ITEM 1A. RISK FACTORS.
Our
business and its future performance may be affected by various factors, the most significant of which are discussed below.
We
are a clinical-stage drug company, have no prescription drug products approved for commercial sale, have incurred substantial
losses, and expect to incur substantial losses and negative operating cash flow for the foreseeable future.
We
are a clinical-stage drug company that has no prescription drug products approved for commercial sale. We have never generated
any substantial revenues and may never achieve substantial revenues or profitability. As of December 31, 2020, we have incurred
net losses of approximately $240 million in the aggregate since inception in January 2002. We expect to incur substantial losses
and negative operating cash flow for the foreseeable future. We may never achieve or maintain profitability, even if we succeed
in developing and commercializing one or more of our prescription drug candidates. We also expect to continue to incur significant
operating expenditures and anticipate that our operating and capital expenses may increase substantially in the foreseeable future
as we continue to develop and seek regulatory approval for our prescription drug candidates PV-10 and PH-10, implement additional
internal systems and infrastructure, and hire additional personnel.
We
also expect to experience negative operating cash flow for the foreseeable future as we fund our operating losses and any future
capital expenditures. As a result, we will need to generate significant revenues in order to achieve and maintain profitability.
We may not be able to generate these revenues or achieve profitability in the future. Our failure to achieve or maintain profitability
could negatively impact the value of our common stock.
We
need additional capital to conduct our operations and commercialize and/or further develop our prescription drug candidates in
2021 and beyond, and our ability to obtain the necessary funding is uncertain.
We
need additional capital in 2021 and beyond to continue developing and seeking to commercialize our drug product candidates. We
intend to continue with the development of PV-10 and PH-10 on the basis of historical, ongoing, and prospective clinical study
and/mechanism, of action results.
We
have based our estimate of capital needs on assumptions that may prove to be wrong, and we cannot assure you that estimates and
assumptions will remain unchanged. On December 31, 2019, our Board approved a Definitive Financing Term Sheet (the “2020
Term Sheet”), which set forth the terms under which we will use our best efforts to arrange for financing of a maximum of
$20,000,000 (the “2020 Financing”). We intend to acquire additional funding through the 2020 Financing. We may also
seek capital from public or private equity or debt financings or other financing sources that may be available. As of December
31, 2020, we have raised $3,325,000 through the 2020 Financing.
Such
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 products, product candidates,
and technologies 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.
There
is substantial doubt as to our ability to continue as a going concern.
Our
cash and cash equivalents were $97,231 at December 31, 2020, compared with $590,706 at December 31, 2019. We continue to incur
significant operating losses and management expects that significant on-going operating expenditures will be necessary to successfully
implement our business plan and develop and market our products. These circumstances raise substantial doubt about our ability
to continue as a going concern for a period of one year from the date that the consolidated financial statements included elsewhere
in this Annual Report on Form 10-K are issued. Implementation of our plans and our ability to continue as a going concern will
depend upon our ability to develop PV-10 and PH-10, and to raise additional capital.
Management
believes that we have access to capital resources through possible public or private equity offerings, including the 2020 Financing,
exchange offers, debt financings, corporate collaborations or other means. If we are unable to raise sufficient capital, we will
not be able to pay our obligations as they become due.
Our
investigational drug product candidates are at an early to mid-stage of development and may never obtain U.S. or international
regulatory approvals required for us to commercialize our investigational drug product candidates.
We
will need approval of the FDA to commercialize our investigational drug product candidates in the U.S. and approvals from FDA-equivalent
regulatory authorities in international jurisdictions to commercialize our investigational drug product candidates there.
