Investor-Gate warrants for the
purchase of additional shares of our common stock. As of the close of
business on January 8, 2003, the value of our common stock was $0.40
per share.
On February 28, 2003, we terminated the agreement with Investor-Gate
as a result of Investor-Gate's failure to perform the contracted-for
investor relations services. Investor-Gate retained the 29,000 shares
initially issued to it, as well as a warrant exercisable for the
purchase of 25,000 shares of our common stock at an exercise price of
$0.75 per share. In addition, we remained obligated to issue
additional warrants to Investor-Gate on the following terms:
Number of Shares Exercise Price Issue Date Termination Date
---------------- -------------- ---------- ----------------
25,000 shares $2.00 April 8, 2003 September 8, 2004
25,000 shares $5.00 January 8, 2004 July 8, 2005
13
We relied on an exemption from registration pursuant to Section 4(2)
of the Securities Act, based on the sale of the shares and warrants,
and the issuance of the shares of common stock issuable upon exercise
of the warrants, to a single purchaser in a transaction not involving
any general solicitation or general advertising.
2. Pursuant to a letter agreement dated January 31, 2003 between the
Company and Gryffindor, the Company issued Gryffindor an Amended and
Restated Senior Secured Convertible Note dated January 31, 2003 in the
original principal amount of $1,025,959 (the "Amended Note"). The
Amended Note bears interest at 8% per annum, payable quarterly in
arrears, is due and payable in full on November 26, 2004, and amends
and restated the original Note in its entirety. As with the Note, our
obligations under the Amended Note are secured by a first priority
security interest in all of our Company's assets, including the assets
held by our Xantech and Pure-ific subsidiaries. Subject to certain
exceptions, the Amended Note is convertible into shares of our common
stock beginning on the November 26, 2003; the principal amount of the
Note is convertible at the rate of one share of common stock for each
$0.73655655 of principal converted, while accrued but unpaid interest
on the Note is convertible at the rate of one share of common stock
for each $0.55 of accrued but unpaid interest converted. We relied on
an exemption from registration pursuant to Section 4(2) of the
Securities Act, based on the issuance of the Amended Note, and the
issuance of the shares of common stock issuable upon conversion of the
Amended Note, to a limited number of purchasers in a transaction not
involving any general solicitation or general advertising.
3. Pursuant to a letter agreement dated February 20, 2003 between the
Company and Strategic Growth International, Inc. ("SGI"), the Company
retained SGI as its investor relations consultant. For services under
the Agreement, the Company issued SGI warrants on the following terms:
Number of Shares Exercise Price Issue Date Termination Date
---------------- -------------- ---------- ----------------
120,000 shares $0.25 February 20, 2003 February 20, 2008
120,000 shares $0.35 February 20, 2003 February 20, 2008
120,000 shares $0.50 February 20, 2003 February 20, 2008
In addition, at the Company's option, during the first three months of
the agreement the Company may elect to issue SGI 30,000 shares per
month in lieu of payment of $3,000 of the monthly cash fee payable
under the agreement. As of the close of business on February 18, the
last day on which a trade was reported prior to the execution of the
agreement with SGI, the value of our common stock was $0.26 per share.
During the quarter ended March 31, 2003, we did not exercise our
option to issue shares in lieu of payment of fees. We relied on an
exemption from registration pursuant to Section 4(2) of the Securities
Act, based on the sale of the shares and warrants, and the issuance of
the shares of common stock issuable upon exercise of the warrants, to
a single purchaser in a transaction not involving any general
solicitation or general advertising.
4. Pursuant to a letter agreement dated March 27, 2003 between the
Company and Josephberg Grosz & Co., Inc. ("JGC"), the Company issued
JG Capital, Inc., an affiliate of JGC, 35,000 shares of common stock
as consideration for JGC's agreement to assist the Company in
obtaining additional capital. As of the close of business on March 21,
2003, the last day on which a trade was reported prior to the
execution of the agreement with JGC, the value of our common stock was
$0.32 per share. We relied on an exemption from registration pursuant
to Section 4(2) of the Securities Act, based on the sale of these
shares to a single purchaser in a transaction not involving any
general solicitation or general advertising.
