United States Securities And Exchange Commission
Washington, DC 20549
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FORM 10-QSB
(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, 2005
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
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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 April 13, 2005 was 16,644,275.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
PROVECTUS PHARMACEUTICALS, INC.
(A Development-Stage Company)
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2005 2004
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(Unaudited) (Audited)
Assets
Current Assets
Cash $ 58,980 $ 10,774
Inventory 89,960 94,142
Prepaid expenses and other current assets 1,827 20,582
Prepaid consulting expense 180,602 205,427
Prepaid commitment fee, net of amortization of
$114,978 and $38,326 195,888 272,540
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Total Current Assets 527,257 603,465
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Equipment and Furnishings, less accumulated depreciation of
$366,571 and $366,571 10,472 -
Patents, net of amortization of $1,588,317 and $1,420,537 10,127,128 10,294,908
Deferred loan costs, net of amortization of $102,054 and $35,922 249,446 270,578
Other Assets 27,000 27,000
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$ 10,941,303 $ 11,195,951
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Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable - trade $ 151,071 $ 154,214
Accrued compensation 238,078 156,377
Accrued expenses 75,540 6,240
Accrued interest 83,290 43,670
Gryffindor convertible debt, net of debt discount of
$71,368 and $95,157 1,114,591 1,090,802
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Total Current Liabilities 1,662,570 1,451,303
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Loan From Stockholder 199,000 149,000
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Cornell convertible debt, net of debt discount of $233,425 and $316,053 416,575 433,947
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Network 1 convertible debt, net of debt discount of $438,425 and $-0- 11,575 -
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Stockholders' Equity
Common stock; par value $.001 per share; 100,000,000 shares authorized;
16,440,209 and 16,133,876 shares issued and
outstanding, respectively 16,440 16,134
Paid-in capital 24,572,699 23,711,540
Deficit accumulated during the development stage (15,937,556) (14,565,973)
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TOTAL STOCKHOLDERS' EQUITY 8,651,583 9,161,701
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$ 10,941,303 $ 11,195,951
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See accompanying notes to financial statements.
-2-
PROVECTUS PHARMACEUTICALS, INC.
(A Development-Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Cumulative
Amounts from
January 17,
2002 (Inception)
Ended Ended Through
March 31, 2005 March 31, 2004 March 31, 2005
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Revenues
OTC Product Revenue $ 2,394 $ 1,776 $ 21,122
Medical Device Revenue 984 13,125 14,109
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Total revenues 3,378 14,901 35,231
Cost of Sales 1,540 1,136 12,321
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Gross Profit 1,838 13,765 22,910
Operating Expenses
Research and development 293,027 187,954 2,360,482
General and administrative 582,751 483,678 10,778,788
Amortization 167,780 167,780 1,588,317
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Total operating loss (1,041,720) (825,647) (14,704,677)
Gain on sale of equipment - - 55,000
Loss on extinguishment of debt (36,968) - (138,380)
Interest expense (292,895) (214,726) (1,149,499)
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Net Loss Applicable to Common
Stockholders $ (1,371,583 $(1,040,373) $ (15,937,556)
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Basic and Diluted Loss Per (0.08) (0.08)
Common Share
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Weighted Average Number of
Common Shares
Outstanding -
Basic and Diluted 16,277,074 12,241,172
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See accompanying notes to financial statements.
-3-
PROVECTUS PHARMACEUTICALS, INC.