We
are continuing to pursue clinical development of our most advanced drug product candidates, PV-10 and PH-10, for use as treatments
for specific disease indications. The continued and further development of these drug product candidates will require significant
additional research, formulation and manufacturing development, and pre-clinical and extensive clinical testing prior to their
regulatory approval and commercialization. Pre-clinical and clinical studies of our drug product candidates may not demonstrate
the safety and efficacy necessary to obtain regulatory approvals. Pharmaceutical and biotechnology companies have suffered significant
setbacks in advanced clinical trials, even after experiencing promising results in earlier trials. Pharmaceutical products that
appear to be promising at early stages of development may not reach the market or be marketed successfully for a number of reasons,
including 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, and others may market equivalent or superior products.
Satisfaction
of the FDA’s regulatory requirements typically takes many years, depends upon the type, complexity and novelty of the product
candidate and requires substantial resources for research, development and testing. We cannot predict whether our research and
clinical approaches will result in drugs that the FDA considers safe for humans and effective for indicated uses. The FDA has
substantial discretion in the drug approval process and may require us to conduct additional nonclinical and clinical testing
or to perform post-marketing studies. The approval process may also be delayed by changes in government regulation, future legislation
or administrative action or changes in FDA policy that occur prior to or during our regulatory review. Delays in obtaining regulatory
approvals may delay commercialization of, and our ability to derive revenues from, our prescription drug candidates, impose costly
procedures on us, and diminish any competitive advantages that we may otherwise enjoy.
Our
research and product development efforts may not be successfully completed and may not result in any successfully commercialized
drug products. Further, after commercial introduction of a new drug 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.
Even
if we comply with all FDA requests, we cannot be sure that we will ever obtain regulatory clearance for any of our drug product
candidates. Failure to obtain FDA approval of any of our prescription drug candidates will severely undermine our business by
reducing our number of salable drug products and, therefore, corresponding revenues.
In
international jurisdictions, we must receive approval from the appropriate regulatory authorities before we can commercialize
our prescription drug candidates. International regulatory approval processes generally include all of the risks associated with
the FDA approval procedures described above.
Before
obtaining regulatory approval for the sale of our drug product candidates, including PV-10 and PH-10, we must conduct additional
clinical trials to demonstrate the safety and efficacy of our drug product candidates. Clinical testing is expensive, difficult
to design and implement, can take many years to complete and is uncertain as to timing and outcome. Competition in clinical development
has made it difficult to enroll patients at an acceptable rate in some of our clinical trials. Advances in medical technology
could make our prescription drug candidates obsolete prior to completion of clinical testing. A failure of one or more of our
clinical trials may occur at any stage of testing. The outcome of pre-clinical testing and early clinical trials may not be predictive
of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover,
pre-clinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed
their product candidates performed satisfactorily in pre-clinical studies and clinical trials have nonetheless failed to obtain
marketing approval for their products. Product candidates in later stages of clinical trials may fail to show the desired safety
and efficacy characteristics despite having progressed satisfactorily through pre-clinical studies and initial clinical testing.
A number of companies in the pharmaceutical and biotechnology industries, including those with greater resources and experience,
have suffered significant setbacks in Phase 3 clinical development, even after seeing promising results in earlier clinical trials.
Our
research and development expenses may increase in connection with expanding clinical trials of our product candidates in existing
indications and undertaking clinical trials of our product candidates in new indications. Because successful development of our
drug product candidates is uncertain, we are unable to estimate the actual funds required to complete research and development
and commercialize our products under development.
Negative
or inconclusive results of our future clinical trials of PV-10 and PH-10, or any other clinical trial we conduct, could cause
the FDA to require that we repeat or conduct additional clinical studies. Despite the results reported in earlier clinical trials
for PV-10 and PH-10, we do not know whether any clinical trials we may conduct will demonstrate adequate efficacy and safety to
result in regulatory approval to market our product candidates. If later stage clinical trials do not produce favorable results,
our ability to obtain regulatory approval for our product candidates, may be adversely impacted.
Delays
in clinical trials are common and have many causes, and any delay could result in increased costs to us and jeopardize or delay
our ability to obtain regulatory approval.
