pvctsb2a2012408.htm
As
Filed with the Securities and
Exchange Commission on January 28,
2008
Registration No.
333-147783
UNITED
STATES
SECURITIES
AND EXCHANGE
COMMISSION
WASHINGTON,
DC 20549
FORM
SB-2/A
Amendment
No.
2
REGISTRATION
STATEMENT UNDER
THE
SECURITIES
ACT OF
1933
PROVECTUS
PHARMACEUTICALS, INC.
(Name
of
small business issuer as specified in its charter)
Nevada
|
|
2834
|
|
90-0031917
|
State
or jurisdiction of incorporation or organization
|
|
(Primary
Standard Industrial Classification Code Number)
|
|
(I.R.S.
Employer Identification No.)
|
|
|
|
|
|
7327
Oak Ridge Highway, Suite
A, Knoxville, Tennessee 37931 (865)
769-4011
|
(Address
and telephone number of principal executive offices)
|
Timothy
C. Scott, Ph.D.,
President
Provectus
Pharmaceuticals,
Inc.
7327
Oak Ridge Highway, Suite
A
Knoxville,
Tennessee
37931
(865)
769-4011
with
a copy to:
Linda
Crouch-McCreadie,
Esq.
Baker,
Donelson, Bearman,
Caldwell & Berkowitz, P.C.
100
Med Tech
Parkway
Suite
200
Johnson
City, Tennessee
37604
(423)
928-0181
|
(Name,
address and telephone number of agent for
service)
|
Approximate
date of proposed sale to
the public: From time to time after the effective date of the registration
statement until such time that all of the shares of common stock registered
hereunder have been sold.
If
this
Form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. ¨
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. ¨
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. ¨
If
delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. ¨
CALCULATION
OF REGISTRATION
FEE
Title
of each class of
securities
to be
registered
|
Amount
to
be
registered
|
Proposed
maximum
offering
price per
unit
|
Proposed
maximum
aggregate
offering
price
|
Amount
of
registration
fee
|
Common
Stock, $0.001 par value
|
22,436,231
(1)
|
$2.23
(2)
|
$50,032,746
|
$1,537
(3)
|
(1)
|
The
shares of common stock being registered hereunder consist of: (1)
7,881,206 shares issued to the selling stockholders who acquired
the
shares in private offerings; and (2) 14,555,025 shares issuable
upon
exercise of common stock purchase warrants outstanding as of the
date
hereof issued to the selling stockholders. The number of shares
may be adjusted as a result of stock splits, stock dividends,
anti-dilution provisions and similar transactions in accordance
with Rule
416.
|
(2)
|
The
price of $2.23, which is the average of the high and low sale prices
of
the Registrant’s common stock on the over the counter bulletin board on
November 27, 2007, is set forth solely for the purpose of computing
the
registration fee pursuant to
Rule 457(c).
|
(3)
|
The
registration fee
has previously been submitted to the
Commission. |
The
registrant hereby amends this registration statement on such date or dates
as
may be necessary to delay its effective date until the registrant shall file
a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The
information in this prospectus is
not complete and may be changed. These securities may not be sold until the
registration statement relating to these securities that has been filed with
the
Securities and Exchange Commission is effective. This prospectus is not an
offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
SUBJECT
TO COMPLETION, DATED JANUARY 28, 2008
22,436,231
Shares of Common Stock
This
prospectus relates to the sale by the selling stockholders of 22,436,231 shares
of our common stock, par value $0.001. 7,881,206 shares registered are held
by
certain selling stockholders, and 14,555,025 of the shares registered are
issuable upon conversion of common-stock warrants held by certain selling
stockholders.
The
selling stockholders may sell the shares from time to time at the prevailing
market price or in negotiated transactions. We will not receive any of the
proceeds from the sale of the shares by the selling stockholders. We have agreed
to pay the expenses in connection with the registration of these shares. The
selling stockholders may be deemed to be “underwriters” within the meaning of
the Securities Act of 1933, which we refer to as the “Securities
Act.”
Our
common stock is quoted on the OTC Bulletin Board under the trading symbol
“PVCT.”
As
you review this prospectus, you
should carefully consider the matters described in “Risk Factors,” beginning on
page 4.
Neither
the Securities and Exchange Commission, which we refer to as the “SEC,” nor any
state securities commission has approved or disapproved of these securities
or
passed on the adequacy or accuracy of this prospectus. Any representation to
the
contrary is a criminal offense.
The
date
of this prospectus is __________________.
You
should rely only on the
information contained in this document or a document to which we have referred
you. We have not authorized anyone to provide you with information that is
different.
This
document may only be used where
it is legal to sell these securities. The information in this document may
only
be accurate on the date of this document.
TABLE
OF CONTENTS
Prospectus
Summary .........................................................................................................................................................................................................................................................
1
Risk
Factors .......................................................................................................................................................................................................................................................................
4
Forward-Looking
Statements ......................................................................................................................................................................................................................................... 11
Use
of
Proceeds ...............................................................................................................................................................................................................................................................
12
Description
of
Securities ................................................................................................................................................................................................................................................
12
Market
for Common Equity and Related Stockholder
Matters..................................................................................................................................................................................
14
Selling
Stockholders ........................................................................................................................................................................................................................................................
15
Plan
of
Distribution .........................................................................................................................................................................................................................................................
21
Directors,
Executive Officers, Control Persons and
Management ..........................................................................................................................................................................
24
Security
Ownership of Certain Beneficial Owners and
Management .....................................................................................................................................................................
25
Executive
Compensation ................................................................................................................................................................................................................................................
27
Business ...........................................................................................................................................................................................................................................................................
31
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations ...........................................................................................................................
42
Description
of
Property..................................................................................................................................................................................................................................................
47
Certain
Relationships and Related Transactions and Corporate Governance
...................................................................................................................................................... 47
Legal
Matters
.................................................................................................................................................................................................................................................................. 48
Experts
............................................................................................................................................................................................................................................................................. 48
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure ..........................................................................................................................
48
Where
You
Can Find More
Information .....................................................................................................................................................................................................................
48
Financial
Statements ......................................................................................................................................................................................................................................................
49
PROSPECTUS
SUMMARY
This
summary is qualified in its
entirety by the more detailed information appearing elsewhere in this
prospectus.
You
should read the following summary together with the more detailed information
and consolidated financial statements and related notes thereto appearing
elsewhere in this prospectus before you invest in our common stock. This
prospectus contains forward-looking statements. The outcome of the events
described in these forward-looking statements is subject to risks, and actual
results could differ materially. Read this entire prospectus carefully,
especially the risks described under “Risk Factors.” Unless otherwise indicated,
“we,” “us,” “our” and similar terms, as well as references to the “Company” and
“Provectus,” refer to Provectus Pharmaceuticals, Inc. and its subsidiaries and
not to the selling stockholders.
This
prospectus and the registration statement in which it is included relate to
the
offer and sale of up to an aggregate of 22,436,231 shares of our common stock,
$0.001 par value by the selling stockholders identified beginning on
page 16. The 22,436,231 shares of our common stock offered by the selling
stockholders include 14,555,025 shares issuable upon conversion of common-stock
warrants held by the selling stockholders. As used in this prospectus, “selling
stockholders” includes donees, pledgees, transferees or other
successors-in-interest selling shares received after the date of this prospectus
from a selling stockholder as a gift, pledge, partnership distribution or other
non-sale related transfer. Our common stock is traded on the OTC Bulletin Board
under the symbol “PVCT.”
We
will
not receive any of the proceeds from any sale of the shares by selling
stockholders. We will receive up to $13,767,440 in proceeds from any cash
exercise of the warrants currently outstanding and for which the underlying
shares are included in this prospectus. We intend to use any such cash proceeds
received for general corporate purposes.
Our
Company
Our
company, Provectus Pharmaceuticals, Inc., a Nevada corporation, and our seven
wholly owned subsidiaries, IP Tech, Inc., Xantech Pharmaceuticals, Inc.,
Provectus Biotech, Inc., Provectus Devicetech, Inc., Provectus Pharmatech,
Inc.,
Provectus Imaging, Inc., and Pure-ific Corporation, develop, license and market
and plan to sell products in three sectors of the healthcare
industry:
· Prescription
drugs;
· Medical
device systems; and
· Over-the-counter
products, which we refer to as “OTC products.”
Provectus
and the subsidiaries are managed on an integrated basis, and when we refer
to
“we” or “us” or “the Company” in this prospectus, we refer to all eight
corporations considered as a single unit.
Through
discovery and use of state-of-the-art scientific and medical technologies,
the
founders of our pharmaceutical business have developed a portfolio of patented,
patentable, and proprietary technologies that support multiple products in
the
prescription drugs, medical device systems and OTC products categories,
including patented technologies for:
·
|
novel
therapeutic medical devices;
|
·
|
enhancing
contrast in medical imaging;
|
Our
prescription drug products encompass the areas of dermatology and oncology
and
involve several types of small molecule-based drugs. Our medical device systems
include therapeutic and cosmetic lasers, while our OTC products address markets
primarily involving skincare applications. None of our prescription drug
products are currently being sold because their development is not yet
complete.
Our
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
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, which we refer
to
as “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. As a result,
holders of 6,680,000 shares of common stock of Provectus Pharmaceutical
exchanged their shares 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.
For accounting purposes, we treat this transaction as a recapitalization of
PPI.
On
November 19, 2002, we acquired Valley Pharmaceuticals, Inc., a privately-held
Tennessee corporation formerly known as Photogen, Inc., by merging our
subsidiary PPI with and into Valley and naming the surviving corporation
“Xantech Pharmaceuticals, Inc.” Valley has minimal operations and had no
revenues prior to the transaction with us. By acquiring Valley, we acquired
our
most important intellectual property, including issued U.S. patents and
patentable inventions, with which we intend to develop:
·
|
prescription
drugs, medical and other devices (including laser devices) and
over-the-counter pharmaceutical products in the fields of dermatology
and
oncology; and
|
·
|
technologies
for the preparation of human and animal vaccines, diagnosis of infectious
diseases and enhanced production of genetically engineered
drugs.
|
Prior
to
the acquisition of Valley, we were considered to be, and continue to be, in
the
development stage and have not generated any revenues from the assets we
acquired.
On
December 5, 2002, we 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. We acquired the product formulations for Pure-ific
personal sanitizing sprays, along with the “Pure-ific” trademarks.
On
June
3, 2004, we formed three subsidiaries, Provectus Biotech, Inc., Provectus
Devicetech, Inc. and Provectus Pharmatech, Inc. On April 30, 2007, we formed
Provectus Imaging, Inc. On July 13, 2007, we formed the remaining subsidiary,
IP
Tech, Inc.
The
Offering
Securities
Offered |
|
22,436,231
shares of common stock, $0.001 par value. This includes 7,881,206
shares of common stock held by the selling stockholders and up
to
14,555,025 shares of common stock issuable upon
the
exercise of warrants held by the selling stockholders. See "Selling
Stockholders," beginning on
page 15.
|
|
|
|
Common
Stock Outstanding
before
the Offering
|
|
We
are authorized to issue 100,000,000 shares of common stock, of which
49,207,614 shares were issued and outstanding as of November 26,
2007.
This figure excludes warrants to purchase 23,482,336 shares of common
stock and 8,903,169 shares of common stock issuable upon exercise
of
options.
|
|
|
|
Selling
stockholders
|
|
The
selling stockholders are identified in this prospectus, beginning
on
page 16, together with the maximum amount of our common shares that
each may sell either outright or upon conversion rights under their
warrants, if any. See “Selling Stockholders,” beginning on
page 15.
|
|
|
|
Offering
Price
|
|
The
offering price will be determined at the time of sale by each selling
stockholder.
|
|
|
|
Use
of Proceeds
|
|
We
will not receive any of the proceeds from any sale of the shares
by
selling stockholders. We will receive up to $13,767,440 in proceeds
from
cash exercises of the warrants currently outstanding and for which
the
underlying shares are included in this prospectus. We intend to use
any
such cash proceeds received for general corporate purposes. See “Use of
Proceeds” on page 12.
|
|
|
|
Plan
of Distribution
|
|
Up
to 22,436,231 shares of common stock may be offered and sold by the
selling stockholders through agents or brokers based upon quotations
on
the OTC Bulletin Board, through agents or brokers in private sales,
or by
any other legally available means. See “Plan of Distribution” on page
21.
|
|
|
|
Dividend
Policy
|
|
We
currently intend to retain any future earnings to fund the development
and
growth of our business. Therefore, we do not currently anticipate
paying
cash dividends on our common stock.
|
|
|
|
OTC
Bulletin Board Symbol
|
|
PVCT
|
Risk
Factors
Our
company faces significant risks, including that our ongoing operations continue
to be dependent upon our ability to raise capital. We have only four employees
and our future success depends significantly on these employees. Please see
the
section of this prospectus entitled “Risk Factors,” beginning on page 4 for
more information about the risks faced by us.
How
to Contact
Us
The
mailing address of our principal executive office is 7327 Oak Ridge Highway,
Suite A, Knoxville, Tennessee 37931, and our telephone number is (865)
769-4011.
RISK
FACTORS
Our
business is subject to various risks, including those described below. You
should carefully consider these risk factors, together with all of the other
information included in this prospectus. Any of these risks could materially
adversely affect our business, operating results, and financial
condition:
Our
technologies are in early stages
of development.
We
generated minimal initial revenues from sales and operations in 2006 and 2005,
and we do not expect to generate revenues to enable us to be profitable for
several calendar quarters unless we sell and/or license our technologies. We
must raise substantial additional funds beyond 2008 in order to fully implement
our integrated business plan, including execution of the next phases in clinical
development of our pharmaceutical products. We estimate that our existing
capital resources will be sufficient to fund our current and planned
operations.
Ultimately,
we must achieve profitable operations if we are to be a viable entity, unless
we
are acquired by another company. We intend to proceed as rapidly as possible
with the asset sale and licensure 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. We cannot
assure you that we will be able to raise sufficient capital to sustain
operations beyond 2008 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.
We
will need additional capital to
conduct our operations and develop our products beyond 2008, and our ability
to
obtain the necessary funding is uncertain.
We
estimate that our existing capital resources will be sufficient to fund our
current and planned operations through 2008; however, we may need additional
capital. We have based this estimate on assumptions that may prove to be wrong,
and we cannot assure that estimates and assumptions will remain unchanged.
For
example, we are currently assuming that we will continue to operate without
any
significant staff or other resources expansion. We intend to acquire additional
funding through public or private equity financings or other financing sources
that may be available. Additional financing may not be available on acceptable
terms, or at all. As discussed in more detail below, additional equity financing
could result in significant dilution to stockholders. Further, in the event
that
additional funds are obtained through licensing or other arrangements, these
arrangements may require us to relinquish rights to some of our technologies,
product candidates or products that we would otherwise seek to develop and
commercialize ourselves. If sufficient capital is not available, we may be
required to delay, reduce the scope of, or eliminate one or more of our
programs, any of which could have a material adverse effect on our business
and
may impair the value of our patents and other intangible assets.
Existing
stockholders may face
dilution from our financing efforts.
We
must
raise additional capital from external sources to execute our business plan
beyond 2008. We plan to issue debt securities, capital stock, or a combination
of these securities, if necessary. We may not be able to sell these securities,
particularly under current market conditions. Even if we are successful in
finding buyers for our securities, the buyers could demand high interest rates
or require us to agree to onerous operating covenants, which could in turn
harm
our ability to operate our business by reducing our cash flow and restricting
our operating activities. If we were to sell our capital stock, we might be
forced to sell shares at a depressed market price, which could result in
substantial dilution to our existing shareholders. In addition, any shares
of
capital stock we may issue may have rights, privileges, and preferences superior
to those of our common shareholders.
The
prescription drug and medical
device products in our internal pipeline are at an early stage of development,
and they may fail in subsequent development or
commercialization.
·
|
a
product may be found to be ineffective or have harmful side effects
during
subsequent pre-clinical testing or clinical
trials;
|
·
|
a
product may fail to receive necessary regulatory
clearance;
|
·
|
a
product may be too difficult to manufacture on a large
scale;
|
·
|
a
product may be too expensive to manufacture or
market;
|
·
|
a
product may not achieve broad market
acceptance;
|
·
|
others
may hold proprietary rights that will prevent a product from being
marketed; or
|
·
|
others
may market equivalent or superior
products.
|
We
do not
expect any pharmaceutical drug products that we are developing to be
commercially available for several years, if at all. Our research and product
development efforts may not be successfully completed and may not result in
any
successfully commercialized products. Further, after commercial introduction
of
a new product, discovery of problems through adverse event reporting could
result in restrictions on the product, including withdrawal from the market
and,
in certain cases, civil or criminal penalties.
Our
OTC products are at an early
stage of introduction, and we cannot be sure that they will be sold through
a
combination of asset sale and licensure in the marketplace or that we will
have
adequate capital to further develop these products, if necessary, which are
an
important factor in the future success of our business.
We
recently have focused on marketing Pure-ific, one of our OTC products, on a
limited basis to establish proof of concept. We have recognized minimal revenue
from this product, as the sales of this product have not been material. In
order
for this product, and our other OTC products, to become commercially successful,
unless we license and/or sell the underlying assets, we must increase
significantly our distribution of them. Increasing distribution of our products
requires, in turn, that we or distributors representing us increase marketing
of
these products. In view of our limited financial resources, we may be unable
to
afford increases in our marketing of our OTC products sufficient to improve
our
distribution of our products. Even if we can and do increase our marketing
of
our OTC products, we cannot assure you that we can successfully increase our
distribution of our products.
If
we do
begin increasing our distribution of our OTC products, we must increase our
production of these products in order to fill our distribution channels.
Increased production will require additional financial resources that we do
not
plan to allocate at present. Additionally, we may succeed in increasing
production without succeeding in increasing sales, which could leave us with
excess, possibly unsaleable, inventory.
If
we are
unable to successfully introduce, market and distribute these products, our
business, financial condition, results of operations and cash flows would likely
require additional capital beyond 2008 to continue as a going
concern.
Competition
in the prescription
drug, medical device and OTC pharmaceuticals markets is intense, and we may
be
unable to succeed if our competitors have more funding or better
marketing.
The
pharmaceutical and biotechnology industries are intensely competitive. Other
pharmaceutical and biotechnology companies and research organizations currently
engage in or have in the past engaged in research efforts related to treatment
of dermatological conditions or cancers of the skin, liver and breast, which
could lead to the development of products or therapies that could compete
directly with the prescription drug, medical device and OTC products that we
are
seeking to develop and market.
Many
companies are also developing alternative therapies to treat cancer and
dermatological conditions and, in this regard, are our competitors. Many of
the
pharmaceutical companies developing and marketing these competing products
have
significantly greater financial resources and expertise than we do
in:
·
|
research
and development;
|
·
|
preclinical
and clinical testing;
|
·
|
obtaining
regulatory approvals; and
|
Smaller
companies may also prove to be significant competitors, particularly through
collaborative arrangements with large and established companies. Academic
institutions, government agencies, and other public and private research
organizations may also conduct research, seek patent protection, and establish
collaborative arrangements for research, clinical development, and marketing
of
products similar to ours. These companies and institutions compete with us
in
recruiting and retaining qualified scientific and management personnel as well
as in acquiring technologies complementary to our programs.
In
addition to the above factors, we expect to face competition in the following
areas:
·
|
product
efficacy and safety;
|
·
|
the
timing and scope of regulatory
consents;
|
·
|
availability
of resources;
|
·
|
reimbursement
coverage;
|
·
|
patent
position, including potentially dominant patent positions of
others.
|
As
a
result of the foregoing, our competitors may develop more effective or more
affordable products or achieve earlier product commercialization than we
do.
Additionally,
since our currently marketed products are generally established and commonly
sold, they are subject to competition from products with similar qualities.
Our
OTC product Pure-ific competes in the market with other hand sanitizing
products, including in particular, the following hand sanitizers:
·
|
Purell
(owned by Johnson & Johnson);
|
·
|
Avagard
D (manufactured by 3M); and
|
·
|
a
large number of generic and private-label equivalents to these market
leaders.
|
Our
OTC
product GloveAid represents a new product category that has no direct
competitors; however, other types of products, such as AloeTouch® disposable
gloves (manufactured by Medline Industries) target the same market
niche.
Since
our
prescription products PV-10 and PH-10 have not yet been approved by the United
Stated Food and Drug Administration, which we refer to as the “FDA,” or
introduced to the marketplace, we cannot estimate what competition these
products might face when they are finally introduced, if at all. We cannot
assure you that these products will not face significant competition for other
prescription drugs and generic equivalents.
If
we are unable to secure or
enforce patent rights, trademarks, trade secrets or other intellectual property
our business could be harmed.
We
may
not be successful in securing or maintaining proprietary patent protection
for
our products and technologies we develop or license. In addition, our
competitors may develop products similar to ours using methods and technologies
that are beyond the scope of our intellectual property protection, which could
reduce our anticipated sales. While some of our products have proprietary patent
protection, a challenge to these patents can be subject to expensive litigation.
Litigation concerning patents, other forms of intellectual property, and
proprietary technology is becoming more widespread and can be protracted and
expensive and can distract management and other personnel from performing their
duties.
We
also
rely upon trade secrets, unpatented proprietary know-how, and continuing
technological innovation to develop a competitive position. We cannot assure
you
that others will not independently develop substantially equivalent proprietary
technology and techniques or otherwise gain access to our trade secrets and
technology, or that we can adequately protect our trade secrets and
technology.
If
we are
unable to secure or enforce patent rights, trademarks, trade secrets, or other
intellectual property, our business, financial condition, results of operations
and cash flows could be materially adversely affected. If we infringe on the
intellectual property of others, our business could be harmed.
We
could
be sued for infringing patents or other intellectual property that purportedly
cover products and/or methods of using such products held by persons other
than
us. Litigation arising from an alleged infringement could result in removal
from
the market, or a substantial delay in, or prevention of, the introduction of
our
products, any of which could have a material adverse effect on our business,
financial condition, results of operations, and cash flows.
If
we do not update and enhance our
technologies, they will become obsolete.
The
pharmaceutical market is characterized by rapid technological change, and our
future success will depend on our ability to conduct successful research in
our
fields of expertise, to discover new technologies as a result of that research,
to develop products based on our technologies, and to commercialize those
products. While we believe that our current technology is adequate for our
present needs, if we fail to stay at the forefront of technological development,
we will be unable to compete effectively. Our competitors are using substantial
resources to develop new pharmaceutical technologies and to commercialize
products based on those technologies. Accordingly, our technologies may be
rendered obsolete by advances in existing technologies or the development of
different technologies by one or more of our current or future
competitors.
If
we lose any of our key personnel,
we may be unable to successfully execute our business
plan.
Our
business is presently managed by four key employees:
·
|
H.
Craig Dees, Ph.D., our Chief Executive
Officer;
|
·
|
Timothy
C. Scott, Ph.D., our President;
|
·
|
Eric
A. Wachter, Ph.D. our Vice President - Pharmaceuticals;
and
|
·
|
Peter
R. Culpepper, CPA, our Chief Financial
Officer.
|
In
addition to their responsibilities for management of our overall business
strategy, Drs. Dees, Scott and Wachter are our chief researchers in the fields
in which we are developing and planning to develop prescription drug, medical
device and OTC products. Also, as of December 31, 2006, we owe $265,929 in
accrued but unpaid compensation to our employees, and as of September 30, 2007,
we owe $569,217 in accrued but unpaid compensation to our employees. The loss
of
any of these key employees could have a material adverse effect on our
operations, and our ability to execute our business plan might be negatively
impacted. Any of these key employees may leave their employment with us if
they
choose to do so, and we cannot assure you that we would be able to hire
similarly qualified employees if any of our key employees should choose to
leave.
Because
we have only four employees
in total, our management may be unable to successfully manage our
business.
In
order
to successfully execute our business plan, our management must succeed in all
of
the following critical areas:
·
|
Researching
diseases and possible therapies in the areas of dermatology and skin
care,
oncology, and biotechnology;
|
·
|
Developing
prescription drug, medical device, and OTC products based on our
research;
|
·
|
Marketing
and selling developed products;
|
·
|
Obtaining
additional capital to finance research, development, production,
and
marketing of our products; and
|
·
|
Managing
our business as it grows.
|
As
discussed above, we currently have only four employees, all of whom are
full-time employees. The greatest burden of succeeding in the above areas,
therefore, falls on Drs. Dees, Scott, Wachter, and Mr. Culpepper. Focusing
on
any one of these areas may divert their attention from our other areas of
concern and could affect our ability to manage other aspects of our business.
We
cannot assure you that our management will be able to succeed in all of these
areas or, even if we do so succeed, that our business will be successful as
a
result. We anticipate adding an additional regulatory affairs officer on a
consulting basis within several months. While we have not historically had
difficulty in attracting employees, our small size and limited operating history
may make it difficult for us to attract and retain employees in the future,
which could further divert management’s attention from the operation of our
business.
Our
common stock price can be
volatile because of several factors, including a limited public float, which
has
increased significantly from 2005 to 2007.
From
January 1, 2006 through December 31, 2007 the sale price of our common
stock fluctuated from $3.07 to $0.83 per share. We believe that our common
stock
is subject to wide price fluctuations because of several factors,
including:
·
|
absence
of meaningful earnings and ongoing need for external
financing;
|
·
|
a
relatively thin trading market for our common stock, which causes
trades
of small blocks of stock to have a significant impact on our stock
price;
|
·
|
general
volatility of the stock market and the market prices of other publicly
traded companies; and
|
·
|
investor
sentiment regarding equity markets generally, including public perception
of corporate ethics and governance and the accuracy and transparency
of
financial reporting.
|
Financings
that may be available to
us under current market conditions frequently involve sales at prices below
the
prices at which our common stock trades on the OTC Bulletin Board, as well
as
the issuance of warrants or convertible debt that require exercise or conversion
prices that are calculated in the future at a discount to the then market price
of our common stock.
Any
agreement to sell, or convert debt or equity securities into, common stock
at a
future date and at a price based on the then current market price will provide
an incentive to the investor or third parties to sell the common stock short
to
decrease the price and increase the number of shares they may receive in a
future purchase, whether directly from us or in the market.
Financings
that may be available to
us frequently involve high selling costs.
Because
of our limited operating history, low market capitalization, thin trading volume
and other factors, we have historically had to pay high costs to obtain
financing and expect to continue to be required to pay high costs for any future
financings in which we may participate. For example, our past sales of shares
and our sale of the debentures have involved the payment of finder’s fees or
placement agent’s fees. These types of fees are typically higher for small
companies like us. Payment of fees of this type reduces the amount of cash
that
we receive from a financing transaction and makes it more difficult for us
to
obtain the amount of financing that we need to maintain and expand our
operations.
It
is our general policy to retain
any earnings for use in our operation.
We
have
never declared or paid cash dividends on our common stock. We currently intend
to retain all of our future earnings, if any, for use in our business and
therefore do not anticipate paying any cash dividends on our common stock in
the
foreseeable future.
Our
stock price is below $5.00 per
share and is treated as a “penny stock”, which places restrictions on
broker-dealers recommending the stock for purchase.
Our
common stock is defined as “penny stock” under the Exchange Act and its rules.
The SEC has adopted regulations that define “penny stock” to include common
stock that has a market price of less than $5.00 per share, subject to certain
exceptions. These rules include the following requirements:
·
|
broker-dealers
must deliver, prior to the transaction a disclosure schedule prepared
by
the SEC relating to the penny stock
market;
|
·
|
broker-dealers
must disclose the commissions payable to the broker-dealer and its
registered representative;
|
·
|
broker-dealers
must disclose current quotations for the
securities;
|
·
|
if
a broker-dealer is the sole market-maker, the broker-dealer must
disclose
this fact and the broker-dealers presumed control over the market;
and
|
·
|
a
broker-dealer must furnish its customers with monthly statements
disclosing recent price information for all pennies stocks held in
the
customer’s account and information on the limited market in penny
stocks.
|
Additional
sales practice requirements are imposed on broker-dealers who sell penny stocks
to persons other than established customers and accredited investors. For these
types of transactions, the broker-dealer must make a special suitability
determination for the purchaser and must have received the purchaser’s written
consent to the transaction prior to sale. If our common stock remains subject
to
these penny stock rules these disclosure requirements may have the effect of
reducing the level of trading activity in the secondary market for our common
stock. As a result, fewer broker-dealers may be willing to make a market in
our
stock, which could affect a shareholder’s ability to sell their
shares.
Future
sales by our stockholders may
adversely affect our stock price and our ability to raise funds in new stock
offerings.
Sales
of our common stock in the public
market following this offering could lower the market price of our common stock.
Sales may also make it more difficult for us to sell equity securities or
equity-related securities in the future at a time and price that our management
deems acceptable or at all.
FORWARD-LOOKING
STATEMENTS
Some
of
the information contained in this prospectus are forward-looking statements
(as
defined in Section 27A of the Securities Act and Section 21E of the Exchange
Act), which mean that they relate to events or transactions that have not yet
occurred, our expectations or estimates for our future operations, our growth
strategies or business plans, or other facts that have not yet occurred. These
statements can be identified by the use of forward-looking terminology such
as
“might,” “may,” “will,” “could,” “expect,” “anticipate,” “estimate,” “likely,”
“intend,” “believe,” or “continue” or the negative thereof or other variations
thereon or comparable terminology. The above risk factors contain discussions
of
important factors that should be considered by prospective investors for their
potential impact on forward-looking statements included in this prospectus.
These important factors, among others, may cause actual results to differ
materially and adversely from the results expressed or implied by the
forward-looking statements. 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 of this prospectus, 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.
USE
OF PROCEEDS
The
selling stockholders will receive all of the proceeds from the resale of any
of
our common stock offered in this prospectus. We will not receive any of the
proceeds from any sale of the shares by the selling stockholders. If the
warrants that were issued to the selling stockholders to purchase 14,555,025
shares of our common stock are exercised for cash, we will receive estimated
proceeds of approximately $13,767,440 from the selling stockholders. We intend
to use any such cash proceeds received for general corporate
purposes.
DESCRIPTION
OF
SECURITIES
Common
Stock
We
are
authorized to issue 100,000,000 shares of common stock, $0.001 par value per
share, of which 49,207,614 shares were issued and outstanding and held of record
as of November 26, 2007, by approximately 1,821 stockholders of record. A
significant portion of our common stock is held in either nominee name or
street-name brokerage accounts. All outstanding shares of common stock are
fully
paid and non-assessable. Holders of shares of our common stock are entitled
to
one vote for each share held of record on all matters to be voted on by
stockholders. Holders of shares of common stock are entitled to receive
dividends when, as, and if declared by our board of directors from funds legally
available therefor and to share ratably in our assets available upon
liquidation, dissolution, or winding up. The holders of shares of the common
stock do not have cumulative voting rights for the election of directors and,
accordingly, the holders of more than 50% of the shares of common stock are
able
to elect all directors. Our Restated Articles of Incorporation do not grant
preemptive rights. The common stock may not be redeemed except upon our consent
and the consent of the stockholders, and the common stock is not subject to
liability for further calls or to assessments by Provectus. This summary does
not purport to be complete and is qualified in its entirety by reference to
our
Restated Articles of Incorporation and to Nevada law.
Preferred
Stock
We
are
authorized to issue 25,000,000 shares of preferred stock, $0.001 par value
per
share, of which no shares are issued and outstanding. The shares of preferred
stock may be issued from time to time in one or more series, in any manner
permitted by law, as determined from time to time by our board of directors,
and
stated in the resolution or resolutions providing for the issuance of such
shares adopted by our board of directors pursuant to authority vested in it.
Without limiting the generality of the foregoing, shares in such series shall
have voting powers, full or limited, or no voting powers, and shall have such
designations, preferences and relative, participating, optional, or other
special rights, and qualifications, limitations, or restrictions thereof,
permitted by law, as shall be stated in the resolution or resolutions providing
for the issuance of such shares adopted by our board of directors. The number
of
shares of any such series so set forth in the resolution or resolutions may
be
increased (but not above the total number of authorized shares of preferred
stock) or decreased (but not below the number of shares thereof then
outstanding) by further resolution or resolutions adopted by the board of
directors.
Governing
Law and
Organizational Documents
Stockholders’
rights and related matters are governed by the laws of the State of Nevada,
our
Restated Articles of Incorporation and our Bylaws. Our Restated Articles of
Incorporation may not be amended without the affirmative vote of at least a
majority of the shares entitled to vote generally in the election of directors,
voting as a single voting group. Our Bylaws may be amended by either the
affirmative vote of 75% of all shares outstanding and entitled to vote generally
in the election of directors or by an affirmative vote of a majority of our
directors then holding office.
Stock
Option
Plans
The
2002
Stock Option Plan, as amended (the “Plan”), provides for the grant of four types
of incentive awards, specifically stock options, stock appreciation rights,
rights to purchase restricted stock, and long-term performance
awards.
Our
employees and consultants, including officers and directors who also are
employees or consultants, and our directors who are not employees whose present
and potential contributions are important to our continued success are eligible
to receive awards under the Plan. The purpose of a long-term incentive plan
is
to direct the attention and efforts of participating employees to our long-term
performance by relating incentive compensation to the achievement of long-term
corporate economic objectives. The Plan also is designed to retain, reward
and
motivate participating employees by providing an opportunity for investment
in
us and the advantages inherent in ownership of our common stock. A total of
10,000,000 shares of our common stock may be subject to, or issued pursuant
to,
awards granted under the Plan. If an award under the Plan is forfeited or
terminated for any reason, the shares of common stock that were subject to
the
award again become available for distribution in connection with awards under
the Plan. In addition, shares subject to stock appreciation rights that are
exercised for cash again become available for distribution in connection with
awards under the Plan.
The
Plan
may be administered by one or more administrators if the board of directors
deems division of administration necessary or desirable in order to comply
with
applicable law. Since the board of directors has not appointed any committees
and because we have so few employees, the entire board of directors currently
is
acting as the administrator of the Plan.