(A Development-Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
--------------------------------------------------------------------------------
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)
------------- ------------- -------------- ------------- ------------
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 12,225,820 - 12,226,320
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 - - - (5,749,937) (5,749,937)
------------- ------------- -------------- --------------- -----------
Balance, at December 31, 2002 9,423,689 9,424 18,780,291 (7,066,135) 11,723,580
Issuance of stock for services 764,000 764 239,036 - 239,800
Issuance of warrants for services - - 145,479 - 145,479
Stock to be issued for services - - 281,500 - 281,500
Employee compensation from stock options - - 34,659 - 34,659
Issuance of stock pursuant to Regulation S 679,820 680 379,667 - 380,347
Beneficial conversion related to
convertible debt - - 601,000 - 601,000
Net loss for the year ended
December 31, 2003 - - - (3,155,313) (3,155,313)
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Balance, at December 31, 2003 10,867,509 $ 10,868 $ 20,461,632 $(10,221,448) $ 10,251,052
Issuance of stock for services 733,872 734 449,190 - 449,923
Issuance of warrants for services - - 495,480 - 495,480
Exercise of warrants 132,608 133 4,867 - 5,000
Employee compensation from stock options - - 15,612 - 15,612
Issuance of stock pursuant to Regulation S 2,469,723 2,469 790,668 - 793,137
Issuance of stock pursuant to Regulation D 1,930,164 1,930 1,286,930 - 1,288,861
Beneficial conversion related to
convertible debt - - 360,256 - 360,256
Issuance of convertible debt with warrants - - 105,250 - 105,250
Repurchase of beneficial conversion feature - - (258,345) - (258,345)
Net loss for the year ended
December 31, 2004 - - - (4,344,525) (4,344,525)
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Balance, at December 31, 2004 16,133,876 $ 16,134 $ 23,711,540 $(14,565,973) $ 9,161,701
Issuance of stock for services 15,000 15 12,509 - 12,524
Issuance of warrants for services - - 88,984 - 88,984
Issuance of warrants for contractual
obligations - - 117,568 - 117,568
Exercise of warrants 10,000 10 9,990 - 10,000
Employee compensation from stock options - - 3,938 - 3,938
Issuance of stock pursuant to Regulation D 214,666 214 144,686 - 144,900
Debt conversion to common stock 66,667 67 49,933 - 50,000
Issuance of convertible debt with warrants - - 254,328 - 254,328
Beneficial conversion related to
convertible debt - - 195,672 - 195,672
Repurchase of beneficial conversion feature - - (16,449) - (16,449)
Net loss for the three months ended
March 31, 2005 - - - (1,371,583) (1,371,583)
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Balance, at March 31, 2005 16,440,209 $ 16,440 $ 24,572,699 $(15,937,556) $ 8,651,583
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See accompanying notes to financial statements.
-4-
PROVECTUS PHARMACEUTICALS, INC.
(A Development-Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Cumulative
Amounts from
January 17, 2002
Three Months Three Months (Inception)
Ended Ended through March 31,
March 31, 2005 March 31, 2004 2005
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Cash Flows From Operating Activities
Net loss $ (1,371,583) $ (1,040,373) $ (15,937,556)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation - 53,641 389,572
Amortization of patents 167,780 167,780 1,588,317
Amortization of original issue discount 90,277 140,140 577,852
Amortization of commitment fee 76,652 - 114,978
Amortization of prepaid consultant expense 93,735 137,176 946,585
Amortization of deferred loan costs 45,430 42,633 185,952
Loss on extinguishment of debt 36,968 - 138,380
Compensation through issuance of stock options 3,938 3,903 54,209
Compensation through issuance of stock - - 932,000
Issuance of stock for services 12,524 11,500 5,593,082
Issuance of warrants for services 20,074 - 42,555
Issuance of warrants for contractual
obligations 117,568 - 117,568
Gain on sale of equipment - - (55,000)
Increase (decrease) in assets
Prepaid expenses 18,755 (2,530) (1,827)
Inventory 4,182 3,518 (89,960)
Increase (decrease) in liabilities
Accounts payable (3,143) 41,826 147,426
Accrued expenses 190,621 (64,388) 556,908
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Net cash used in operating activities (496,222) (505,174) (4,698,959)
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Cash Flows From Investing Activities
Proceeds from sale of fixed asset - - 180,000
Capital expenditures (10,472) (395) (14,169)
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Net cash (used in) provided by investing activities (10,472) (395) 165,831
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Cash Flows From Financing Activities
Proceeds from loans from stockholder 50,000 - 199,000
Proceeds from convertible debt 450,000 - 2,725,959
Proceeds from sale of common stock 144,900 788,653 2,632,245
Proceeds from exercise of warrants 10,000 5,000 15,453
Cash paid to retire convertible debt (50,000) - (550,000)
Cash paid for deferred loan costs (45,000) - (277,030)
Premium paid on extinguishments of debt (5,000) - (105,519)
Purchase and retirement of common stock - - (48,000)
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Net cash provided by financing activities 554,900 793,653 4,592,108
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-5-
PROVECTUS PHARMACEUTICALS, INC.
