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 September 30, 2003
OR
[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
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Commission file number: 0-9410
Provectus Pharmaceuticals, Inc.
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(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
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(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 November 14, 2003 was 10,187,689.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
PROVECTUS PHARMACEUTICALS, INC.
QUARTERLY REPORT ON FORM 10-QSB
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............................7
Item 2. Management's Discussion and Analysis or Plan of Operation.....10
Overview.............................................................10
Going Concern........................................................12
Plan of Operation....................................................13
Forward-Looking Statements...........................................14
Item 3. Controls and Procedures.......................................14
Part II Other Information.....................................................15
Item 1. Legal Proceedings............................................ 15
Item 2. Changes in Securities and Use of Proceeds.....................15
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
i
PROVECTUS PHARMACEUTICALS, INC.
QUARTERLY REPORT ON FORM 10-QSB
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................................7
PROVECTUS PHARMACEUTICALS, INC.
(A Development-Stage Company)
Consolidated Balance Sheets
September 30, December 31,
2003 2002
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(Unaudited) (Audited)
Assets
Current Assets
Cash $ 12,193 $ 717,833
Inventory 72,578 -
Prepaid expenses 9,149 35,481
Prepaid consulting expense (Note 5(a) and (c)) 235,583 -
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Total Current Assets 329,503 753,314
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Equipment and Furnishings, less accumulated depreciation of
$203,738 and $39,446 162,437 471,429
Patents, net of amortization of $994,806 and $133,916 19,042,754 19,903,644
Other Assets 27,000 27,000
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$ 19,561,694 $ 21,155,387
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Liabilities and Stockholders' Deficit
Current Liabilities
Accounts payable - trade $ 304,073 $ 98,874
Accrued compensation (Note 6) 412,086 19,781
Accrued expenses 125,541 58,000
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Total Current Liabilities 841,700 176,655
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Loan From Stockholder 149,000 109,000
Convertible Long-Term Debt (net of debt discount of $73,115
and $120,344) 952,844 879,656
Stockholders' Equity
Common stock; par value $.001 per share; 100,000,000 shares authorized;
9,487,689 and 9,423,689 shares issued and
outstanding, respectively 9,488 9,424
Paid-in capital 27,500,474 27,102,406
Accumulated deficit (9,891,812) (7,121,754)
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TOTAL STOCKHOLDERS' EQUITY 17,618,150 19,990,076
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$ 19,561,694 $ 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 Nine Nine Cumulative
Months Ended Months Ended Months Ended Months Ended Through
September 30, September 30, September 30, September 30, September 30,
2003 2002 2003 2002 2003
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(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Operating Expenses
Research and development $ 95,084 $ - $ 331,370 $ 1,000 $ 382,084
General and administrative 570,697 44,000 1,518,039 6,459,250 8,440,985
Amortization 286,964 - 860,891 - 994,807
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Total operating loss (952,745) (44,000) (2,710,300) (6,460,250) (9,817,876)
Gain on sale of fixed assets - - 55,000 - 55,000
Net interest (expense) income (38,507) - (114,758) 52 (128,936)
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Net Loss Applicable to Common
Stockholders $ (991,252) $ (44,000) $ (2,770,058) $ (6,460,198) $ (9,891,812)
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Basic and Diluted Loss Per Common
Share (0.10) (0.01) (0.29) (0.84)
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Weighted Average Number of
Common Shares
Outstanding - 9,553,591 7,645,685
Basic and Diluted 9,721,022 8,645,763
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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 Paid-in Accumulated
of Shares Par Value Capital Deficit Total
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Balance, at January 17, 2002 - $ - $ - $ -
$
Issuance to founding shareholders 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 - - 124,479 - 124,479
Stock to be issued for services - - 217,000 - 217,000
Employee compensation from stock options - - 33,853 - 33,853
Net loss for the nine months ended
September 30, 2003 - - - (2,770,058) (2,770,058)
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Balance, at September 30, 2003 9,487,689 $ 9,488 $ 27,500,474 $(9,891,812) $ 17,618,150
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See accompanying notes to financial statements.
4
PROVECTUS PHARMACEUTICALS, INC.