The
administrator has the exclusive discretion to select the employees, consultants
and non-employee directors who receive awards under the Plan and to determine
the type, size, and terms of each award, to modify the terms of awards, to
determine when awards will be granted and paid, and to make all other
determinations which it deems necessary or desirable in the interpretation
and
administration of the Plan. The Plan will remain in effect until all awards
under the Plan either have been satisfied by the issuance of shares of our
common stock or the payment of cash or have expired or otherwise terminated
or
the Plan is otherwise terminated by our board of directors. However, no awards
may be granted more than ten years after the date of the stockholder’s approval
of the Plan. Generally, a participant’s rights and interest under the Plan will
not be transferable except by will or by the laws of descent and
distribution.
Transfer
Agent
We
have
retained Standard Registrar and Transfer Company, 12528 South 1840
East, Draper, Utah 84020, as the transfer agent for our common
stock. Standard Registrar & Transfer Company’s telephone number is
(801)266-7151.
MARKET
FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Our
common stock is quoted on the OTC Bulletin Board under the symbol “PVCT.”
Trading in our common stock has occurred on a relatively inconsistent basis.
The
following table shows the quarterly high and low reported sale prices per share
for our common stock over the last two completed fiscal years as quoted on
the
OTC Bulletin Board. The prices represent quotations by dealers without
adjustments for retail mark-ups, mark-downs, or commission and may not represent
actual transactions. Investors should not rely on historical prices of our
common stock as an indication of its future price performance. We obtained
the
information below from the finance page of www.Yahoo.com.
2006
|
|
|
|
|
First
Quarter
|
$
|
1.33
|
$
|
0.83
|
Second
Quarter
|
|
2.16
|
|
0.98
|
Third
Quarter
|
|
1.58
|
|
0.90
|
Fourth
Quarter
|
|
1.35
|
|
1.00
|
|
|
|
|
|
2007
|
|
|
|
|
First
Quarter
|
$
|
1.64
|
$
|
1.04
|
Second
Quarter
|
|
1.94
|
|
1.29
|
Third
Quarter
|
|
3.07
|
|
1.44
|
Fourth
Quarter
|
|
2.49 |
|
1.55
|
|
|
|
|
|
2008 |
|
|
|
|
First
Quarter, through January 25, 2008 |
$ |
1.74 |
$
|
1.17 |
As
of
November 26, 2007, we had 1,821 holders of record of our common
stock.
SELLING
STOCKHOLDERS
The
following table sets forth the shares beneficially owned, as of November 26,
2007, by the selling stockholders prior to the offering contemplated by this
prospectus, the number of shares each selling stockholder is offering by this
prospectus and the number of shares which each would own beneficially if all
the
offered shares are sold.
The
selling stockholders acquired the
shares of common stock and warrants to purchase common stock listed in the
selling stockholder table in one or more of the private transactions described
below. The securities were sold pursuant to exemptions to
registration under section 4(2) of the Securities Act.
·
|
During
the three months ended June 30, 2005, we completed a private placement
transaction with 4 accredited investors pursuant to which we sold
230,333
shares of common stock at a purchase price of $0.75 per share,
for an
aggregate purchase price of $172,750. In connection with the sale
of
common stock, we also issued warrants to the investors to purchase
up to
325,500 shares of common stock at an exercise price of $1.00 per
share. We paid $16,275 and issued 81,375 warrants to Venture
Catalyst, LLC as placement agent for this
transaction.
|
·
|
During
the three months ended September 30, 2005, we completed a private
placement transaction with 12 accredited investors pursuant to
which we
sold 899,338 shares of common stock at a purchase price of $0.75
per share
of which 109,333 were committed to be issued at December 31, 2005,
for an
aggregate purchase price of $674,500. In connection with the
sale of common stock, we also issued warrants to the investors
to purchase
up to 1,124,167 shares of common stock at an exercise price of
$0.935 per
share. We paid $87,685 and committed to issue 79,000 shares of
common stock at a fair market value of $70,083 to Network 1 Financial
Securities, Inc. as placement agent for this
transaction.
|
·
|
During
the three months ended December 31, 2005, we completed a private
placement
transaction with 62 accredited investors pursuant to which we sold
10,065,605 shares of common stock at a purchase price of $0.75
per share
of which 5,126,019 were committed to be issued at December 31,
2005, for
an aggregate purchase price of $7,549,202. In connection with
the sale of common stock, we also issued warrants to the investors
to
purchase up to 12,582,009 shares of common stock at an exercise
price of
$0.935 per share. We paid $959,540, issued 46,667 shares of
common stock at a fair market value of $46,467, issued 30,550 warrants,
and committed to issue 950,461 shares of common stock at a fair
market
value of $894,593 to a syndicate led by Network 1 Financial Securities,
Inc. as placement agent for this
transaction.
|
·
|
In
January 2006, we issued 5,235,352 shares committed to be issued
at
December 31, 2005 for shares sold in 2005. In February 2006, we
issued 1,029,460 shares committed to be issued at December 31,
2005 for
stock issuance costs related to shares sold in 2005. The total
value for
these shares was $964,676 which was based on the market value of
the
shares issued.
|
·
|
During
the three months ended March 31, 2006, we completed a private placement
transaction with 5 accredited investors pursuant to which we sold
466,833
shares of common stock at a purchase price of $0.75 per share for
an
aggregate purchase price of $350,125. In connection with the sale
of
common stock, we also issued warrants to the investors to purchase
up to
466,833 shares of common stock at an exercise price of $0.935 per
share. We paid $35,013 and issued 46,683 shares of common stock
at a fair market value of $41,815 to Chicago Investment Group,
L.L.C. as
placement agent for this
transaction.
|
·
|
In
May 2006, we completed a private placement transaction with 2 accredited
investors pursuant to which we sold a total of 153,647 shares of
common
stock at an average purchase price of $1.37 per share, for an aggregate
purchase price of $210,000. In connection with the sale of
common stock, we also issued warrants to the 2 investors to purchase
up to
76,824 shares of common stock at an average exercise price of $2.13
per
share.
|
·
|
In
September 2006, we completed a private placement transaction with
7
accredited investors pursuant to which we sold a total of 708,200
shares
of common stock at a purchase price of $1.00 per share, for an
aggregate
purchase price of $708,200. We paid $92,067 and issued 70,820
shares of common stock at a fair market value of $84,984 to Network
1
Financial Securities, Inc. as placement agent for this
transaction.
|
·
|
In
October 2006, we completed a private placement transaction with
15
accredited investors pursuant to which we sold a total of 915,000
shares
of common stock at a purchase price of $1.00 per share, for an
aggregate
purchase price of $915,000. We paid $118,950 and issued 91,500
shares of common stock at a fair market value of $118,500 to Network
1
Financial Securities, Inc. as placement agent for this
transaction.
|
·
|
During
the three months ended December 31, 2006, we completed a private
placement
transaction with 10 accredited investors pursuant to which we sold
1,400,000 shares of common stock at a purchase price of $1.00 per
share
for an aggregate purchase price of $1,400,000. We paid
$137,500, issued 125,000 shares of common stock at a fair market
value of
$148,750, and committed to pay $16,500 and to issue 15,000 shares
of
common stock at a fair market value of $17,550 to Chicago Investment
Group
of Illinois, L.L.C. as a placement agent for this transaction,
which is
accrued at December 31, 2006.
|
·
|
In
January and February 2007, we completed a private placement transaction
with 6 accredited investors pursuant to which we sold a total of
265,000
shares of common stock at a purchase price of $1.00 per share,
for an
aggregate purchase price of $265,000. We paid $29,150 and issued
26,500
shares of common stock at a fair market value of $32,130 to Chicago
Investment Group of Illinois, L.L.C. as a placement agent for this
transaction.
|
·
|
Also
in January and February 2007, we completed a private placement
transaction
with 13 accredited investors pursuant to which we sold a total
of
1,745,743 shares of common stock at a purchase price of $1.05 per
share,
for an aggregate purchase price of $1,833,031. We paid $238,293
and issued
174,574 shares of common stock at a fair market value of $200,760
to
Network 1 Financial Securities, Inc. as placement agent for this
transaction.
|
Beneficial ownership is determined in accordance with SEC rules and includes
voting or investment power with respect to the securities. However, certain
warrants are subject to limitations upon exercise, if any. The most significant
of these limitations is that the selling stockholder may not exercise its
warrants if the exercise would cause such holder’s beneficial ownership of our
common stock (excluding shares underlying any of their unconverted to debentures
or unexercised warrants) to exceed 4.99% of the outstanding shares of common
stock. Therefore, although they are included in the table below, the number
of
shares of common stock for some listed persons may include shares that may
not
be purchased during a given 60-day period used for purpose of determining
beneficial ownership.
Names
|
Beneficial
Ownership
|
Shares
Registered
(1)
|
Post
Offering
(2)
|
%
Owned Post
Offering
|
Lawrence
B. Ordower
|
416,666
|
416,666
|
0
|
*
|
Michael
H Davidson
|
166,666
|
166,666
|
0
|
*
|
Jamie
Ordower
|
83,333
|
83,333
|
0
|
*
|
Garrett
Ordower
|
83,333
|
83,333
|
0
|
*
|
Frank
X. Gruen
|
166,666
|
166,666
|
0
|
*
|
Ronald
E. Davis, Jr.
|
83,334
|
83,334
|
0
|
*
|
Douglas
W. Lyons Revocable Trust 12/20/99
|
833,334
|
833,334
|
0
|
*
|
Banyan
Investors, L.L.C.
|
833,334
|
833,334
|
0
|
*
|
Robert
D. Duncan
|
266,666
|
266,666
|
0
|
*
|
Nancy
C. Campbell
|
41,666
|
41,666
|
0
|
*
|
Timothy
M. Holmes Revocable Trust
|
303,333
|
303,333
|
0
|
*
|
Stephen
R. Quazzo Trust
|
150,001
|
150,001
|
0
|
*
|
Nite
Capital LP
|
366,666
|
366,666
|
0
|
*
|
Abba
Properties
|
266,666
|
266,666
|
0
|
*
|
Michael
P. Morrison
|
166,666
|
166,666
|
0
|
*
|
Effective
Trading, LLC
|
916,666
|
916,666
|
0
|
*
|
Dennis
J. Klein
|
66,667
|
66,667
|
0
|
*
|
Avi
Balsam and Nathaniel Abramson Partnership
|
150,000
|
150,000
|
0
|
*
|
Marvin
and Carole Parsoff
|
90,000
|
90,000
|
0
|
*
|
Parsoff
Family Fund
|
10,000
|
10,000
|
0
|
*
|
ELGJO,
LLC
|
500,000
|
500,000
|
0
|
*
|
Anthony
Marrano Co.
|
100,000
|
100,000
|
0
|
*
|
Gerald
Franks
|
50,000
|
50,000
|
0
|
*
|
Dan
Stern cust Alexa Stern
|
10,000
|
10,000
|
0
|
*
|
Names
|
Beneficial
Ownership
|
Shares
Registered
(1)
|
Post
Offering
(2)
|
%
Owned Post
Offering
|
Dan
Stern Rev. Trust
|
25,000
|
25,000
|
0
|
*
|
Jeff
Stern IRA
|
25,000
|
25,000
|
0
|
*
|
Steve
Assimos
|
5,000
|
5,000
|
0
|
*
|
Michael
Davidson
|
100,000
|
100,000
|
0
|
*
|
Asher
Wolmark
|
14,500
|
14,500
|
0
|
*
|
Daniel
Stern
|
3,250
|
3,250
|
0
|
*
|
Columbia
Holdings, LTD
|
3,300,001
|
3,300,001
|
0
|
*
|
David
E. and Kirsten R. Cunningham Charitable Foundation
|
166,668
|
166,668
|
0
|
*
|
Ruth
Bayer
|
83,334
|
83,334
|
0
|
*
|
Lawrence
Kirsch Trust
|
100,000
|
100,000
|
0
|
*
|
Eric
R. Samuelson
|
100,000
|
100,000
|
0
|
*
|
Dr.
Donald Adams
|
7,176,123
|
1,795,715
|
5,380,408
|
10.7%
|
Dr.
Douglas Adkins
|
209,200
|
150,000
|
59,200
|
*
|
MSR
Consultants LTD
|
380,334
|
310,334
|
70,000
|
*
|
Mary
Ardinger
|
27,168
|
27,168
|
0
|
*
|
Thomas
Doyle
|
30,002
|
16,668
|
13,334
|
*
|
JMB
Financial Consultants LTD
|
55,002
|
41,668
|
13,334
|
*
|
Dr.
Thomas & Susan Donnelly
|
96,989
|
41,666
|
55,323
|
*
|
Tim
McNamee
|
29,168
|
29,168
|
0
|
*
|
RDB,
Ltd.
|
61,666
|
61,666
|
0
|
*
|
Robert
A. Edwards
|
45,003
|
25,002
|
20,001
|
*
|
Linda
M. Pearson
|
45,003
|
25,002
|
20,001
|
*
|
Lillian
Sivaslian
|
131,197
|
100,000
|
31,197
|
*
|
Peter
& Lillian Sivaslian
|
388,849
|
138,750
|
250,099
|
*
|
Anita
Iversen
|
33,750
|
18,750
|
15,000
|
*
|
Michael
Rosenbaum
|
86,275
|
34,625
|
51,650
|
*
|
Leon
Somerall
|
131,750
|
131,750
|
0
|
*
|
Arthur
Roshwalb
|
48,600
|
27,000
|
21,600
|
*
|
Dr.
William Sperling
|
197,100
|
188,000
|
9,100
|
*
|
Nino
Cutillo
|
22,005
|
12,225
|
9,780
|
*
|
Eugene
and Barbara Golia
|
15,001
|
8,334
|
6,667
|
*
|
Joel
Mair
|
71,791
|
61,791
|
10,000
|
*
|
Stan
Katz
|
189,442
|
186,554
|
2,888
|
*
|
Tim
Richardson
|
94,611
|
51,472
|
43,139
|
*
|
Steven
Ross
|
157,292
|
90,625
|
66,667
|
*
|
Names
|
Beneficial
Ownership
|
Shares
Registered
(1) |
Post
Offering(2) |
%
Owned Post
Offering |
Frank
Powers |
80,000 |
66,667 |
13,333 |
* |
William
& Kellie Wood
|
60,001
|
33,334
|
26,667
|
*
|
Jordan
Keller
|
22,500
|
12,500
|
10,000
|
*
|
Charles
Ellis
|
7,506
|
4,170
|
3,336
|
*
|
Chad
Ellis
|
9,000
|
5,000
|
4,000
|
*
|
Jack
Richardson
|
45,000
|
25,000
|
20,000
|
*
|
Gordon
D. Katz
|
68,000
|
50,000
|
18,000
|
*
|
David
Ruggieri
|
293,000
|
271,500
|
21,500
|
*
|
Richard
Cohen
|
200,000
|
200,000
|
0
|
*
|
Ben
Crown
|
52,000
|
20,000
|
32,000
|
*
|
Mark
Grinbaum
|
130,000
|
60,000
|
70,000
|
*
|
Steven
Valko
|
10,000
|
10,000
|
0
|
*
|
William
Filon
|
10,000
|
10,000
|
0
|
*
|
Pepper
Financial Corp.
|
100,000
|
100,000
|
0
|
*
|
Martin
Becker
|
29,000
|
25,000
|
4,000
|
*
|
Randy
Getchis
|
21,000
|
10,000
|
11,000
|
*
|
Robert
Moody, Jr.
|
428,500
|
428,500
|
0
|
*
|
Barclay
Armitage
|
420,000
|
400,000
|
20,000
|
*
|
Robert
Maltese
|
64,500
|
50,000
|
14,500
|
*
|
William
Harms
|
25,000
|
25,000
|
0
|
*
|
Donald
Schmidt
|
188,000
|
168,000
|
20,000
|
*
|
Peter
and Joanne Trotter
|
21,500
|
10,000
|
11,500
|
*
|
HT
Ardinger & Sons
|
86,000
|
86,000
|
0
|
*
|
Stuart
Gates
|
277,810
|
95,905
|
181,905
|
*
|
Network
One Financial Securities, Inc. (3)
|
98,689
|
33,689
|
65,000
|
*
|
Damon
Testaverde
|
1,354,996
|
954,630
|
400,366
|
*
|
William
Heming, Jr.
|
569,323
|
390,787
|
178,536
|
*
|
Daniel
Balestra
|
89,900
|
89,900
|
0
|
*
|
Chicago
Investment Group (3)
|
136,250
|
136,250
|
0
|
*
|
Arun
K. Veluchamy
|
1,125,000
|
625,000
|
500,000
|
1.0%
|
Ronald
Stone Insurance Trust
|
1,273,499
|
800,166
|
473,333
|
*
|
Jan
E. Koe
|
97,501
|
83,334
|
14,167
|
*
|
James
Cristantiello
|
266,666
|
133,333
|
133,333
|
*
|
Names |
Beneficial
Ownership
|
Shares
Registered
(1) |
Post
Offering
(2) |
%
Owned Post
Offering |
George
Reilly
|
908
|
908
|
0
|
*
|
Howard
Corum
|
2,500
|
2,500
|
0
|
*
|
Gary
Fine
|
2,500
|
2,500
|
0
|
*
|
David
Gorman
|
16,558
|
5,500
|
11,058
|
*
|
Douglas
W. Lyons Revocable Trust 12/20/99
|
149,999
|
83,333
|
66,666
|
*
|
Ronald
Earl Davis, Jr.
|
117,000
|
83,333
|
33,667
|
*
|
Stephen
R. Quazzo Trust dated 11/09/95
|
150,001
|
83,334
|
66,667
|
*
|
Robert
D. Duncan
|
399,999
|
166,666
|
233,333
|
*
|
Shelby
E.L. Pruett
|
45,000
|
45,000
|
0
|
*
|
The
Flicker Children Irrevocable Trust
|
58,500
|
32,500
|
26,000
|
*
|
Whalehaven
Capital Fund Limited
|
397,466
|
397,466
|
0
|
*
|
Snedegar
Revocable Living Trust
|
166,666
|
166,666
|
0
|
*
|
Vesterix
Venture Capital LLC
|
237,002
|
131,668
|
105,334
|
*
|
Kenneth
and Nancy Spadaford
|
236,250
|
81,250
|
155,000
|
*
|
Frank
DiPerna
|
29,500
|
25,000
|
4,500
|
*
|
W.
Allen Everette
|
75,000
|
45,000
|
30,000
|
*
|
Walter
T. Rose, Jr.
|
60,000
|
35,000
|
25,000
|
*
|
Kenneth
Hicks
|
50,000
|
50,000
|
0
|
*
|
Nick
and Carol Westlund
|
230,000
|
150,000
|
80,000
|
*
|
Alan
Perl
|
64,000
|
20,000
|
44,000
|
*
|
Samuel
Stephen Gains
|
33,333
|
33,333
|
0
|
*
|
Marc
Alan Stromen
|
82,500
|
49,500
|
33,000
|
*
|
Herman
B. Willis Jr.
|
48,500
|
24,000
|
24,500
|
*
|
William
James Crusoe
|
90,275
|
90,275
|
0
|
*
|
Kenneth
Spadaford
|
236,250
|
90,000
|
146,250
|
*
|
Venture
Catalyst, LLC (3)
|
281,171
|
44,044
|
237,127
|
*
|
Raphael
P. Haddock
|
17,040
|
17,040
|
0
|
*
|
Lawrence
C. Haddock (3)
|
232,693
|
232,693
|
0
|
*
|
Libby
Schilit
|
90,000
|
90,000
|
0
|
*
|
Carolyn
Fairbank & Keith Biggs
|
44,667
|
21,667
|
23,000
|
*
|
Lawrence
Smelzer
|
118,694
|
20,294
|
98,400
|
*
|
Wayne
R. Wightman
|
7,900
|
2,900
|
5,000
|
*
|
James
R. Kickel
|
39,400
|
2,900
|
36,500
|
*
|
Names
|
Beneficial
Ownership
|
Shares
Registered
(1)
|
Post
Offering(2) |
%
Owned Post
Offering |
Anthony
A. Ripepi, Jr.
|
17,900
|
2,900
|
15,000
|
*
|
Joseph
J. Marcoquiseppe
|
3,970
|
1,470
|
2,500
|
*
|
Dominic
Sabatino, Jr.
|
13,470
|
1,470
|
12,000
|
*
|
Paul
R. Santora
|
16,400
|
2,900
|
13,500
|
*
|
Robert
S. Kelley
|
7,900
|
2,900
|
5,000
|
*
|
James
A. Shakour
|
17,900
|
2,900
|
15,000
|
*
|
Patrick
J. Crean
|
14,700
|
14,700
|
0
|
*
|
Gregory
K. Crean
|
15,800
|
5,800
|
10,000
|
*
|
Robert
W. Grambo
|
74,200
|
11,700
|
62,500
|
*
|
Karen
Goldfarb
|
75,000
|
75,000
|
0
|
*
|
Jeffrey
Kraws
|
75,000
|
75,000
|
0
|
*
|
Landman-Giacinto
Construction, Inc.
|
60,000
|
60,000
|
0
|
*
|
Drane
& Freyer Profit Sharing Plan, for the benefit of Scott A.
Drane
|
105,001
|
58,334
|
46,667
|
*
|
Drane
& Freyer Profit Sharing Plan for the benefit of Wendy
Freyer
|
45,000
|
25,000
|
20,000
|
*
|
Fort
Mason Partners, L.P.
|
167,016
(4)
|
10,500
|
156,516
|
*
|
Fort
Mason Master, L.P.
|
167,016
(4)
|
156,516
|
10,500
|
*
|
Josh
Fisher (3)
|
125,000
|
75,000
|
50,000
|
*
|
David
W. McGlaughon |
45,620 |
25,000 |
20,620 |
* |
Fountain
Key Trust |
150,001 |
150,001 |
0 |
* |
Alexander
Lisyansky & Irena Tsarevsky |
77,107 |
77,107 |
0 |
* |
Belz
Broadcasting Company |
641,250 |
168,750 |
472,500 |
1.0% |
The
C. Pete Clapp Revocable Trust |
103,000 |
75,000 |
28,000 |
* |
|
33,257,401
|
22,436,231
|
10,821,170
|
|
__________
(*)
Less than 1%.
(1)
The
numbers on the table reflect the actual number of shares issued or issuable
to
the selling stockholder.
(2)
Assumes that all shares registered for resale pursuant to this offering have
been sold.
(3)
The
selling stockholder has acted as a consultant or placement agent within the
last
three years.
(4)
The
shares beneficially owned are owned by Fort Mason Partners, L.P. and Fort Mason
Master, L.P. Fort Mason Capital, LLC serves as the general partner of
each of the Fort Mason fund and, in such capacity, exercises sole voting and
investment authority with respect to such shares. Mr. Daniel German
serves as the sole managing member of Fort Mason Capital, LLC. Fort
Mason Capital, LLC and Mr. German each disclaim beneficial ownership of such
shares, except to the extent of its or his pecuniary interest therein, if
any.
Material
Relationship
between Provectus and the Selling Stockholders
Except
for relationships noted in the selling stockholder table, none of the selling
stockholders has, or within the past three years has had, any position, office
or material relationship with us or any of our predecessors or affiliates.
We
have separate contractual obligations to file this registration with each
of the
selling stockholders.
PLAN
OF
DISTRIBUTION
The
selling stockholders and any of their pledgees, donees, assignees, and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market, or trading facility on which
the
shares are traded. These sales may be at fixed or negotiated prices. The selling
stockholders may use any one or more of the following methods when selling
shares:
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
·
|
privately
negotiated transactions;
|
·
|
short
sales, but, if at all, only after the effectiveness of the registration
statement of the shares of common stock offered
hereby;
|
·
|
broker-dealers
may agree with the selling stockholders to sell a specified number
of such
shares at a stipulated price per
share;
|
·
|
a
combination of any such methods of sale;
and
|
·
|
any
other method permitted pursuant to applicable
law.
|
The
selling stockholders may also sell shares under Rule 144 of the Securities
Act
of 1933, if available, rather than under this prospectus.
The
selling stockholders may also engage in short sales against the box, puts and
calls, and other transactions in our securities or derivatives of our securities
and may sell or deliver shares in connection with these trades. The selling
stockholders may pledge their shares to their brokers under the margin
provisions of customer agreements. If a selling stockholder defaults on a margin
loan, the broker may, from time to time, offer and sell the pledged shares.
We
believe that the selling stockholders have not entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding
the sale of their shares other than ordinary course brokerage arrangements,
nor
is there an underwriter or coordinating broker acting in connection with the
proposed sale of shares by the selling stockholders.
Broker-dealers
engaged by the selling stockholders may arrange for other broker-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. The
selling stockholders do not expect these commissions and discounts to exceed
what is customary in the types of transactions
involved. Selling stockholders may be, and any broker-dealers or agents that
are
involved in selling the shares are, deemed to be “underwriters” within the
meaning of the Securities Act in connection with such sales. In such event,
any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. If the selling stockholders
are deemed to be underwriters, the selling stockholders may be subject to
statutory and regulatory liabilities, including liabilities imposed pursuant
to
Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Exchange
Act. We are required to pay all fees and expenses incident to the registration
of the shares. Otherwise, all discounts, commissions or fees incurred in
connection with the sale of the common stock offered hereby will be paid by
the
selling stockholders.
Upon
our
being notified by a selling stockholder that any material arrangement has
been
entered into with a broker-dealer for the sale of shares through a block
trade,
special offering, exchange distribution or secondary distribution or a purchase
by a broker or dealer, a supplement to this prospectus will be filed, if
required, pursuant to Rule 424(b) under the Securities Act,
disclosing
·
|
the
name of each such selling stockholder and of the participating
broker-dealer(s);
|
·
|
the
number of shares involved;
|
·
|
the
price at which such shares were
sold;
|
·
|
the
commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable;
|
·
|
that
such broker-dealer(s) did not conduct any investigation to verify
the
information set out or incorporated by reference in this prospectus;
and
|
·
|
other
facts material to the transaction.
|
The
anti-manipulation rules of
Regulation M under the Securities Exchange Act of 1934 may apply to sales of
our
common stock and activities of the selling stockholders.
Furthermore,
the Securities and
Exchange Commission has adopted rules that regulate broker-dealer practices
in
connection with transactions in penny stocks. Penny stocks are generally equity
securities with a price of less than $5.00 (other than securities registered
on
certain national securities exchanges, provided that current price and volume
information with respect to transactions in such securities is provided by
the
exchange).
The
penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt
from
those rules, deliver a standardized risk disclosure document prepared by the
Commission, which:
(1)
|
contains
a description of the nature and level of risk in the market for penny
stocks in both public offerings and secondary
trading;
|
(2)
|
contains
a description of the broker's or dealer's duties to the customer
and of
the rights and remedies available to the customer with respect to
a
violation of such duties;
|
(3)
|
contains
a brief, clear, narrative description of a dealer market, including
“bid”
and “ask” prices for penny stocks and the significance of the spread
between the bid and ask price;
|
(4)
|
contains
a toll-free telephone number for inquiries on disciplinary
actions;
|
(5)
|
defines
significant terms in the disclosure document or in the conduct of
trading
penny stocks; and
|
(6)
|
contains
such other information and is in such form (including language, type,
size, and format) as the Commission shall require by rule or
regulation.
|
The
broker-dealer also must provide,
prior to proceeding with any transaction in a penny stock, the
customer:
(1)
|
with
bid and offer quotations for the penny
stock;
|
(2)
|
details
of the compensation of the broker-dealer and its salesperson in the
transaction;
|
(3)
|
the
number of shares to which such bid and ask prices apply, or other
comparable information relating to the depth and liquidity of the
market
for such stock; and
|
(4)
|
monthly
account statements showing the market value of each penny stock held
in
the customer's account.
|
In
addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from
those rules; the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchaser's written acknowledgment of the receipt of a risk disclosure
statement, a written agreement to transactions involving penny stocks, and
a
signed and dated copy of a written suitability statement. These disclosure
requirements will have the effect of reducing the trading activity in the
secondary market for our stock because it will be subject to these penny stock
rules. Therefore, stockholders may have difficulty selling those securities.
Blue
Sky Restrictions on
Resale
The
selling stockholders named in this
prospectus may offer and sell the shares covered by this prospectus in states
of
the United States only where exemptions from registration under state securities
laws are available. Investors and securities professionals are
advised to check each state’s securities laws and regulations (known as “Blue
Sky” laws) or to check with management of the company to ascertain whether an
exemption exists for the sale of our shares in a particular
state.
DIRECTORS,
EXECUTIVE OFFICERS,
CONTROL PERSONS AND MANAGEMENT
Our
executive officers and directors are:
H.
Craig
Dees, Ph.D., 55, has served as our Chief Executive Officer and as a member
of
our Board of Directors since we acquired PPI, a privately held Tennessee
Corporation on April 23, 2002. Before joining us, from 1997 to 2002 he served
as
senior member of the management team of Photogen Technologies, Inc., including
serving as a member of the Board of Directors of Photogen from 1997 to 2000.
Prior to joining Photogen, Dr. Dees served as a Group Leader at the Oak Ridge
National Laboratory and as a senior member of the management teams of LipoGen
Inc., a medical diagnostic company which used genetic engineering technologies
to manufacture and distribute diagnostic assay kits for auto-immune diseases,
and TechAmerica Group Inc., now a part of Boehringer Ingelheim Vetmedica, Inc.,
the U.S. animal health subsidiary of Boehringer Ingelhem GmbH, an international
chemical and pharmaceutical company headquartered in Germany. He earned a Ph.D.
in Molecular Virology from the University of Wisconsin–Madison in
1984.
Timothy
C. Scott, Ph.D., 49, has served as our President and as a member of our Board
of
Directors since we acquired PPI on April 23, 2002. Prior to joining us, Dr.
Scott was a senior member of the Photogen management team from 1997 to 2002,
including serving as Photogen’s Chief Operating Officer from 1999 to 2002, as a
director of Photogen from 1997 to 2000, and as interim CEO for a period in
2000.
Before joining Photogen, he served as senior management of Genase LLC, a
developer of enzymes for fabric treatment and held senior research and
management positions at Oak Ridge National Laboratory. Dr. Scott earned a Ph.D.
in Chemical Engineering from the University of Wisconsin–Madison in
1985.
Eric
A.
Wachter, Ph.D., 45, has served as our Vice President – Pharmaceuticals and as a
member of our Board of Directors since we acquired PPI on April 23, 2002. Prior
to joining us, from 1997 to 2002 he was a senior member of the management team
of Photogen, including serving as Secretary and a director of Photogen since
1997 and as Vice President and Secretary and a director of Photogen since 1999.
Prior to joining Photogen, Dr. Wachter served as a senior research staff member
with Oak Ridge National Laboratory. He earned a Ph.D. in Chemistry from the
University of Wisconsin–Madison in 1988.
Peter
R.
Culpepper, 48, was appointed to serve as our Chief Financial Officer in February
2004. Previously, Mr. Culpepper served as Chief Financial Officer for Felix
Culpepper International, Inc. from 2001 to 2004; was a Registered Representative
with AXA Advisors, LLC from 2002 to 2003; has served as Chief Accounting Officer
and Corporate Controller for Neptec, Inc. from 2000 to 2001; has served in
various Senior Director positions with Metromedia Affiliated Companies from
1998
to 2000; has served in various Senior Director and other financial positions
with Paging Network, Inc. from 1993 to 1998; and has served in a variety of
financial roles in public accounting and industry from 1982 to 1993. He earned
a
Masters in Business Administration in Finance from the University of
Maryland–College Park in 1992. He earned an AAS in Accounting from the Northern
Virginia Community College–Annandale, Virginia in 1985. He earned a B.A. in
Philosophy from the College of William and Mary–Williamsburg, Virginia in 1982.
He is a licensed Certified Public Accountant in both Tennessee and
Maryland.
Stuart
Fuchs, 60, has served as a member of our Board of Directors since January 23,
2003. He is the co-founder and has been a managing principal of Gryffindor,
a
Chicago-based venture capital firm, since January 2000. Before joining
Gryffindor, he was a founding stockholder of several biotech companies,
including Angiogen LLC (since 1998), which develops combinations of drugs to
stimulate in vivo production of factors that inhibit the growth of blood vessels
in tumors, and Nace Pharma LLC (since 1996), which develops drugs that employ
novel drug delivery technologies. Through Nace Resources Inc., a Delaware
corporation providing strategic and financial advice to companies in the
technology sector, Mr. Fuchs has formed or participated in groups of investors
on behalf of several companies, including Miicro Inc., Celsion Corp. and
Photogen. Before founding Nace Resources Inc., he served for 19 years as an
investment banker with Goldman, Sachs & Co., where he co-managed the firm’s
public finance activities for the Midwest region. Before joining Goldman, Sachs
& Co., Mr. Fuchs was a lawyer in private practice with Barrett Smith
Schapiro & Simon in New York. Mr. Fuchs holds an A.B. degree from Harvard
College and a J.D. from Harvard Law School and is a member of the Association
of
the Bar of the City of New York.
SECURITY
OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Directors,
Executive
Officers and Other Stockholders
The
table
below shows the amount of our common stock beneficially owned as of November
26,
2007, by each of our directors and officers, all executive officers and
directors as a group, and each person whom we believe beneficially owns more
than 5% of our outstanding voting stock.
Name
and Address
(1)
|
|
Amount
and Nature of Beneficial
Ownership (2)
|
|
|
Percentage
of Class
(3)
|
Directors
and Executive
Officers:
|
|
|
|
|
|
H.
Craig Dees
|
|
2,839,525
|
(4)
|
|
5.6
|
Timothy
C. Scott
|
|
2,797,632
|
(5)
|
|
5.5
|
Eric
A. Wachter
|
|
3,447,351
|
(6)
|
|
6.8
|
Peter
R. Culpepper
|
|
1,216,665
|
(7)
|
|
2.4
|
Stuart
Fuchs
|
|
976,418
|
(8)
|
|
2.0
|
All
directors and executive officers as a group (5 persons)
|
|
11,277,591
|
(9)
|
|
20.6
|
Other
Stockholders:
|
|
|
|
|
|
Dr.
Donald E. Adams
370
Crestmont Drive
San
Luis Obispo, California 93401
|
|
7,176,123
|
(10)
|
|
14.1
|
Gryffindor
Capital Partners I, L.L.C.