(A Development-Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Cumulative
Amounts from
January 17, 2002
Three Months Three Months (Inception)
Ended Ended through March 31,
March 31, 2005 March 31, 2004 2005
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Net Change in Cash $ 48,206 $ 288,084 $ 58,980
Cash, at beginning of period $ 10,774 $ 164,145 $ -
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Cash, at end of period $ 58,980 $ 452,229 $ 58,980
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Supplemental Disclosure of Noncash Investing and
Financing Activities
March 31, 2005
Issuance of warrants in exchange for
prepaid services of $68,910
Debt converted to common stock of $50,000 Beneficial conversion on
convertible debt of $195,672 Discount on convertible debt with warrants of
$254,328
March 31, 2004
Issuance of stock for services of $11,500
and commitment to issue stock for
prepaid services of $62,500
Stock subscription receivable recorded of $41,192
See accompanying notes to financial statements.
-6-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated 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
three months ended March 31, 2005 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2005.
2. RECAPITALIZATION AND MERGER
Provectus Pharmaceuticals, Inc., formerly known as "Provectus
Pharmaceutical, Inc." and "SPM Group, Inc.," was incorporated under Colorado law
on May 1, 1978. SPM Group 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 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 or reorganization between Provectus
Pharmaceutical and PPI was approved by the written consent of a majority of the
outstanding shares of Provectus Pharmaceutical. As a result, Provectus
Pharmaceuticals, Inc. issued 6,680,000 shares of common stock in exchange 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 Provectus. This transaction was
recorded as a recapitalization of PPI.
On November 19, 2002, the Company acquired Valley Pharmaceuticals, Inc., a
privately-held Tennessee corporation formerly known as Photogen, Inc., by
merging PPI with and into Valley and naming the surviving corporation "Xantech
Pharmaceuticals, Inc." Photogen, Inc. was separated from Photogen Technologies,
Inc. in a non-pro rata split-off to some of its shareholders. The assets of
Photogen, Inc. consisted primarily of the equipment and intangibles related to
its therapeutic activity and were recorded at their fair value. The majority
shareholders of Valley were also the majority shareholders of Provectus. Valley
had no revenues prior to the transaction with the Company. By acquiring Valley,
the Company acquired its intellectual property, including issued U.S. patents
and patentable inventions.
3. 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, 2005 are
5,798,893
-7-
warrants, 2,925,000 options and 3,487,937 shares issuable upon conversion of
convertible debt and interest. Additionally, the Company is committed to issue
10,000 warrants.
4. EQUITY AND DEBT TRANSACTIONS
(a) In January 2005, the Company issued 7,500 shares to consultants in
exchange for services rendered. Consulting costs charged to operations were
$4,950. In February 2005, the Company issued 7,500 shares to consultants in
exchange for services. Consulting costs charged to operations were $7,574.
(b) In January 2005, the Company issued 16,000 warrants to consultants in
exchange for services rendered. Consulting costs charged to operations were
$6,944. In February 2005, the Company issued 13,000 warrants to consultants in
exchange for services rendered. Consulting costs charged to operations were
$13,130. In March 2005, the Company issued 100,000 warrants to consultants in
exchange for services rendered. At March 31, 2005, $11,485 of these costs have
been charged to operations with the remaining $57,425 recorded as prepaid
consulting expense as it represents payments for future services and the
warrants are fully-vested and non-forfeitable. In March 2005 the Company issued
175,000 warrants to Gryffindor Capital Partners I, L.L.C. pursuant to the terms
of the Second Amended and Restated Note dated November 26, 2004. Interest costs
charged to operations were $117,568.
(c) In February 2005, the Company entered into a redemption agreement with
Cornell Capital Partners to pay $50,000 of the Cornell convertible debt. As a
result, the unamortized portion of the debt discount of $27,715 and deferred
loan costs of $20,702, which related to this amount at the date of
extinguishments, were recorded as a loss on extinguishment of debt. The Company
also paid a $5,000 prepayment penalty which has been recorded as loss on
extinguishment of debt. As part of this redemption, the Company has repurchased
the beneficial conversion feature related to the redeemed amount of $16,449.