Our
planned or ongoing clinical trials may not begin on time, have an effective design, enroll a sufficient number of subjects, or
be completed on schedule, if at all. Events which may result in delays or unsuccessful completion of clinical trials, including
our future clinical trials, include inability to raise funding, initiate or continue a trial, delays in obtaining regulatory approval
to commence a trial, delays in reaching agreement with the FDA or other regulatory authorities on final trial design, imposition
of a clinical hold following an inspection of our clinical trial operations or trial sites by the FDA or other regulatory authorities,
delays in reaching agreement on acceptable terms with prospective contract research organizations (“CROs”) and clinical
trial sites, delays in obtaining required institutional review board (“IRB”) approval at each site, delays in recruiting
suitable patients to participate in a trial, delays in having subjects complete participation in a trial or return for post-treatment
follow-up, delays caused by subjects dropping out of a trial, delays caused by clinical sites dropping out of a trial, time required
to add new clinical sites or to obtain regulatory approval and open sites in geographic regions beyond the sites initially planned,
and delays by our contract manufacturers to produce and deliver sufficient supply of clinical trial materials.
In
addition, we may experience a number of unforeseen events during clinical trials for our prescription drug candidates, including
PV-10 and PH-10, that could delay or prevent the commencement and/or completion of our clinical trials, including regulators or
institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial
at a prospective trial site, the clinical study protocol may require one or more amendments delaying study completion, clinical
trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us
to conduct additional clinical trials or abandon product development programs, the number of subjects required for clinical trials
of our product candidates may be larger than we anticipate, subjects may drop out of these clinical trials at a higher rate than
we anticipate and enrollment in these clinical trials may be significantly slower than we anticipated requiring us to expand the
geographic scope of enrollment of patients, clinical investigators or study subjects may fail to comply with clinical study protocols,
trial conduct and data analysis errors may occur, including, but not limited to, data entry and/or processing errors, our third-party
contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or
at all, we might have to suspend or terminate clinical trials of our prescription drug candidates for various reasons, including
a finding that the subjects are being exposed to unacceptable health risks, regulators or institutional review boards may require
that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory
requirements, the cost of clinical trials of our prescription drug candidates may be greater than we anticipate, the supply or
quality of our clinical trial materials or other materials necessary to conduct clinical trials of our prescription drug candidates
may be insufficient or inadequate, and our prescription drug candidates may have undesirable side effects or other unexpected
characteristics, causing us or our investigators to suspend or terminate the trials.
Moreover,
we or the FDA may suspend our clinical trials at any time if it appears we are exposing participants to unacceptable health risks
or if the FDA finds deficiencies in our submissions or the conduct of these trials. If initiation or completion of any of our
clinical trials for our product candidates, are delayed for any of the above reasons or other reasons, our development costs may
increase, the approval process could be delayed, any periods during which we may have the exclusive right to commercialize our
prescription drug candidates may be reduced and our competitors may bring drug products to market before us. Any of these events
could impair our ability to generate revenues from drug product sales and impair our ability to generate regulatory and commercialization
milestones and royalties, all of which could have a material adverse effect on our business.
The
results of our clinical trials may not support acceptable label claims concerning our prescription drug candidates.
Even
if our clinical trials are completed as planned, we cannot be certain that their results will support acceptable label claims
concerning our drug product candidates. Success in pre-clinical testing and early clinical trials does not ensure that later clinical
trials will be successful, and we cannot be sure that the results of later clinical trials will replicate the results of prior
clinical trials and pre-clinical testing. The clinical trial process may fail to demonstrate that our prescription drug candidates
are safe for humans or effective for indicated uses.
This
failure could cause us to abandon a prescription drug candidate and may delay development of other prescription drug candidates.
Any delay in, or termination of, our clinical trials will delay our ability to commercialize our prescription drug candidates
and generate product revenues. In addition, we anticipate that our clinical trials will involve only a small patient population.
Accordingly, the results of such trials may not be indicative of future results over a larger patient population.
Physicians
and patients may not accept and use our prescription drug candidates.