150
North Wacker Drive, Suite 800
Chicago,
IL 60606`
|
|
5,552,918
|
(11)
|
|
10.5
|
(1)
|
If
no address is given, the named individual is an executive officer
or
director of Provectus Pharmaceuticals, Inc., whose business address
is
7327 Oak Ridge Highway, Suite A, Knoxville, Tennessee
37931.
|
(2)
|
Shares
of common stock that a person has the right to acquire within 60
days of
November 30, 2007 are deemed outstanding for computing the percentage
ownership of the person having the right to acquire such shares,
but are
not deemed outstanding for computing the percentage ownership of
any other
person. Except as indicated by a note, each stockholder listed in
the
table has sole voting and investment power as to the shares owned
by that
person.
|
(3)
|
As
of November 26, 2007, there were 49,207,614 shares of common stock
issued
and outstanding.
|
(4) |
Dr.
Dees’s beneficial ownership includes 536 shares held by Dees Family
Foundation, an entity established for the benefit of Dr. Dees’s family,
and 1,385,416 shares subject to options that are exercisable within
60
days |
(5)
|
Dr.
Scott’s beneficial ownership includes 55,996 shares held by Scott Family
Investment Limited Partnership, a limited partnership established
for the
benefit of Dr. Scott’s family, and 1,441,666 shares subject to options
which are exercisable within 60 days.
|
(6)
|
Dr.
Wachter’s beneficial ownership includes 4,867 shares held by the Eric A.
Wachter 1998 Charitable Remainder Unitrust and 1,216,666 shares
subject to
options which are exercisable within 60 days. Dr. Wachter’s beneficial
ownership also includes 330,881 shares of Common Stock underlying
Warrants.
|
(7)
|
Mr.
Culpepper’s beneficial ownership includes 1,001,084 shares subject to
options which are exercisable within 60 days.
|
(8)
|
Mr.
Fuchs’s beneficial ownership includes 226,459 shares held by SFF Limited
Partnership, a limited partnership of which Mr. Fuchs is the general
partner; 348,499 shares in an IRA of Mr. Fuchs; 175,000 shares
subject to
options which are exercisable within 60 days; and 226,460 shares
held by
Gryffindor Capital Partners I, L.L.C., a Delaware limited liability
company of which Mr. Fuchs is the managing principal
(“Gryffindor”).
|
(9)
|
Includes
5,219,832 shares subject to options which are exercisable within
60days.
|
(10)
|
Dr.
Adams’s beneficial ownership includes 5,526,123 shares directly held.
Dr.
Adams’s beneficial ownership also includes 1,650,000 shares of Common
Stock underlying Warrants.
|
(11)
|
Gryffindor’s
beneficial ownership includes 1,559,793 shares directly held and
226,459
shares held by SFF Limited Partnership, a limited partnership of
which
Stuart Fuchs, one of our directors, is the general partner. Gryffindor
disclaims beneficial ownership of the shares held by SFF Limited
Partnership. Gryffindor’s beneficial ownership also includes 3,766,666
shares of Common Stock underlying
Warrants.
|
EXECUTIVE
COMPENSATION
The
table
below shows the compensation for services in all capacities we paid during
the
years ended December 31, 2006 and 2007 to our Chief Executive Officer, Chief
Financial Officer and our two other most highly paid executive
officers:
Summary
Compensation
Table
Name
and Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Option
Awards
($)(1)
|
All
Other Compensation
($)(2)
|
Total
($)
|
H.
Craig Dees, CEO |
2006
|
333,333
|
127,308
|
459,208
|
30,288
|
950,137 |
|
2007
|
375,000
|
344,996
|
564,078
|
31,731
|
1,315,805
|
|
|
|
|
|
|
|
Timothy
C. Scott, President |
2006 |
333,333 |
127,308 |
459,208 |
30,288 |
950,137 |
|
2007
|
375,000
|
344,996
|
564,078
|
31,731
|
1,315,805
|
|
|
|
|
|
|
|
Eric
A. Wachter, VP-Pharmaceuticals |
2006 |
333,333 |
127,308 |
459,208 |
30,288 |
950,137 |
|
2007
|
375,000
|
344,996
|
564,078
|
31,731
|
1,315,805
|
|
|
|
|
|
|
|
Peter
R. Culpepper, CFO |
2006
|
333,333 |
127,308 |
436,833 |
30,288 |
927,762 |
|
2007
|
375,000 |
344,996 |
578,534 |
31,731 |
1,330,261 |
(1)
|
The
value represented for each Named Executive is the aggregate compensation
expense for such person’s stock options awards recognized by the Company
during the year indicated which include awards granted prior to 2006,
for financial statement reporting purposes as computed in accordance
with
FAS 123R. The assumptions used in determining the listed valuations
are
provided in Note 5 to the Consolidated Financial Statements, beginning
on
page F-16. Each named full-time employee except the CFO is also a
director of the Company. Included is each applicable employee’s director
compensation of 50,000 stock options each year granted at an exercise
price of $1.50 during 2007 and $1.02 during 2006 which is the fair
market
price on the date of issuance. The options vested immediately on
the date
of grant and expire in 2017 and 2016, respectively. For purposes
of
estimating the fair value of each stock option on the date of grant,
the
Company utilized the Black-Scholes option-pricing model which totaled
$69,850 in 2007 and $48,000 in 2006 for the 50,000
options.
|
(2) Other
compensation represents unused vacation that was paid out.
Outstanding
Equity Awards at
Fiscal Year-End
|
Option
Awards
|
Name
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number
of Securities
Underlying
Unexercised
Options
(#)
Unexercisable
(1)
|
Option
Exercise Price
($)
|
Option
Expiration
Date
|
H.
Craig Dees
|
18,750
|
--
|
0.32
|
2013
|
|
25,000
|
--
|
0.60
|
2013
|
|
300,000
|
--
|
1.10
|
2014
|
|
25,000
|
--
|
0.95
|
2014
|
|
150,000
|
150,000
|
0.64
|
2015
|
|
200,000
|
100,000
|
0.75
|
2015
|
|
25,000
|
--
|
0.62
|
2015
|
|
133,333
|
66,667
|
0.94
|
2015
|
|
50,000
|
--
|
1.02
|
2016
|
|
333,333
|
666,667
|
1.02
|
2016
|
|
50,000 |
-- |
1.50 |
2017 |
Timothy
C. Scott
|
75,000
|
--
|
0.32
|
2013
|
|
25,000
|
--
|
0.60
|
2013
|
|
300,000
|
--
|
1.10
|
2014
|
|
25,000
|
--
|
0.95
|
2014
|
|
150,000
|
150,000
|
0.64
|
2015
|
|
200,000
|
100,000
|
0.75
|
2015
|
|
25,000
|
--
|
0.62
|
2015
|
|
133,333
|
66,667
|
0.94
|
2015
|
|
50,000
|
--
|
1.02
|
2016
|
|
333,333
|
666,667
|
1.02
|
2016
|
|
50,000 |
-- |
1.50 |
2017 |
Eric
A. Wachter
|
75,000
|
--
|
0.32
|
2013
|
|
25,000
|
--
|
0.60
|
2013
|
|
75,000
|
--
|
1.10
|
2014
|
|
25,000
|
--
|
0.95
|
2014
|
|
150,000
|
150,000
|
0.64
|
2015
|
|
200,000
|
100,000
|
0.75
|
2015
|
|
25,000
|
--
|
0.62
|
2015
|
|
133,333
|
66,667
|
0.94
|
2015
|
|
50,000
|
--
|
1.02
|
2016
|
|
333,333
|
666,667
|
1.02
|
2016
|
|
50,000 |
-- |
1.50 |
2017 |
Peter
R. Culpepper |
159,419 |
75,000 |
1.10 |
2014
|
|
100,000 |
-- |
1.25 |
2014 |
|
-- |
150,000 |
0.64 |
2015 |
|
200,000 |
100,000 |
0.75 |
2015 |
|
133,332 |
41,668 |
0.94 |
2015 |
|
333,333 |
666,667 |
1.02 |
2016 |
(1)
|
The
unexercisable options for each Named Executive vest at the same rate
for
the respective equity award. The 150,000
and 666,667 unexercisable options vest over two years beginning
in 2008. The 100,000 and 66,667 unexercisable options vest
over one year beginning in 2008. The remaining unexercisable
options of 75,000 and 41,668 for Peter R. Culpepper vest over one
year
beginning in 2008.
|
Employment
Agreements
On
January 4, 2005, we entered into executive employment agreements with each
of H.
Craig Dees. Ph.D., Timothy C. Scott, Ph.D., Eric A. Wachter, Ph.D., and Peter
R.
Culpepper, CPA, to serve as our Chief Executive Officer, President, Executive
Vice President and Chief Financial Officer, respectively. Each agreement
provides that such executive will be employed for a one-year term with automatic
one-year renewals unless previously terminated pursuant to the terms of the
agreement or either party gives notice that the term will not be extended.
Each
executive’s initial base salary is $200,000 per year and is subject to
adjustment by our Board of Directors. Executives are also entitled to
participate in any incentive compensation plan or bonus plan adopted by us
without diminution of any compensation or payment under the agreement.
Executives are further entitled to reimbursement for all reasonable
out-of-pocket expenses incurred during his performance of services under the
agreement.
Each
agreement generally provides that if the executive’s employment is terminated
prior to a change in control (as defined in the agreement) (1) due to expiration
or non-extension of the term by us, or (2) by us for any reason other than
for
cause (as defined in the agreement), then such executive shall be entitled
to
receive payments under the agreement as if the agreement was still in effect
through the end of the period in effect as of the date of such termination.
If
the executive’s employment (1) is terminated by the company at any time for
cause, (2) is terminated by executive prior to, and not coincident with, a
change in control or (3) is terminated by executive’s death, disability or
retirement prior to a change in control, the executive (or his estate, as the
case may be) shall be entitled to receive payments under the agreement through
the last date of the month of such termination, a pro rata portion of any
incentive or bonus payment earned prior to such termination, any benefits to
which he is entitled under the terms and conditions of the pertinent plans
in
effect at termination and any reasonable expenses incurred during the
performance of services under the agreement.
In
the
event that coincident with or following a change in control, the executive’s
employment is terminated or the agreement is not extended (1) by action of
the
executive including his death, disability or retirement or (2) by action of
the
company not for cause, the executive (or his estate, as the case may be) shall
be entitled to receive payments under the agreement through the last date of
the
month of such termination, a pro rata portion of any incentive or bonus payment
earned prior to such termination, any benefits to which he is entitled under
the
terms and conditions of the pertinent plans in effect at termination and any
reasonable expenses incurred during the performance of services under the
agreement. In addition, the company shall pay to the executive (or his estate,
as the case may be), within 30 days following the date of termination or on
the
effective date of the change in control (whichever occurs later), a lump sum
payment in cash in an amount equal to 2.90 times the base salary paid in the
preceding calendar year, or scheduled to be paid to such executive during the
year of such termination, whichever is greater, plus an additional amount
sufficient to pay United States income tax on the lump sum amount
paid.
The
following table shows the base salary compensation these officers would have
received under the employment agreements had a change in control occurred as
of
December 31, 2007.
Name
|
|
Amount
|
H.
Craig Dees, Ph.D.
|
$ |
1,160,000
|
Timothy
C. Scott, Ph.D.
|
$ |
1,160,000
|
Eric
A. Wachter, Ph.D.
|
$ |
1,160,000
|
Peter
R. Culpepper, CPA, MBA
|
$ |
1,160,000
|
Equity
Compensation Plan
Information
The
table
below sets forth certain information regarding shares available as of December
31, 2007 for issuance under our equity compensation plans:
Category
|
(a)
Number
of securities to be
issued upon exercise of outstanding options, warrants and
rights
|
(b)
Weighted-average
exercise price
of outstanding options, warrants and rights
|
(c)
Number
of securities remaining
available for future issuance under equity compensation plans (excluding
securities reflected in column (a))
|
Equity
compensation plans approved by stockholders
|
8,903,169
|
$
0.93
|
600,000
|
Equity
compensation plans not approved by stockholders
|
0
|
$ --
|
0
|
Total
|
8,903,169
|
$
0.93
|
600,000
|
Director
Compensation
Three
of
our four directors, Drs. Dees, Scott and Wachter, are also full-time employees.
As discussed under the heading “Executive Compensation,” they are compensated
for their service in those roles. Other than the options described below, they
are not separately compensated for their service as directors.
Mr.
Fuchs
does not receive cash compensation for his service as a member of the Board
of
Directors, although he is reimbursed for expenses incurred in fulfilling his
duties as a director, including attending meetings.
On
the
date of each annual meeting of stockholders, each member of the Board of
Directors receives options exercisable for shares of our common stock. In 2006,
each of our directors received 50,000 options.
Name
|
Fees
Earned or Paid in Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan
Compensation Earnings ($)
|
Nonqualified
Deferred
Compensation Earnings ($)
|
All
Other
Compensation
($)(2)
|
Total
($)
|
Stuart
Fuchs
|
|
|
69,850
|
|
|
|
69,850
|
(1)
Our
other 3 directors are also full-time employees whose compensation is discussed
under the heading “Executive Compensation.”
(2)
A
total of 50,000 stock options were granted at an exercise price of $1.50
which
is the fair market price on the date of issuance. The options vested immediately
on the date of grant and expire in 2017. For purposes of estimating the fair
value of each stock option on the date of grant, the Company utilized the
Black-Scholes option-pricing model.
BUSINESS
Overview
Provectus,
and its seven wholly owned subsidiaries:
· Xantech
Pharmaceuticals, Inc.;
· Pure-ific
Corporation;
· Provectus
Biotech, Inc.;
· Provectus
Devicetech, Inc.;
· Provectus
Imaging, Inc.;
· IP
Tech,
Inc.; and
· Provectus
Pharmatech, Inc.
(which
we
refer to as our subsidiaries) develop, license and market and plan to sell
products in three sectors of the healthcare industry:
·
|
Over-the-counter
products, which we refer to in this report as “OTC
products;”
|
·
|
Prescription
drugs; and
|
·
|
Medical
device systems.
|
We
manage
Provectus and our subsidiaries on an integrated basis and when we refer to
“we”
or “us” or “the company” in this Prospectus, we refer to all eight 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 portfolio of patented,
patentable, and proprietary technologies that support multiple products in
the
prescription drug, medical device and OTC products categories. These patented
technologies are for:
·
|
novel
therapeutic medical devices;
|
·
|
enhancing
contrast in medical imaging;
|
·
|
improving
signal processing during biomedical imaging;
and
|
·
|
enhancing
production of biotechnology
products.
|
Our
prescription drug products
encompass the areas of dermatology and oncology and involve several types of
small molecule-based drugs. Our medical device systems include therapeutic
and
cosmetic lasers, while our OTC products address markets primarily involving
skincare applications. Because our prescription drug candidates and medical
device systems are in the early stages of development, they are not yet on
the
market and there is no assurance that they will advance to the point of
commercialization.
Our
first
commercially available products are directed into the OTC market, as these
products pose minimal or no regulatory compliance barriers to market
introduction. For example, the active pharmaceutical ingredient (API) in our
ethical products is already approved for other medical uses by the FDA and
has a
long history of safety for use in humans. This use of known APIs for novel
uses
and in novel formulations minimizes potential adverse concerns from the FDA,
since considerable safety data on the API is available (either in the public
domain or via license or other agreements with third parties holding such
information). In similar fashion, our OTC products are based on established
APIs
and, when possible, utilize formulations (such as aerosol or cream formulations)
that have an established precedent. (For more information on compliance issues,
see “Federal Regulation of Therapeutic Products.” In this fashion, we believe
that we can diminish the risk of regulatory bars to the introduction of safe,
consumer-friendly products and minimize the time required to begin generating
revenues from product sales. At the same time, we continue to develop
higher-margin prescription pharmaceuticals and medical devices, which have
longer development and regulatory approval cycles.
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. To develop our OTC products, we typically use compounds with potent
antibacterial and antifungal activity as building blocks and combine these
building blocks with anti-inflammatory and moisture-absorbing agents. Products
with these properties can be used for treatment of a large number of skin
afflictions, including:
·
|
hand
irritation associated with use of disposable
gloves;
|
Where
appropriate, we have filed or will file patent applications and will seek other
intellectual property protection to protect our unique formulations for relevant
applications.
GloveAid
Personnel
in many occupations and industries now use disposable gloves daily in the
performance of their jobs, including:
·
|
Airport
security personnel;
|
·
|
Food
handling and preparation personnel;
|
·
|
Postal
and package delivery handlers and
sorters;
|
·
|
Laboratory
researchers;
|
·
|
Health
care workers such as hospital and blood bank personnel;
and
|
·
|
Police,
fire and emergency response
personnel.
|
Accompanying
the increased use of disposable gloves is a mounting incidence of chronic skin
irritation. To address this market, 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. During 2003,
we ran a pilot scale run at the manufacturer of GloveAid. We now intend to
license this product to a third party with experience in the institutional
sales
market.
Pure-ific
Our
Pure-ific line of products includes two quick-drying sprays, Pure-ific and
Pure-ific Kids, that immediately kill up to 99.9% of germs on skin and prevent
regrowth for 6 hours. We have determined the effectiveness of Pure-ific based
on
our internal testing and testing performed by Paratus Laboratories H.B., an
independent research lab. 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. Our
Pure-ific sprays have been designed with convenience in mind and are targeted
towards mothers, travelers, and anyone concerned about the spread of
sickness-causing germs. During 2003 and 2004, we identified and engaged sales
and brokerage forces for Pure-ific. We emphasized getting sales in independent
pharmacies and mass (chain store) markets. The supply chain for Pure-ific was
established with the ability to support large-scale sales and a starting
inventory was manufactured and stored in a contract warehouse/fulfillment
center. In addition, a website for Pure-ific was developed with the ability
for
supporting online sales of the antibacterial hand spray. During 2005 and 2006,
most of our sales were generated from customers accessing our website for
Pure-ific and making purchases online. We now intend to license the Pure-ific
product and sell the underlying assets.
Acne
A
number
of dermatological conditions, including acne and other blemishes 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 acne and other blemishes. Wherever
possible, we intend to formulate these products to minimize or avoid significant
regulatory bars that might adversely impact time to market.
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. The ease of use and superior performance of these products
may eventually lead to extension into OTC applications currently serviced by
less safe, more expensive alternatives. 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 PH-10, a topical gel. Rose Bengal, the active ingredient in PH-10,
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
about three to five millimeters. For this reason, we have developed PH-10
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.
Acute
psoriasis.
Psoriasis is a common chronic disorder of the skin characterized by dry scaling
patches, called “plaques,” for which current treatments are few and those that
are available have potentially serious side effects. According to Roenigk and
Maibach (Psoriasis, Third Edition, 1998), there are approximately five million
people in the United States who suffer from psoriasis, with an estimated 160,000
to 250,000 new psoriasis cases each year. There is no known cure for the disease
at this time. According to the National Psoriasis Foundation, the majority
of
psoriasis sufferers, those with mild to moderate cases, are treated with topical
steroids that can have unpleasant side effects. None of the other treatments
for
moderate cases of psoriasis have proven completely effective. The 25-30% of
psoriasis patients who suffer from more severe cases generally are treated
with
more intensive drug therapies or PUVA, a light-based therapy that combines
the
drug Psoralen with exposure to ultraviolet A light. While PUVA is one of the
more effective treatments, it increases a patient’s risk of skin
cancer.
We
believe that PH-10 activated with green light offers a superior treatment for
acute psoriasis because it selectively treats diseased tissue with negligible
potential for side effects in healthy tissue; moreover, the therapy has shown
promise in comprehensive Phase 1 clinical trials. The objective of a Phase
1
clinical trial is to determine if there are safety concerns with the therapy.
In
these studies, involving more than 50 test subjects, PH-10 was applied topically
to psoriatic plaques and then illuminated with green light. In our first study,
a single-dose treatment yielded an average reduction in plaque thickness of
59%
after 30 days, with further response noted at the final follow-up examination
90
days later. Further, no pain, significant side effects, or evidence of “rebound”
(increased severity of a psoriatic plaque after the initial reduction in
thickness) were observed in any treated areas. This degree of positive
therapeutic response is comparable to that achieved with potent steroids and
other anti-inflammatory agents, but without the serious side effects associated
with such agents. We are continuing the required Food and Drug Administration
reporting to support the active Investigational New Drug application for PH-10’s
Phase 2 clinical trials on psoriasis. The required reporting includes the
publication of results regarding the multiple treatment scenario of the active
ingredient in PH-10. We are now conducting Phase 2 studies, in which we expect
to assess the potential for remission of the disease using a regimen of weekly
treatments similar to those used for PUVA.
Actinic
Keratosis.
According to Schwartz and Stoll (Fitzpatrick’s Dermatology in General Medicine,
1999), actinic keratosis, or “AK” (also called solar keratosis or senile
keratosis), is the most common pre-cancerous skin lesion among fair-skinned
people and is estimated to occur in over 50% of elderly fair-skinned persons
living in sunny climates. These experts note that nearly half of the
approximately five million cases of skin cancer in the U.S. may have begun
as
AK. The standard treatments for AK (primarily comprising excision, cryotherapy,
and ablation with topical 5-fluorouracil) are often painful and frequently
yield
unacceptable cosmetic outcomes due to scarring. Building on our experience
with
psoriasis, we are assessing the use of PH-10 with green-light activation as
a
possible improvement in treatment of early and more advanced stages of AK.
We
completed an initial Phase 1 clinical trial of the therapy for this indication
in 2001 with the predecessor company that was acquired in 2002. This study,
involving 24 subjects, examined the safety profile of a single treatment using
topical PH-10 with green light photoactivation and no significant safety
concerns were identified. We have decided to prioritize further clinical
development of PH-10 for treatment of psoriasis and eczema rather than AK at
this time since the market is much larger for psoriasis and eczema.
Severe
Acne.
According to Berson et al. (Cutis. 72 (2003) 5-13), acne vulgaris affects
approximately 17 million individuals in the U.S., causing pain, disfigurement,
and social isolation. Moderate to severe forms of the disease have proven
responsive to several photodynamic regimens, and we anticipate that PH-10 can
be
used as an advanced treatment for this disease. Pre-clinical studies show that
the active ingredient in PH-10 readily kills bacteria associated with acne.
This
finding, coupled with our clinical experience in psoriasis and actinic
keratosis, suggests that therapy with PH-10 will exhibit no significant side
effects and will afford improved performance relative to other therapeutic
alternatives. If correct, this would be a major advance over currently available
products for severe acne.
As
noted
above, we are researching multiple uses for PH-10 with green-light activation.
Multiple-indication use by a common pool of physicians - dermatologists, in
this
case - should reduce market resistance to this new therapy.
Oncology
Oncology
is another major market where our planned products may afford competitive
advantage compared to currently available options. We are developing PV-10,
a
sterile injectible form of Rose Bengal, 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. During
2003
and 2004, we worked toward completion of the extensive scientific and medical
materials necessary for filing an Investigational New Drug (IND) application
for
PV-10 in anticipation of beginning Phase 1 clinical trials for breast and liver
cancer. This IND was filed and allowed by the FDA in 2004 setting the stage
for
two Phase 1 clinical trials; namely, treating metastatic melanoma and recurrent
breast carcinoma. We started both of these Phase 1 clinical trials in 2005
and
completed the initial Phase 1 objectives for both in 2006.
Liver
Cancer. The
current standard of care for liver cancer is ablative therapy (which seeks
to
reduce a tumor by poisoning, freezing, heating, or irradiating it) using either
a localized injection of ethanol (alcohol), cryosurgery, radiofrequency
ablation, or ionizing radiation such as X-rays. Where effective, these therapies
have many side effects and selecting therapies with fewer side effects tends
to
reduce overall effectiveness. Combined, ablative therapies have a five-year
survival rate of 33% - meaning that only 33% of those liver cancer patients
whose cancers are treated using these therapies survive for five years after
their initial diagnoses. In pre-clinical studies we have found that direct
injection of PV-10 into liver tumors quickly ablates treated tumors, and can
trigger an anti-tumor immune response leading to eradication of residual tumor
tissue and distant tumors. Because of the natural regenerative properties of
the
liver and the highly localized nature of the treatment, this approach appears
to
produce no significant side effects. Based on these encouraging preclinical
results, we are assessing strategies for initiation of clinical trials of PV-10
for treatment of liver cancer.
Breast
Cancer. Breast
cancer afflicts over 200,000 U.S. citizens annually, leading to over 40,000
deaths. Surgical resection, chemotherapy, radiation therapy, and immunotherapy
comprise the standard treatments for the majority of cases, resulting in serious
side effects that in many cases are permanent. Moreover, current treatments
are
relatively ineffective against metastases, which in many cases are the eventual
cause of patient mortality. Pre-clinical studies using human breast tumors
implanted in mice have shown that direct injection of PV-10 into these tumors
ablates the tumors, and, as in the case of liver tumors, may elicit an
anti-tumor immune response that eradicates distant metastases. Since fine-needle
biopsy is a routine procedure for diagnosis of breast cancer, and since the
needle used to conduct the biopsy also could be used to direct an injection
of
PV-10 into the tumor, localized destruction of suspected tumors through direct
injection of PV-10 clearly has the potential of becoming a primary treatment.
We
are evaluating options for expanding clinical studies of direct injection of
PV-10 into breast tumors while completing expanded Phase 1 clinical studies
of
our indication for PV-10 in recurrent breast carcinoma.
Prostate
Cancer.
Cancer of the prostate afflicts approximately 190,000 U.S. men annually, leading
to over 30,000 deaths. As with breast cancer, surgical resection, chemotherapy,
radiation therapy, and immunotherapy comprise the standard treatments for the
majority of cases, and can result in serious, permanent side effects. We believe
that direct injection of PV-10 into prostate tumors may selectively ablate
such
tumors, and, as in the case of liver and breast tumors, may also elicit an
anti-tumor immune response capable of eradicating distant metastases. Since
trans-urethral ultrasound, guided fine-needle biopsy and immunotherapy, along
with brachytherapy implantation, are becoming routine procedures for diagnosis
and treatment of these cancers, we believe that localized destruction of
suspected tumors through direct injection of PV-10 can become a primary
treatment. We are evaluating options for initiating clinical studies of direct
injection of PV-10 into prostate tumors, and expect to formulate final plans
based on results from clinical studies of our indications for PV-10 in the
treatment of liver and breast cancer.
Metastatic
Melanoma.
Melanoma is expected to strike 60,000 people in the U.S. this year, leading
to
8,100 deaths. The incidence of melanoma in Australia, where our expanded Phase
2
clinical study is currently underway, is up to 5X that of the U.S. There have
been no significant advances in the treatment of melanoma for approximately
30
years. We are continuing Phase 2 clinical studies in both Australia and the
U.S.
of direct injection of PV-10 into melanoma lesions and we completed the expanded
Phase 1 clinical studies of our indication for PV-10 in Stage 3 and Stage 4
metastatic melanoma.
Medical
Devices
We
have
medical device technologies to address two major markets:
·
|
cosmetic
treatments, such as reduction of wrinkles and elimination of spider
veins
and other cosmetic blemishes; and
|
·
|
therapeutic
uses, including photoactivation of PH-10 other prescription drugs
and
non-surgical destruction of certain skin
cancers.
|
We
expect
to further develop medical devices through partnerships with, or selling our
assets to, third-party device manufacturers or, if appropriate opportunities
arise, through acquisition of one or more device manufacturers.
Photoactivation.
Our
clinical tests of PH-10 for dermatology have, up to the present, utilized a
number of commercially available lasers for activation of the drug. This
approach has several advantages, including the leveraging of an extensive base
of installed devices present throughout the pool of potential physician-adopters
for PH-10. Access to such a base could play an integral role in early
market capture. However, since the use of such lasers, which were designed
for
occasional use in other types of dermatological treatment, is potentially too
cumbersome and costly for routine treatment of the large population of patients
with psoriasis, we have begun investigating potential use of other types of
photoactivation hardware, such as light booths. The use of such booths is
consistent with current care standards in the dermatology field, and may provide
a cost-effective means for addressing the needs of patients and physicians
alike. We anticipate that such photoactivation hardware would be developed,
manufactured, and supported in conjunction with one or more third-party device
manufacturer.
Melanoma.
A high
priority in our medical devices field is the development of a laser-based
product for treatment of melanoma. We have conducted extensive research on
ocular melanoma at the Massachusetts Eye and Ear Infirmary (a teaching affiliate
of Harvard Medical School) using a new laser treatment that may offer
significant advantage over current treatment options. A single quick
non-invasive treatment of ocular melanoma tumors in a rabbit model resulted
in
elimination of over 90% of tumors, and may afford significant advantage over
invasive alternatives, such as surgical excision, enucleation, or radiotherapy
implantation. Ocular melanoma is rare, with approximately 2,000 new cases
annually in the U.S. However, we believe that our extremely successful results
could be extrapolated to treatment of primary melanomas of the skin, which
have
an incidence of over 60,000 new cases annually in the U.S. and a 6% five-year
survival rate after metastasis of the tumor. We have performed similar laser
treatments on large (averaging approximately 3 millimeters thick) cutaneous
melanoma tumors implanted in mice, and have been able to eradicate over 90%
of
these pigmented skin tumors with a single treatment. Moreover, we have shown
that this treatment stimulates an anti-tumor immune response that may lead
to
improved outcome at both the treatment site and at sites of distant metastasis.
From these results, we believe that a device for laser treatment of primary
melanomas of the skin and eye is nearly ready for human studies. We anticipate
partnering with, or selling our assets to, a medical device manufacturer to
bring it to market in reliance on a 510(k) notification. For more information
about the 510(k) notification process, see “Federal Regulation of Therapeutic
Products.”
Research
and
Development
We
continue to actively develop projects that are product directed and are
attempting to conserve available capital and achieve full capitalization of
our
company through equity and convertible debt offerings, generation of product
revenues, and other means. All ongoing research and development activities
are
directed toward maximizing shareholder value and advancing our corporate
objectives in conjunction with our OTC product licensure, our current product
development and maintaining our intellectual property portfolio.
Production
We
have
determined that the most efficient use of our capital in further developing
our
OTC products is to license the products and sell the underlying assets for
upfront cash consideration.
Sales
Our
first
commercially available products are directed into the OTC market, as these
products pose minimal or no regulatory compliance barriers to market
introduction. In this fashion, we believe that we can diminish the risk of
regulatory bars to the introduction of products and minimize the time required
to begin generating revenues from product sales. At the same time, we continue
to develop higher-margin prescription pharmaceuticals and medical devices,
which
have longer development and regulatory approval cycles.
We
have
commenced limited sales of Pure-ific, our antibacterial hand spray. We sold
small amounts of this product during 2004, 2005 and 2006. We will continue
to
seek additional markets for our products through existing distributorships
that
market and distribute medical products, ethical pharmaceuticals, and OTC
products for the professional and consumer marketplaces through licensure,
partnership and asset sale arrangements, and through potential merger and
acquisition candidates.
In
addition to developing and selling products ourselves on a limited basis, we
are
negotiating actively with a number of potential licensees for several of our
intellectual properties, including patents and related technologies. To date,
we
have not yet entered into any licensing agreements; however, we anticipate
consummating one or more such licenses in the future.
Intellectual
Property
Patents
We
hold a
number of U.S. patents covering the technologies we have developed and are
continuing to develop for the production of prescription drugs, medical devices
and OTC pharmaceuticals, including those identified in the following
table:
U.S.
Patent
No.
|
Title
|
Issue
Date
|
Expiration
Date
|
5,829,448
|
Method
for improved selectivity in -activation of molecular
agents
|
November
3, 1998
|
October
30, 2016
|
5,832,931
|
Method
for improved selectivity in photo-activation and detection of diagnostic
agents
|
November
10, 1998
|
October
30, 2016
|
5,998,597
|
Method
for improved selectivity in -activation of molecular
agents
|
December
7, 1999
|
October
30, 2016
|
6,042,603
|
Method
for improved selectivity in photo-activation of molecular
agents |
March
28, 2000
|
|
6,331,286
|
Methods
for high energy phototherapeutics
|
December
18, 2001
|
December
21, 2018
|
6,451,597
|
Method
for enhanced protein stabilization and for production of cell lines
useful
production of such stabilized proteins
|
September
17, 2002
|
April
6, 2020
|
6,468,777
|
Method
for enhanced protein stabilization and for production of cell lines
useful
production of such stabilized proteins
|
October
22, 2002
|
April
6, 2020
|
6,493,570
|
Method
for improved imaging and photodynamic therapy
|
December
10, 2002
|
December
10, 2019
|
6,495,360
|
Method
for enhanced protein stabilization for production of cell lines useful
production of such stabilized proteins
|
December
17, 2002
|
April
6, 2020
|
6,519,076
|
Methods
and apparatus for optical imaging
|
February
11, 2003
|
October
30, 2016
|
6,525,862
|
Methods
and apparatus for optical imaging
|
February
25, 2003
|
October
30, 2016
|
6,541,223
|
Method
for enhanced protein stabilization and for production of cell lines
useful
production of such stabilized proteins
|
April
1, 2003
|
April
6, 2020
|
6,986,740
|
Ultrasound
contrast using halogenated xanthenes
|
January
17, 2006
|
September
9, 2023
|
6,991,776
|
Improved
intracorporeal medicaments for high energy phototherapeutic treatment
of
disease
|
January
31, 2006
|
May
5, 2023
|
7,036,516
|
Treatment
of pigmented tissues using optical energy
|
May
2, 2006
|
January
28, 2020
|
We
continue to pursue patent applications on numerous other developments we believe
to be patentable. We consider our issued patents, our pending patent
applications and any patentable inventions which we may develop to be extremely
valuable assets of our business.
Trademarks
We
own
the following trademarks used in this document: GloveAid(TM) and Pure-ific(TM)
(including Pure-ific(TM) and Pure-ific(TM) Kids). We also own the registered
trademark PulseView®. Trademark rights are perpetual provided that we continue
to keep the mark in use. We consider these marks, and the associated name
recognition, to be valuable to our business.
Material
Transfer
Agreement
We
have
entered into a Material Transfer Agreement dated as of July 31, 2003 with
Schering-Plough Animal Health Corporation, which we refer to as “SPAH”, the
animal-health subsidiary of Schering-Plough Corporation, a major international
pharmaceutical company. This Material Transfer Agreement is still in effect.