In March 2005, the Company entered into a debt conversion agreement with
Cornell Capital Partners for $50,000 of its convertible debt which was converted
into 66,667 shares of common stock at $0.75 per share. As a result of this
conversion, the unamortized portion of the debt discount of $24,890 and deferred
loan costs of $18,779, which related to this amount at the date of conversion,
have been recorded as additional interest expense.
At March 31, 2005, there was $650,000 outstanding related to the Cornell
convertible debt.
(d) During the three months ended March 31, 2005, the Company completed a
private placement transaction with 8 accredited investors, pursuant to which the
Company sold 214,666 shares of common stock at a purchase price of $0.75 per
share, for an aggregate purchase price of $161,000. In connection with the sale
of common stock, the Company also issued warrants to the investors to purchase
up to 322,000 shares of common stock at an exercise price of $1.00 per share.
The Company paid $16,100 and issued 80,500 warrants to Venture Catalyst, LLC as
placement agent for this transaction. The cash costs have been off-set against
the proceeds received.
(e) In March 2005, the Company entered into agreements to issue Senior
Convertible Debentures to 2 accredited investors with Network 1 Financial
Securities, Inc. in the aggregate amount of $450,000 which is due together with
interest in March 2007. This debt has a security interest in the assets of the
Company. The Senior Convertible Debenture in the amount of $400,000 has a
maturity date of March 10, 2007 and the Senior Convertible Debenture in the
amount of $50,000 has a maturity date of March 30, 2007, and are convertible
into shares of the Company's common stock at a per share conversion price of
$0.75. Interest at the greater of (i) the prime rate (adjust monthly), plus 4%
and (ii) 8% is due on a quarterly basis with the first installment due June 30,
2005. At the time the interest is payable, upon certain conditions, the Company
has the option to pay all or any portion of accrued interest in either cash or
shares of the Company's common stock valued at 85% multiplied by the market
price as of the third trading date immediately preceding the interest payment
date. Under the senior convertible debentures, for purposes of determining
market price as of any date, market price means: (i) the average of the last
reported sale prices for the shares on the National Association of Securities
Dealers Inc.'s Over-the-Counter Bulletin Board, for the five days immediately
preceding such date; (ii) if the OTCBB is not the principal trading market for
the shares, the average of the last reported sale prices on the principal
trading market for the common stock during the same period as reported by
Bloomberg, L.P., or (iii) if unable to calculate on any of the foregoing bases,
as reasonable determined in good faith by the Board or an independent investment
back of nationally recognized standing in the valuation businesses similar to
the business of the Company.
-8-
The Company may prepay the Senior Convertible Debentures in full by paying
the holders the greater of (i) 125% multiplied by the sum of the total
outstanding principal, plus accrued and unpaid interest, plus default interest,
if any or (ii) the highest number of shares of common stock issuable upon
conversion of the total amount calculated pursuant to (i) multiplied by the
highest market price for the common stock during the period beginning on the
date until prepayment.
On or after any event or series of events which constitutes a fundamental
change, the holder may, in its sole discretion, require the Company to purchase
the debentures, from time to time, in whole or in part, at a purchase price
equal to 110% multiplied by the sum of the total outstanding principal, plus
accrued and unpaid interest, plus any other obligations otherwise due under the
debenture. Under the senior convertible debentures, fundamental change means (i)
any person becomes a beneficial owner of securities representing 50% or more of
the (a) outstanding shares of common stock or (b) the combined voting power of
the then outstanding securities; (ii) a merger or consolidation whereby the
voting securities outstanding immediately prior thereto fail to continue to
represent at least 50% of the combined voting power of the voting securities
immediately after such merger or consolidation; (iii) the sale or other
disposition of all or substantially all or the Company's assets; (iv) a change
in the composition of the Board within two years which results in fewer than a
majority of directors are directors as of the date of the debenture; (v) the
dissolution or liquidation of the Company; or (vi) any transaction or series of
transactions that has the substantial effect of any of the foregoing.