Even
if the FDA approves our drug product candidates, physicians and patients may not accept and use them. Acceptance and use of our
drug products will depend upon a number of factors including perceptions by members of the healthcare community, including physicians,
about the safety and effectiveness of our drug products, availability of reimbursement for our drug products from government or
other healthcare payers, and effectiveness of marketing and distribution efforts by us and our licensees and distributors, if
any.
Because
we expect sales or licensure of our prescription drug candidates, if approved, to generate substantially all of our revenues for
the foreseeable future, the failure of any of these drugs to find market acceptance would harm our business and could require
us to seek additional financing.
We
have no sales, marketing or distribution capabilities for our prescription drug candidates.
We
currently have no sales, marketing or distribution capabilities. Our future success depends, in part, on our ability to enter
into and maintain collaborative relationships, the collaborator’s strategic interest in the prescription drug products under
development and such collaborator’s ability to successfully market and sell any such drug products. There can be no assurance
that we will be able to establish or maintain relationships with third party collaborators or develop in-house sales and distribution
capabilities. To the extent that we depend on third parties for marketing and distribution, any revenues we receive will depend
upon the efforts of such third parties, and there can be no assurance that such efforts will be successful. In addition, there
can also be no assurance that we will be able to market and sell our prescription drug candidates in the U.S. or internationally.
Competition
in the prescription pharmaceutical and biotechnology industries is intense.
Other
pharmaceutical and biotechnology companies and research organizations currently engage in or have in the past engaged in research
efforts related to treatment of cancer and dermatological conditions, which may compete with our clinical trials for patients
and investigator resources, cause lower enrollment than anticipated, and could lead to the development of drug products or treatment
therapies that could compete directly with our drug product candidates that we are seeking to develop and market.
Many
companies are also developing novel 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 greater financial resources and expertise
than we do in research and development, manufacturing, preclinical and clinical testing, obtaining regulatory approvals, and marketing.
Smaller
companies may also prove to be competitors, particularly through collaborative arrangements with larger and more established companies
that may compete with our efforts to establish similar collaborative arrangements. 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 prescription drug candidates 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 drug development programs.
In
addition to the above factors, we expect to face competition in product efficacy and safety, the timing and scope of regulatory
consents, availability of resources, reimbursement coverage, price, and patent position, including potentially dominant patent
positions of others.
Since
our prescription drug candidates PV-10 and PH-10 have not yet been approved by the FDA or introduced to the marketplace, we cannot
estimate what competition these prescription drug candidates might face when they are finally introduced, if at all. We cannot
assure you that these prescription drug candidates will not face significant competition for other approved drug products, investigational
drug products, and generic equivalents.
If
we are unable to secure or enforce patent rights, trademarks, trade secrets or other IP, our business could be harmed.
We
may not be successful in securing or maintaining proprietary patent protection for our prescription drug candidates and technologies
we develop or license. In addition, our competitors may develop prescription drug candidates similar to ours using methods and
technologies that are beyond the scope of our IP protection, which could reduce our anticipated sales. While some of our drug
product candidates have proprietary patent protection, a challenge to these patents can subject us to expensive litigation. Litigation
concerning patents, other forms of IP, and proprietary technology is becoming more widespread and can be protracted and expensive
and can distract management and other personnel from performing product development 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 IP, our business, financial condition, results
of operations and cash flows could be materially adversely affected. If we infringe on the IP of others, our business could be
harmed.
We
could be sued for infringing patents and other IP that purportedly cover prescription drug candidates and/or methods of using
such prescription drug candidates 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 prescription drug candidates,
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 technological change, and our future success will depend on our ability to conduct successful
research in our fields of expertise, discover new technologies as a result of that research, develop products based on our technologies,
and 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 may use greater
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 key employees, independent contractors, and Board members: (i) Bruce Horowitz, our COO, who is
an independent contractor, (ii) Heather Raines, CPA, our CFO, (iii) Dominic Rodrigues, who is vice chair of the Board, and (iv)
Eric Wachter, Ph.D., our Chief Technology Officer (“CTO”).