(A Development-Stage Company)
Consolidated Statements of Cash Flows
Nine Months For the Period Cumulative
Ended From January 17, Amounts From
September 30, 2002 (Inception) to January 17, 2002
2003 September 30, 2002 (Inception)
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(Unaudited) (Unaudited) (Unaudited)
Cash Flows From Operating Activities
Net loss $ (2,770,058) $ (6,460,198) $ (9,891,812)
Adjustments to reconcile net income to
net cash used in operating activities
Depreciation 187,293 - 226,739
Amortization of patents 860,890 - 994,806
Amortization of original issue discount 47,229 - 53,472
Compensation through issuance of stock
options 33,853 - 33,853
Compensation through issuance of
stock - 932,000 932,000
Issuance of stock for services 40,884 5,504,000 5,544,884
Issuance of warrants for services 87,812 - 87,812
Gain on sale of fixed asset (55,000) - (55,000)
(Increase) decrease in assets
Prepaid expenses 26,332 - (9,149)
Inventory (72,578) - (72,578)
Increase (decrease) in liabilities
Accounts payable 205,199 - 298,928
Accrued expenses 459,846 - 537,627
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Net cash used in operating activities (948,298) (24,198) (1,318,418)
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Cash Flows From Investing Activities
Proceeds from sale of fixed asset 180,000 - 180,000
Capital expenditures (3,301) - (3,301)
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Net cash provided by investing activities 176,699 - 176,699
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Cash Flows From Financing Activities
Proceeds from loans from stockholder 40,000 - 150,500
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 65,959 25,000 1,153,912
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See accompanying notes to financial statements.
5
PROVECTUS PHARMACEUTICALS, INC.
(A Development-Stage Company)
Nine For the Period Cumulative
Months Ended From January 17, Amounts From
September 30, 2002 (Inception) to January 17, 2002
2003 September 30, 2002 (Inception)
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(Unaudited) (Unaudited) (Unaudited)
NET CHANGE IN CASH $ (705,640) $ 802 $ 12,193
Cash, at beginning of period 717,833 - -
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Cash, at end of period $ 12,193 $ 802 $ 12,193
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Supplemental Noncash Financing Activities
Stock and warrants issued to consultants for prepaid services of $235,583
in 2003.
See accompanying notes to financial statements.
6
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-B. 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
nine months ended September 30, 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.
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 our 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 September 30, 2003 are
405,000 warrants, 352,000 options and 1,519,466 shares issuable upon conversion
of convertible debt and interest. Additionally, the Company is committed to
issue 80,000 warrants.
7
5. EQUITY TRANSACTIONS
(a) In 2003, the Company issued 64,000 shares to consultants in exchange
for services rendered, consisting of 29,000 shares issued in January 2003 and
35,000 shares issued in March 2003. Consulting costs charged to operations were
$22,800.
In September 2003, the Company committed to issue 700,000 shares to
consultants in exchange for services rendered. Consulting costs charged to
operations were $18,084. At September 30, 2003, $198,916 has been classified as
prepaid consulting expense as this amount represents payments for services to be
provided in the future.
(b) The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" (SFAS No. 123), but applies the intrinsic value method set forth
in Accounting Principles Board Opinion No. 25 for stock options granted to
employees and directors.
On May 29, 2003, the Company issued 352,000 stock options to employees. The
options vest over three years with 88,000 options vesting on the date of grant.
The exercise prices range from $0.26 to $0.32 and all options were outstanding
at September 30, 2003. The exercise price for all options is less than the
market price on the date of grant. Accordingly, compensation expense of $33,853
has been recorded in 2003.
For stock options granted to employees during the second quarter of 2003,
the Company has estimated the fair value of each option granted using the
Black-Scholes option pricing model with the following assumptions:
2003
------------------------------------------------------------------------
Weighted average fair value per options granted $ 0.60
Significant assumptions (weighted average)
Risk-free interest rate at grant date 2.0%
Expected stock price volatility 150%
Expected option life (years) 10
If the Company had elected to recognize compensation expense based on the
fair value at the grant dates, consistent with the method prescribed by SFAS No.
123, net loss per share would have been changed to the pro forma amount
indicated below:
Three Months Nine Months
Ended Ended
September 30, September 30,
2003 2003
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Net loss, as reported $ (991,252) $ (2,770,058)
Add stock based employee compensation
expense included in reported net loss 6,347 33,853
Less total stock-based employee
compensation expense determined under
the fair value based method for all
awards (13,200) (70,400)
--------------------------------------------------------------------------------
Pro forma net loss $ (998,105) $ (2,806,605)
--------------------------------------------------------------------------------
Basic and diluted loss per common share, as
reported $ (0.10) $ (0.29)
Basic and diluted loss per common share, pro
forma $ (0.10 $ (0.29)
8
(c) 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 January 2003, the Company issued 25,000
warrants to a consultant for services rendered. In February, the Company issued
360,000 warrants to a consultant of which 180,000 warrants were cancelled in
August 2003 due to the termination of the consulting contract. In September
2003, the Company issued 200,000 warrants to two consultants in exchange for
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
the warrants ranged from $0.20 to $0.51. Consulting costs charged to operations
were $87,812. At September 30, 2003, $36,667 has been classified as prepaid
consulting expense as this amount represents payments for services to be
provided in the future.