The Purchaser of the $400,000 debenture also purchased Class A Warrants and
Class B Warrants under the Securities Purchase Agreement. Class A Warrants are
exercisable at any time between March 10, 2005 through and including March 10,
2010. Class B Warrants are exercisable for a period through and including 175
days after an effective registration of the common stock underlying the
warrants. The per share exercise price of a Class A Warrant is $0.99 and the per
share exercise price of the Class B Warrant is $0.945.
The Purchaser of the $50,000 debenture also purchased Class A Warrants and
Class B Warrants under the Securities Purchase Agreement. Class A Warrants are
exercisable at any time between March 30, 2005 through and including March 30,
2010. Class B Warrants are exercisable for a period through and including 175
days after an effective registration of the common stock underlying the
warrants. The per share exercise price of a Class A Warrant is $0.935 and the
per share exercise price of the Class B Warrant is $0.8925.
The $450,000 proceeds received was allocated between the debt and the
warrants on a pro-rata basis. The value of the warrants was determined using a
Black-Scholes option-pricing model. The allocated fair value of these warrants
was $254,328 and was recorded as a discount to the related debt. In addition,
the conversion prices were lower than the market value of the Company's common
stock on the date of issue. As a result, an additional discount of $195,672 was
recorded for this beneficial conversion feature. The combined debt discount of
$450,000 is being amortized over the life of the debt using the effective
interest method. At March 31, 2005, $11,575 has been amortized and has been
recorded as additional interest expense.
-9-
5. STOCK-BASED COMPENSATION
On January 7, 2005, the Company issued 1,200,000 stock options to
employees. The options vest over four years with no options vesting on the date
of grant. The exercise price is the fair market price on the date of issuance,
and all options were outstanding at March 31, 2005.
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 where
compensation expense, if any, is recorded as the difference between the exercise
price and the market price, as set forth in Accounting Principles Board Opinion
No. 25 for stock options granted to employees and directors. In 2003, the
Company issued stock options to employees in which the exercise price was less
than the market price on the date of grant. These options vest over three years
and accordingly, $3,938 of expense was recorded for the three months ended March
31, 2005. 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 Three Months
Ended Ended
March 31, March 31,
2004 2003
--------------- ---------------
Net loss, as reported $ (1,371,583) $ (1,040,373)
Add stock-based employee compensation
expense included in reported net loss 3,938 3,903
Less total stock-based employee compensation
expense determined under the fair
value based method for all awards (144,500) (283,438)
---------------- ---------------
Pro forma net loss $ (1,512,145) $ (1,319,908)
================ ===============
Basic and diluted loss per common share,
as reported $ (0.08) $ (0.08)
Basic and diluted loss per common share,
pro forma $ (0.09) $ (0.11)
-10-
6. Loan From Shareholder
During 2002, a shareholder who is also an employee and member of the
Company's board of directors, loaned the Company $109,000. During 2003, the same
shareholder loaned the Company an additional $40,000. During 2005, the same
shareholder loaned the Company an additional $50,000. Interest on the loan is
5%, compounded monthly. Principal is due on December 31, 2009 and interest is
payable quarterly in arrears beginning on June 30, 2003. Accrued interest was
$17,779 and $9,384 at March 31, 2005 and 2004, respectively. Interest expense
was $2,345 and $1,953 at March 31, 2005 and 2004, respectively.
7. SUBSEQUENT EVENTS
On April 1, 2005, the Company entered into agreements to issue Senior
Convertible Debentures to accredited investors in the aggregate amount of
$2,700,000 which is due together with interest in March 2007. This debt has a
security interest in the assets of the Company. The Senior Convertible
Debentures have a maturity date of March 30, 2007, are convertible into shares
of our common stock at a per share conversion price of $0.75, and have the same
terms as those described more fully in Note 4(e). Additionally, the Company
entered into a redemption agreement for $650,000 of its convertible debt with
Cornell Capital Partners.
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.
CAPITAL STRUCTURE
Our ability to continue as a going concern continues to be reasonably
assured due to our financing in March and April 2005. However, our long-term
ongoing operations continue to be dependent upon our ability to raise capital.
We plan to implement our integrated business plan, including execution of
the next phases in clinical development of our pharmaceutical products and full
resumption of research programs for new research initiatives.
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
further 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 become profitable due to revenues from
OTC product sales, we cannot assure you that we will be able to achieve, or
maintain, a level of profitability sufficient to meet our operating expenses.