We
refer to this agreement in this report as the “Material Transfer Agreement.”
Under the Material Transfer Agreement, we will provide SPAH with access to
some
of our patented technologies to permit SPAH to evaluate those technologies
for
use in animal-health applications. If SPAH determines that it can commercialize
our technologies, then the Material Transfer Agreement obligates us and SPAH
to
enter into a license agreement providing for us to license those technologies
to
SPAH in exchange for progress payments upon the achievement of goals. The
Material Transfer Agreement covers four U.S. patents that cover biological
material manufacturing technologies (i.e., biotech related). The Material
Transfer Agreement continues indefinitely, unless SPAH terminates it by giving
us notice or determines that it does not wish to secure from us a license for
our technologies. The Material Transfer Agreement can also be terminated by
either of us in the event the other party breaches the agreement and does not
cure the breach within 30 days of notice from the other party. We can give
you
no assurance that SPAH will determine that it can commercialize our technologies
or that the goals required for us to obtain progress payments from SPAH will
be
achieved.
Competition
In
general, the pharmaceutical industry is intensely competitive, characterized
by
rapid advances in products and technology. A number of companies have developed
and continue to develop products that address the areas we have targeted. Some
of these companies are major pharmaceutical companies that are international
in
scope and very large in size, while others are niche players that may be less
familiar but have been successful in one or more areas we are targeting.
Existing or future pharmaceutical, device, or other competitors may develop
products that accomplish similar functions to our technologies in ways that
are
less expensive, receive faster regulatory approval, or receive greater market
acceptance than our products. Many of our competitors have been in existence
for
considerably longer than we have, have greater capital resources, broader
internal structure for research, development, manufacturing and marketing,
and
are in many ways further along in their respective product cycles.
At
present, our most direct competitors are smaller companies that are exploiting
niches similar to ours. In the field of photodynamic therapy, one competitor,
QLT, Inc., has received FDA approval for use of its agent Photofrin® for
treatment of several niche cancer indications, and has a second product,
Visudyne®, approved for treatment of certain forms of macular degeneration.
Another competitor in this field, Dusa Pharmaceuticals, Inc. received FDA
approval of its photodynamic product Levulan® Kerastik® for treatment of actinic
keratosis. We believe that QLT and Dusa, among other competitors, have
established a working commercial model in dermatology and oncology, and that
we
can benefit from this model by offering products that, when compared to our
competitors’ products, afford superior safety and performance, greatly reduced
side effects, improved ease of use, and lower cost, compared to those of our
competitors.
While
it
is possible that eventually we may compete directly with major pharmaceutical
companies, we believe it is more likely that we will enter into joint
development, marketing, or other licensure arrangements with such competitors.
Eventually, we believe that we will be acquired.
We
also
have a number of market areas in common with traditional skincare cosmetics
companies, but in contrast to these companies, our products are based on unique,
proprietary formulations and approaches. For example, we are unaware of any
products in our targeted OTC skincare markets that our similar to our Pure-ific
products. Further, proprietary protection of our products may help limit or
prevent market erosion until our patents expire.
Federal
Regulation of
Therapeutic Products
All
of
the prescription drugs and medical devices we currently contemplate developing
will require approval by the FDA prior to sales within the United States and
by
comparable foreign agencies prior to sales outside the United States. The FDA
and comparable regulatory agencies impose substantial requirements on the
manufacturing and marketing of pharmaceutical products and medical devices.
These agencies and other entities extensively regulate, among other things,
research and development activities and the testing, manufacturing, quality
control, safety, effectiveness, labeling, storage, record keeping, approval,
advertising and promotion of our proposed products. While we attempt to minimize
and avoid significant regulatory bars when formulating our products, some degree
of regulation from these regulatory agencies is unavoidable. Some of the things
we do to attempt to minimize and avoid significant regulatory bars include
the
following:
·
|
Using
chemicals and combinations already allowed by the
FDA;
|
·
|
Carefully
making product performance claims to avoid the need for regulatory
approval;
|
·
|
Using
drugs that have been previously approved by the FDA and that have
a long
history of safe use;
|
·
|
Using
chemical compounds with known safety profiles;
and
|
·
|
In
many cases, developing OTC products which face less regulation than
prescription pharmaceutical
products.
|
The
regulatory process required by the FDA, through which our drug or device
products must pass successfully before they may be marketed in the U.S.,
generally involves the following:
·
|
Preclinical
laboratory and animal testing;
|
·
|
Submission
of an application that must become effective before clinical trials
may
begin;
|
·
|
Adequate
and well-controlled human clinical trials to establish the safety
and
efficacy of the product for its intended indication;
and
|
·
|
FDA
approval of the application to market a given product for a given
indication.
|
For
pharmaceutical products, preclinical tests include laboratory evaluation of
the
product, its chemistry, formulation and stability, as well as animal studies
to
assess the potential safety and efficacy of the product. Where appropriate
(for
example, for human disease indications for which there exist inadequate animal
models), we will attempt to obtain preliminary data concerning safety and
efficacy of proposed products using carefully designed human pilot studies.
We
will require sponsored work to be conducted in compliance with pertinent local
and international regulatory requirements, including those providing for
Institutional Review Board approval, national governing agency approval and
patient informed consent, using protocols consistent with ethical principles
stated in the Declaration of Helsinki and other internationally recognized
standards. We expect any pilot studies to be conducted outside the United
States; but if any are conducted in the United States, they will comply with
applicable FDA regulations. Data obtained through pilot studies will allow
us to
make more informed decisions concerning possible expansion into traditional
FDA-regulated clinical trials.
If
the
FDA is satisfied with the results and data from preclinical tests, it will
authorize human clinical trials. Human clinical trials typically are conducted
in three sequential phases which may overlap. Each of the three phases involves
testing and study of specific aspects of the effects of the pharmaceutical
on
human subjects, including testing for safety, dosage tolerance, side effects,
absorption, metabolism, distribution, excretion and clinical
efficacy.
Phase
1
clinical trials include the initial introduction of an investigational new
drug
into humans. These studies are closely monitored and may be conducted in
patients, but are usually conducted in healthy volunteer subjects. These studies
are designed to determine the metabolic and pharmacologic actions of the drug
in
humans, the side effects associated with increasing doses, and, if possible,
to
gain early evidence on effectiveness. While the FDA can cause us to end clinical
trials at any phase due to safety concerns, Phase 1 clinical trials are
primarily concerned with safety issues. We also attempt to obtain sufficient
information about the drug’s pharmacokinetics and pharmacological effects during
Phase 1 clinical trial to permit the design of well-controlled, scientifically
valid, Phase 2 studies.
Phase
1
studies also evaluate drug metabolism, structure-activity relationships, and
the
mechanism of action in humans. These studies also determine which
investigational drugs are used as research tools to explore biological phenomena
or disease processes. The total number of subjects included in Phase 1 studies
varies with the drug, but is generally in the range of twenty to
eighty.
Phase
2
clinical trials include the early controlled clinical studies conducted to
obtain some preliminary data on the effectiveness of the drug for a particular
indication or indications in patients with the disease or condition. This phase
of testing also helps determine the common short-term side effects and risks
associated with the drug. Phase 2 studies are typically well-controlled, closely
monitored, and conducted in a relatively small number of patients, usually
involving several hundred people.
Phase
3
studies are expanded controlled and uncontrolled trials. They are performed
after preliminary evidence suggesting effectiveness of the drug has been
obtained in Phase 2, and are intended to gather the additional information
about
effectiveness and safety that is needed to evaluate the overall benefit-risk
relationship of the drug. Phase 3 studies also provide an adequate basis for
extrapolating the results to the general population and transmitting that
information in the physician labeling. Phase 3 studies usually include several
hundred to several thousand people.
Applicable
medical devices can be cleared for commercial distribution through a
notification to the FDA under Section 510(k) of the applicable statute. The
510(k) notification must demonstrate to the FDA that the device is as safe
and
effective and substantially equivalent to a legally marketed or classified
device that is currently in interstate commerce. Such devices may not require
detailed testing. Certain high-risk devices that sustain human life, are of
substantial importance in preventing impairment of human health, or that present
a potential unreasonable risk of illness or injury, are subject to a more
comprehensive FDA approval process initiated by filing a premarket approval,
also known as a “PMA,” application (for devices) or accelerated approval (for
drugs).
We
have
established a core clinical development team and have been working with outside
FDA consultants to assist us in developing product-specific development and
approval strategies, preparing the required submittals, guiding us through
the
regulatory process, and providing input to the design and site selection of
human clinical studies. Historically, obtaining FDA approval for photodynamic
therapies has been a challenge. Wherever possible, we intend to utilize lasers
or other activating systems that have been previously approved by the FDA to
mitigate the risk that our therapies will not be approved by the FDA. The FDA
has considerable experience with lasers by virtue of having reviewed and acted
upon many 510(k) and premarket approval filings submitted to it for various
photodynamic and non-photodynamic therapy laser applications, including a large
number of cosmetic laser treatment systems used by dermatologists.
The
testing and approval process requires substantial time, effort, and financial
resources, and we may not obtain FDA approval on a timely basis, if at all.
Success in preclinical or early-stage clinical trials does not assure success
in
later stage clinical trials. The FDA or the research institution sponsoring
the
trials may suspend clinical trials or may not permit trials to advance from
one
phase to another at any time on various grounds, including a finding that the
subjects or patients are being exposed to an unacceptable health risk. Once
issued, the FDA may withdraw a product approval if we do not comply with
pertinent regulatory requirements and standards or if problems occur after
the
product reaches the market. If the FDA grants approval of a product, the
approval may impose limitations, including limits on the indicated uses for
which we may market a product. In addition, the FDA may require additional
testing and surveillance programs to monitor the safety and/or effectiveness
of
approved products that have been commercialized, and the agency has the power
to
prevent or limit further marketing of a product based on the results of these
post-marketing programs. Further, later discovery of previously unknown problems
with a product may result in restrictions on the product, including its
withdrawal from the market.
Marketing
our products abroad will require similar regulatory approvals by equivalent
national authorities and is subject to similar risks. To expedite development,
we may pursue some or all of our initial clinical testing and approval
activities outside the United States, and in particular in those nations where
our products may have substantial medical and commercial relevance. In some
such
cases any resulting products may be brought to the U.S. after substantial
offshore experience is gained. Accordingly, we intend to pursue any such
development in a manner consistent with U.S. standards so that the resultant
development data is maximally applicable for potential FDA
approval.
OTC
products are subject to regulation by the FDA and similar regulatory agencies
but the regulations relating to these products are much less stringent than
those relating to prescription drugs and medical devices. The types of OTC
products developed and sold by us only require that we follow cosmetic rules
relating to labeling and the claims that we make about our product. The process
for obtaining approval of prescription drugs with the FDA does not apply to
the
OTC products which we sell. The FDA can, however, require us to stop selling
our
product if we fail to comply with the rules applicable to our OTC
products.
Employees
We
currently employ four persons, all of whom are full-time employees.
Available
Information
Provectus
Pharmaceuticals, Inc. is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, which we refer to as the “Exchange
Act.” To comply with those requirements, we file annual reports, quarterly
reports, periodic reports and other reports and statements with the Securities
and Exchange Commission, which we refer to as the “SEC.” You may read and copy
any materials that we file with the SEC at the SEC’s Public Reference Room, at
100 F. Street, N.E., Washington, D.C. 20549. You can obtain information on
the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
In
addition, the SEC maintains an Internet site at http://www.sec.gov, from which
you can access electronic copies of materials we file with the SEC.
Our
Internet address is http://www.pvct.com. We have made available, through a
link
to the SEC’s website, electronic copies of the materials we file with the SEC
(including our annual reports on Form 10-KSB, our quarterly reports on Form
10-QSB, our current reports on Form 8-K, the Section 16 reports filed by our
executive officers, directors and 10% shareholders and amendments to those
reports). To receive paper copies of our SEC materials, please contact us by
U.S. mail, telephone, facsimile or electronic mail at the following
address:
Provectus
Pharmaceuticals, Inc.
Attention:
President
7327
Oak
Ridge Highway, Suite A
Knoxville,
TN 37931
Telephone:
865/769-4011
Facsimile:
865/769-4013
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion is intended to assist in the understanding and assessment
of significant changes and trends related to our results of operations and
our
financial condition together with our consolidated subsidiaries. This discussion
and analysis should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this prospectus. Historical
results and percentage relationships set forth in the statement of operations,
including trends which might appear, are not necessarily indicative of future
operations.
Critical
Accounting
Policies
Patent
Costs
Internal
patent costs are expensed in the period incurred. Patents purchased are
capitalized and amortized over the remaining life of the patent. The patents
are
being amortized over the remaining lives of the patents, which range from 11-15
years. Annual amortization of the patents is expected to be approximately
$671,000 per year for the next five years.
Long-Lived
Assets
We
review
the carrying values of our long-lived assets for possible impairment whenever
an
event or change in circumstances indicates that the carrying amount of the
assets may not be recoverable. Any long-lived assets held for
disposal are reported at the lower of their carrying amounts or fair value
less
cost to sell.
Stock-Based
Compensation
We
adopted Financial Accounting Standards Board (“FASB”) Statement No. 123 (revised
2004), “Share-Based Payment (FASB 123R), effective January 1, 2006 under the
modified prospective method, which recognizes compensation cost beginning with
the effective date (a) based on the requirements of FASB 123R for all
share-based payments granted after the effective date and to awards modified,
repurchased, or cancelled after that date and (b) based on the requirements
of
FASB 123 for all awards granted to employees prior to the effective date of
FASB
123R that remain unvested on the effective date. There was no cumulative effect
of our initially applying this Statement. At September 30, 2007 we have
estimated that an additional $603,374 will be expensed over the applicable
remaining vesting periods for all share-based payments granted to employees
on
or before December 31, 2005 which remained unvested on January 1,
2006.
The
compensation cost relating to share-based payment transactions is measured
based
on the fair value of the equity or liability instruments issued and is expensed
on a straight-line basis. For purposes of estimating the fair value of each
stock option or restricted stock unit on the date of grant, we utilized the
Black-Scholes option-pricing model. The Black-Scholes option valuation model
was
developed for use in estimating the fair value of traded options, which have
no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the expected
volatility factor of the market price of the company’s common stock (as
determined by reviewing its historical public market closing prices). Because
our employee stock options and restricted stock units have characteristics
significantly different from those of traded options and because changes in
the
subjective input assumptions can materially affect the fair value estimate,
in
management’s opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options or restricted
stock units.
For
the
year ended December 31, 2005 we adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, “Accounting for Stock Based
Compensation” (SFAS No. 123). If we 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.
Research
and
Development
Research
and development costs are charged to expense when incurred. An allocation of
payroll expenses was made based on a percentage estimate of time spent. The
research and development costs include the following: consulting - IT,
depreciation, lab equipment repair, lab supplies and pharmaceutical
preparations, insurance, legal - patents, office supplies, payroll expenses,
rental - building, repairs, software, taxes and fees, and
utilities.
Contractual
Obligations -
Leases
We
lease
office and laboratory space in Knoxville, Tennessee, on an annual basis,
renewable for one year at our option. We are committed to pay a total of $12,480
in lease payments over three months, which is the remainder of our current
lease
term at December 31, 2006.
Capital
Structure
Our
ability to continue as a going concern is assured due to our financing completed
during 2006. At the current rate of expenditures, we will not need to raise
additional capital until late 2008, although our existing funds are sufficient
to meet anticipated needs throughout 2008 and into 2009.
We
have
implemented our integrated business plan, including execution of the current
and
next phases in clinical development of our pharmaceutical products and continued
execution of research programs for new research initiatives.
We
intend
to proceed as rapidly as possible with the asset sale and licensure of our
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 medical
device and biotech intellectual property portfolio. Although we believe that
there is a reasonable basis for our expectation that we will become profitable
due to the asset sale and licensure of our OTC products, 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 have added additional consultants and anticipate adding
more consultants in the next 12 months. Our current plans also include minimal
purchases of new property, plant and equipment, and increased research and
development for additional clinical trials.
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 2007, we have and will
continue to carefully control expenditures in preparation for the asset sale
and
licensure or spin out of our OTC products, medical device and biotech
technologies, and we will issue equity only when it makes sense and primarily
for purposes of attracting strategic investors.
In
the
short term, we intend to develop our business by selling the OTC assets and
licensing our existing OTC products, principally Pure-Stick, GloveAid
and Pure-ific. We are also now considering a spin out of
the wholly-owned subsidiary that contains the OTC assets. We will
also sell and/or license our medical device and biotech
technologies. 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 for prescription drugs in particular. Additionally, we
have restarted our research programs that will identify additional conditions
that our intellectual properties may be used to treat as well as additional
treatments for those and other conditions.
We
have
continued to make significant progress with the major research and development
projects expected to be ongoing in the next 12 months. Our expanded
Phase 1 metastatic melanoma clinical trial and the second group of our expanded
Phase 1 breast carcinoma clinical trial was completed in April 2007 for
approximately $1,000,000 in the aggregate, most of which has been expended
in
2005 and 2006. The planning phase for the expected Phase 2 trial in
metastatic melanoma has been completed which will cost approximately $3,000,000
through 2008. This includes expenditures in 2007 to significantly
advance the Phase 2 trial in metastatic melanoma that commenced in August 2007
and which may provide pivotal efficacy. Additionally, we plan on
$1,000,000 of expenditures in 2007 and 2008 to substantially advance our work
with other oncology indications which includes the initiation of the third
group
of our expanded Phase 1 breast carcinoma clinical trial. Our Phase 2
psoriasis trial commenced in November 2007 and will cost approximately
$1,500,000 over 12 months. Our Phase 1 & 2 liver cancer trial is
expected to cost approximately $500,000 in total and is expected to commence
in
late 2007 or early 2008.
Comparison
of the Years
Ended December 31, 2006 and 2005
Revenues
OTC
Product Revenue decreased by $4,184 in 2006 to $1,368 from $5,552 in 2005.
The
decrease in OTC Product Revenue resulted from lower online sales. We have
discontinued our proof of concept program in November 2006 and have, therefore,
ceased selling our OTC products. Medical Device Revenue decreased by $984 in
2006 to $-0- from $984 in 2005. The decrease in Medical Device Revenue resulted
due to no emphasis on selling in 2006 versus the sales of three devices in
2005.
Research
and
development
Research
and development costs totaling $3,016,361 for 2006 included depreciation expense
of $4,442, consulting and contract labor of $481,400, lab supplies and
pharmaceutical preparations of $259,198, insurance of $43,361, legal of
$202,044, payroll of $1,969,474, and rent and utilities of $56,442. Research
and
development costs totaling $2,044,391 for 2005 included depreciation expense
of
$1,708, consulting and contract labor of $805,915, lab supplies and
pharmaceutical preparations of $111,504, insurance of $120,493, legal of
$208,368, payroll of $747,197, and rent and utilities of $49,206. The decrease
in consulting is the result of the absence of start-up related consulting costs
for the beginning of the clinical trial program. The increase in lab supplies
and pharmaceutical preparations is primarily the result of materials necessary
to prepare for additional clinical trials expected to commence in early 2007.
The increase in payroll is the result of raises and primarily the impact of
adopting SFAS No. 123(R).
General
and
administrative
General
and administrative expenses increased by $535,263 in 2006 to $3,534,597 from
$2,999,334 in 2005. The increase resulted primarily from higher payroll expenses
for general corporate purposes due to raises totaling $311,346 and primarily
as
a result of the impact of adopting SFAS No. 123(R) totaling $912,040, offset
by
lower consulting expenses and other expenses totaling $688,123.
Comparison
of Three and Nine
Months Ended September 30, 2007 and September 30,
2006
Revenues
OTC
Product Revenue decreased by $274
in the three months ended September 30, 2007 to $-0- from $274 in the three
months ended September 30, 2006. OTC Product Revenue decreased by
$1,354 in the nine months ended September 30, 2007 to $-0- from $1,354 in the
nine months ended September 30, 2006. We have discontinued our proof
of concept program in November 2006 and have therefore ceased selling our OTC
products.
Research
and development
Research
and development costs of
$1,079,345 for the three months ended September 30, 2007 included depreciation
expense of $2,314, consulting and contract labor of $157,128, lab supplies
and
pharmaceutical preparations of $10,773, insurance of $55,066, legal of $99,628,
payroll of $738,504, and rent and utilities of $15,932. Research and
development costs of $966,558 for the three months ended September 30, 2006
included depreciation expense of $1,079, consulting and contract labor of
$186,215, lab supplies and pharmaceutical preparations of $106,938, insurance
of
$7,500, legal of $62,995, payroll of $588,202, and rent and utilities of
$13,629. The increase in payroll is the result of raises and
bonuses.
Research
and development costs of $3,231,930 for the nine months ended September 30,
2007
included depreciation expense of $6,942, consulting and contract labor of
$461,621, lab supplies and pharmaceutical preparations of $109,784, insurance
of
$98,722, legal of $243,383, payroll of $2,264,488, and rent and utilities of
$46,990. Research
and development costs comprising the
total of $2,231,773 for the nine months ending September 30, 2006
included depreciation expense
of $3,023, consulting and contract labor
of $325,068, lab supplies and pharmaceutical preparations of
$249,105, insurance of $33,909, legal of $160,767, payroll of
$1,418,824, and rent and utilities of $41,077. The increase in
consulting and contract labor is primarily the result of expense necessary
to
prepare for advanced clinical trials in final preparations to commence in
2007. The increase in payroll is the result of bonuses, pension
expense, raises, and the impact of stock option expense for stock options issued
at the end of June 2006 which vest over a three-year period.
General
and administrative
General
and administrative expenses
increased by $637,289 in the three months ended September 30, 2007 to $1,541,364
from $904,075 for the three months ended September 30,
2006. Approximately $200,000 of the increase resulted from higher
payroll expenses for general corporate purposes as a result of raises and
bonuses net of a decrease in stock option expense. Additionally,
consulting expense increased $280,000 due to higher investor and public
relations expense as well as financial and other consulting expense, and legal
expense increased $90,000 due to non-core spinout preparation.
General
and administrative expenses
increased by $1,456,178 in the nine months ended September 30, 2007 to
$3,907,372 from $2,451,194 for the nine months ended September 30,
2006. Approximately $940,000 of the increase resulted from higher
payroll expenses for general corporate purposes as a result of bonuses, pension
expense, raises and the impact of stock option expense for stock options issued
at the end of June 2006 which vest over a three-year
period. Additionally, consulting expense increased $582,000 due to
higher external accounting expense, Sarbanes-Oxley Section 404 implementation
expense, financial, investor and public relations expense, and legal expenses
for non-core spinout preparation.
Cash
Flow
As
of
September 30, 2007, we held approximately $7,600,000 in cash and short-term
United States Treasury Notes. At our current cash expenditure rate,
this amount will be sufficient to meet our current and planned needs in 2007
and
2008. We have been increasing our expenditure rate by accelerating some of
our
research programs for new research initiatives; in addition, we are seeking
to
improve our cash flow through the asset sale and licensure of our OTC products
as well as other non-core assets. However, we cannot assure you that
we will be successful in selling the OTC and other non-core assets and licensing
our existing OTC products. Moreover, even if we are successful in
improving our current cash flow position, we nonetheless plan to require
additional funds to meet our long-term needs in 2009 and beyond. We
anticipate these funds will come from the proceeds of private placements, the
exercise of existing warrants outstanding, 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 current and
next phases in clinical development of our pharmaceutical
products. We anticipate that any required funds for our operating and
development needs beyond 2008 will come from the proceeds of private placements,
the exercise of existing warrants outstanding, 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
the notes to our financial statements included in this report.
Recent
Accounting
Pronouncements
The
Financial Accounting Standards Board (“FASB”) released SFAS No. 156, “Accounting
for Servicing of Financial Assets,” to simplify accounting for separately
recognized servicing assets and servicing liabilities. SFAS No. 156 amends
SFAS
No. 140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities.” SFAS No. 156 permits an entity to choose either
the amortization method or the fair value measurement method for measuring
each
class of separately recognized servicing assets and servicing liabilities after
they have been initially measured at fair value. SFAS No. 156 applies to all
separately recognized servicing assets and liabilities acquired or issued after
the beginning of an entity’s fiscal year that begins after September 15, 2006.
SFAS No. 156 will be effective for the Company as of January 1, 2007, the
beginning of the Company’s fiscal-2007 year. The adoption of SFAS No.
156 did not have a material impact on the Company’s consolidated
financial position or results of operations.
On
July
13, 2006, the FASB issued Interpretation No. 48 (“FIN 48”) “Accounting for Uncertainty
in Income
Taxes: an Interpretation of FASB Statement No. 109.” This interpretation
clarifies the accounting for uncertainty in income taxes recognized in an
entity’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.”
FIN No. 48 clarifies
what criteria must be met prior to recognition of the
financial statement benefit of a position taken in a tax return. FIN No. 48
will
require companies to include additional qualitative and quantitative disclosures
within their financial statements. The disclosures will include potential tax
benefits from positions taken for tax return purposes that have not been
recognized for financial reporting purposes and a tabular presentation of
significant changes during each period. The disclosures will also include a
discussion of the nature of uncertainties, factors that could cause a change,
and an estimated range of reasonable possible changes in tax uncertainties,
FIN
No. 48 will also require a company to recognize a financial statement benefit
for a position taken for tax return purposes when it will be
more-likely-than-not that the position will be sustained. FIN No. 48 will be
effective for fiscal years beginning after December 15, 2006. We adopted
FIN No. 48 in the first quarter of fiscal 2007, effective as of December 31,
2006, the beginning of the company’s 2007 fiscal year. The adoption of FIN
No. 48 did not have a material impact on the Company’s consolidated
financial position or results of operations.
The
FASB
released SFAS No. 157, “Fair Value Measurements,” to define fair value,
establish a framework for measuring fair value in accordance with generally
accepted accounting principles, and expand disclosures about fair value
measurements. SFAS No. 157 will be effective for the Company as of December
30,
2007, the beginning of the Company’s fiscal-2008 year. We are assessing the
impact the adoption of SFAS No. 157 will have on the Company’s consolidated
financial position and results of operations.
In
September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
Benefit Pension and Postretirement Plans: an amendment of FASB Statements No.
87, 88, 106, and 132(R),” which requires an employer to recognize the
over-funded or under-funded status of a single-employer defined benefit
postretirement plan as an asset or liability in its statement of financial
position and to recognize changes in that funded status in comprehensive income
in the year in which the changes occur. SFAS No. 158 requires an employer to
initially apply the requirement to recognize the funded status of a benefit
plan
as of the end of the employer’s fiscal year ending after December 16, 2006. In
addition, SFAS No. 158 also requires an employer to measure plan assets and
benefit obligations as of the date of the employer’s fiscal year-end statement
of financial position for fiscal years ending after December 15, 2008. The
adoption of SFAS No. 158 did not have an impact on the Company’s
consolidated financial position or results of operations as the Company does
not
have a defined benefit plan.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities--Including an amendment of FASB
Statement No. 115,” which permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. SFAS No. 159 is expected to expand the use of fair value
measurement, which is consistent with the long-term measurement objectives
for
accounting for financial instruments. This Statement is effective as of the
beginning of an entity’s first fiscal year that begins after November 15, 2007.
Early adoption is permitted as of the beginning of a fiscal year that begins
on
or before November 15, 2007, provided the entity also elects to apply the
provisions of SFAS No. 157, “Fair Value Measurements.” We are assessing the
impact the adoption of SFAS No. 159 will have on the Company’s consolidated
financial position and results of operations.
DESCRIPTION
OF
PROPERTY
We
lease office and laboratory space in Knoxville, Tennessee, on an annual
basis, renewable for one year at our option. The current lease
term expires on March 31, 2008.
CERTAIN
RELATIONSHIPS
AND TRANSACTIONS AND CORPORATE GOVERNANCE
Other
than the
compensation arrangements described in the section entitled "Executive
Compensation," since January 1, 2007, there has not been, nor is there currently
proposed, any transaction or series of transactions to which we were or will
be
a participant in which the amount involved exceeded or will exceed $120,000
and
in which any director, executive officer, holder of more than 5% of our common
stock, or any immediate family member of any of the foregoing had or will have
a
direct or indirect material interest.
One
of
our directors, Stuart Fuchs, was an affiliate of Chicago Investment Group.
During 2006, Chicago Investment Group served as placement agent for the sale
of
an aggregate of 866,833 shares of our common stock for an aggregate purchase
price of $1,750,125. We issued warrants to the investors to purchase up to
an additional 466,833 shares of our common stock at an exercise price of $0.935
per share. As compensation for its services as placement agent, we issued
186,683 shares of common stock to Chicago Investment Group and paid commissions
of $189,013.
Although
the Company's stock is not quoted on NASDAQ, the Company has elected to apply
the NASDAQ Marketplace Rules to determine whether its directors are
independent. Based on the relationship and transaction described above,
and based on the fact that all our directors, with the exception of Stuart
Fuchs, are employed by us, we have determined that none of our directors are
independent.
LEGAL
MATTERS
The
validity of the shares of common stock offered hereby as to their being fully
paid, legally issued and non-assessable will be passed upon for us by Baker,
Donelson, Bearman, Caldwell & Berkowitz, P.C., 100 Med Tech Parkway, Suite
200, Johnson City, Tennessee 37604.
EXPERTS
The
financial statements included in this prospectus have been audited by BDO
Seidman, LLP, an independent registered public accounting firm, to the extent
and for the periods set forth in the report appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of said
firm
as experts in auditing and accounting.
CHANGES
IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
WHERE
YOU CAN FIND MORE
INFORMATION
We
file
reports, proxy statements, information statements and other information with
the
SEC. You may read and copy this information, for a copying fee, at the SEC’s
Public Reference Room at 100 F. Street, N.E., Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for more information on its public reference
rooms. Our SEC filings are also available to the public from commercial document
retrieval services, and at the web site maintained by the SEC at
http://www.sec.gov.
Our
Internet address is http://www.pvct.com. We have made available, through a
link
to the SEC’s Web site, electronic copies of the materials that we file with the
SEC (including our annual reports on Form 10-KSB, our quarterly reports on
Form
10-QSB, our current reports on Form 8-K, the Section 16 reports filed by our
executive officers, directors and 10% stockholders and amendments to those
reports). To receive paper copies of our SEC materials, please contact us by
U.S. mail, telephone, facsimile or electronic mail at the following
address:
Provectus
Pharmaceuticals, Inc.
Attention:
President
7327
Oak
Ridge Highway, Suite A
Knoxville,
TN 37931
Telephone:
865/769-4011
Facsimile:
865/769-4013
We
have
filed a registration statement under the Securities Act, with respect to the
securities offered pursuant to this prospectus. This prospectus does not contain
all of the information set forth in the registration statement, certain parts
of
which are omitted in accordance with the rules and regulations of the SEC.
For
further information, reference is made to the registration statement and the
exhibits filed as a part thereof, which may be found at the locations and
website referred to above.
FINANCIAL
STATEMENTS
Our
consolidated financial statements, together with the report thereon of BDO
Seidman LLP, independent accountants, are set forth on the pages of this
Prospectus indicated below.
|
|
Page
|
Audited
Consolidated Financial
Statements
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
F-1
|
Consolidated
Balance Sheets as of December 31, 2006 and 2005
|
|
F-2
|
Consolidated
Statements of Operations for the years ended December 31, 2006 and
2005,
and cumulative amounts from January 17, 2002 (Inception) through
December
31, 2006
|
|
F-3
|
Consolidated
Statements of Stockholders’ Equity for years ended December 31, 2006 and
2005, and cumulative amounts from January 17, 2002 (Inception) through
December 31, 2006
|
|
F-4
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2006 and
2005,
and cumulative amounts (unaudited) from January 17, 2002 (Inception)
through December 31, 2006
|
|
F-6
|
Notes
to Consolidated Financial Statements
|
|
F-8
|
Interim
Unaudited Consolidated
Financial Statements
|
|
|
Consolidated
Balance Sheets as of September 30, 2007 (unaudited) and December,
2006
(audited)
|
|
F-26
|
Consolidated
Statements of Operations (unaudited) for the three and nine months
ended
September 30, 2007, the three and nine months ended September 30,
2006,
and cumulative amounts from January 17, 2002 (Inception) through
September
30, 2007
|
|
F-27
|
Consolidated
Statements of Stockholders’ Equity (unaudited) for the nine months ended
September 30, 2007, and cumulative amounts from January 17, 2002
(Inception) through September 30, 2007
|
|
F-28
|
Consolidated
Statements of Cash Flow (unaudited) for the nine months ended September
30, 2007, the nine months ended September 30, 2006, and cumulative
amounts
from January 17, 2002 (Inception) through September 30,
2007
|
|
F-30
|
Notes
to Consolidated Financial Statements (unaudited)
|
|
F-32
|
|
|
|
REPORT
OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Board
of
Directors
Provectus
Pharmaceuticals, Inc.
We
have audited the accompanying consolidated balance sheets of Provectus
Pharmaceuticals, Inc., a development-stage company, as of December 31, 2006
and
2005 and the related consolidated statements of operations, stockholders'
equity, and cash flows for the period from January 17, 2002 (inception) to
December 31, 2006 and for each of the two years in the period ended December
31,
2006. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control
over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Provectus Pharmaceuticals,
Inc. at December 31, 2006 and 2005, and the results of its operations and its
cash flows for the period from January 17, 2002 (inception) to December 31,
2006
and for each of the two years in the period ended December 31, 2006 in
conformity with accounting principles generally accepted in the United States
of
America.
As
disclosed in Note 1 to the consolidated financial statements, effective January
1, 2006, the Company adopted the fair value method of accounting provisions
of
Statement of Financial Accounting Standard No. 123 (revised 2004), “Share Based
Payment.”
/s/
BDO Seidman, LLP
Chicago,
Illinois
March
19,
2007
PROVECTUS
PHARMACEUTICALS,
INC.