14
Item 3. Defaults Upon Senior Securities.
No response is required to this item.
Item 4. Submission of Matters to a Vote of Security Holders.
During the three months ended March 31, 2003, we did not submit any matters
to a vote of our stockholders.
Item 5. Other Information.
There are no new matters to report.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. Exhibits required by Item 601 of Regulation S-B are incorporated
herein by reference and are listed on the attached Exhibit Index, which
begins on page X-1 of this Quarterly Report on Form 10-QSB.
(b) Reports on Form 8-K. During the fiscal quarter ended March 31, 2003, we
filed the following Current Reports on Form 8-K:
1. On January 3, 2003 we filed, and on January 9, 2003 we amended, a
Current Report on Form 8-K reporting that on December 20, 2002 we
engaged BDO Seidman, LLP to audit our books and records for 2002 and
dismissed Bierwolf, Nilson & Associates, formerly Crouch, Bierwolf &
Associates, as our independent auditors.
15
Signatures
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Provectus Pharmaceuticals, Inc.
By: /s/H. Craig Dees
----------------------------
H. Craig Dees, Ph.D.
Chief Executive Officer
Date: October 7, 2004
16
Exhibit Index
Exhibit No. Description
3.2 Bylaws of Provectus Pharmaceuticals, Inc. (the "Company"),
incorporated herein by reference to Exhibit 3.2 to the Company's
Quarterly Report on Form 10-QSB dated March 31, 2003, as filed
with the SEC on May 9, 2003.
4.2.2 Letter Agreement dated January 31, 2003 between the Company and
Gryffindor, incorporated herein by reference to Exhibit 4.2.2 to
the Company's Quarterly Report on Form 10-QSB dated March 31,
2003, as filed with the SEC on May 9, 2003.
4.3 Amended and Restated Convertible Secured Promissory Note of the
Company dated January 31, 2003, issued to Gryffindor,
incorporated herein by reference to Exhibit 4.3 to the Company's
Quarterly Report on Form 10-QSB dated March 31, 2003, as filed
with the SEC on May 9, 2003.
4.17 Common Share Purchase Warrant dated January 29, 2003, issued to
Investor-Gate.com ("Investor-Gate"), incorporated herein by
reference to Exhibit 4.17 to the Company's Annual Report on Form
10-KSB/A dated December 31, 2003, as filed with the SEC on
October 7, 2004.
10.11.1 Letter Agreement dated January 8, 2003 between the Company and
Investor-Gate, incorporated herein by reference to Exhibit
10.11.1 to the Company's Quarterly Report on Form 10-QSB dated
March 31, 2003, as filed with the SEC on May 9, 2003.
10.11.2 Termination Letter dated February 28, 2003 from the Company to
Investor-Gate, incorporated herein by reference to Exhibit
10.11.2 to the Company's Quarterly Report on Form 10-QSB dated
March 31, 2003, as filed with the SEC on May 9, 2003.
10.12 Letter Agreement dated February 20, 2003 between the Company and
SGI, incorporated herein by reference to Exhibit 10.12 to the
Company's Quarterly Report on Form 10-QSB dated March 31, 2003,
as filed with the SEC on May 9, 2003.
10.13 Letter Agreement dated March 27, 2003 between the Company and
Josephberg Grosz & Co., Inc., incorporated herein by reference to
Exhibit 3.2 to the Company's Quarterly Report on Form 10-QSB
dated March 31, 2003, as filed with the SEC on May 9, 2003.
31.1+ Certification Pursuant to Rule 13a-14(a) (Section 302
Certification), dated October 7, 2004, executed by H. Craig Dees,
Ph.D., Chief Executive Officer of the Company.
31.2+ Certification Pursuant to Rule 13a-14(a) (Section 302
Certification), dated October 7, 2004, executed by Peter R.
Culpepper, Chief Financial Officer of the Company.
32.1+ Certification Pursuant to 18 U.S.C.ss. 1350 (Section 906
Certification), dated October 7, 2004, executed by H. Craig Dees,
Ph.D., Chief Executive Officer of the Company, and Peter R.