Our current plans include continuing to operate with our four employees
during the immediate future, but we anticipate adding some part-time employees
during the year. Our current plans also include minimal purchases of new
property, plant and equipment, and significantly increased research and
development.
-11-
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 an operating company that we
believe will provide both profitability and long-term growth. In 2005, through
careful control of expenditures, increasing sales of OTC products, and issuance
of debt and equity, we plan to build on that foundation to increase shareholder
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 the approval of the U. S. Food and Drug
Administration of prescription drugs and medical devices. Additionally, we have
restarted 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.
Comparison of Three Months Ended March 31, 2005 and March 31, 2004.
Revenues. OTC Product Revenue increased by $618 in the three months ended
March 31, 2005 to $2,394 from $1,776 in the three months ended March 31, 2004.
The increase in OTC Product Revenue resulted primarily from sales of Pure-ific
in retail stores. Medical Device Revenue decreased by $12,141 in the three
months ended March 31, 2005 to $984 from $13,125 in the three months ended March
31, 2004. The decrease in Medical Device Revenue resulted primarily due to a
large beta unit sale in the three months ended March 31, 2004 that was not
repeated in the three months ended March 31, 2005, partially offset by sales of
three smaller devices in the three months ended March 31, 2005.
Research and development. The Company is in the planning phase for the
major research and development projects, and therefore does not have estimated
completion dates, completion costs and capital requirements for these projects.
The reason the Company does not have this information available is because it
has not completed the planning process. Since there is no defined schedule for
completing these development projects, there are no defined consequences if they
are not completed timely. Research and development costs comprising the total of
$293,027 for the three months ending March 31, 2005 include consulting of
$89,083, insurance of $23,592, legal of $44,821, payroll of $129,931, and rent
and utilities of $5,600. Research and development costs comprising the total of
$187,954 for the three months ending March 31, 2004 included consulting expense
of $26,843, lab expense of $2,500, insurance of $20,138, legal of $29,048,
payroll of $103,825, and rent and utilities of $5,600.
General and administrative. General and administrative expenses increased
by $105,073 in the three months ended March 31, 2005 to $582,751 from $483,678
in the three months ended March 31, 2004. The increase resulted primarily from
higher consulting expenses for general corporate purposes.
-12-
CASH FLOW
As of April 1, 2005, we held approximately $1,600,000 in cash. At our
current cash expenditure rate, this amount will be sufficient to meet our needs.
We already have begun to increase our expenditure rate by accelerating some of
our research programs for new research initiatives; in addition, we are seeking
to improve our cash flow by increasing sales of OTC products. However, we cannot
assure you that we will be successful in increasing sales of OTC products.
Moreover, even if we are successful in improving our current cash flow position,
we nonetheless will require additional funds to meet our long-term needs. We
anticipate these funds will come from the proceeds of private placements or
public offerings of debt or equity securities.
CAPITAL RESOURCES
As noted above, our present cash flow is currently sufficient to meet our
short-term operating needs. Excess cash will be used to finance the next phases
in clinical development of our pharmaceutical products. We anticipate that the
majority of the funds for our operating and development needs beyond 2005 will
come from the proceeds of private placements or public offerings of debt or
equity securities. While we believe that we have a reasonable basis for our
expectation that we will be able to raise additional funds, we cannot assure you
that we will be able to complete additional financing in a timely manner. In
addition, any such financing may result in significant dilution to shareholders.
For further information on funding sources, please see Note 7 of the notes to
our financial statements included in this report.
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 for the
year ended December 31, 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-15(e) under the
Exchange Act) as of March 31, 2005, 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.
-13-
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. Unregistered Sales of Equity Securities and Use of Proceeds.