(A
Development-Stage
Company)
CONSOLIDATED
BALANCE
SHEETS
|
|
|
|
December
31,
2006
|
|
|
December
31,
2005
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
638,334
|
|
|
$ |
6,878,990
|
|
United States Treasury Notes, total face value $6,507,019
|
|
|
6,499,034
|
|
|
|
--
|
|
Prepaid expenses and other current assets
|
|
|
173,693
|
|
|
|
67,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
7,311,061
|
|
|
|
6,946,952
|
|
|
|
|
|
|
|
|
|
|
Equipment
and Furnishings, less accumulated depreciation of $372,721 and
$368,279
|
|
|
30,075
|
|
|
|
12,287
|
|
|
|
|
|
|
|
|
|
|
Patents,
net of amortization of $2,762,777 and $2,091,657
|
|
|
8,952,668
|
|
|
|
9,623,788
|
|
|
|
|
|
|
|
|
|
|
Deferred
loan costs, net of amortization of $103,018 and $161,004
|
|
|
3,713
|
|
|
|
709,092
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
27,000
|
|
|
|
27,000
|
|
|
|
$ |
16,324,517
|
|
|
$ |
17,319,119
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable - trade
|
|
$ |
64,935
|
|
|
$ |
90,124
|
|
Accrued compensation
|
|
|
265,929
|
|
|
|
179,170
|
|
Accrued common stock costs
|
|
|
17,550
|
|
|
|
964,676
|
|
Accrued consulting expense
|
|
|
42,500
|
|
|
|
692,512
|
|
Other accrued expenses
|
|
|
46,500
|
|
|
|
61,500
|
|
Accrued interest
|
|
|
--
|
|
|
|
65,055
|
|
March 2005 convertible debt, net of debt discount of $2,797 and
$884,848
|
|
|
364,703
|
|
|
|
221,401
|
|
November 2005 convertible debt, net of debt discount of $134,008
in
2005
|
|
|
--
|
|
|
|
334,828
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
802,117
|
|
|
|
2,609,266
|
|
|
|
|
|
|
|
|
|
|
March
2005 convertible debt, net of debt discount of $46,039 in
2005
|
|
|
--
|
|
|
|
322,712
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
Preferred stock; par value $.001 per share; 25,000,000 shares authorized;
no shares issued and outstanding
|
|
|
--
|
|
|
|
--
|
|
Common
stock; par value $.001 per share; 100,000,000 shares authorized;
42,452,366 and 27,822,977 shares issued
and outstanding, respectively
|
|
|
42,452
|
|
|
|
27,823
|
|
Paid-in
capital
|
|
|
50,680,353
|
|
|
|
40,689,144
|
|
Deficit accumulated during the development stage
|
|
|
(35,200,405 |
) |
|
|
(26,329,826 |
) |
|
|
|
|
|
|
|
|
|
Total
Stockholders' Equity
|
|
|
15,522,400
|
|
|
|
14,387,141
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
16,324,517
|
|
|
$ |
17,319,119
|
|
See
accompanying notes to consolidated financial statements
PROVECTUS
PHAMACEUTICALS,
INC.
(A
Development-Stage
Company)
CONSOLIDATED
STATEMENTS OF
OPERATIONS
|
|
|
|
Year
Ended December 31,
2006
|
|
|
Year
Ended December 31,
2005
|
|
|
Cumulative
Amounts from January
17, 2002 (Inception) Through December 31, 2006
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
OTC
product revenue
|
|
$ |
1,368
|
|
|
$ |
5,552
|
|
|
$ |
25,648
|
|
Medical
device revenue
|
|
|
--
|
|
|
|
984
|
|
|
|
14,109
|
|
Total
revenues
|
|
|
1,368
|
|
|
|
6,536
|
|
|
|
39,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
875
|
|
|
|
3,560
|
|
|
|
15,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
493
|
|
|
|
2,976
|
|
|
|
24,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
$ |
3,016,361
|
|
|
$ |
2,044,391
|
|
|
$ |
7,128,207
|
|
General
and administrative
|
|
|
3,534,597
|
|
|
|
2,999,334
|
|
|
|
16,729,968
|
|
Amortization
|
|
|
671,120
|
|
|
|
671,120
|
|
|
|
2,762,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating loss
|
|
|
(7,221,585 |
) |
|
|
(5,711,869 |
) |
|
|
(26,596,411 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on sale of fixed assets
|
|
|
75
|
|
|
|
--
|
|
|
|
55,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
on extinguishment of debt
|
|
|
--
|
|
|
|
(724,455 |
) |
|
|
(825,867 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
income
|
|
|
253,393
|
|
|
|
--
|
|
|
|
253,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest expense
|
|
|
(1,902,462 |
) |
|
|
(5,327,529 |
) |
|
|
(8,086,595 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(8,870,579 |
) |
|
$ |
(11,763,853 |
) |
|
$ |
(35,200,405 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share
|
|
$ |
(0.23 |
) |
|
$ |
(0.62 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding - basic and
diluted
|
|
|
37,973,403
|
|
|
|
18,825,670
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements
PROVECTUS
PHAMACEUTICALS,
INC.
(A
Development-Stage
Company)
CONSOLIDATED
STATEMENTS OF
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Shares
|
|
|
Par
Value
|
|
|
Paid
in
capital
|
|
|
Accumulated
Deficit
|
|
|
Total
|
|
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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
at December 31, 2004
|
|
|
16,133,876
|
|
|
$ |
16,134
|
|
|
$ |
23,711,540
|
|
|
$ |
(14,565,973 |
) |
|
$ |
9,161,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock for services
|
|
|
226,733
|
|
|
|
227
|
|
|
|
152,058
|
|
|
|
--
|
|
|
|
152,285
|
|
Issuance
of stock for interest payable
|
|
|
263,721
|
|
|
|
264
|
|
|
|
195,767
|
|
|
|
--
|
|
|
|
196,031
|
|
Issuance
of warrants for services
|
|
|
--
|
|
|
|
--
|
|
|
|
1,534,405
|
|
|
|
--
|
|
|
|
1,534,405
|
|
Issuance
of warrants for contractual obligations
|
|
|
--
|
|
|
|
--
|
|
|
|
985,010
|
|
|
|
--
|
|
|
|
985,010
|
|
Exercise
of warrants and stock options
|
|
|
1,571,849
|
|
|
|
1,572
|
|
|
|
1,438,223
|
|
|
|
--
|
|
|
|
1,439,795
|
|
Employee
compensation from stock options
|
|
|
--
|
|
|
|
--
|
|
|
|
15,752
|
|
|
|
--
|
|
|
|
15,752
|
|
Issuance
of stock pursuant to Regulation D
|
|
|
6,221,257
|
|
|
|
6,221
|
|
|
|
6,506,955
|
|
|
|
--
|
|
|
|
6,513,176
|
|
Debt
conversion to common stock
|
|
|
3,405,541
|
|
|
|
3,405
|
|
|
|
3,045,957
|
|
|
|
--
|
|
|
|
3,049,362
|
|
Issuance
of warrants with convertible debt
|
|
|
--
|
|
|
|
--
|
|
|
|
1,574,900
|
|
|
|
--
|
|
|
|
1,574,900
|
|
Beneficial
conversion related to convertible debt
|
|
|
--
|
|
|
|
--
|
|
|
|
1,633,176
|
|
|
|
--
|
|
|
|
1,633,176
|
|
Beneficial
conversion related to interest expense |
|
|
-- |
|
|
|
-- |
|
|
|
39,529 |
|
|
|
-- |
|
|
|
39,529 |
|
See
accompanying notes to consolidated financial statements
Beneficial
conversion related to convertible debt
|
|
|
--
|
|
|
|
--
|
|
|
|
1,633,176
|
|
|
|
--
|
|
|
|
1,633,176
|
|
Beneficial
conversion related to interest expense
|
|
|
--
|
|
|
|
--
|
|
|
|
39,529
|
|
|
|
--
|
|
|
|
39,529
|
|
Repurchase
of beneficial conversion feature
|
|
|
--
|
|
|
|
--
|
|
|
|
(144,128 |
) |
|
|
--
|
|
|
|
(144,128 |
) |
Net
loss for the year ended 2005
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(11,763,853 |
) |
|
|
(11,763,853 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
at December 31, 2005
|
|
|
27,822,977
|
|
|
$ |
27,823
|
|
|
$ |
40,689,144
|
|
|
$ |
(26,329,826 |
) |
|
$ |
14,387,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock for services
|
|
|
719,246
|
|
|
|
719
|
|
|
|
676,024
|
|
|
|
--
|
|
|
|
676,743
|
|
Issuance
of stock for interest payable
|
|
|
194,327
|
|
|
|
195
|
|
|
|
183,401
|
|
|
|
--
|
|
|
|
183,596
|
|
Issuance
of warrants for services
|
|
|
--
|
|
|
|
--
|
|
|
|
370,023
|
|
|
|
--
|
|
|
|
370,023
|
|
Exercise
of warrants and stock options
|
|
|
1,245,809
|
|
|
|
1,246
|
|
|
|
1,188,570
|
|
|
|
--
|
|
|
|
1,189,816
|
|
Employee
compensation from stock options
|
|
|
--
|
|
|
|
--
|
|
|
|
1,862,456
|
|
|
|
--
|
|
|
|
1,862,456
|
|
Issuance
of stock pursuant to Regulation D
|
|
|
10,092,495
|
|
|
|
10,092
|
|
|
|
4,120,329
|
|
|
|
--
|
|
|
|
4,130,421
|
|
Debt
conversion to common stock
|
|
|
2,377,512
|
|
|
|
2,377
|
|
|
|
1,573,959
|
|
|
|
--
|
|
|
|
1,576,336
|
|
Beneficial
conversion related to interest expense
|
|
|
--
|
|
|
|
--
|
|
|
|
16,447
|
|
|
|
--
|
|
|
|
16,447
|
|
Net
loss for the year ended 2006
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(8,870,579 |
) |
|
|
(8,870,579 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
at December 31, 2006
|
|
|
42,452,366
|
|
|
$ |
42,452
|
|
|
$ |
50,680,353
|
|
|
$ |
(35,200,405 |
) |
|
$ |
15,522,400
|
|
See
accompanying notes to consolidated financial statements
PROVECTUS
PHARMACEUTICALS,
INC.
(A
Development-Stage
Company)
CONSOLIDATED
STATEMENTS OF CASH
FLOW
|
|
|
|
Year
Ended
December
31,
2006
|
|
|
Year
Ended
December
31,
2005
|
|
|
Cumulative
Amounts
from
January
17,
2002
(Inception)
through December
31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Operating Activities
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(8,870,579 |
) |
|
$ |
(11,763,853 |
) |
|
$ |
(35,200,405 |
) |
Adjustments
to reconcile net loss to net cash used in operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
4,442
|
|
|
|
1,708
|
|
|
|
395,722
|
|
Amortization
of patents
|
|
|
671,120
|
|
|
|
671,120
|
|
|
|
2,762,777
|
|
Amortization
of original issue discount
|
|
|
1,062,098
|
|
|
|
2,293,251
|
|
|
|
3,842,924
|
|
Amortization
of commitment fee
|
|
|
--
|
|
|
|
272,540
|
|
|
|
310,866
|
|
Amortization
of prepaid consultant expense
|
|
|
84,020
|
|
|
|
274,337
|
|
|
|
1,211,207
|
|
Amortization
of deferred loan costs
|
|
|
705,379
|
|
|
|
1,411,970
|
|
|
|
2,257,871
|
|
Accretion
of United States Treasury Bills
|
|
|
(182,198 |
) |
|
|
--
|
|
|
|
(182,198 |
) |
Loss
on extinguishment of debt
|
|
|
--
|
|
|
|
724,455
|
|
|
|
825,867
|
|
Loss
on exercise of warrants
|
|
|
--
|
|
|
|
236,146
|
|
|
|
236,146
|
|
Beneficial
conversion of convertible interest
|
|
|
16,447
|
|
|
|
39,529
|
|
|
|
55,976
|
|
Convertible
interest
|
|
|
122,188
|
|
|
|
266,504
|
|
|
|
388,692
|
|
Compensation
through issuance of stock options
|
|
|
1,862,456
|
|
|
|
15,752
|
|
|
|
1,928,479
|
|
Compensation
through issuance of stock
|
|
|
--
|
|
|
|
--
|
|
|
|
932,000
|
|
Issuance
of stock for services
|
|
|
26,100
|
|
|
|
388,373
|
|
|
|
5,995,031
|
|
Issuance
of warrants for services
|
|
|
201,984
|
|
|
|
318,704
|
|
|
|
543,169
|
|
Issuance
of warrants for contractual obligations
|
|
|
--
|
|
|
|
985,010
|
|
|
|
985,010
|
|
Gain
on sale of equipment
|
|
|
(75 |
) |
|
|
--
|
|
|
|
(55,075 |
) |
(Increase)
decrease in assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses and other current assets
|
|
|
(21,712 |
) |
|
|
46,762
|
|
|
|
(89,674 |
) |
Increase
(decrease) in liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(25,189 |
) |
|
|
(64,090 |
) |
|
|
61,290
|
|
Accrued
expenses
|
|
|
68,743
|
|
|
|
98,196
|
|
|
|
533,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(4,274,776 |
) |
|
|
(3,783,586 |
) |
|
|
(12,261,099 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of fixed asset
|
|
|
75
|
|
|
|
--
|
|
|
|
180,075
|
|
Capital
expenditures
|
|
|
(22,230 |
) |
|
|
(13,995 |
) |
|
|
(39,922 |
) |
Proceeds
from investments
|
|
|
11,000,000
|
|
|
|
--
|
|
|
|
11,000,000
|
|
Purchase
of investments
|
|
|
(17,316,836 |
) |
|
|
--
|
|
|
|
(17,316,836 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(6,338,991 |
) |
|
|
(13,995 |
) |
|
|
(6,176,683 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
proceeds from loans from stockholder
|
|
|
--
|
|
|
|
25,000
|
|
|
|
174,000
|
|
Proceeds
from convertible debt
|
|
|
--
|
|
|
|
4,430,836
|
|
|
|
6,706,795
|
|
Net
proceeds from sale of common stock
|
|
|
3,183,295
|
|
|
|
7,477,853
|
|
|
|
13,148,493
|
|
Proceeds
from exercise of warrants and stock options
|
|
|
1,189,816
|
|
|
|
1,203,649
|
|
|
|
2,398,918
|
|
Cash
paid to retire convertible debt
|
|
|
--
|
|
|
|
(1,885,959 |
) |
|
|
(2,385,959 |
) |
Cash
paid for deferred loan costs
|
|
|
--
|
|
|
|
(515,582 |
) |
|
|
(747,612 |
) |
Premium
paid on extinguishments of debt
|
|
|
--
|
|
|
|
(70,000 |
) |
|
|
(170,519 |
) |
Purchase
and retirement of common stock
|
|
|
--
|
|
|
|
--
|
|
|
|
(48,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
$ |
4,373,111
|
|
|
$ |
10,665,797
|
|
|
$ |
19,076,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in cash and cash equivalents
|
|
$ |
(6,240,656 |
) |
|
$ |
6,868,216
|
|
|
$ |
638,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, at beginning of period
|
|
$ |
6,878,990
|
|
|
$ |
10,774
|
|
|
$ |
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, at end of period
|
|
$ |
638,334
|
|
|
$ |
6,878,990
|
|
|
$ |
638,334
|
|
Supplemental
Disclosure of Cash Flow Information
December
31, 2005
Interest
paid of $127,444
Supplemental
Disclosure of Noncash Investing and Financing Activities
Year
ended December 31, 2006
1. Issuance
of warrants in exchange for prepaid services of $168,039
2. Debt
converted to common stock of $1,576,336
3. Payment
of accrued interest through the issuance of stock of $183,596
4. Issuance
of stock for stock issuance costs of $964,676 incurred in 2005
5. Stock
committed to be issued for services of $650,643 accrued at December 31, 2005
and
issued in 2006
6. Accrual
of $17,550 for stock committed to be issued for stock issuance
costs
Year
ended December 31, 2005
1. Issuance
of warrants in exchange for prepaid services of $68,910
2. Shareholder
debt of $174,000 and accrued interest of $24,528 converted to common stock
of
$198,528
3. Debt
converted to common stock of $2,537,000
4. Payment
of accrued interest through the issuance of stock of $196,031 and stock
committed to be issued of$61,408
5. Beneficial
conversion on convertible debt of $1,633,176
6. Discount
on convertible debt with warrants of $1,574,900
7. Warrants
issued for deferred loan costs of $1,215,700
8. Accrual
of $964,676 for stock committed to be issued for stock issuance
costs
9. Stock
committed to be issued for deferred loan costs of $345,645
10. Stock
committed to be issued for consulting expense of $304,998
See
accompanying notes to consolidated financial statements
PROVECTUS
PHARMACEUTICALS,
INC.
(A
Development-Stage
Company)
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
1. Organization
and Significant Accounting Policies
Nature
of
Operations
Provectus
Pharmaceuticals, Inc. (together with its subsidiaries, the “Company”) is a
development-stage biopharmaceutical company that is focusing on developing
minimally invasive products for the treatment of psoriasis and other topical
diseases, and certain forms of cancer including recurrent breast carcinoma,
metastatic melanoma, and liver cancer. The Company intends to license its laser
device and biotech technology. Through a previous acquisition, the Company
also
intends to further develop, if necessary, and license or sell the underlying
assets of its over-the-counter pharmaceuticals. To date the Company has no
material revenues.
Principles
of
Consolidation
Intercompany
balances and transactions have been eliminated in consolidation.
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash
and cash
equivalents
The
Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
United
States Treasury
Notes
United
States Treasury Notes are classified as held-to-maturity securities and all
investments mature within one year. Held-to-maturity securities are stated
at
amortized cost which approximates market.
Deferred
Loan Costs and Debt
Discounts
The
costs
related to the issuance of the convertible debt, including lender fees, legal
fees, due diligence costs, escrow agent fees and commissions, have been recorded
as deferred loan costs and are being amortized over the term of the loan using
the effective interest method. Additionally, the Company recorded debt discounts
related to warrants and beneficial conversion features issued in connection
with
the debt. Debt discounts are being amortized over the term of the loan using
the
effective interest method.
Equipment
and
Furnishings
Equipment
and furnishings acquired through the acquisition of Valley Pharmaceuticals,
Inc.
(Note 2) have been stated at carry over basis. Other equipment and furnishings
are stated at cost. Depreciation of equipment is provided for using the
straight-line method over the estimated useful lives of the assets. Computers
and laboratory equipment are being depreciated over five years, furniture and
fixtures are being depreciated over seven years.
Long-Lived
Assets
The
Company reviews the carrying values of its long-lived assets for possible
impairment whenever an event or change in circumstances indicates that the
carrying amount of the assets may not be recoverable. Any long-lived assets
held
for disposal are reported at the lower of their carrying amounts or fair value
less cost to sell.
Patent
Costs
Internal
patent costs are expensed in the period incurred. Patents purchased are
capitalized and amortized over the remaining life of the patent.
Patents
at December 31, 2006 were acquired as a result of the merger with Valley
Pharmaceuticals, Inc. (“Valley”) (Note 2). The majority shareholders of
Provectus also owned all of the shares of Valley and therefore the assets
acquired from Valley were recorded at their carryover basis. The patents are
being amortized over the remaining lives of the patents, which range from 11-15
years. Annual amortization of the patents is expected to be approximately
$671,000 per year for the next five years.
Revenue
Recognition
The
Company recognizes revenue when product is shipped. When advance payments are
received, these payments are recorded as deferred revenue and recognized when
the product is shipped.
Research
and
Development
Research
and development costs are charged to expense when incurred. An allocation of
payroll expenses was made based on a percentage estimate of time spent. The
research and development costs include the following: consulting - IT,
depreciation, lab equipment repair, lab supplies and pharmaceutical
preparations, insurance, legal - patents, office supplies, payroll expenses,
rental - building, repairs, software, taxes and fees, and
utilities.
Income
Taxes
The
Company accounts for income taxes under the liability method in accordance
with
Statement of Financial Accounting Standards No. 109 (“SFAS No. 109”),
“Accounting for Income Taxes.” Under this method, deferred income tax assets and
liabilities are determined based on differences between financial reporting
and
tax bases of assets and liabilities and are measured using the enacted tax
rates
and laws that will be in effect when the differences are expected to reverse.
A
valuation allowance is established if it is more likely than not that all,
or
some portion, of deferred income tax assets will not be realized. The Company
has recorded a full valuation allowance to reduce its net deferred income tax
assets to zero. In the event the Company were to determine that it would be
able
to realize some or all its deferred income tax assets in the future, an
adjustment to the deferred income tax asset would increase income in the period
such determination was made.
Basic
and Diluted Loss Per
Common Share
Basic
and
diluted loss per common share and diluted loss per common share is computed
based on the weighted Per Common Share 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 December 31, 2006 are 9,014,714 options
26,663,081 warrants and 490,000 shares issuable upon the conversion of
convertible debt. Included in the weighted average number of shares outstanding
are 165,000 common shares committed to be issued but not outstanding at December
31, 2006.
Financial
Instruments
The
carrying amounts reported in the consolidated balance sheets for cash, accounts
payable and accrued expenses approximate fair value because of the short-term
nature of these amounts. The Company believes the fair value of its fixed-rate
borrowings approximates the market value.
Stock
Based
Compensation
On
December 16, 2004, the Financial Accounting Standards Board (“FASB”) released
FASB Statement No. 123 (revised 2004), “Share-Based Payment, (“FASB 123R”).”
These changes in accounting replace existing requirements under FASB Statement
No. 123, “Accounting for Stock-Based Compensation” (“FASB 123”), and eliminates
the ability to account for share-based compensation transaction using APB
Opinion No.25, “Accounting for Stock Issued to Employees” (“APB 25”). The
compensation cost relating to share-based payment transactions will be measured
based on the fair value of the equity or liability instruments issued. This
Statement did not change the accounting for similar transactions involving
parties other than employees.
The
Company adopted FASB 123R effective January 1, 2006 under the modified
prospective method, which recognizes compensation cost beginning with the
effective date (a) based on the requirements of FASB 123R for all share-based
payments granted after the effective date and to awards modified, repurchased,
or cancelled after that date and (b) based on the requirements of FASB 123
for
all awards granted to employees prior to the effective date of FASB 123R that
remain unvested on the effective date. There was no cumulative effect of
initially applying this Statement for the Company. At December 31, 2006 the
Company has estimated that an additional $1,211,371 will be expensed over the
applicable remaining vesting periods for all share-based payments granted to
employees on or before December 31, 2005 which remained unvested on January
1,
2006.
The
compensation cost relating to share-based payment transactions will be measured
based on the fair value of the equity or liability instruments issued and will
be expensed on a straight-line basis. For purposes of estimating the fair value
of each stock option or restricted stock unit on the date of grant, the Company
utilized the Black-Scholes option-pricing model. The Black-Scholes option
valuation model was developed for use in estimating the fair value of traded
options, which have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective
assumptions including the expected volatility factor of the market price of
the
company’s common stock (as determined by reviewing its historical public market
closing prices). Because the Company's employee stock options and restricted
stock units have characteristics significantly different from those of traded
options and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models
do
not necessarily provide a reliable single measure of the fair value of its
employee stock options or restricted stock units.
For
the
year ended December 31, 2005 the Company adopted the disclosure-only provisions
of Statement of Financial Accounting Standards No. 123, “Accounting for Stock
Based Compensation” (SFAS No. 123). 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:
|
|
Year
ended December 31,
2005
|
|
|
|
|
|
Net
loss, as reported
|
|
$ |
(11,763,853 |
) |
Add
stock-based employee compensation expense included in reported
loss
|
|
|
15,752
|
|
Less
total stock-based employee compensation expense determined under
the fair
value based method for all awards
|
|
|
(791,111 |
) |
|
|
|
|
|
Pro
forma net loss
|
|
$ |
(12,539,212 |
) |
|
|
|
|
|
Basic
and diluted loss per common share, as reported
|
|
$ |
(0.62 |
) |
Basic
and diluted loss per common share, pro forma
|
|
$ |
(0.67 |
) |
Recent
Accounting
Pronouncements
Effective
January 1, 2006, the Company adopted SFAS No. 123(R) using the modified
prospective method. See Notes 1 and 5 for information regarding stock-based
compensation.
The
Financial Accounting Standards Board (“FASB”) released SFAS No. 156, “Accounting for Servicing
of
Financial Assets,” to simplify accounting for separately recognized
servicing assets and servicing liabilities. SFAS No. 156 amends SFAS No. 140,
“Accounting for Transfers
and
Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS
No. 156 permits an entity to choose either the amortization method or the fair
value measurement method for measuring each class of separately recognized
servicing assets and servicing liabilities after they have been initially
measured at fair value. SFAS No. 156 applies to all separately recognized
servicing assets and liabilities acquired or issued after the beginning of
an
entity’s fiscal year that begins after September 15, 2006. SFAS No. 156 will be
effective for the Company as of December 31, 2006, the beginning of the
Company’s fiscal-2007 year. We do not believe the adoption of SFAS No. 156 will
have a material impact on the Company’s consolidated financial position or
results of operations.
On
July
13, 2006, the FASB issued Interpretation No. 48 (“FIN No. 48”) “Accounting for Uncertainty
in Income
Taxes: an Interpretation of FASB Statement No. 109.” This interpretation
clarifies the accounting for uncertainty in income taxes recognized in an
entity’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.”
FIN No. 48 clarifies
what criteria must be met prior to recognition of the
financial statement benefit of a position taken in a tax return. FIN No. 48
will
require companies to include additional qualitative and quantitative disclosures
within their financial statements. The disclosures will include potential tax
benefits from positions taken for tax return purposes that have not been
recognized for financial reporting purposes and a tabular presentation of
significant changes during each period. The disclosures will also include a
discussion of the nature of uncertainties, factors which could cause a change,
and an estimated range of reasonably possible changes in tax uncertainties.
FIN
No. 48 will also require a company to recognize a financial statement benefit
for a position taken for tax return purposes when it will be
more-likely-than-not that the position will be sustained.FIN No. 48 will be
effective for fiscal years beginning after December 15, 2006. We will adopt
FIN
No. 48 in the first quarter of fiscal 2007, effective as of December 31, 2006,
the beginning of the Company’s 2007 fiscal year. We do not believe the adoption
of FIN No. 48 will have a material impact on the Company’s consolidated
financial position or results of operations.
The
FASB
released SFAS No. 157, “Fair
Value Measurements,” to define fair value, establish a framework for
measuring fair value in accordance with generally accepted accounting
principles, and expand disclosures about fair value measurements. SFAS No.
157
will be effective for the Company as of December 30, 2007, the beginning of
the
Company’s fiscal-2008 year. We are assessing the impact the adoption of SFAS No.
157 will have on the Company’s consolidated financial position and results of
operations.
In
September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
Benefit Pension and Postretirement Plans: an amendment of FASB Statements No.
87, 88, 106, and 132(R),” which requires an employer to recognize the
over-funded or under-funded status of a single-employer defined benefit
postretirement plan as an asset or liability in its statement of financial
position and to recognize changes in that funded status in comprehensive income
in the year in which the changes occur. SFAS No. 158 requires an employer to
initially apply the requirement to recognize the funded status of a benefit
plan
as of the end of the employer’s fiscal year ending after December 16, 2006. In
addition, SFAS No. 158 also requires an employer to measure plan
assets and benefit obligations as of the date of the employer’s fiscal year-end
statement of financial position for fiscal years ending after December 15,
2008.
The adoption of SFAS No. 158 will not have an impact on the Company’s
consolidated financial position or results of operations as the Company does
not
have a defined benefit plan.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial
Assets and Financial Liabilities—Including an amendment of FASB Statement No.
115,” which permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. SFAS No. 159 is expected to expand the use of fair value
measurement, which is consistent with the long-term measurement objectives
for
accounting for financial instruments. This Statement is effective as of the
beginning of an entity’s first fiscal year that begins after November 15, 2007.
Early adoption is permitted as of the beginning of a fiscal year that begins
on
or before November 15, 2007, provided the entity also elects to apply the
provisions of SFAS No. 157, “Fair Value Measurements.” We
are assessing the impact the adoption of SFAS No. 159 will have on the Company’s
consolidated financial position and results of operations.
2. Recapitalization
and Merger
On
April
23, 2002, Provectus Pharmaceutical, Inc., a Nevada corporation and a Merger
“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. Prior
to the transaction, PPI had no significant operations and had not generated
any
revenues.
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. Therefore, for accounting purposes, the shares
recorded as issued in the reverse merger are the 265,763 shares owned by
Provectus Pharmaceuticals, Inc. shareholders prior to the reverse
merger.
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.
On
November 19, 2002, the Company acquired Valley Pharmaceuticals, Inc, (“Valley”)
a privately-held Tennessee corporation by merging PPI with and into Valley
and
naming the surviving company Xantech Pharmaceuticals, Inc. Valley had no
significant operations and had not generated any revenues. Valley was formed
to
hold certain intangible assets which were transferred from an entity which
was
majority owned by the shareholders of Valley. Those shareholders gave up their
shares of the other company in exchange for the intangible assets in a non-pro
rata split off. The intangible assets were valued based on the market price
of
the stock given up in the split-off. The shareholders of Valley also owned
the
majority of the shares of the Company at the time of the transaction. The
Company issued 500,007 shares of stock in exchange for the net assets of Valley
which were valued at $12,226,320 and included patents of $11,715,445 and
equipment and furnishings of $510,875.
3. Commitments
Leases
The
Company leases office and laboratory space in Knoxville, Tennessee, on an annual
basis, renewable for one year at the option of the Company. The Company is
committed to pay a total of $12,480 in lease payments over three months, which
is the remainder of its current lease term at December 31, 2006. The Company
plans to renew the lease at the end of the current lease term. Rent expense
was
approximately $49,000 and $45,000 in 2006 and 2005, respectively.
Employee
Agreements
On
May 1,
2006, we entered into executive employment agreements with each of H. Craig
Dees. Ph.D., Timothy C. Scott, Ph.D., Eric A. Wachter, Ph.D., and Peter R.
Culpepper, CPA, to serve as our Chief Executive Officer, President, Executive
Vice President and Chief Financial Officer, respectively. Each agreement
provides that such executive will be employed for a one-year term with automatic
one-year renewals unless previously terminated pursuant to the terms of the
agreement or either party gives notice that the term will not be extended.
The
Company is committed to pay a total of $467,000 over four months, which is
the
remainder of the current employment agreements at December 31, 2006. Executives
are also entitled to participate in any incentive compensation plan or bonus
plan adopted by us without diminution of any compensation or payment under
the
agreement. Executives are further entitled to reimbursement for all reasonable
out-of-pocket expenses incurred during his performance of services under the
agreement.
Each
agreement generally provides that if the executive’s employment is terminated
prior to a change in control (as defined in the agreement) (1) due to expiration
or non-extension of the term by us; or (2) by us for any reason other than
for
cause (as defined in the agreement), then such executive shall be entitled
to
receive payments under the agreement as if the agreement was still in effect
through the end of the period in effect as of the date of such termination.
If
the executive’s employment (1) is terminated by the company at any time for
cause, (2) is terminated by executive prior to, and not coincident with, a
change in control or (3) is terminated by executive’s death, disability or
retirement prior to a change in control, the executive (or his estate, as the
case may be) shall be entitled to receive payments under the agreement through
the last date of the month of such termination, a pro rata portion of any
incentive or bonus payment earned prior to such termination, any benefits to
which he is entitled under the terms and conditions of the pertinent plans
in
effect at termination and any reasonable expenses incurred during the
performance of services under the agreement.
In
the
event that coincident with or following a change in control, the executive’s
employment is terminated or the agreement is not extended (1) by action of
the
executive including his death, disability or retirement or (2) by action of
the
company not for cause, the executive (or his estate, as the case may be) shall
be entitled to receive payments under the agreement through the last date of
the
month of such termination, a pro rata portion of any incentive or bonus payment
earned prior to such termination, any benefits to which he is entitled under
the
terms and conditions of the pertinent plans in effect at termination and any
reasonable expenses incurred during the performance of services under the
agreement. In addition, the company shall pay to the executive (or his estate,
as the case may be), within 30 days following the date of termination or on
the
effective date of the change in control (whichever occurs later), a lump sum
payment in cash in an amount equal to 2.90 times the base salary paid in the
preceding calendar year, or scheduled to be paid to such executive during the
year of such termination, whichever is greater, plus an additional amount
sufficient to pay United States income tax on the lump sum amount
paid.
4. Equity
Transactions
(a)
During 2002, the Company issued 2,020,000 shares of stock in exchange for
consulting services. These services were valued based on the fair market value
of the stock exchanged which resulted in consulting costs charged to operations
of $5,504,000.
(b)
During 2002, the Company issued 510,000 shares of stock to employees in exchange
for services rendered. These services were valued based on the fair market
value
of the stock exchanged which resulted in compensation costs charged to
operations of $932,000.
(c)
In
February 2002, the Company sold 50,000 shares of stock to a related party in
exchange for proceeds of $25,000.
(d)
In
June 2002, the Company issued a warrant to a consultant for the purchase of
100,000 shares at $2.29 per share. The warrant is only exercisable upon the
successful introduction of the Company to a designated pharmaceutical company.
The warrant was forfeited in 2004.
(e)
In
October 2002, the Company purchased 400,000 outstanding shares of stock from
one
shareholder for $48,000. These shares were then retired.
(f)
On
December 5, 2002, the Company purchased the assets of Pure-ific L.L.C, a Utah
limited liability company, and created a wholly owned subsidiary called
Pure-ific Corporation, to operate the Pure-ific business which consists of
product formulations for Pure-ific personal sanitizing sprays, along with the
Pure-ific trademarks. The assets of Pure-ific were acquired through the issuance
of 25,000 shares of the Company's stock with a fair market value of $0.50 and
the issuance of various warrants. These warrants included warrants to purchase
10,000 shares of the Company's stock at an exercise price of $0.50 issuable
on
the first, second and third anniversary dates of the acquisition. Accordingly,
the fair market value of these warrants of $14,500, determined using the
Black-Scholes option pricing model, was recorded as additional purchase price
for the acquisition of the Pure-ific assets. In 2004, 20,000 warrants were
issued for the first and second anniversary dates. 10,000 of these warrants
were
exercised in 2004. In 2005, 10,000 warrants were issued for the third
anniversary date. In January 2006, 10,000 warrants were exercised in a cashless
exercise resulting in 4,505 shares issued. In addition, warrants to purchase
80,000 shares of stock at an exercise price of $0.50 will be issued upon the
achievement of certain sales targets of the Pure-ific product. At December
31,
2006 and 2005, none of these targets have been met and accordingly, no costs
have been recorded.