In
order to successfully execute our business plan, our management and Board must succeed in all of the following critical areas:
researching diseases and possible therapies in the areas of oncology and dermatology, developing our prescription drugs candidates,
marketing and selling developed prescription drug candidates, obtaining additional capital to finance research and development
production, and marketing of our drug products, and managing our business as it grows.
Disruption
resulting from management transition may have a detrimental impact on our ability to implement our strategy. The reduction in
role and/or loss of key employees, contractors, and/or Board members could have a material adverse effect on our operations, and
limit or constrain our ability to execute our business plan.
Anti-takeover
provisions in our organizational documents and Delaware law may discourage or prevent a change of control, even if an acquisition
would be beneficial to our stockholders, which could affect our stock price adversely and prevent attempts by our stockholders
to replace or remove our current management.
Our
certificate of incorporation and bylaws contain provisions that could delay or prevent a change of control of our company or changes
in our board of directors that our stockholders might consider favorable. Among other things, these provisions will (i) permit
our Board to issue up to 25,000,000 shares of preferred stock which can be created and issued by the Board without prior stockholder
approval, with rights senior to those of the common stock, (ii) provide that all vacancies on our Board, including as a result
of newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors
then in office, even if less than a quorum, (iii) require that any action to be taken by our stockholders must be affected at
a duly called annual or special meeting of stockholders and not be taken by written consent, (iv) provide that stockholders seeking
to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders
must provide advance notice in writing, and also specify requirements as to the form and content of a stockholder’s notice,
(v) not provide for cumulative voting rights, thereby allowing the holders of a majority of the shares of common stock entitled
to vote in any election of directors to elect all of the directors standing for election, and (vi) provide that special meetings
of our stockholders may be called only by the Board or by such person or persons requested by a majority of the Board to call
such meetings.
These
and other provisions in our certificate of incorporation, bylaws and Delaware law could make it more difficult for stockholders
or potential acquirers to obtain control of our Board or initiate actions that are opposed by our then-current Board, including
delaying or impeding a merger, tender offer, or proxy contest involving our company. Any delay or prevention of a change of control
transaction or changes in our Board could cause the market price of our common stock to decline.
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: (i) broker-dealers must deliver, prior to the transaction, a disclosure
schedule prepared by the SEC relating to the penny stock market, (ii) broker-dealers must disclose the commissions payable to
the broker-dealer and its registered representative, (iii) broker-dealers must disclose current quotations for the securities,
and (iv) a broker-dealer must furnish its customers with monthly statements disclosing recent price information for all penny
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 any prospective 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.
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,
although we intend to issue shares of common stock in satisfaction of the dividend payments due on our Series B Preferred Stock.
In
the event of the sale, liquidation or dissolution of the Company or any of our assets, holders of shares of a yet-to-be designated
Series D Preferred Stock will be entitled to a preference of a multiple of their investment amount, which will reduce the proceeds
to be received by holders of our common stock.
In
connection with the 2017 Financing and 2020 Financing, we have issued convertible notes that will become convertible into shares
of a yet-to-be designated Series D Preferred Stock. The Series D Preferred Stock will have a first priority right to receive proceeds
from the sale, liquidation or dissolution of us or any of our assets (each, a “Company Event”). If a Company Event
occurs within two (2) years of the date of issuance of the Series D Preferred Stock (the “Date of Issuance”), the
holders of Series D Preferred Stock will receive a preference of four times (4x) their respective investment amount. If a Company
Event occurs after the second (2nd) anniversary of the Date of Issuance, the holders of the Series D Preferred Stock will receive
a preference of six times (6x) their respective investment amount. As a result, upon the occurrence of a Company Event, the holders
of Series D Preferred Stock would have the right to receive proceeds from any such transaction before our common stockholders.
The payment of this preference could result in our common stockholders not receiving any consideration in connection with a Company
Event.
Effects
of SARS-CoV-2.