Culpepper, Chief Financial Officer of the Company.
----------------------------------
+ Filed herewith.
X-1
Exhibit 31.1
Provectus Pharmaceuticals, Inc.
Certification Pursuant to Rule 13a-14(a)
Section 302 Certification
I, H. Craig Dees, Ph.D., the Chief Executive Officer of Provectus
Pharmaceuticals, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Provectus
Pharmaceuticals, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the small business issuer as of, and for, the periods
presented in this quarterly report.
4. The small business issuer's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)
for the small business issuer and have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
small business issuer, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly
during the period in which this quarterly report is being
prepared;
b. Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this
quarterly report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
c. Disclosed in this report any change in the small business
issuer's internal control over financial reporting that occurred
during the small business issuer's most recent fiscal quarter
(the small business issuer's fourth fiscal quarter in the case of
an annual report) that has materially affected, or is reasonably
likely to materially affect, the small business issuer's internal
control over financial reporting; and
5. The small business issuer's other certifying officers and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the small business issuer's auditors and
the audit committee of small business issuer's board of directors (or
persons performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal control over financial reporting which are reasonably
likely to adversely affect the small business issuer's ability to
record, process, summarize and report financial data and have
identified for the small business issuer's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business
issuer's internal controls.
Date: October 7, 2004 /s/ H. Craig Dees
------------------------------
H. Craig Dees, Ph.D.
Chief Executive Officer
X-2
Exhibit 31.2
Provectus Pharmaceuticals, Inc.
Certification Pursuant to Rule 13a-14(a)
Section 302 Certification
I, Peter R. Culpepper, the Chief Financial Officer of Provectus
Pharmaceuticals, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Provectus
Pharmaceuticals, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the small business issuer as of, and for, the periods
presented in this quarterly report.
4. The small business issuer's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)
for the small business issuer and have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
small business issuer, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly
during the period in which this quarterly report is being
prepared;
b. Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this
quarterly report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
c. Disclosed in this report any change in the small business
issuer's internal control over financial reporting that occurred
during the small business issuer's most recent fiscal quarter
(the small business issuer's fourth fiscal quarter in the case of
an annual report) that has materially affected, or is reasonably
likely to materially affect, the small business issuer's internal
control over financial reporting; and
5. The small business issuer's other certifying officers and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the small business issuer's auditors and
the audit committee of small business issuer's board of directors (or
persons performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal control over financial reporting which are reasonably
likely to adversely affect the small business issuer's ability to
record, process, summarize and report financial data and have
identified for the small business issuer's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business
issuer's internal controls.
Date: October 7, 2004 /s/ Peter R. Culpepper
-----------------------
Peter R. Culpepper
Chief Financial Officer
X-3
Exhibit 32.1
Provectus Pharmaceuticals, Inc.
Certification Pursuant to 18 U.S.C. ss. 1350*
Section 906 Certifications
Pursuant to 18 U.S.C.ss. 1350, as enacted by Section 906 of the
Sarbanes-Oxley Act of 2002 (Public Law 107-204), the undersigned, H. Craig Dees,
Ph.D., the Chief Executive Officer of Provectus Pharmaceuticals, Inc., a Nevada
corporation (the "Company"), and Peter R. Culpepper, the Chief Financial Officer
of the Company, hereby certify that:
1. The Company's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 2003, as filed with the U.S. Securities and Exchange Commission on the
date hereof (the "Report"), fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
This Certification is signed on October 7, 2004.
/s/ H. Craig Dees
-------------------------------
H. Craig Dees, Ph.D.
Chief Executive Officer
Provectus Pharmaceuticals, Inc.
/s/ Peter R. Culpepper
-------------------------------
Peter R. Culpepper
Chief Financial Officer
Provectus Pharmaceuticals, Inc.
A signed original of this written statement required by Section 906 has
been provided to Provectus Pharmaceuticals, Inc. and will be retained by
Provectus Pharmaceuticals, Inc. and furnished to the Securities and Exchange
Commission or its staff upon request.
X-4