(g)
In
2003, the Company issued 764,000 shares to consultants in exchange for services
rendered, consisting of 29,000 shares issued in January valued at $11,600,
35,000 shares issued in March valued at $11,200, and 700,000 shares issued
in
October valued at $217,000. The value for these shares was based on the market
value of the shares issued. As all of these amounts represented payments for
services to be provided in the future and the shares were fully vested and
non-forfeitable, a prepaid consulting expense was recorded in 2003 which was
fully amortized as of December 31, 2004.
(h)
In
November and December 2003, the Company committed to issue 341,606 shares to
consultants in exchange for services rendered. The total value for these shares
was $281,500 which was based on the market value of the shares issued. The
shares were issued in January 2004. As these amounts represented payments for
services to be provided in the future and the shares were fully vested and
non-forfeitable, a prepaid consulting expense was recorded in 2003 which was
fully amortized as of December 31, 2004.
(i)
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 2003, the Company issued 360,000
warrants to a consultant, 180,000 of which were fully vested and non-forfeitable
at the issuance and 180,000 of which 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. In
November 2003, the Company issued 100,000 warrants to one consultant 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 issued in 2003 ranged from $0.20 to $0.24 and totaled $145,479.
As
these amounts represented payments for services to be provided in the future
and
the warrants were fully vested and non-forfeitable, a prepaid consulting expense
was recorded in 2003 which was fully amortized as of December 31,
2004.
In
May
2004, the Company issued 20,000 warrants to consultants in exchange for services
rendered. Consulting costs charged to operations were $18,800. In August 2004,
the Company issued 350,000 warrants to consultants in exchange for services
valued at $329,000. At December 31, 2004, $123,375 of these costs have been
charged to operations with the remaining $205,427 recorded as prepaid consulting
expense as it represents payments for future services and the warrants are
fully-vested and non-forfeitable. In December 2004, the Company issued 10,000
warrants to consultants in exchange for services valued at $3,680. Fair market
value for the warrants issued in 2004 ranged from $0.37 to $0.94.
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. Consulting costs charged to operations were $68,910. In
April
2005, the Company issued 410,000 warrants to consultants in exchange for
services rendered. Consulting costs charged to operations were $195,900. In
May
2005, the Company issued 25,000 warrants to consultants in exchange for services
rendered. Consulting costs charged to operations were $9,250. In December 2005,
the Company issued 33,583 warrants to consultants in exchange for services.
Consulting costs charged to operations were $24,571. The fair market value
for
the warrants issued in 2005 ranged from $0.37 to $1.01.
In
May
2006, 350,000 warrants were exercised for $334,000 resulting in 350,000 shares
issued. During April, May and June, the Company issued 60,000 warrants to
consultants in exchange for services. Consulting costs charged to operations
were $58,400. In August and September 2006, 732,534 warrants were exercised
for
$693,357 resulting in 732,534 shares issued. During the three months ended
September 30, 2006, the Company issued 335,000 warrants to consultants in
exchange for services. At December 31, 2006, $155,814 of these costs have been
charged to operations with the remaining $84,019 recorded as prepaid consulting
expense as it represents payments for future services and the warrants are
fully
vested and non-forfeitable. In November 2006, 100,000 warrants were forfeited.
During the three months ended December 31, 2006, the Company issued 85,000
warrants to consultants in exchange for services. Consulting costs charged
to
operations were $71,790. The fair market value for the warrants issued in 2006
ranged from $0.67 to $1.11.
(j)
In
December 2003, the Company commenced an offering for sale of restricted common
stock. As of December 31, 2003, the Company had sold 874,871 shares at an
average gross price of $1.18 per share. As of December 31, 2003, the Company
had
received net proceeds of $292,472 and recorded a stock subscription receivable
of $87,875 for stock subscriptions prior to December 31, 2003 for which payment
was received subsequent to December 31, 2003. The transaction is a Regulation
S
offering to foreign investors as defined by Regulation S of the Securities
Act.
The restricted shares cannot be traded for 12 months. After the first 12 months,
sales of the shares are subject to restrictions under rule 144 for an additional
year. The Company engaged a placement agent to assist the offering. Costs
related to the placement agent of $651,771 have been off-set against the gross
proceeds of $1,032,118 and therefore are reflected as a direct reduction of
equity at December 31, 2003. At December 31, 2003, 195,051 shares had not yet
been issued. These shares were issued in the first quarter of 2004.
In
2004,
the Company sold 2,274,672 shares of restricted common stock under this offering
of which 1,672,439 shares were issued in the first quarter 2004 and 602,233
were
issued in the second quarter 2004. Shares were sold during 2004 at an average
gross price of $1.05 per share with net proceeds of $793,137. Costs related
to
the placement agent for proceeds received in 2004 of $1,588,627 have been
off-set against gross proceeds of $2,381,764.
(k)
In
January 2004, the Company issued 10,000 shares to a consultant in exchange
for
services rendered. Consulting costs charged to operations were $11,500. In
March
2004, the Company committed to issue 36,764 shares to consultants in exchange
for services. These shares were recorded as a prepaid consulting expense and
were fully amortized at December 31, 2004. Consulting costs charged to
operations were $62,500. These 36,764 shares, along with 75,000 shares committed
in 2003 were issued in August 2004. The 75,000 shares committed to be in 2003
were the result of a cashless exercise of 200,000 warrants in 2003, which were
not issued as of December 31, 2003. In August 2004, the Company also issued
15,000 shares to a consultant in exchange for services rendered. Consulting
costs charged to operations were $25,200. In September 2004, the Company issued
16,666 shares to a consultant in exchange for services rendered. Consulting
costs charged to operations were $11,666. In October 2004, the Company issued
16,666 shares to a consultant in exchange for services rendered. Consulting
costs charged to operations were $13,666. In November 2004, the Company issued
16,666 shares to a consultant in exchange for services rendered. Consulting
costs charged to operations were $11,000. In December 2004, the Company issued
7,500 shares to a consultant in exchange for services rendered. Consulting
costs
charged to operations were $3,525.
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. In April 2005,
the
Company issued 190,733 shares to consultants in exchange for services.
Consulting costs charged to operations were $127,791. In May 2005, the Company
issued 21,000 shares to consultants in exchange for services. Consulting costs
charged to operations were $11,970.
In
December 2005, the Company committed to issue 689,246 shares to consultants
in
exchange for services rendered. 655,663 of these shares of were issued in
February 2006 and 33,583 shares were issued in May 2006. The total value for
these shares was $650,643 which was based on the market value of the shares
issued and was recorded as an accrued liability at December 31, 2005. In
February 2006, the Company issued 30,000 shares to consultants in exchange
for
services. Consulting costs charged to operations were $26,100.
(l)
On
June 25, 2004, the Company entered into an agreement to sell 1,333,333 shares
of
common stock at a purchase price of $.75 per share for an aggregate purchase
price of $1,000,000. Payments were received in four installments, the last
of
which was on August 9, 2004. Stock issuance costs included 66,665 shares of
stock valued at $86,666 and cash costs of $69,000. The cash costs have been
off-set against the proceeds received. In conjunction with the sale of the
common stock, the Company issued 1,333,333 warrants with an exercise price
of
$1.00 and a termination date of three years from the installment payment dates.
In addition, the Company has given the investors an option to purchase 1,333,333
shares of additional stock including the attachment of warrants under the same
terms as the original agreement. This option expired February 8,
2005.
(m)
Pursuant to a Standby Equity Distribution Agreement (“SEDA”) dated July 28, 2004
between the Company and Cornell Capital Partners, L.P. (“Cornell”), the Company
may, at its discretion, issue shares of common stock to Cornell at any time
until June 28, 2006. As of December 31, 2005 there were no shares issued
pursuant to the SEDA. The facility is subject to having in effect a registration
statement covering the shares. A registration statement covering 2,023,552
shares was declared effective by the Securities and Exchange Commission on
November 16, 2004. The maximum aggregate amount of the equity placements
pursuant to the SEDA is $20 million, and the Company may draw down up to $1
million per month. Pursuant to the SEDA, on July 28, 2004, the Company issued
190,084 shares of common stock to Cornell and 7,920 shares of common stock
to
Newbridge Securities Corporation as commitment shares. These 198,004 shares
had
a FMV of $310,866 on July 28, 2004 which was being amortized over the term
of
the commitment period which was one year from the date of registration. The
full
amount was amortized as of December 31, 2005 with $272,540 amortized in
2005.
(n)
On
November 16, 2004, the Company completed a private placement transaction with
14
accredited investors, pursuant to which the Company sold 530,166 shares of
common stock at a purchase price of $0.75 per share, for an aggregate purchase
price of $397,625. In connection with the sale of the common stock, the Company
also issued warrants to the investors to purchase up to 795,249 shares of our
common stock at an exercise price of $1.00 per share. The Company paid $39,764
and issued 198,812 warrants to Venture Catalyst, LLC as placement agent for
this
transaction. The cash costs have been off-set against the proceeds
received.
During
the three months ended March 31, 2005, the Company completed a private placement
transaction with 8 accredited investors, which were registered effective June
20, 2005, 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.
During
the three months ended June 30, 2005, the Company completed a private placement
transaction with 4 accredited investors, which were registered effective June
20, 2005, pursuant to which the Company sold 230,333 shares of common stock
at a
purchase price of $0.75 per share, for an aggregate purchase price of $172,750.
In connection with the sale of common stock, the Company also issued warrants
to
the investors to purchase up to 325,500 shares of common stock at an exercise
price of $1.00 per share. The Company paid $16,275 and issued 81,375 warrants
to
Venture Catalyst, LLC as placement agent for this transaction. The cash costs
have been off-set against the proceeds received.
During
the three months ended September 30, 2005, the Company completed a private
placement transaction with 12 accredited investors pursuant to which the Company
sold 899,338 shares of common stock at a purchase price of $0.75 per share
of
which 109,333 are committed to be issued at December 31, 2005, for an aggregate
purchase price of $674,500. In connection with the sale of common stock, the
Company also issued warrants to the investors to purchase up to 1,124,167 shares
of common stock at an exercise price of $0.935 per share. The Company paid
$87,685 and committed to issue 79,000 shares of common stock at a fair market
value of $70,083 to Network 1 Financial Securities, Inc. as placement agent
for
this transaction which is accrued at December 31, 2005. The cash and common
stock costs have been off-set against the proceeds received.
During
the three months ended December 31, 2005, the Company completed a private
placement transaction with 62 accredited investors pursuant to which the Company
sold 10,065,605 shares of common stock at a purchase price of $0.75 per share
of
which 5,126,019 are committed to be issued at December 31, 2005, for an
aggregate purchase price of $7,549,202. In connection with the sale of common
stock, the Company also issued warrants to the investors to purchase up to
12,582,009 shares of common stock at an exercise price of $0.935 per share.
The
Company paid $959,540, issued 46,667 shares of common stock at a fair market
value of $46,467, issued 30,550 warrants, and committed to issue 950,461 shares
of common stock at a fair market value of $894,593 to a syndicate led by Network
1 Financial Securities, Inc. as placement agent for this transaction which
is
accrued at December 31, 2005. The cash and common stock costs have been off-set
against the proceeds received.
In
January 2006, the Company issued 5,235,352 shares committed to be issued at
December 31, 2005 for shares sold in 2005. In February 2006, the Company issued
1,029,460 shares committed to be issued at December 31, 2005 for stock issuance
costs related to shares sold in 2005. The total value for these shares was
$964,676 which was based on the market value of the shares issued and was
recorded as an accrued liability at December 31, 2005.
During
the three months ended March 31, 2006, the Company completed a private placement
transaction with 5 accredited investors pursuant to which the Company sold
466,833 shares of common stock at a purchase price of $0.75 per share for an
aggregate purchase price of $350,125. In connection with the sale of common
stock, the Company also issued warrants to the investors to purchase up to
466,833 shares of common stock at an exercise price of $0.935 per share. The
Company paid $35,013 and issued 46,683 shares of common stock at a fair market
value of $41,815 to Chicago Investment Group, L.L.C. as placement agent for
this
transaction. The cash costs have been off-set against the proceeds
received.
In
May
2006, the Company completed a private placement transaction with 2 accredited
investors pursuant to which the Company sold a total of 153,647 shares of common
stock at an average purchase price of $1.37 per share, for an aggregate purchase
price of $210,000. In connection with the sale of common stock, the Company
also
issued warrants to the 2 investors to purchase up to 76,824 shares of common
stock at an average exercise price of $2.13 per share.
In
September 2006, the Company completed a private placement transaction with
7
accredited investors pursuant to which the Company sold a total of 708,200
shares of common stock at a purchase price of $1.00 per share, for an aggregate
purchase price of $708,200. The Company paid $92,067 and issued 70,820 shares
of
common stock at a fair market value of $84,984 to Network 1 Financial
Securities, Inc. as placement agent for this transaction. The cash costs have
been off-set against the proceeds received.
In
October 2006 the Company completed a private placement transaction with 15
accredited investors pursuant to which the Company sold a total of 915,000
shares of common stock at a purchase price of $1.00 per share, for an aggregate
purchase price of $915,000. The Company paid $118,950 and issued 91,500 shares
of common stock at a fair market value of $118,500 to Network 1 Financial
Securities, Inc. as placement agent for this transaction. The cash costs have
been off-set against the proceeds received.
During
the three months ended December 31, 2006, the Company completed a private
placement transaction with 10 accredited investors pursuant to which the Company
sold 1,400,000 shares of common stock at a purchase price of $1.00 per share
of
which 150,000 are committed to be issued at December 31, 2006, for an aggregate
purchase price of $1,400,000. The Company paid $137,500, issued 125,000 shares
of common stock at a fair market value of $148,750, and committed to pay $16,500
and to issue 15,000 shares of common stock at a fair market value of $17,550
to
Chicago Investment Group of Illinois, L.L.C. as a placement agent for this
transaction which is accrued at December 31, 2006. The cash and accrued stock
costs have been off-set against the proceeds received.
(o)
The
Company issued 175,000 warrants each month from March 2005 to November 2005
resulting in total warrants of 1,575,000 to Gryffindor Capital Partners I,
L.L.C. pursuant to the terms of the Second Amended and Restated Note dated
November 26, 2004. Total interest costs charged to operations were
$985,010.
The
Company maintains one long-term incentive compensation plan, the Provectus
Pharmaceuticals, Inc. 2002 Stock Plan, which provides for the issuance of up
to
10,000,000 shares of common stock pursuant to stock options, stock appreciation
rights, stock purchase rights and long-term performance awards granted to key
employees and directors of and consultants to the Company.
Options
granted under the 2002 Stock Plan may be either “incentive stock options” within
the meaning of Section 422 of the Internal Revenue Code or options which are
not
incentive stock options. The stock options are exercisable over a period
determined by the Board of Directors (through its Compensation Committee),
but
generally no longer than 10 years after the date they are granted.
Included
in the results for the year ended December 31, 2006 is $1,862,456, of
stock-based compensation expense which relates to the fair value of stock
options and restricted stock units, net of expected forfeitures, granted prior
to December 31, 2006 which continue to vest over the related employees requisite
service periods which generally end by June 2009.
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, $15,752 of expense was recorded for the year ended
December 31, 2005.
For
stock
options granted to employees during 2006 and 2005, the Company has estimated
the
fair value of each option granted using the Black-Scholes option pricing model
with the following assumptions:
Weighted
average fair value per options granted
|
$ 0.96
|
|
$ 0.66
|
Significant
assumptions (weighted average) risk-free interest rate at grant
date
|
4.0%
- 5.0%
|
|
4.0%
|
Expected
stock price volatility
|
116%
- 130%
|
|
130%
|
Expected
option life (years)
|
10
|
|
10
|
On
March
1, 2004, the Company issued 1,200,000 stock options to employees. The options
vest over three years with 225,000 options vesting on the date of grant. The
exercise price is the fair market price on the date of issuance. On May 27,
2004, the Company issued 100,000 stock options to the Board of Directors. The
options vested immediately on the date of grant. The exercise price is the
fair
market price on the date of issuance. On June 28, 2004, the Company issued
100,000 stock options to an employee. The options vest over four years with
25,000 options vesting on the date of grant. The exercise price is the fair
market price on the date of issuance.
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. On May 19,
2005, the Company issued 100,000 stock options to the Board of Directors. The
options vested immediately on the date of grant. The exercise price is the
fair
market price on the date of issuance. On May 25, 2005, the Company issued
1,200,000 stock options to employees. The options vest over three years with
no
options vesting on the date of grant. The exercise price is $0.75 which is
greater than the fair market price on the date of issuance. On December 9,
2005,
the Company issued 775,000 stock options to employees. The options vest over
three years with no options vesting on the date of grant. The exercise price
is
the fair market price on the date of issuance. During 2005 an employee of the
Company exercised 26,516 options at an exercise price of $1.10 per share of
common stock for $29,167.
Two
employees of the Company exercised a total of 114,979 options during the three
months ended March 31, 2006 at an exercise price of $1.10 per share of common
stock for $126,477. On June 23, 2006, the Company issued 4,000,000 stock options
to employees. The options vest over three years with no options vesting on
the
date of grant. The exercise price is the fair market price on the date of
issuance. On June 23, 2006, the Company issued 200,000 stock options to its
Members of the Board. The options vested on the date of grant. The exercise
price is the fair market price on the date of issuance. One employee of the
Company exercised a total of 7,166 options during the three months ended June
30, 2006 at an exercise price of $1.10 per share of common stock for $7,882
and
another employee of the Company exercised a total of 12,500 options during
the
three months ended June 30, 2006 at an exercise price of $0.32 per share of
common stock for $4,000. One employee of the Company exercised a total of 14,000
options during the three months ended September 30, 2006 at an exercise price
of
$1.10 per share of common stock for $15,400 and another employee of the Company
exercised a total of 3,125 options during the three months ended September
30,
2006 at an exercise price of $0.32 per share of common stock for $1,000. One
employee of the Company exercised a total of 7,000 options during the three
months ended December 31, 2006 at an exercise price of $1.10 per share of common
stock for $7,700.
The
following table summarizes the options granted, exercised and outstanding as
of
December 31, 2005 and 2006, respectively:
|
Shares
|
|
Exercise
Price
Per
Share
|
|
Weighted
Average Exercise
Price
|
|
|
|
|
|
|
Outstanding
at January 1, 2005
|
1,725,000
|
$
|
0.32
– 1.25
|
$
|
0.97
|
Granted
|
3,275,000
|
$
|
0.64
– 0.94
|
$
|
0.75
|
Exercised
|
(26,516)
|
$
|
1.10
|
$
|
1.10
|
Forfeited
|
--
|
|
--
|
|
--
|
|
|
|
|
|
|
Outstanding
at December 31, 2005
|
4,973,484
|
$
|
0.32
– 1.25
|
$
|
0.83
|
|
|
|
|
|
|
Options
exercisable at December 31, 2005
|
1,017,234
|
$
|
0.32
– 1.25
|
$
|
0.88
|
|
|
|
|
|
|
Outstanding
at January 1, 2006
|
4,973,484
|
$
|
0.32
– 1.25
|
$
|
0.83
|
Granted
|
4,200,000
|
$
|
1.02
|
$
|
1.02
|
Exercised
|
(158,770)
|
$
|
0.32
– 1.10
|
$
|
1.02
|
Forfeited
|
--
|
|
--
|
|
--
|
|
|
|
|
|
|
Outstanding
at December 31, 2006
|
9,014,714
|
$
|
0.32
– 1.25
|
$
|
0.91
|
|
|
|
|
|
|
Options
exercisable at December 31, 2006
|
2,406,378
|
$
|
0.32
– 1.25
|
$
|
0.86
|
The
following table summarizes information about stock options outstanding at
December 31, 2006.
Exercise
Price
|
|
Number
Outstanding at December
31, 2006
|
|
Weighted
Average Remaining
contractual Life
|
|
Outstanding
Weighted Average
Exercise price
|
|
Number
Exercisable at December
31, 2006
|
|
Exercisable
Weighted Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
$0.32
|
|
209,375
|
|
6.58
years
|
|
$0.32
|
|
209,375
|
|
$0.32
|
$0.60
|
|
100,000
|
|
6.58
years
|
|
$0.60
|
|
100,000
|
|
$0.60
|
$1.10
|
|
1,030,339
|
|
7.17
years
|
|
$1.10
|
|
655,339
|
|
$1.10
|
$0.95
|
|
100,000
|
|
7.42
years
|
|
$0.95
|
|
100,000
|
|
$0.95
|
$1.25
|
|
100,000
|
|
7.50
years
|
|
$1.25
|
|
75,000
|
|
$1.25
|
$0.64
|
|
1,200,000
|
|
8.00
years
|
|
$0.64
|
|
300,000
|
|
$0.64
|
$0.75
|
|
1,300,000
|
|
8.42
years
|
|
$0.75
|
|
500,000
|
|
$0.75
|
$0.94
|
|
775,000
|
|
8.92
years
|
|
$0.94
|
|
266,664
|
|
$0.94
|
$1.02
|
|
4,200,000
|
|
9.50
years
|
|
$1.02
|
|
200,000
|
|
$1.02
|
|
|
9,014,714
|
|
8.68
years
|
|
$0.91
|
|
2,406,378
|
|
$0.86
|
The
weighted-average grant-date fair value of options granted during the year 2006
was $0.96. The total intrinsic value of options exercised during the year ended
December 31, 2006 was $19,966.
The
following is a summary of nonvested stock option activity for the year ended
December 31, 2006:
|
|
|
|
Weighted
Average
|
|
|
Number
of
Shares
|
|
Grant-Date
Fair
Value
|
|
|
|
|
|
|
Nonvested
at December 31, 2005
|
|
3,956,250
|
|
$
|
0.75
|
Granted
|
|
4,200,000
|
|
$
|
0.96
|
Vested
|
|
(1,547,914)
|
|
$
|
0.80
|
Canceled
|
|
-
|
|
|
--
|
Nonvested
at December 31, 2006
|
|
6,608,336
|
|
$
|
0.87
|
As
of
December 31, 2006, there was $4,411,372 of total unrecognized compensation
cost
related to nonvested share-based compensation arrangements granted under the
Plan. That cost is expected to be recognized over a weighted average period
of
1.4 years. The total fair value of shares vested during the year ended December
31, 2006 was $1,239,331.
The
following is a summary of the aggregate intrinsic value of shares outstanding
and exercisable at December 31, 2006. The aggregate intrinsic value of stock
options outstanding and exercisable is defined as the difference between the
market value of the Company’s stock as of the end of the period and the exercise
price of the stock options.
|
|
Number
of
Shares
|
|
Aggregate
Intrinsic
Value
|
Outstanding
at December 31, 2006
|
|
9,014,714
|
|
$
|
2,491,637
|
|
|
|
|
|
|
Exercisable
at December 31, 2006
|
|
2,406,378
|
|
$
|
805,303
|
The
following table summarizes the warrants granted, exercised and outstanding
as of
December 31, 2005 and 2006, respectively.
|
Warrants
|
|
Exercise
Price
Per
Warrant
|
|
Weighted
Average Exercise
Price
|
|
|
|
|
|
|
Outstanding
at January 1, 2005
|
4,092,393
|
|
$0.50
– 1.25
|
|
$0.99
|
Granted
|
26,179,565
|
|
$0.50
– 1.25
|
|
$0.95
|
Exercised
|
(1,545,333)
|
|
$0.75—1.00
|
|
$0.76
|
Forfeited
|
(1,894,667)
|
|
$0.90—1.00
|
|
$0.92
|
|
|
|
|
|
|
Outstanding
at December 31, 2005
|
26,831,958
|
|
$0.50
– 1.25
|
|
$0.96
|
|
|
|
|
|
|
Warrants
exercisable at December 31, 2005
|
26,831,958
|
|
$0.50
– 1.25
|
|
$0.96
|
|
|
|
|
|
|
Outstanding
at January 1, 2006
|
26,831,958
|
|
$0.50
– 1.25
|
|
$0.96
|
Granted
|
1,023,657
|
|
$0.75
– 2.16
|
|
$0.99
|
Exercised
|
(1,092,534)
|
|
$0.50—1.00
|
|
$0.94
|
Forfeited
|
(100,000)
|
|
$1.25
|
|
$1.25
|
|
|
|
|
|
|
Outstanding
at December 31, 2006
|
26,663,081
|
|
$0.50
– 2.16
|
|
$0.96
|
|
|
|
|
|
|
Warrants
exercisable at December 31, 2006
|
26,663,081
|
|
$0.50
– 2.16
|
|
$0.96
|
The
following table summarizes information about warrants outstanding at December
31, 2006.
Exercise
Price
|
|
Number
Outstanding and
Exercisable at December 31, 2006
|
|
Weighted
Average Remaining
Contractual Life
|
|
Weighted
Average Exercise
Price
|
|
|
|
|
|
|
|
$0.50
|
|
10,000
|
|
0.92
|
|
$0.50
|
$0.75
|
|
664,275
|
|
1.25
|
|
$0.75
|
$0.935
|
|
17,934,939
|
|
3.78
|
|
$0.935
|
$0.94
|
|
20,000
|
|
0.25
|
|
$0.94
|
$0.98
|
|
525,000
|
|
3.25
|
|
$0.98
|
$1.00
|
|
6,482,043
|
|
2.37
|
|
$1.00
|
$1.23
|
|
275,000
|
|
3.23
|
|
$1.23
|
$1.25
|
|
675,000
|
|
3.58
|
|
$1.25
|
$2.125
|
|
55,147
|
|
2.38
|
|
$2.125
|
$2.16
|
|
21,677
|
|
2.38
|
|
$2.16
|
|
|
26,663,081
|
|
3.34
|
|
$0.96
|
6.
Convertible
Debt.
(a) Pursuant
to a Convertible Secured Promissory Note and Warrant Purchase Agreement dated
November 26, 2002 (the “Purchase Agreement”) between the Company and Gryffindor
Capital Partners I, L.L.C., a Delaware limited liability company (“Gryffindor”),
Gryffindor purchased the Company's $1 million Convertible Secured Promissory
Note dated November 26, 2002 (the “Note”). The Note bears interest at 8% per
annum, payable quarterly in arrears, and was due and payable in full on November
26, 2004. Subject to certain exceptions, the Note was convertible into shares
of
the Company's common stock on or after November 26, 2003, at which time the
principal amount of the Note was convertible into common stock at the rate
of
one share for each $0.737 of principal so converted and any accrued but unpaid
interest on the Note was convertible at the rate of one share for each $0.55
of
accrued but unpaid interest so converted. The Company's obligations under the
Note were secured by a first priority security interest in all of the Company's
assets, including the capital stock of the Company's wholly owned subsidiary
Xantech Pharmaceuticals, Inc., a Tennessee corporation (“Xantech”). In addition,
the Company's obligations to Gryffindor were guaranteed by Xantech, and
Xantech's guarantee was secured by a first priority security interest in all
of
Xantech's assets.
Pursuant
to the Purchase Agreement, the Company also issued to Gryffindor and to another
individual Common Stock Purchase Warrants dated November 26, 2002 (the
“Warrants”), entitling these parties to purchase, in the aggregate, up to
452,919 shares of common stock at a price of $0.001 per share. Simultaneously
with the completion of the transactions described in the Purchase Agreement,
the
Warrants were exercised in their entirety. The $1,000,000 in proceeds received
in 2002 was allocated between the long-term 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 $126,587 and
was
recorded as a discount on the related debt and was being amortized over the
life
of the debt using the effective interest method.
In
2003,
an additional $25,959 of principal was added to the 2002 convertible debt
outstanding.
Pursuant
to an agreement dated November 26, 2004 between the Company and Gryffindor,
the
Company issued Gryffindor a Second Amended and Restated Senior Secured
Convertible Note dated November 26, 2004 in the amended principal amount of
$1,185,959 which included the original note principal plus accrued interest.
The
second amended note bears interest at 8% per annum, payable quarterly in
arrears, was due and payable in full on November 26, 2005, and amends and
restates the amended note in its entirety. Subject to certain exceptions, the
Note is convertible into shares of the Company's common stock on or after
November 26, 2004, at which time the principal amount of the Note is convertible
into common stock at the rate of one share for each $0.737 of principal so
converted and any accrued but unpaid interest on the Note is convertible at
the
rate of one share for each $0.55 of accrued but unpaid interest so converted.
The Company issued warrants to Gryffindor to purchase up to 525,000 shares
of
the Company's common stock at an exercise price of $1.00 per share in
satisfaction of issuing Gryffindor the Second Amended and Restated Senior
Secured Convertible Note dated November 26, 2004. The value of these warrants
was determined to be $105,250 using a Black-Scholes option-pricing model and
was
recorded as a discount on the related debt and was amortized over the life
of
the debt using the effective interest method. Amortization of $95,157 has been
recorded as additional interest expense as of December 31, 2005.
During
2005, the Company recorded additional interest expense of $36,945 related to
the
beneficial conversion feature of the interest on the Gryffindor convertible
debt.
On
November 26, 2005 the Company entered into a redemption agreement with
Gryffindor to pay $1,185,959 of the Gryffindor convertible debt and accrued
interest of $94,877. Also on November 26, 2005 the Company issued a legal
assignment attached to and made a part of that certain Second Amended and
Restated Senior Secured Convertible Note dated November 26, 2004 in the original
principal amount of $1,185,959 together with interest of $94,877 paid to the
order of 8 investors dated November 26, 2005 for a total of $1,280,836. The
Company subsequently entered into debt conversion agreements with 7 of the
investors for an aggregate of $812,000 of convertible debt which was converted
into 1,101,764 shares of common stock at $0.737 per share. As of December 31,
2005, the Company had $468,836 in principal and $3,647 in accrued interest
owed
to holders of the convertible debentures due on November 26, 2006. At December
31, 2005, the Company recorded additional interest expense of $2,584 related
to
the beneficial conversion feature of the interest on the November 2005
convertible debt. The $1,280,836 in principal was issued when the conversion
price was lower than the market value of the Company's common stock on the
date
of issue. As a result, a discount of $404,932 was recorded for this beneficial
conversion feature. The debt discount of $404,932 is being amortized over the
life of the debt using the effective interest method. At December 31, 2005,
$270,924 of the debt discount has been amortized which includes $256,711 of
the
unamortized portion of the debt discount related to the debt which was
converted.
At
December 31, 2005, the November 2005 convertible debentures totaled $334,828,
net of debt discount of $134,008. The entire principal, net of debt discount,
was recorded as a current liability.
In
conjunction with the November 26, 2005 financing, the Company incurred debt
issuance costs consisting of cash of $128,082, 356,335 shares of common stock
valued at $345,645 and 1,000,000 warrants valued at $789,000. The warrants
are
exercisable over 5 years, have an exercise price of $1.00, a fair market value
of $0.79 and were valued using the Black-Scholes option-pricing model. The
total
debt issuance costs of $1,262,727 were recorded as an asset and amortized over
the term of the debt. At December 31, 2005, $835,294 of the debt issuance costs
have been amortized which includes $800,520 related to the debt that was
converted as of December 31, 2005. The 356,335 shares of common stock were
not
issued as of December 31, 2005 and therefore have been recorded as an accrued
liability at December 31, 2005.
In
May
2006, the Company entered into a debt conversion agreement with one of the
November 2005 accredited investors for $86,586 of its convertible debt which
was
converted into 117,483 shares of common stock at $0.737 per share. In addition,
accrued interest expense of $3,078 due at the time of the debt conversion was
paid in 5,597 shares of common stock. In June 2006, the Company entered into
a
debt conversion agreement with one of the November 2005 accredited investors
for
$382,250 of convertible debt which was converted into 518,657 shares of common
stock at $0.737 per share. In addition, accrued interest expense of $15,800
due
at the time of the debt conversion was paid in 28,727 shares of common
stock.
As
of
December 31, 2006, all principal and accrued interest owed to holders of the
November 2005 convertible debentures had been converted. At March 31, 2006,
the
Company recorded additional interest expense of $8,354 related to the beneficial
conversion feature of the interest on the November 2005 convertible debt. At
June 30, 2006, the Company recorded additional interest expense of $8,093
related to the beneficial conversion feature of the interest on the November
2005 convertible debt. In 2006 the remaining $417,886 of debt issuance costs
have been amortized which includes $189,948 of the unamortized portion of the
deferred loan costs related to the converted debt at the time of conversion.
In
2006 the remaining debt discount of $134,008 has been amortized.
(b) On
November 19, 2003, the Company completed a short-term unsecured debt financing
in the aggregate amount of $500,000. The notes bear interest of 8% and were
due
in full on November 19, 2004. The notes were convertible into common shares
at a
conversion rate equal to the lower of (i) 75% of the average market price for
the 20 trading days ending on the 20th trading day subsequent to the effective
date or (ii) $0.75 per share. Pursuant to the note agreements, the Company
also
issued warrants to purchase up to 500,000 shares of the Company's common stock
at an exercise price of $1.00 per share. During 2005, 52,000 of the warrants
were exercised and the remaining warrants expired on November 19,
2005.
The
$500,000 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 $241,655
and was recorded as a discount to the related debt. In addition, the conversion
price was lower than the market value of the Company's common stock on the
date
of issue. As a result, an additional discount of $258,345 was recorded for
this
beneficial conversion feature. The combined debt discount of $500,000 was being
amortized over the term of the debt using the effective interest
method.