Recent Sales of Unregistered Securities
During the three months ended March 31, 2005, the Company completed a
private placement transaction with 8 accredited investors, pursuant to which the
Company sold 214,666 shares of common stock at a purchase price of $0.75 per
share, for an aggregate purchase price of $161,000. In connection with the sale
of common stock, the Company also issued warrants to the investors to purchase
up to 322,000 shares of our common stock at an exercise price of $1.00 per
share. The Company paid $16,100 and issued 80,500 warrants to Venture Catalyst,
LLC as placement agent for this transaction. The cash costs have been off-set
against the proceeds received. Proceeds were used for general corporate
purposes.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
4.1 Form of Secured Convertible Debenture related to the Securities
Purchase Agreement (as defined below), incorporated herein by
reference to Exhibit 4.1 to the Company's Registration Statement on
Form S-2, as filed with the SEC on May 16, 2005
4.2 Form of Class A Warrant related to the Securities Purchase Agreement
(as defined below), incorporated herein by reference to Exhibit 4.2 to
the Company's Registration Statement on Form S-2, as filed with the
SEC on May 16, 2005
4.3 Form of Class B Warrant related to the Securities Purchase Agreement
(as defined below), incorporated herein by reference to Exhibit 4.3 to
the Company's Registration Statement on Form S-2, as filed with the
SEC on May 16, 2005
4.4 Registration Rights Agreement dated as of March 30, 2005 by and among
the Company and the initial investors named therein related to the
Securities Purchase Agreement (as defined below), incorporated herein
by reference to Exhibit 4.4 to the Company's Registration Statement on
Form S-2, as filed with the SEC on May 16, 2005
4.5 Second Amended and Restated Senior Secured Convertible Note dated
November 26, 2004 related to Gryffindor Capital Partners I, LLC,
incorporated herein by reference to Exhibit 4.5 to the Company's
Registration Statement on Form S-2, as filed with the SEC on May 16,
2005
4.6 Common Stock Purchase Warrant dated November 26, 2004 issued to
Gryffindor Capital Partners I, L.L.C., incorporated herein by
reference to Exhibit 4.6 to the Company's Registration Statement on
Form S-2, as filed with the SEC on May 16, 2005
4.7 Advisory Agreement with Duncan Capital Group, LLC dated March 1, 2005,
incorporated herein by reference to Exhibit 4.8 to the Company's
Registration Statement on Form S-2, as filed with the SEC on May 16,
2005
4.8 Form of Warrant issued to Duncan Capital Group, LLC designees,
incorporated herein by reference to Exhibit 4.9 to the Company's
Registration Statement on Form S-2, as filed with the SEC on May 16,
2005
4.9 Financial Advisory and Investment Agreement with Network 1 Financial
Securities, Inc. dated August 15, 2004, incorporated herein by
reference to Exhibit 4.10 to the Company's Registration Statement on
Form S-2, as filed with the SEC on May 16, 2005
4.10 Form of Warrant issued to Damon D. Testaverde and Network 1 Financial
Securities, Inc., incorporated herein by reference to Exhibit 4.11 to
the Company's Registration Statement on Form S-2, as filed with the
SEC on May 16, 2005
4.11 Form of Warrant issued to Selling Securityholders other than the
Purchasers, incorporated herein by reference to Exhibit 4.2 to the
Company's Current Report on Form 8-K dated November 19, 2004, as filed
with the SEC on November 19, 2004.
-15-
4.12 Finders Fee Agreement with Centre Capital Advisors, LLC dated April
19, 2004
4.13 Form of Warrant issued to Centre Capital Advisors, LLC
4.14 Advisory Agreement with Hunter Wise Securities, LLC dated January 19,
2005
4.15 Form of Warrant issued to Hunter Wise Securities, LLC and Daniel J.
McCory
10.1 Securities Purchase Agreement dated as of March 30, 2005 by and among
the Company and the buyers named therein ("Securities Purchase
Agreement"), incorporated herein by reference to Exhibit 10.1 to the
Company's Registration Statement on Form S-2, as filed with the SEC on
May 16, 2005
10.2 Amendment No. 1 to Transaction Documents with Gryffindor Capital
Partners I, L.L.C. dated November 26, 2004, incorporated herein by
reference to Exhibit 10.4 to the Company's Registration Statement on
Form S-2, as filed with the SEC on May 16, 2005
31.1 Certification Pursuant to Rule 13a-14(a) (Section 302 Certification),
dated May 16, 2005, 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 May 16, 2005, 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 May 16, 2005, executed by H. Craig Dees, Ph.D.,
Chief Executive Officer of the Company, and Peter R. Culpepper, Chief
Financial Officer of the Company.