6. ACCRUED COMPENSATION
Accrued compensation at September 30, 2003 consists of 2003 third quarter
salaries which had not been paid due to limited cash resources and a bonus
accrual the Company has committed to pay employees for services rendered through
September 30, 2003. Approximately $319,000 of accrued compensation is to
individuals who are significant stockholders in the Company.
7. INVENTORY
Inventory, consisting principally of finished goods, is stated at the lower
of cost or market. Cost is determined using a first-in, first-out method.
9
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 and over-the-counter pharmaceutical products in the
fields of dermatology and oncology,
o medical and other devices (including laser devices), 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 have begun 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:
10
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,
OTC products, and medical device 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 OTC
products address markets primarily involving skincare applications, while our
medical device systems include therapeutic and cosmetic laser technologies.
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
Pure-ific, a quick drying aerosol spray that immediately kills up to 99.9% of
germs on skin and prevents regrowth for over 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 began limited distribution of Pure-ific during the first
half of 2003, including direct sales through a Company-operated internet
website. During this time our Pure-ific website has been successfully launched
enabling fulfillment of online orders. We also have begun limited distribution
of Pure-ific in Mexico and Central America. 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, may 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.
Dermatology
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
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
11
several 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 device technologies that 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 or licensure
to 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 generated
minimal initial revenues from sales and operations but 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 and 2003 we have obtained
approximately $149,000 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
12
funds in order to fully implement our integrated business plan, including
execution of the next phases in clinical development of 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
assembled 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. In the near term
we do not intend to hire any additional staff or make any capital expenditures.
Research and development costs comprising the total of $95,084 for the
three months ending September 30, 2003 include depreciation expense of $49,265,
insurance of $5,197, payroll of $30,566, and rent and utilities of $10,056.
Research and development costs comprising the total of $331,370 for the nine
months ending September 30, 2003 include depreciation expense of $186,921,
consulting of $26,423, insurance of $10,153, office and other expense of $828,
payroll of $79,001, rent and utilities of $26,856, and taxes and fees of $1,188.
Cash Flow
As of September 30, 2003, we held approximately $12,193 in cash. We have
reduced our cash expenditure rate by suspending payment of salaries and most of
our research programs; in addition, we are seeking to improve our cash flow by
commencing sales of OTC products. Even with these reductions, however, at our
current expenditure rate this amount will be sufficient to meet our needs only
until the end of November 2003. 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.
13
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.
Additionally, we sold a piece of equipment which was not needed for research and
development activities. 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,"
"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 September
30, 2003, the end of the fiscal quarter covered by 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 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-QSB that has materially
affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
14
Part II
Other Information
Item 1. Legal Proceedings.
The Company was not involved in any legal proceedings during the fiscal
quarter covered by this Quarterly Report of Form 10-QSB.
Item 2. Changes in Securities and Use of Proceeds.
Recent Sales of Unregistered Securities
During the three months ended September 30, 2003, we did not sell any
securities which were not registered under the Securities Act of 1933, as
amended (the "Securities Act").
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 September 30, 2003, we did not submit any
matters to a vote of security holders.
Item 5. Other Information.
The Company received a purchase order dated as of September 15, 2003 from
Carl Zeiss MicroImaging, Inc. ("Zeiss"). This purchase order covers a prototype
signal processor for use with laboratory microscopes and utilizes the Company's
proprietary technologies described in its U.S. Patents 6,519,076 and 6,525,862.
Under the terms of this purchase order, we will provide Zeiss with the prototype
on or about December 15, 2003. Subsequent to receipt of the prototype, Zeiss
will evaluate its potential for use in conjunction with certain of its
microscopy instrumentation. If Zeiss determines that it can commercialize our
technologies, then we expect to enter into negotiation of a license agreement
with Zeiss covering the underlying intellectual property. We can give you no
assurance that Zeiss will determine that it can commercialize our technologies
or that we will be able to successfully execute licensure of our intellectual
property.
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 September 30, 2003, we
did not file any Current Reports on Form 8-K.
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, Ph.D.
----------------------------------
H. Craig Dees, Ph.D.
Chief Executive Officer
Date: October 7, 2004
16
EXHIBIT INDEX
-------------
Exhibit No. Description
------------ -----------
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.
17
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
18
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
19
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
September 30, 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.
20