In
conjunction with the debt financing, the Company issued warrants to purchase
up
to 100,000 shares of the Company's common stock at an exercise price of $1.25
per share in satisfaction of a finder's fee. The value of these warrants was
determined to be $101,000 using a Black-Scholes option-pricing model. In
addition, the Company incurred debt issuance costs of $69,530 which were payable
in cash. Total debt issuance costs of $170,530 were recorded as an asset and
amortized over the term of the debt. In 2004, in conjunction with the June
25,
2004 transaction (Note 4(1)), the Company entered into a redemption agreement
for its $500,000 of short-term convertible debt. Payments on the convertible
debt corresponded to payments received from the sale of common stock. As a
result, the unamortized portion of the debt discount at the date of
extinguishment of $193,308 and the unamortized portion of the deferred loan
costs of $65,930 were recorded as a loss on extinguishment of debt. In addition
to principal payments, the redemption payments included accrued interest and
a
premium payment of $100,519. This premium payment has been recorded as a loss
on
extinguishment. As part of this redemption, the Company repurchased the
beneficial conversion feature amount of $258,345 in 2004.
(c) On
July 28, 2004, the Company entered into an agreement to issue 8% convertible
debentures to Cornell in the amount of $375,000 which was due together with
interest on July 28, 2007. This debt had a subordinated security interest in
the
assets of the Company. The Company issued a second secured convertible debenture
on October 7, 2004 which had the same conversion terms as the prior debenture
and was issued on the date the Company filed a registration statement for the
shares underlying both debentures. This was due together with interest on
October 7, 2007 and had a subordinated security interest in the assets of the
Company. The debentures were convertible into common stock at a price per share
equal to the lesser of (a) an amount equal to 120% of the closing Volume Weighed
Average Price (VWAP) of the common stock as of the Closing Date ($1.88 on
Closing Date) or (b) an amount equal to 80% of the lowest daily VWAP of the
Company's common stock during the 5 trading days immediately preceding the
conversion date. There was a floor conversion price of $.75 until December
1,
2004.
Emerging
Issues Task Force Issue 98-5, “Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”
(“EITF 98-5”) requires the issuer to assume that the holder will not convert the
instrument until the time of the most beneficial conversion. EITF 98-5 also
requires that if the conversion terms are based on an unknown future amount,
which is the case in item (b) above, the calculation should be performed using
the commitment date which in this case is July 28, 2004 and October 7, 2004,
respectively. As a result, the beneficial conversion amount was computed using
80% of the lowest fair market value for the stock for the five days preceding
July 28, 2004 and October 7, 2004, respectively, which resulted in a beneficial
conversion amount of $254,006 and $106,250, respectively. The beneficial
conversion amount was being amortized over the term of the debt which was three
years.
In
conjunction with the debt financing, the Company issued warrants to purchase
up
to 150,000 shares of the Company's common stock at an exercise price of $1.00
per share in satisfaction of a finder's fee. The value of warrants was
determined to be $144,000 using a Black-Scholes option-pricing model. In
addition, the Company incurred debt issuance costs of $162,500 which were
payable in cash. Total debt issuance costs of $306,500 were recorded as an
asset
and amortized over the term of the debt.
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.
In
April
2005, the Company entered into a redemption agreement with Cornell Capital
Partners to pay $650,000 of the Cornell convertible debt. As a result, the
unamortized portion of the debt discount of $233,425 and deferred loan costs
of
$205,741, which related to this amount at the date of extinguishments, were
recorded as a loss on extinguishment of debt. The Company also paid a $65,000
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 $127,679.
At
December 31, 2005, there was no amount outstanding related to the Cornell
debt.
(d) 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. This debt has a security interest in the
assets of the Company, a maturity date of March 30, 2007, and is convertible
into shares of the Company's common stock at a per share conversion price of
$0.75. In April 2005, the Company entered into agreements to issue Senior
Convertible Debentures to 5 accredited investors in the aggregate amount of
$2,700,000. This debt has a security interest in the assets of the Company,
a
maturity date of March 30, 2007, and is convertible into shares of the Company's
common stock at a per share conversion price of $0.75.
The
Company shall be obligated to pay the principal of the Senior Convertible
Debentures in installments as follows: Twelve (12) equal monthly payments of
principal (the “Monthly Amount”) plus, to the extent not otherwise paid, accrued
but unpaid interest plus any other obligations of the Company to the Investor
under this Debenture, the Purchase Agreement, or the Registration Rights
Agreement, or otherwise. The first such installment payment shall be due and
payable on March 30, 2006, and subsequent installments shall be due and payable
on the thirtieth (30th) day of each succeeding month thereafter (each a “Payment
Date”) until the Company’s obligations under this Debenture is satisfied in
full. The Company shall have the option to pay all or any portion of any Monthly
Amount in newly issued, fully paid and nonassessable shares of Common Stock,
with each share of Common Stock having a value equal to (i) eighty-five percent
(85%) multiplied by (ii) the Market Price as of the third (3rd) Trading Day
immediately preceding the Payment Date (the “Payment Calculation
Date”).
Interest
at the greater of (i) the prime rate (adjust monthly), plus 4% and (ii) 8%
is
due on a quarterly basis. 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.
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
Purchasers of the $3,150,000 in Senior Convertible Debentures 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 30, 2010 depending on the particular Purchaser. Class B Warrants
were exercisable for a period through and including 175 days after an effective
registration of the common stock underlying the warrants, which began June
20,
2005 and ended December 12, 2005. The range of the per share exercise price
of a
Class A Warrant is $0.93 to $0.99 and the range of the per share exercise price
of the Class B Warrant was $0.8925 to $0.945.
The
Purchasers of the Senior Convertible Debentures received a total of 4,200,000
Class A Warrants and a total of 2,940,000 Class B Warrants. 1,493,333 of the
Class B Warrants were exercised in December, 2005 for proceeds of $1,122,481.
The warrant holders were given an incentive to exercise their warrants due
to
the lowering of the exercise price to $0.75. Interest expense of $236,147 was
recorded to recognize expense related to this conversion incentive. The
remaining Class B Warrants were forfeited in December, 2005 at the expiration
of
their exercise period.
The
$3,150,000 proceeds received in March and April 2005 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 $1,574,900 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 $1,228,244 was recorded for this beneficial conversion feature. The combined
debt discount of $2,803,144 is being amortized over the life of the debt using
the effective interest method.
In
June
2005, the Company entered into a debt conversion agreement with one of the
April
accredited investors for $150,000 of its convertible debt which was converted
into 200,000 shares of common stock at $0.75 per share, and $2,833 of accrued
interest was converted into 3,777 shares of common stock at $0.75 per share.
In
July 2005, the Company entered into a debt conversion agreement with two of
the
April accredited investors for an aggregate of $350,000 of convertible debt
which was converted into 466,666 shares of common stock at $0.75 per share.
In
September 2005, the Company entered into a debt conversion agreement with one
of
the March accredited investors for $400,000 of its convertible debt which was
converted into 533,333 shares of common stock at $0.75 per share. In October
2005, the Company entered into a debt conversion agreement with two of the
March
accredited investors for an aggregate of $100,000 of convertible debt which
was
converted into 133,334 shares of common stock at $0.75 per share. In November
2005, the Company entered into a debt conversion agreement with three of the
April accredited investors for an aggregate of $675,000 of convertible debt
which was converted into 900,000 shares of common stock at $0.75 per
share.
At
December 31, 2005, $1,872,257 of the total debt discount had been amortized
which included $1,454,679 of the unamortized portion of the debt discount
related to the converted debt at the time of the debt conversions.
At
December 31, 2005, the Senior Convertible Debentures totaled $544,113, net
of
debt discount of $930,887. Of this total, $221,401 was recorded as a current
liability, net of debt discount of $884,848 and $322,712 was recorded as a
long-term liability, net of debt discount of $46,039.
In
conjunction with the financing, the Company incurred debt issuance costs
consisting of $387,500 in cash and 980,000 of warrants valued at $426,700.
The
warrants are exercisable over 5 years, have exercise prices ranging from $0.98
-
$1.23, fair market values ranging from $0.42 - $0.44 and were valued using
the
Black-Scholes option pricing model. The total debt issuance costs of $814,200
were recorded as an asset and amortized over the term of the debt. At December
31, 2005, $532,541 of the debt issuance costs have been amortized which includes
$413,109 related to the debt that was converted as of December 31,
2005.
The
Company chose to pay the quarterly interest due at June 30, 2005, September
30,
2005 and December 31, 2005 in common stock instead of cash. As a result, accrued
interest at June 30, 2005 of $78,904 was paid in 165,766 shares of common stock
resulting in additional interest expense of $28,843. 159,780 shares were issued
July 11, 2005 and the remaining 5,986 shares were issued November 7, 2005.
The
accrued interest due September 30, 2005 of $72,985 was converted into 97,955
shares of common stock resulting in additional interest expense of $15,299.
66,667 of these shares were issued on September 30, 2005 and the remaining
31,288 shares were issued October 20, 2005. The interest due December 31, 2005
of $50,486 was converted into 65,742 shares of common stock resulting in
additional interest expense of $10,922. The 65,742 shares were not issued as
of
December 31, 2005 and have been recorded in accrued liabilities at December
31,
2005. The shares were issued January 9, 2006.
In
January 2006, the Company entered into a debt conversion agreement with one
of
the March 2005 accredited investors for $250,000 of its convertible debt which
was converted into 333,333 shares of common stock at $0.75 per share. In March
2006, the Company entered into a total of three debt conversion agreements
with
two of the March 2005 accredited investors for an aggregate of $500,000 of
convertible debt which was converted into 666,667 shares of common stock at
$0.75 per share. In May 2006, the Company entered into a debt conversion
agreement with one of the March 2005 accredited investors for $25,000 of its
convertible debt which was converted into 33,333 shares of common stock at
$0.75
per share. In September 2006, the Company entered into a debt conversion
agreement with one of the March 2005 accredited investors for $112,500 of its
convertible debt which was converted into 150,000 shares of common stock at
$0.75 per share. In November 2006, the Company entered into a debt conversion
agreement with one of the March 2005 accredited investors for $200,000 of its
convertible debt which was converted into 266,666 shares of common stock at
$0.75 per share. In December 2006, the Company entered into a debt conversion
agreement with one of the March 2005 accredited investors for $20,000 of its
convertible debt which was converted into 26,667 shares of common stock at
$0.75
per share.
In
2006,
$928,090 of the total debt discount has been amortized which includes $386,451
of the unamortized portion of the debt discount related to the converted debt
at
the time of the debt conversions. In 2006, $287,493 of the deferred loan costs
have been amortized which includes $112,256 of the unamortized portion of the
deferred loan costs related to the converted debt at the time of the debt
conversions.
At
December 31, 2006, the March 2005 convertible debentures totaled $364,703,
net
of debt discount of $2,797. The full amount is current at December 31,
2006.
The
Company chose to pay the quarterly interest due at March 31, 2006, June 30,
2006, September 30, 2006 and December 31, 2006 in common stock instead of cash.
As a result, accrued interest due March 31, 2006 of $33,274 was converted into
35,939 shares of common stock resulting in additional interest expense of
$4,975. 7,656 of these shares were issued March 20, 2006 and the remaining
shares of 28,283 were issued March 31, 2006. The accrued interest due June
30,
2006 of $21,305 was converted into 24,674 shares of common stock resulting
in
additional interest expense of $3,650. These shares were issued June 30, 2006.
The accrued interest due September 30, 2006 of $21,010 was converted into 18,888
shares of common stock resulting in additional interest expense of $2,167.
These
shares were issued September 29, 2006. The accrued interest due December 31,
2006 of $15,086 was converted into 14,760 shares of common stock resulting
in
additional interest expense of $1,843. These shares were issued December 29,
2006.
7. 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 as an additional $25,000. Interest expense was $16,525 at December
31,
2005.
In
December 2005, the Company approved a request from the shareholder to exchange
the total loan amount of $174,000 plus accrued interest of $24,529 for 264,705
shares of common stock at $0.75 per share which were committed to be issued
at
December 31, 2005. These shares were issued on January 3, 2006. In connection
with this transaction which was based on the same terms as the private placement
conducted at the same time, the Company also issued warrants to the shareholder
to purchase up to 330,881 shares of common stock at an exercise price of $0.935
per share.
The
value
of the stock and warrants received by the shareholder was $311,000 greater
than
the face value of the debt and accrued interest. The $311,000 was a loss on
extinguishment of debt in 2005.
8. Income
Taxes
Reconciliations
between the statutory federal income tax rate and the Company’s effective rate
were as follow:
Years
Ended December
31,
|
|
2006
|
|
2005
|
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
Federal
statutory rate
|
|
$
|
(3,016,000)
|
|
(34.0)
|
|
$
|
(3,894,000)
|
|
(34.0)
|
Adjustment
to valuation allowance
|
|
|
2,832,000
|
|
31.9
|
|
|
3,412,000
|
|
29.8
|
Non-deductible
financing costs
|
|
|
184,000
|
|
2.1
|
|
|
475,000
|
|
4.1
|
Other
|
|
|
--
|
|
--
|
|
|
7,000
|
|
0.1
|
Actual
tax benefit
|
|
$
|
--
|
|
--
|
|
$
|
--
|
|
--
|
The
components of the Company’s deferred income taxes, pursuant to SFAS No. 109, are
summarized as follow:
December
31,
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Deferred
tax assets
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
5,794,000
|
|
$
|
4,126,000
|
Stock
compensation
|
|
|
633,000
|
|
|
--
|
Warrants
for services
|
|
|
1,472,000
|
|
|
1,169,000
|
Deferred
tax asset
|
|
|
7,899,000
|
|
|
5,295,000
|
|
|
|
|
|
|
|
Deferred
tax liability – patent amortization
|
|
|
(3,044,000)
|
|
|
(3,272,000)
|
Valuation
allowance
|
|
|
(4,855,000)
|
|
|
(2,023,000)
|
|
|
|
|
|
|
|
Net
deferred taxes
|
|
$
|
--
|
|
$
|
--
|
SFAS
No.
109 required a valuation allowance against deferred tax assets if, based on
the
weight of available evidence, it is more likely than not that some or all of
the
deferred tax assets may not be realized. The Company is in the development
stage
and realization of the deferred tax assets is not considered more likely than
not. As a result, the Company has recorded a valuation allowance for the net
deferred tax asset.
Since
inception of the Company on January 17, 2002, the Company has generated tax
net
operating losses of approximately $17.0 million, expiring in 2022 through 2026.
The tax loss carryforwards of the Company may be subject to limitation by
Section 382 of the Internal Revenue Code with respect to the amount utilizable
each year. This limitation reduces the Company’s ability to utilize net
operating loss carryforwards. The amount of the limitation has not been
quantified by the Company. In addition, the Company acquired certain net
operating losses in its acquisition of Valley Pharmaceuticals, Inc. (Note 2).
However, the amount of these net operating losses has not been determined and
even if recorded, the amount would be fully reserved.
9. Subsequent
Events
In
January 2007 the Company established the Provectus Pharmaceuticals, Inc. Cash
Balance Defined Benefit Plan and Trust (the “Plan”), effective January 1, 2007,
for the exclusive benefit of its four employees and their beneficiaries. The
Plan was fully funded for 2007 in January totaling $324,000 or $81,000 per
employee. The Plan contributions vest equally over six years and the Plan will
be funded at approximately the same level each year in accordance with the
provisions of the Plan.
In
January and February 2007 the Company completed a private placement transaction
with 6 accredited investors pursuant to which the Company sold a total of
265,000 shares of common stock at a purchase price of $1.00 per share, for
an
aggregate purchase price of $265,000. The Company paid $29,150 and issued 26,500
shares of common stock at a fair market value of $32,130 to Chicago Investment
Group of Illinois, L.L.C. as a placement agent for this transaction. The cash
costs have been off-set against the proceeds received.
In
January and February 2007 the Company completed a private placement transaction
with 13 accredited investors pursuant to which the Company sold a total of
1,745,742 shares of common stock at a purchase price of $1.05 per share, for
an
aggregate purchase price of $1,833,029. The Company paid $238,294 and is
committed to issue 174,574 shares of common stock at a fair market value of
$200,760 to Network 1 Financial Securities, Inc. as placement agent for this
transaction. The cash costs have been off-set against the proceeds
received.
In
January 2007 the Company entered into a separate debt conversion agreement
with
two of its March 2005 accredited investors for $245,833 of convertible debt
which was converted into 327,777 shares of common stock at $0.75 per
share.
In
February 2007 the Company entered into a separate debt conversion agreement
with
two of its March 2005 accredited investors for $121,667 of convertible debt
which was converted into 162,223 shares of common stock at $0.75 per share.
As
of February 28, 2007 all principal and accrued interest owed to holders of
the
March 2005 convertible debentures had been converted.
PROVECTUS
PHARMACEUTICALS,
INC.
(A
Development-Stage
Company)
CONSOLIDATED
BALANCE
SHEETS
|
|
September
30,
2007
|
|
|
December
31,
2006
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
338,951
|
|
|
$ |
638,334
|
|
United
States Treasury Notes, total face value $7,305,477 and
$6,507,019
|
|
|
7,301,877
|
|
|
|
6,499,034
|
|
Prepaid
expenses and other current assets
|
|
|
18,501
|
|
|
|
173,693
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
7,659,329
|
|
|
|
7,311,061
|
|
|
|
|
|
|
|
|
|
|
Equipment
and Furnishings, less accumulated depreciation of $379,663 and
$372,721
|
|
|
45,260
|
|
|
|
30,075
|
|
Patents,
net of amortization of $3,266,117 and $2,762,777
|
|
|
8,449,328
|
|
|
|
8,952,668
|
|
Deferred
loan costs, net of amortization of $247,802 in 2006
|
|
|
--
|
|
|
|
3,713
|
|
Other
assets
|
|
|
27,000
|
|
|
|
27,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
16,180,917
|
|
|
$ |
16,324,517
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable – trade
|
|
$ |
33,104
|
|
|
$ |
64,935
|
|
Accrued
compensation
|
|
|
569,217
|
|
|
|
265,929
|
|
Accrued
common stock costs
|
|
|
--
|
|
|
|
17,550
|
|
Accrued
consulting expense
|
|
|
89,167
|
|
|
|
42,500
|
|
Other
accrued expenses
|
|
|
39,500
|
|
|
|
46,500
|
|
March
2005 convertible debt, net of debt discount of $2,797 in
2006
|
|
|
--
|
|
|
|
364,703
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
730,988
|
|
|
|
802,117
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
Preferred
stock; par value $.001 per share; 25,000,000 shares authorized; no
shares
issued and outstanding
|
|
|
--
|
|
|
|
--
|
|
Common stock; par value $.001 per share; 100,000,000
shares authorized; 48,121,375 and 42,452,366 shares issued
and
outstanding, respectively
|
|
|
48,121
|
|
|
|
42,452
|
|
Paid in capital
|
|
|
58,011,956
|
|
|
|
50,680,353
|
|
Deficit accumulated during the development stage
|
|
|
(42,610,148 |
) |
|
|
(35,200,405 |
) |
|
|
|
|
|
|
|
|
|
Total
Stockholders' Equity
|
|
|
15,449,929
|
|
|
|
15,522,400
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
16,180,917
|
|
|
$ |
16,324,517
|
|
See
accompanying notes to consolidated financial statements.
PROVECTUS
PHARMACEUTICALS,
INC.
(A
Development-Stage
Company)
CONSOLIDATED
STATEMENTS OF
OPERATIONS
(Unaudited)
|
|
Three
Months
Ended
September
30,
2007
|
|
|
Three
Months
Ended
September
30,
2006
|
|
|
Nine
Months
Ended
September
30,
2007
|
|
|
Nine
Months
Ended
September
30,
2006
|
|
|
Cumulative
Amounts from January
17, 2002 (Inception) Through
September
30,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTC
Product Revenue
|
|
$ |
--
|
|
|
$ |
274
|
|
|
$ |
--
|
|
|
$ |
1,354
|
|
|
$ |
25,648
|
|
Medical
Device Revenue
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
14,109
|
|
Total
revenues
|
|
|
--
|
|
|
|
274
|
|
|
|
--
|
|
|
|
1,354
|
|
|
|
39,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Sales
|
|
|
--
|
|
|
|
175
|
|
|
|
--
|
|
|
|
866
|
|
|
|
15,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
--
|
|
|
|
99
|
|
|
|
--
|
|
|
|
488
|
|
|
|
24,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
1,079,345
|
|
|
|
966,558
|
|
|
|
3,231,930
|
|
|
|
2,231,773
|
|
|
|
10,360,137
|
|
General
and administrative
|
|
|
1,541,364
|
|
|
|
904,075
|
|
|
|
3,907,372
|
|
|
|
2,451,194
|
|
|
|
20,637,340
|
|
Amortization
of patents
|
|
|
167,780
|
|
|
|
167,780
|
|
|
|
503,340
|
|
|
|
503,340
|
|
|
|
3,266,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating loss
|
|
|
(2,788,489 |
) |
|
|
(2,038,314 |
) |
|
|
(7,642,642 |
) |
|
|
(5,185,819 |
) |
|
|
(34,239,053 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on sale of fixed assets
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
55,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
on extinguishment of debt
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(825,867 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
income
|
|
|
74,560
|
|
|
|
70,031
|
|
|
|
244,308
|
|
|
|
180,299
|
|
|
|
497,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
--
|
|
|
|
(188,504 |
) |
|
|
(11,409 |
) |
|
|
(1,780,942 |
) |
|
|
(8,098,004 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(2,713,929 |
) |
|
$ |
(2,156,787 |
) |
|
$ |
(7,409,743 |
) |
|
$ |
(6,786,462 |
) |
|
$ |
(42,610,148 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per
common
share
|
|
$ |
(0.06 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.16 |
) |
|
$ |
(0.18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding – basic and
diluted
|
|
|
46,432,567
|
|
|
|
38,231,416
|
|
|
|
45,436,240
|
|
|
|
36,724,927
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
PROVECTUS
PHARMACEUTICALS,
INC.
(A
Development-Stage
Company)
CONSOLIDATED
STATEMENTS OF
STOCKHOLDERS' EQUITY
(Unaudited)
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
shares
|
|
|
Par
value
|
|
|
Paid-in
capital
|
|
|
Accumulated
deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
) |
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 |
) |
Balance,
at December 31,
2004
|
|
|
16,133,876
|
|
|
$ |
16,134
|
|
|
$ |
23,711,540
|
|
|
$ |
(14,565,973 |
) |
|
$ |
9,161,701
|
|
Issuance
of stock for services
|
|
|
226,733
|
|
|
|
227
|
|
|
|
152,058
|
|
|
|
--
|
|
|
|
152,285
|
|
Issuance
of stock for interest payable
|
|
|
263,721
|
|
|
|
264
|
|
|
|
195,767
|
|
|
|
--
|
|
|
|
196,031
|
|
Issuance
of warrants for services
|
|
|
--
|
|
|
|
--
|
|
|
|
1,534,405
|
|
|
|
--
|
|
|
|
1,534,405
|
|
Issuance
of warrants for contractual obligations
|
|
|
--
|
|
|
|
--
|
|
|
|
985,010
|
|
|
|
--
|
|
|
|
985,010
|
|
Exercise
of warrants and stock options
|
|
|
1,571,849
|
|
|
|
1,572
|
|
|
|
1,438,223
|
|
|
|
--
|
|
|
|
1,439,795
|
|
Employee
compensation from stock options
|
|
|
--
|
|
|
|
--
|
|
|
|
15,752
|
|
|
|
--
|
|
|
|
15,752
|
|
Issuance
of stock pursuant to Regulation D
|
|
|
6,221,257
|
|
|
|
6,221
|
|
|
|
6,506,955
|
|
|
|
--
|
|
|
|
6,513,176
|
|
Debt
conversion to common stock
|
|
|
3,405,541
|
|
|
|
3,405
|
|
|
|
3,045,957
|
|
|
|
--
|
|
|
|
3,049,795
|
|
Issuance
of warrants with convertible debt
|
|
|
--
|
|
|
|
--
|
|
|
|
1,574,900
|
|
|
|
--
|
|
|
|
1,574,900
|
|
Beneficial
conversion related to convertible debt
|
|
|
--
|
|
|
|
--
|
|
|
|
1,633,176
|
|
|
|
--
|
|
|
|
1,633,176
|
|
Beneficial
conversion related to interest expense
|
|
|
--
|
|
|
|
--
|
|
|
|
39,259
|
|
|
|
--
|
|
|
|
39,529
|
|
Repurchase
of beneficial conversion feature
|
|
|
--
|
|
|
|
--
|
|
|
|
(144,128 |
) |
|
|
--
|
|
|
|
(144,128 |
) |
Net
loss for the year ended 2005
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(11,763,853 |
) |
|
|
(11,763,853 |
) |
Balance,
at December 31,
2005
|
|
|
27,822,977
|
|
|
$ |
27,823
|
|
|
$ |
40,689,144
|
|
|
$ |
(26,329,826 |
) |
|
$ |
14,387,141
|
|
Issuance
of stock for services
|
|
|
719,246
|
|
|
|
719
|
|
|
|
676,024
|
|
|
|
--
|
|
|
|
676,743
|
|
Issuance
of stock for interest payable
|
|
|
194,327
|
|
|
|
195
|
|
|
|
183,401
|
|
|
|
--
|
|
|
|
183,596
|
|
Issuance
of warrants for services
|
|
|
--
|
|
|
|
--
|
|
|
|
370,023
|
|
|
|
--
|
|
|
|
370,023
|
|
Exercise
of warrants and stock options
|
|
|
1,245,809
|
|
|
|
1,246
|
|
|
|
1,188,570
|
|
|
|
--
|
|
|
|
1,189,816
|
|
Employee
compensation from stock options
|
|
|
--
|
|
|
|
--
|
|
|
|
1,862,456
|
|
|
|
--
|
|
|
|
1,862,456
|
|
Issuance
of stock pursuant to Regulation D
|
|
|
10,092,495
|
|
|
|
10,092
|
|
|
|
4,120,329
|
|
|
|
--
|
|
|
|
4,130,421
|
|
Debt
conversion to common stock
|
|
|
2,377,512
|
|
|
|
2,377
|
|
|
|
1,573,959
|
|
|
|
--
|
|
|
|
1,576,336
|
|
Beneficial
conversion related to interest expense
|
|
|
--
|
|
|
|
--
|
|
|
|
16,447
|
|
|
|
--
|
|
|
|
16,447
|
|
Net
loss for the year ended 2006
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(8,870,579 |
) |
|
|
(8,870,579 |
) |
Balance,
at December 31,
2006
|
|
|
42,452,366
|
|
|
$ |
42,452
|
|
|
$ |
50,680,353
|
|
|
$ |
(35,200,405 |
) |
|
$ |
15,522,400
|
|
Issuance
of stock for services
|
|
|
100,000
|
|
|
|
100
|
|
|
|
188,850
|
|
|
|
--
|
|
|
|
188,950
|
|
Issuance
of stock for interest payable
|
|
|
1,141
|
|
|
|
1
|
|
|
|
1,257
|
|
|
|
--
|
|
|
|
1,258
|
|
Issuance
of warrants for services
|
|
|
--
|
|
|
|
--
|
|
|
|
459,460
|
|
|
|
--
|
|
|
|
459,460
|
|
Exercise
of warrants and stock options
|
|
|
2,701,051
|
|
|
|
2,701
|
|
|
|
2,621,868
|
|
|
|
--
|
|
|
|
2,624,569
|
|
Employee
compensation from stock options
|
|
|
--
|
|
|
|
--
|
|
|
|
1,847,397
|
|
|
|
--
|
|
|
|
1,847,397
|
|
Issuance
of stock pursuant to Regulation D
|
|
|
2,376,817
|
|
|
|
2,377
|
|
|
|
1,845,761
|
|
|
|
--
|
|
|
|
1,848,138
|
|
Debt
conversion to common stock
|
|
|
490,000
|
|
|
|
490
|
|
|
|
367,010
|
|
|
|
--
|
|
|
|
367,500
|
|
Net
loss for the nine months ended September 30, 2007
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(7,409,743 |
) |
|
|
(7,409,743 |
) |
Balance,
at September 30,
2007
|
|
|
48,121,375
|
|
|
$ |
48,121
|
|
|
$ |
58,011,956
|
|
|
$ |
(42,610,148 |
) |
|
$ |
15,449,929
|
|
See
accompanying notes to consolidated financial statements.
PROVECTUS
PHARMACEUTICALS,
INC.
(A
Development-Stage
Company)
CONSOLIDATED
STATEMENTS OF CASH
FLOW
(Unaudited)
|
|
Nine
Months
Ended
September
30,
2007
|
|
|
Nine
Months
Ended
September
30,
2006
|
|
|
Cumulative
Amounts from January
17, 2002 (Inception) through
September
30,
2007
|
|
Cash
Flows From Operating Activities
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(7,409,743 |
) |
|
$ |
(6,786,462 |
) |
|
$ |
(42,610,148 |
) |
Adjustments
to reconcile net loss to net cash used in operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
6,942
|
|
|
|
3,023
|
|
|
|
402,664
|
|
Amortization
of patents
|
|
|
503,340
|
|
|
|
503,340
|
|
|
|
3,266,117
|
|
Amortization
of original issue discount
|
|
|
2,797
|
|
|
|
978,780
|
|
|
|
3,845,721
|
|
Amortization
of commitment fee
|
|
|
--
|
|
|
|
--
|
|
|
|
310,866
|
|
Amortization
of prepaid consultant expense
|
|
|
84,019
|
|
|
|
42,010
|
|
|
|
1,295,226
|
|
Amortization
of deferred loan costs
|
|
|
3,713
|
|
|
|
684,105
|
|
|
|
2,261,584
|
|
Accretion
of United States Treasury Notes
|
|
|
(142,314 |
) |
|
|
(125,146 |
) |
|
|
(324,512 |
) |
Loss
on extinguishment of debt
|
|
|
--
|
|
|
|
--
|
|
|
|
825,867
|
|
Loss
on exercise of warrants
|
|
|
--
|
|
|
|
--
|
|
|
|
236,146
|
|
Beneficial
conversion of convertible interest
|
|
|
--
|
|
|
|
16,447
|
|
|
|
55,976
|
|
Convertible
interest
|
|
|
1,258
|
|
|
|
105,259
|
|
|
|
389,950
|
|
Compensation
through issuance of stock options
|
|
|
1,847,397
|
|
|
|
1,289,061
|
|
|
|
3,775,876
|
|
Compensation
through issuance of stock
|
|
|
--
|
|
|
|
--
|
|
|
|
932,000
|
|
Issuance
of stock for services
|
|
|
230,617
|
|
|
|
26,100
|
|
|
|
6,225,648
|
|
Issuance
of warrants for services
|
|
|
459,460
|
|
|
|
130,194
|
|
|
|
1,002,629
|
|
Issuance
of warrants for contractual obligations
|
|
|
--
|
|
|
|
--
|
|
|
|
985,010
|
|
Gain
on sale of equipment
|
|
|
--
|
|
|
|
--
|
|
|
|
(55,075 |
) |
(Increase)
decrease in assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer/Director
advance
|
|
|
--
|
|
|
|
(201,706 |
) |
|
|
--
|
|
Prepaid
expenses and other current assets
|
|
|
71,173
|
|
|
|
25,517
|
|
|
|
(18,501 |
) |
Increase
(decrease) in liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(31,831 |
) |
|
|
(50,949 |
) |
|
|
29,459
|
|
Accrued
expenses
|
|
|
301,288
|
|
|
|
63,990
|
|
|
|
834,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(4,071,884 |
) |
|
|
(3,296,437 |
) |
|
|
(16,332,983 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of fixed asset
|
|
|
--
|
|
|
|
--
|
|
|
|
180,075
|
|
Capital
expenditures
|
|
|
(22,127 |
) |
|
|
(8,601 |
) |
|
|
(62,049 |
) |
Proceeds
from investments
|
|
|
14,760,644
|
|
|
|
6,500,000
|
|
|
|
25,760,644
|
|
Purchase
of investments
|
|
|
(15,421,173 |
) |
|
|
(10,869,194 |
) |
|
|
(32,738,009 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(682,656 |
) |
|
|
(4,377,795 |
) |
|
|
(6,859,339 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
proceeds from loans from stockholder
|
|
|
--
|
|
|
|
--
|
|
|
|
174,000
|
|
Proceeds
from convertible debt
|
|
|
--
|
|
|
|
--
|
|
|
|
6,706,795
|
|
Net
proceeds from sale of common stock
|
|
|
1,830,588
|
|
|
|
1,141,246
|
|
|
|
14,979,081
|
|
Proceeds
from exercise of warrants and stock options
|
|
|
2,624,569
|
|
|
|
1,182,116
|
|
|
|
5,023,487
|
|
Cash
paid to retire convertible debt
|
|
|
--
|
|
|
|
--
|
|
|
|
(2,385,959 |
) |
Cash
paid for deferred loan costs
|
|
|
--
|
|
|
|
--
|
|
|
|
(747,612 |
) |
Premium
paid on extinguishments of debt
|
|
|
--
|
|
|
|
--
|
|
|
|
(170,519 |
) |
Purchase
and retirement of common stock
|
|
|
--
|
|
|
|
--
|
|
|
|
(48,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
4,455,157
|
|
|
|
2,323,362
|
|
|
|
23,531,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in cash and cash equivalents
|
|
$ |
(299,383 |
) |
|
$ |
(5,350,870 |
) |
|
$ |
338,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, at beginning of period
|
|
$ |
638,334
|
|
|
$ |
6,878,990
|
|
|
$ |
--
|
|
Cash
and cash equivalents, at end of period
|
|
$ |
338,951
|
|
|
$ |
1,528,120
|
|
|
$ |
338,951
|
|
Supplemental
Disclosure of Noncash Investing and Financing Activities:
September
30, 2007
1.
Debt
converted to common stock of $367,500
2.
Payment of accrued interest through
the issuance of stock of $1,258
3.
Issuance of stock for stock issuance
costs of $17,550 incurred in 2006
4.
Stock committed to be issued for
services of $41,667 accrued at September 30, 2007
September
30, 2006
1.
Issuance of warrants in exchange for
prepaid services of $168,039
2.
Debt converted to common stock of
$1,356,336
2.
Payment of accrued interest through
the issuance of stock of $166,667
3.
Issuance of stock for stock issuance
costs of $964,676 incurred in 2005
4.
Stock committed to be issued for
services of $650,643 accrued at December 31, 2005 and issued in
2006
See
accompanying notes to consolidated financial statements.
PROVECTUS
PHARMACEUTICALS,
INC.