(b) Current Reports on Form 8-K.
None
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: May 16, 2005
-16-
EXHIBIT INDEX
Exhibit No. Description
----------- ------------
4.1 Form of Secured Convertible Debenture related to the Securities
Purchase Agreement (as defined below), incorporated herein by
reference to Exhibit 4.1 to the Company's Registration Statement on
Form S-2, as filed with the SEC on May 16, 2005
4.2 Form of Class A Warrant related to the Securities Purchase Agreement
(as defined below), incorporated herein by reference to Exhibit 4.2 to
the Company's Registration Statement on Form S-2, as filed with the
SEC on May 16, 2005
4.3 Form of Class B Warrant related to the Securities Purchase Agreement
(as defined below), incorporated herein by reference to Exhibit 4.3 to
the Company's Registration Statement on Form S-2, as filed with the
SEC on May 16, 2005
4.4 Registration Rights Agreement dated as of March 30, 2005 by and among
the Company and the initial investors named therein related to the
Securities Purchase Agreement (as defined below), incorporated herein
by reference to Exhibit 4.4 to the Company's Registration Statement on
Form S-2, as filed with the SEC on May 16, 2005
4.5 Second Amended and Restated Senior Secured Convertible Note dated
November 26, 2004 related to Gryffindor Capital Partners I, LLC,
incorporated herein by reference to Exhibit 4.5 to the Company's
Registration Statement on Form S-2, as filed with the SEC on May 16,
2005
4.6 Common Stock Purchase Warrant dated November 26, 2004 issued to
Gryffindor Capital Partners I, L.L.C., incorporated herein by
reference to Exhibit 4.6 to the Company's Registration Statement on
Form S-2, as filed with the SEC on May 16, 2005
4.7 Advisory Agreement with Duncan Capital Group, LLC dated March 1, 2005,
incorporated herein by reference to Exhibit 4.8 to the Company's
Registration Statement on Form S-2, as filed with the SEC on May 16,
2005
4.8 Form of Warrant issued to Duncan Capital Group, LLC designees,
incorporated herein by reference to Exhibit 4.9 to the Company's
Registration Statement on Form S-2, as filed with the SEC on May 16,
2005
4.9 Financial Advisory and Investment Agreement with Network 1 Financial
Securities, Inc. dated August 15, 2004, incorporated herein by
reference to Exhibit 4.10 to the Company's Registration Statement on
Form S-2, as filed with the SEC on May 16, 2005
4.10 Form of Warrant issued to Damon D. Testaverde and Network 1 Financial
Securities, Inc., incorporated herein by reference to Exhibit 4.11 to
the Company's Registration Statement on Form S-2, as filed with the
SEC on May 16, 2005
4.11 Form of Warrant issued to Selling Securityholders other than the
Purchasers, incorporated herein by reference to Exhibit 4.2 to the
Company's Current Report on Form 8-K dated November 19, 2004, as filed
with the SEC on November 19, 2004.
4.12 Finders Fee Agreement with Centre Capital Advisors, LLC dated April
19, 2004
4.13 Form of Warrant issued to Centre Capital Advisors, LLC
4.14 Advisory Agreement with Hunter Wise Securities, LLC dated January 19,
2005
4.15 Form of Warrant issued to Hunter Wise Securities, LLC and Daniel J.
McCory
10.1 Securities Purchase Agreement dated as of March 30, 2005 by and among
the Company and the buyers named therein ("Securities Purchase
Agreement"), incorporated herein by reference to Exhibit 10.1 to the
Company's Registration Statement on Form S-2, as filed with the SEC on
May 16, 2005
10.2 Amendment No. 1 to Transaction Documents with Gryffindor Capital
Partners I, L.L.C. dated November 26, 2004, incorporated herein by
reference to Exhibit 10.4 to the Company's Registration Statement on
Form S-2, as filed with the SEC on May 16, 2005
31.1 Certification Pursuant to Rule 13a-14(a) (Section 302 Certification),
dated May 16, 2005, 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 May 16, 2005, 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 May 16, 2005, executed by H. Craig Dees, Ph.D.,
Chief Executive Officer of the Company, and Peter R. Culpepper, Chief
Financial Officer of the Company.