(A
Development-Stage
Company)
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
1. Basis
of
Presentation
The
accompanying unaudited 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 and
nine months ended September 30, 2007 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2007.
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 of 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." (“Provectus” or “the Company”) 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. Included as of September 30, 2007 were
120,000 shares committed to be issued. Loss per share excludes the
impact of outstanding options, warrants, and convertible debt as they are
antidilutive. Potential common shares excluded from the calculation for the
three and nine months ended September 30, 2007 and 2006 are 24,392,325 and
26,678,081 warrants, and 8,959,419 and 9,021,714 options. Potential
common shares also excluded from the calculation for the three and nine months
ended September 30, 2006 are 783,333 shares issuable upon conversion of
convertible debt and interest.
4. Equity
and Debt
Transactions
(a) In
January 2007, the Company issued 150,000 shares committed to be issued at
December 31, 2006 for shares sold in 2006. In January 2007, the
Company also issued 15,000 shares committed to be issued at December 31, 2006
for common stock costs related to shares sold in 2006. The total
value for these shares was $17,550 which was based on the market value of the
shares issued and was recorded as an accrued liability at December 31,
2006. In January and February 2007, the Company completed a private
placement transaction with six accredited investors pursuant to which the
Company sold a total of 265,000 shares of common stock at a purchase price
of
$1.00 per share, for an aggregate purchase price of $265,000. The
Company paid $29,150 and issued 26,500 shares of common stock at a fair market
value of $32,130 to Chicago Investment Group of Illinois, L.L.C. as a placement
agent for this transaction. The cash costs have been off-set against
the proceeds received. Also in January and February 2007, the Company
completed a private placement transaction with 13 accredited investors pursuant
to which the Company sold a total of 1,745,743 shares of common stock at a
purchase price of $1.05 per share, for an aggregate purchase price of
$1,833,031. The Company paid $238,293 and issued 174,574 shares of
common stock at a fair market value of $200,760 to Network 1 Financial
Securities, Inc. as placement agent for this transaction. The cash
costs have been off-set against the proceeds received.
(b) In
January 2007, the Company entered into a separate debt conversion agreement
with
two of its March 2005 accredited investors for $245,833 of convertible debt
which was converted into 327,777 shares of common stock at $0.75 per
share. In February 2007, the Company entered into a separate debt
conversion agreement with two of its March 2005 accredited investors for
$121,667 of convertible debt which was converted into 162,223 shares of common
stock at $0.75 per share.
In
February 2007, the remaining total debt discount has been amortized, which
is
$2,797. In February 2007, the remaining deferred loan costs have been
amortized, which is $3,713.
At
September 30, 2007 the Company had no remaining principal or accrued interest
owed to holders of the March 2005 convertible debentures due on March 31,
2007.
The
Company chose to pay a portion of the quarterly interest due at February 28,
2007 in common stock instead of cash. The accrued interest not paid
in cash that was due February 28, 2007 of $1,109 was converted into 1,141 shares
of common stock resulting in additional interest expense of $149. 358
of these shares were issued on January 25, 2007 and the remaining shares of
783
were issued on February 28, 2007.
(c) During
the three months ended March 31, 2007, $42,010 of prepaid consulting costs
relating to warrants issued in 2006 have been charged to
operations. During the three months ended June 30, 2007, the
remaining prepaid consulting costs of $42,009 relating to warrants issued in
2006 have been charged to operations. During the three months ended
March 31, 2007, the Company issued 85,000 warrants to consultants in exchange
for services. Consulting costs charged to operations were
$75,933. During the three months ended June 30, 2007, the Company
issued 85,000 warrants to consultants in exchange for
services. Consulting costs charged to operations were
$98,185. In April and May 2007, 260,000 warrants were exercised for
$196,900 resulting in 260,000 shares being issued. In May 2007,
10,000 warrants were forfeited. During the three months ended
September 30, 2007, the Company issued 135,000 warrants to consultants in
exchange for services. Consulting costs charged to operations were
$250,342. During the three months ended September 30, 2007, 2,305,756
warrants were exercised for $2,219,657 resulting in 2,185,756 shares being
issued and 120,000 shares committed to be issued as of September 30, 2007 and
then issued October 4, 2007. 350,000 of the warrants exercised had an
exercise price of $1.00 that was reduced to $0.90. Additional
consulting costs of $35,000 were charged to operations as a result of the
reduction of the exercise price of the 350,000 warrants.
(d) In
May 2007, the Company issued 50,000 shares to consultants in exchange for
services. Consulting costs charged to operations were
$84,000. In August 2007, the Company issued 50,000 shares to
consultants in exchange for services. Consulting costs charged to
operations were $104,950. As of September 30, 2007, the Company is
also committed to issue 16,667 shares to consultants in exchange for
services. At September 30, 2007, these shares have a value of $41,667
and have been included in accrued consulting expense.
5. Stock-Based
Compensation
One
employee of the Company exercised a
total of 120,920 options during the three months ended March 31, 2007 at an
exercise price of $1.10 per share of common stock for
$133,012. Another employee of the Company exercised a total of 9,375
options during the three months ended March 31, 2007 at an exercise price of
$0.32 per share of common stock for $3,000. One employee of the
Company exercised a total of 100,000 options during the three months ended
September 30, 2007 at an exercise price of $0.64 per share of common stock
for
$64,000. Another employee of the Company exercised a total of 25,000
options during the three months ended September 30, 2007 at an exercise price
of
$0.32 per share of common stock for $8,000. On June 21, 2007, the
Company issued 200,000 stock options to its Members of the Board. The
options vested on the date of grant. The exercise price is the fair
market price on the date of issuance, and all options were outstanding at
September 30, 2007.
Effective
January 1, 2006, the Company adopted FASB 123R. This change in accounting
replaced existing requirements under FASB 123 and eliminated the ability to
account for share-based compensation transaction using APB 25. The compensation
cost relating to share-based payment transactions are measured based on the
fair
value of the equity or liability instruments issued. For purposes of estimating
the fair value of each stock option on the date of grant, the Company utilized
the Black-Scholes option-pricing model. The Black-Scholes option valuation
model
was developed for use in estimating the fair value of traded options, which
have
no vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions including
the expected volatility factor of the market price of the company’s common stock
(as determined by reviewing its historical public market closing prices).
Because the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options or restricted stock
units. Included in the results for the three and nine months ended
September 30, 2007, is $421,207 and $1,847,397, respectively, of stock-based
compensation expense which relates to the fair value of stock
options. Included in the results for the three and nine months ended
September 30, 2006, is $573,395 and $1,289,061, respectively, of stock-based
compensation expense which relates to the fair value of stock
options.
6. Cash
Balance Defined Benefit Plan and Trust
In
January 2007, the Company established the Provectus Pharmaceuticals, Inc. Cash
Balance Defined Benefit Plan and Trust (the “Plan”), effective January 1, 2007,
for the exclusive benefit of its four employees and their
beneficiaries. The Plan was fully funded for 2007 in January totaling
$324,000 or $81,000 per employee. The Plan contributions vest
immediately after three years of service, which is the case for the four
employees, and the Plan will be funded at approximately the same level each
year
in accordance with the provisions of the Plan.
PART
II
INFORMATION
NOT REQUIRED IN
PROSPECTUS
Item
24. Indemnification
of Officers
and Directors.
Nevada
law provides that a Nevada corporation may indemnify any person who was or
is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or
investigative, other than an action by or in the right of the corporation (i.e.,
a “non-derivative proceeding”), by reason of the fact that he or she is or was a
director, officer, employee or agent of the corporation, or is or was serving
at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses, including attorneys’ fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with the
action, suit or proceeding if he or she:
·
|
Is
not liable under Section 78.138 of the Nevada Revised Statutes for
breach
of his or her fiduciary duties to the corporation;
or
|
·
|
Acted
in good faith and in a manner which he or she reasonably believed
to be in
or not opposed to the best interests of the corporation, and, with
respect
to any criminal action or proceeding, had no reasonable cause to
believe
his or her conduct was unlawful.
|
In
addition, a Nevada corporation may indemnify any person who was or is a party
or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its
favor
(i.e., a “derivative proceeding”), by reason of the fact that he or she is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses, including amounts paid in settlement and attorneys’
fees actually and reasonably incurred by him or her in connection with the
defense or settlement of the action or suit if he:
·
|
Is
not liable under Section 78.138 of the Nevada Revised Statute for
breach
of his or her fiduciary duties to the corporation;
or
|
·
|
Acted
in good faith and in a manner which he or she reasonably believed
to be in
or not opposed to the best interests of the
corporation.
|
Under
Nevada law, indemnification may not be made for any claim, issue or matter
as to
which such a person has been adjudged by a court of competent jurisdiction,
after exhaustion of all appeals therefrom, to be liable to the corporation
or
for amounts paid in settlement to the corporation, unless and only to the extent
that the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
To
the
extent that a director, officer, employee or agent of a corporation has been
successful on the merits or otherwise in defense of any non-derivative
proceeding or any derivative proceeding, or in defense of any claim, issue
or
matter therein, the corporation is obligated to indemnify him or her against
expenses, including attorneys’ fees, actually and reasonably incurred in
connection with the defense.
Further,
Nevada law permits a Nevada corporation to purchase and maintain insurance
or to
make other financial arrangements on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving
at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
for
any liability asserted against him or her and liability and expenses incurred
by
him or her in his or her capacity as a director, officer, employee or agent,
or
arising out of his or her status as such, whether or not the corporation has
the
authority to indemnify him or her against such liability and
expenses.
Under
our
Restated Articles of Incorporation, we are obligated to indemnify, to the
fullest extent permitted by Nevada law, any director or officer who was or
is a
party or is threatened to be made a party to, or is involved in, any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (a “proceeding”), by reason of the fact that the
director or officer, or a person of whom he or she is the legal representative,
is or was a director or officer of Provectus, or a member of any committee
of
our board of directors, or is or was serving at our request as a director,
officer, partner, trustee, employee or agent of another corporation, limited
liability company, partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis
of
the proceeding is alleged action in an official capacity as a director, officer,
partner, trustee, employee or agent or in any other capacity while serving
as a
director officer, partner, trustee, employee or agent; against all expense,
liability and loss (including attorneys’ fees, judgments, fines, excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred
or
suffered by the director or officer in connection with the proceeding. In
addition, indemnification is required to continue as to a person who has ceased
to be a director, officer, partner, trustee, employee or agent and inures to
the
benefit of his or her heirs, executors and administrators. However, subject
to
the exceptions detailed below, we may indemnify a person seeking indemnification
in connection with a proceeding (or part thereof) initiated by the person
seeking indemnification only if the proceeding (or part thereof) was authorized
by our board of directors. We may indemnify any employee or agent of Provectus
to an extent greater than required by law only if and to the extent that our
directors, in their discretion, may determine.
If
we do
not pay a claim for indemnification under our Restated Articles of Incorporation
in full within 30 days after a written claim has been received by us, the
claimant may at any time thereafter bring suit against us to recover the unpaid
amount of the claim and, if successful in whole or in part, the claimant also
will be entitled to be paid the expense of prosecuting such claim. With some
exceptions, we may defend against an action brought for this purpose that the
claimant has not met the standards of conduct which make it permissible under
Chapter 78 of the Nevada Revised Statutes for us to indemnify the claimant
for
the amount claimed, but the burden of proving such defense is on us. Neither
our
failure (including the failure of our board of directors, independent legal
counsel or our stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper
in
the circumstances because he or she has met the applicable standard of conduct
set forth in Chapter 78 of the Nevada Revised Statutes, nor an actual
determination by us (including our board of directors, independent legal counsel
or our stockholders) that the claimant has not met such applicable standard
of
conduct is a defense to the action or creates a presumption that the claimant
has not met the applicable standard of conduct.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of Provectus pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the SEC this indemnification is against public policy as expressed
in
the Securities Act and is therefore unenforceable.
Item
25. Other
Expenses of Issuance
and Distribution.
The
estimated expenses in connection with this offering are as set forth in the
following table. All amounts except the Securities and Exchange Commission
(“SEC”) registration fee are estimated.
SEC
Registration Fee
|
$
|
1,712
|
Printing
and Engraving Expenses
|
|
2,500.00
|
Accounting
Fees and Expenses
|
|
10,000.00
|
Legal
Fees and Expenses
|
|
50,000.00
|
Miscellaneous
|
|
1,500.00
|
Total
|
$
|
65,712.00
|
Item
26. Recent Sales of
Unregistered
Securities.
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. Consulting costs charged to operations were $68,910. In April 2005,
the Company issued 410,000 warrants to consultants in exchange for services
rendered. Consulting costs charged to operations were $195,900. In May 2005,
the
Company issued 25,000 warrants to consultants in exchange for services rendered.
Consulting costs charged to operations were $9,250. In December 2005, the
Company issued 33,583 warrants to consultants in exchange for services.
Consulting costs charged to operations were $24,571. The fair market value
for
the warrants issued in 2005 ranged from $0.37 to $1.01.
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. In April 2005,
the
Company issued 190,733 shares to consultants in exchange for services.
Consulting costs charged to operations were $127,791. In May 2005, the Company
issued 21,000 shares to consultants in exchange for services. Consulting
costs
charged to operations were $11,970. At December 31, 2005 the Company committed
to issue 332,911 shares to consultants in exchange for services rendered
in
December, 2005. Consulting costs charged to operations were
$305,606.
During
the three months ended March 31, 2005, the Company completed a private placement
transaction with 8 accredited investors, which were registered effective
June
20, 2005, 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.
During
the three months ended June 30, 2005, the Company completed a private placement
transaction with 4 accredited investors, which were registered effective
June
20, 2005, pursuant to which the Company sold 230,333 shares of common stock
at a
purchase price of $0.75 per share, for an aggregate purchase price of $172,750.
In connection with the sale of common stock, the Company also issued warrants
to
the investors to purchase up to 325,500 shares of common stock at an exercise
price of $1.00 per share. The Company paid $16,275 and issued 81,375 warrants
to
Venture Catalyst, LLC as placement agent for this transaction. The cash costs
have been off-set against the proceeds received.
During
the three months ended September 30, 2005, the Company completed a private
placement transaction with 12 accredited investors pursuant to which the
Company
sold 899,338 shares of common stock at a purchase price of $0.75 per share
of
which 109,333 are committed to be issued at December 31, 2005, for an aggregate
purchase price of $674,500. In connection with the sale of common stock,
the
Company also issued warrants to the investors to purchase up to 1,124,167
shares
of common stock at an exercise price of $0.935 per share. The Company paid
$87,685 and committed to issue 79,000 shares of common stock at a fair market
value of $70,083 to Network 1 Financial Securities, Inc. as placement agent
for
this transaction which is accrued at December 31, 2005. The cash and common
stock costs have been off-set against the proceeds received.
During
the three months ended December 31, 2005, the Company completed a private
placement transaction with 62 accredited investors pursuant to which the
Company
sold 10,065,605 shares of common stock at a purchase price of $0.75 per share
of
which 5,126,019 are committed to be issued at December 31, 2005, for an
aggregate purchase price of $7,549,202. In connection with the sale of common
stock, the Company also issued warrants to the investors to purchase up to
12,582,009 shares of common stock at an exercise price of $0.935 per share.
The
Company paid $959,540, issued 46,667 shares of common stock at a fair market
value of $46,467, issued 30,550 warrants, and committed to issue 950,461
shares
of common stock at a fair market value of $894,593 to a syndicate led by
Network
1 Financial Securities, Inc. as placement agent for this transaction which
is
accrued at December 31, 2005. The cash and common stock costs have been off-set
against the proceeds received.
The
Company issued 175,000 warrants each month from March 2005 to November 2005
resulting in total warrants of 1,575,000 to Gryffindor Capital Partners I,
L.L.C. pursuant to the terms of the Second Amended and Restated Note dated
November 26, 2004. Total interest costs charged to operations were
$985,010.
In
December 2005, the Company committed to issue 689,246 shares to consultants
in
exchange for services rendered. 655,663 of these shares of were issued in
February 2006 and 33,583 shares were issued in May 2006. The total value
for
these shares was $650,643 which was based on the market value of the shares
issued and was recorded as an accrued liability at December 31,
2005.
In
January 2006, the Company issued 5,235,352 shares committed to be issued
at
December 31, 2005 for shares sold in 2005. In February 2006, the Company
issued
1,029,460 shares committed to be issued at December 31, 2005 for stock issuance
costs related to shares sold in 2005. The total value for these shares was
$964,676 which was based on the market value of the shares issued and was
recorded as an accrued liability at December 31, 2005.
In
February 2006, the Company issued 30,000 shares to consultants in exchange
for
services. Consulting costs charged to operations were $26,100.
In
May
2006, 350,000 warrants were exercised for $334,000 resulting in 350,000 shares
issued. During April, May and June, the Company issued 60,000 warrants to
consultants in exchange for services. Consulting costs charged to operations
were $58,400. In August and September 2006, 732,534 warrants were
exercised for $693,357 resulting in 732,534 shares issued. During the three
months ended September 30, 2006, the Company issued 335,000 warrants to
consultants in exchange for services. At December 31, 2006, $155,814 of these
costs have been charged to operations with the remaining $84,019 recorded
as
prepaid consulting expense as it represents payments for future services
and the
warrants are fully vested and non-forfeitable. In November 2006, 100,000
warrants were forfeited. During the three months ended December 31, 2006,
the
Company issued 85,000 warrants to consultants in exchange for services.
Consulting costs charged to operations were $71,790. The fair market value
for
the warrants issued in 2006 ranged from $0.67 to $1.11.
During
the three months ended March 31, 2006, the Company completed a private placement
transaction with 5 accredited investors pursuant to which the Company sold
466,833 shares of common stock at a purchase price of $0.75 per share for
an
aggregate purchase price of $350,125. In connection with the sale of common
stock, the Company also issued warrants to the investors to purchase up to
466,833 shares of common stock at an exercise price of $0.935 per share.
The
Company paid $35,013 and issued 46,683 shares of common stock at a fair market
value of $41,815 to Chicago Investment Group, L.L.C. as placement agent for
this
transaction. The cash costs have been off-set against the proceeds
received.
In
May
2006, the Company completed a private placement transaction with 2 accredited
investors pursuant to which the Company sold a total of 153,647 shares of
common
stock at an average purchase price of $1.37 per share, for an aggregate purchase
price of $210,000. In connection with the sale of common stock, the Company
also
issued warrants to the 2 investors to purchase up to 76,824 shares of common
stock at an average exercise price of $2.13 per share.
In
September 2006, the Company completed a private placement transaction with
7
accredited investors pursuant to which the Company sold a total of 708,200
shares of common stock at a purchase price of $1.00 per share, for an aggregate
purchase price of $708,200. The Company paid $92,067 and issued 70,820 shares
of
common stock at a fair market value of $84,984 to Network 1 Financial
Securities, Inc. as placement agent for this transaction. The cash costs
have
been off-set against the proceeds received.
In
October 2006 the Company completed a private placement transaction with 15
accredited investors pursuant to which the Company sold a total of 915,000
shares of common stock at a purchase price of $1.00 per share, for an aggregate
purchase price of $915,000. The Company paid $118,950 and issued 91,500 shares
of common stock at a fair market value of $118,500 to Network 1 Financial
Securities, Inc. as placement agent for this transaction. The cash costs
have
been off-set against the proceeds received.
During
the three months ended December 31, 2006, the Company completed a private
placement transaction with 10 accredited investors pursuant to which the
Company
sold 1,400,000 shares of common stock at a purchase price of $1.00 per share
of
which 150,000 are committed to be issued at December 31, 2006, for an aggregate
purchase price of $1,400,000. The Company paid $137,500, issued 125,000 shares
of common stock at a fair market value of $148,750, and committed to pay
$16,500
and to issue 15,000 shares of common stock at a fair market value of $17,550
to
Chicago Investment Group of Illinois, L.L.C. as a placement agent for this
transaction which is accrued at December 31, 2006. The cash and accrued stock
costs have been off-set against the proceeds received.
In
January 2007, the Company issued 150,000 shares committed to be issued at
December 31, 2006 for shares sold in 2006. In January 2007, the
Company also issued 15,000 shares committed to be issued at December 31,
2006
for common stock costs related to shares sold in 2006. The total
value for these shares was $17,550 which was based on the market value of
the
shares issued and was recorded as an accrued liability at December 31,
2006.
In
January and February 2007, the Company completed a private placement transaction
with six accredited investors pursuant to which the Company sold a total
of
265,000 shares of common stock at a purchase price of $1.00 per share, for
an
aggregate purchase price of $265,000. The Company paid $29,150 and
issued 26,500 shares of common stock at a fair market value of $32,130 to
Chicago Investment Group of Illinois, L.L.C. as a placement agent for this
transaction. The cash costs have been off-set against the proceeds
received. Also in January and February 2007, the Company completed a
private placement transaction with 13 accredited investors pursuant to which
the
Company sold a total of 1,745,743 shares of common stock at a purchase price
of
$1.05 per share, for an aggregate purchase price of $1,833,031. The
Company paid $238,293 and issued 174,574 shares of common stock at a fair
market
value of $200,760 to Network 1 Financial Securities, Inc. as placement agent
for
this transaction. The cash costs have been off-set against the
proceeds received.
In
January 2007, the Company entered into a separate debt conversion agreement
with
two of its March 2005 accredited investors for $245,833 of convertible debt
which was converted into 327,777 shares of common stock at $0.75 per
share. In February 2007, the Company entered into a separate debt
conversion agreement with two of its March 2005 accredited investors for
$121,667 of convertible debt which was converted into 162,223 shares of common
stock at $0.75 per share. In February 2007, the remaining total debt
discount has been amortized, which is $2,797. In February 2007, the
remaining deferred loan costs have been amortized, which is
$3,713. At September 30, 2007 the Company had no remaining principal
or accrued interest owed to holders of the March 2005 convertible debentures
due
on March 31, 2007. The Company chose to pay a portion of the
quarterly interest due at February 28, 2007 in common stock instead of
cash. The accrued interest not paid in cash that was due February 28,
2007 of $1,109 was converted into 1,141 shares of common stock resulting
in
additional interest expense of $149. 358 of these shares were issued
on January 25, 2007 and the remaining shares of 783 were issued on February
28,
2007.
During
the three months ended March 31, 2007, the Company issued 85,000 warrants
to
consultants in exchange for services. Consulting costs charged to
operations were $75,933. During the three months ended June 30, 2007,
the Company issued 85,000 warrants to consultants in exchange for
services. Consulting costs charged to operations were
$98,185. In April and May 2007, 260,000 warrants were exercised for
$196,900 resulting in 260,000 shares being issued. In May 2007,
10,000 warrants were forfeited. During the three months ended
September 30, 2007, the Company issued 135,000 warrants to consultants in
exchange for services. Consulting costs charged to operations were
$250,342. During the three months ended September 30, 2007, 2,305,756
warrants were exercised for $2,219,657 resulting in 2,185,756 shares being
issued and 120,000 shares committed to be issued as of September 30, 2007
and
then issued October 4, 2007. 350,000 of the warrants exercised had an
exercise price of $1.00 that was reduced to $0.90. Additional
consulting costs of $35,000 were charged to operations as a result of the
reduction of the exercise price of the 350,000 warrants.
In
May
2007, the Company issued 50,000 shares to consultants in exchange for
services. Consulting costs charged to operations were
$84,000. In August 2007, the Company issued 50,000 shares to
consultants in exchange for services. Consulting costs charged to
operations were $104,950. As of September 30, 2007, the Company is
also committed to issue 16,667 shares to consultants in exchange for
services. At September 30, 2007, these shares have a value of $41,667
and have been included in accrued consulting expense.
Item
27. Exhibits.
The
following exhibits are filed as a part of this Registration
Statement.
2.1
|
Agreement
and Plan of Reorganization dated April 23, 2002, among Provectus
Pharmaceutical, Inc., a Nevada corporation (“Provectus”), Provectus
Pharmaceuticals, Inc., a Tennessee corporation (“PPI”), and the
stockholders of PPI identified therein, incorporated herein by reference
to Exhibit 99 to the Company’s Current Report on Form 8-K dated April 23,
2002, as filed with the SEC on April 24,
2002.
|
2.2
|
Agreement
and Plan of Reorganization dated as of November 15, 2002 among the
Company, PPI, Valley Pharmaceuticals, Inc., a Tennessee corporation
formerly known as Photogen, Inc., H. Craig Dees, Ph.D., Dees Family
Foundation, Walter Fisher, Ph.D., Fisher Family Investment Limited
Partnership, Walt Fisher 1998 Charitable Remainder Unitrust, Timothy
C.
Scott, Ph.D., Scott Family Investment Limited Partnership, John T.
Smolik,
Smolik Family LLP, Eric A. Wachter, Ph.D., and Eric A. Wachter 1998
Charitable Remainder Unitrust, incorporated herein by reference to
Exhibit
2.1 to the Company’s Current Report on Form 8-K dated November 19, 2002,
as filed with the SEC on November 27, 2002.
|
2.3
|
Asset
Purchase Agreement dated as of December 5, 2002 among Pure-ific
Corporation, a Nevada corporation (“Pure-ific”), Pure-ific, L.L.C., a Utah
limited liability company, and Avid Amiri and Daniel Urmann, incorporated
herein by reference to Exhibit 2.1 to the Company’s Current Report on Form
8-K dated December 5, 2002, as filed with the SEC on December 20,
2002.
|
2.4
|
Stock
Purchase Agreement dated as of December 5, 2002 among the Company,
Pure-ific, and Avid Amiri and Daniel Urmann, incorporated herein
by
reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K dated
December 5, 2002, as filed with the SEC on December 20,
2002.
|
3.1
|
Restated
Articles of Incorporation of Provectus, incorporated herein by reference
to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-QSB for the
fiscal quarter ended June 30, 2003, as filed with the SEC on August
14,
2003.
|
3.2
|
Bylaws
of Provectus, incorporated herein by reference to Exhibit 3.2 to
the
Company’s Quarterly Report on Form 10-QSB for the fiscal quarter ended
March 31, 2003, as filed with the SEC on May 9, 2003.
|
4.1
|
Form
of Warrant issued to selling stockholders, incorporated herein by
reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K,
dated August 25, 2005, as filed with the SEC on August 30,
2005.
|
*4.2
|
Form
of Securities Purchase Agreement entered into between Provectus and
the
Selling Stockholders.
|
*4.3
|
Form
of Registration Rights Agreement related to the Form of Securities
Purchase Agreement.
|
*5.1
|
Opinion
of Baker, Donelson, Bearman, Caldwell & Berkowitz,
PC.
|
10.1
|
Provectus
Pharmaceuticals, Inc. Amended and Restated 2002 Stock Plan, incorporated
herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on
Form 10QSB for the fiscal quarter ended June 30, 2003, as filed with
the
SEC on August 14, 2003.
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10.2
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Confidentiality,
Inventions and Non-competition Agreement between the Company and
H. Craig
Dees, incorporated herein by reference to Exhibit 10.8 to the Company’s
Annual Report on Form 10-KSB for the fiscal year ended December 31,
2002,
as filed with the SEC on April 15,
2003.
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10.3
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Confidentiality,
Inventions and Non-competition Agreement between the Company and
Timothy
C. Scott, incorporated herein by reference to Exhibit 10.9 to the
Company’s Annual Report on Form 10-KSB for the fiscal year ended December
31, 2002, as filed with the SEC on April 15, 2003.
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10.4
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Confidentiality,
Inventions and Non-competition Agreement between the Company and
Eric A.
Wachter, incorporated herein by reference to Exhibit 10.10
to the
Company’s Annual Report on Form 10-KSB for the fiscal year ended December
31, 2002, as filed with the SEC on April 15, 2003.
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10.5
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Material
Transfer Agreement dated as of July 31, 2003 between Schering-Plough
Animal Health Corporation and Provectus, incorporated herein by reference
to Exhibit 10.15 to the Company’s Quarterly Report on Form 10-QSB for the
fiscal quarter ended June 30, 2003, as filed with the SEC on August
14,
2003.
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10.6
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Executive
Employment Agreement by and between the Company and H. Craig Dees,
Ph.D.,
dated January 4, 2005, incorporated herein by reference to Exhibit
10.22
of the Company’s Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2005, as filed with the SEC on March 30,
2006.
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10.7
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Executive
Employment Agreement by and between the Company and Eric Wachter,
Ph.D.,
dated January 4, 2005, incorporated herein by reference to Exhibit
10.23
of the Company’s Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2005, as filed with the SEC on March 30,
2006.
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10.8
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Executive
Employment Agreement by and between the Company and Timothy C. Scott,
Ph.D., dated January 4, 2005, incorporated herein by reference to
Exhibit
10.21 of the Company’s Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2005, as filed with the SEC on March 30,
2006.
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10.9
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Executive
Employment Agreement by and between the Company and Peter Culpepper
dated
January 4, 2005, incorporated herein by reference to Exhibit 10.24
of the
Company’s Annual Report on Form 10-KSB for the fiscal year ended December
31, 2005, as filed with the SEC on March 30, 2006.
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10.10
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Form
of Class A Warrant related to the Securities Purchase Agreement
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.
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10.11
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Form
of Class B Warrant related to the Securities Purchase Agreement
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.
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10.12
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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.
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10.13
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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.
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10.14
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Form
of Warrant issued to Centre Capital Advisors, LLC incorporated herein
by
reference by Exhibit 4.13 to the Company’s 10-QSB for the quarter ended
March 31, 2005, as filed with the SEC on May 16,
2005.
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10.15
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Form
of Warrant issued to Kevin Richardson, incorporated herein by reference
to
Exhibit 4.17 to the Company’s Registration Statement on Form S-2/A, as
filed with the SEC on June 14, 2005.
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10.16
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Advisory
Agreement with Hunter Wise Securities, LLC dated January 19, 2005,
incorporated herein by reference to Exhibit 4.14 of the Company’s 10-QSB
for the quarter ended March 31, 2005, as filed with the SEC on May
16,
2005.
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10.17
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Form
of Warrant issued to Hunter Wise Securities, LLC and Daniel J. McClory,
incorporated herein by reference to Exhibit 4.15 of the Company’s 10-QSB
for the quarter ended March 31, 2005, as filed with the SEC on May
16,
2005.
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10.18
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Form
of Securities Purchase Agreement with Selling Stockholders, incorporated
herein by reference to Exhibit 4.1 to the Company’s Current Report on Form
8-K dated August 30, 2005, as filed with the SEC on August 30,
2005.
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10.19
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Form
of Warrant related to the Securities Purchase Agreement incorporated
herein by reference to Exhibit 4.2 to the Company’s Current Report on Form
8-K dated August 30, 2005, as filed with the SEC on August 30,
2005.
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*21
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List
of Subsidiaries.
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**23
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Consent
of BDO Seidman, LLP.
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*24
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Power
of Attorney. (Included on Signature
Page)
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_________________________
*Previously
filed as an exhibit to the Company's Registration Statement on Form SB-2 filed
on November 30, 2007.
**Filed
herewith.
Item
28. Undertakings.
(a) The
undersigned small business issuer hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include
any prospectus required by section 10(a)(3) of the Securities Act of
1933;
(ii) Reflect
in the prospectus any facts or events which, individually or together, represent
a fundamental change in the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the “Calculation of Registration
Fee” table in the effective registration statement; and
(iii) Include
any additional or changed material information on the plan of
distribution.
(2) For
determining liability under the Securities Act, treat each post-effective
amendment as a new registration statement relating to the securities offered,
and the offering of the securities at that time shall be the initial bona fide
offering.
(3) File
a post-effective amendment to remove from registration any of the securities
that remain unsold at the end of the offering.
(4) For
determining liability of the undersigned small business issuer under the
Securities Act to any purchaser in the initial distribution of the securities,
the undersigned undertakes that in a primary offering of securities of the
undersigned small business issuer pursuant to this registration statement,
regardless of the underwriting method used to sell the securities to the
purchaser, if the securities are offered or sold to such purchaser by means
of
any of the following communications, the undersigned small business issuer
will
be a seller to the purchaser and will be considered to offer or sell such
securities to such purchaser:
(i) Any
preliminary prospectus or prospectus of the undersigned small business issuer
relating to the offering required to be filed pursuant to Rule 424;
(ii) Any
free writing prospectus relating to the offering prepared by or on behalf of
the
undersigned small business issuer or used or referred to by the undersigned
small business issuer;
(iii) The
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned small business issuer or its
securities provided by or on behalf of the undersigned small business issuer;
and
(iv) Any
other communication that is an offer in the offering made by the undersigned
small business issuer to the purchaser.
(5) For
determining liability of the undersigned small business issuer under the
Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b)
as part of a registration statement relating to an offering, other than
registration statements relying on Rule 430B or other than prospectuses filed
in
reliance on Rule 430A, shall be deemed to be part of and included in the
registration statement as of the date it is first used after effectiveness.
Provided, however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will, as to a purchaser
with a time of contract of sale prior to such first use, supersede or modify
any
statement that was made in the registration statement or prospectus that was
part of the registration statement or made in any such document immediately
prior to such date of first use.
(b) Insofar
as indemnification for liabilities arising under the Securities Act of 1933
(the
“Act”) may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to the foregoing provision, or otherwise, the
small business issuer has been advised that in the option of the Securities
and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all
requirements for filing on Form SB-2 and authorized this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized in
the
City of Knoxville, State of Tennessee, on January 28, 2008.
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By:
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/s/ Timothy
C.
Scott |
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Name:
Timothy C.
Scott, Ph.D. |
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Title :
President |
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By:
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/s/ Peter
R. Culpepper |
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Name:
Peter R. Culpepper |
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Title:
Chief Financial Officer |
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Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities indicated
on January 28, 2008:
Signatures
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Title
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/s/
H. Craig
Dees
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Chief
Executive Officer and a Director (principal executive
officer
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H.
Craig Dees, Ph.D.
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/s/
Peter R.
Culpepper
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Chief
Financial Officer (principal accounting officer)
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Peter
R. Culpepper, C.P.A.
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*
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President
and Director
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Timothy
C. Scott, Ph.D.
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Director
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Eric
A. Wachter, Ph.D.
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Director
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Stuart
Fuchs
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* by
/s/H.
Craig Dees as Attorney-in-Fact