SARS-CoV-2
was reportedly first identified in late-2019 and subsequently declared a global pandemic by the World Health Organization on March
11, 2020. As a result of the SARS-CoV-2 pandemic, many companies have experienced disruptions of their operations and the markets
they serve. The Company has taken several temporary precautionary measures intended to help ensure the well-being of its employees
and contractors and to minimize business disruption. The Company considered the impact of SARS-CoV-2 pandemic on its business
and operational assumptions and estimates, and determined there were no material adverse impacts on the Company’s results
of operations and financial position at December 31, 2020.
The
full extent of the SARS-CoV-2 pandemic impacts on the Company’s operations and financial condition is uncertain. The Company
has experienced slower than normal enrollment and treatment of patients, and a prolonged SARS-CoV-2 pandemic could have a material
adverse impact on the Company’s business and financial results, including the timing and ability of the Company to raise
capital, initiate and/or complete current and/or future preclinical studies and/or clinical trials; disrupt the Company’s
regulatory activities; and/or have other adverse effects on the Company’s clinical development.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
We
currently lease approximately 4,500 square feet of space for operations in Century Park, Knoxville, TN. Our monthly rental charge
for these offices is approximately $7,944 per month. The lease is for five years and expires on June 30, 2022.
Item 3. Legal Proceedings.
The
information required by this item is incorporated by reference from Part II, Item 8. Financial Statements and Supplementary Data,
Notes to Consolidated Financial Statements, Note 13 – Litigation.
ITEM 4. MINE SAFETY DISCLOSURES.
Not
applicable.
PART
II
Market
Information and Holders
Our
common stock trades on the OTCQB Marketplace under the symbol “PVCT”.
As
of February 28, 2021, we had 827 active shareholders of record of our common stock.
Dividend
Policy
We
have never declared or paid any cash dividends on our common stock. We currently plan to retain future earnings, if any, to finance
the growth and development of our business and do not anticipate paying any cash dividends in the foreseeable future. We may incur
indebtedness in the future which may prohibit or effectively restrict the payment of dividends, although we have no current plans
to do so. Any future determination to pay cash dividends will be at the discretion of our Board of Directors.
The
holders of our outstanding Series B Preferred Stock are entitled to receive cumulative dividends at the rate per share of 8% per
annum of the stated value per share, until the fifth anniversary of the date of issuance of the Series B Preferred Stock. The
dividends become payable, at our option, in either cash, out of any funds legally available for such purpose, or in shares of
common stock, (i) upon any conversion of the Series B Preferred Stock, (ii) on each such other date as our Board of Directors
may determine, subject to written consent of the holders of Series B Preferred Stock holding a majority of the then issued and
outstanding Series B Preferred Stock, (iii) upon our liquidation, dissolution or winding up, and (iv) upon occurrence of a fundamental
transaction, including any merger or consolidation, sale of all or substantially all of our assets, exchange or conversion of
all of our common stock by tender offer, exchange offer or reclassification, provided, however, that if Series B Preferred Stock
is converted into shares of common stock at any time prior to the fifth anniversary of the date of issuance of the Series B Preferred
Stock, the holder will receive a make-whole payment in an amount equal to all of the dividends that, but for the early conversion,
would have otherwise accrued on the applicable shares of Series B Preferred Stock being converted for the period commencing on
the conversion date and ending on the fifth anniversary of the date of issuance, less the amount of all prior dividends paid on
such converted Series B Preferred Stock before the date of conversion. Make-whole payments are payable at our option in either
cash, out of any funds legally available for such purpose, or in shares of common stock. With respect to any dividend payments
and make-whole payments paid in shares of common stock, the number of shares of common stock to be issued to a holder of Series
B Preferred Stock will be an amount equal to the quotient of (a) the amount of the dividend payable to such holder divided by
(b) the conversion price then in effect.
Recent
Issuances of Unregistered Securities
During
the year ended December 31, 2019, we issued 229,090 shares of common stock as incentive compensation with a value of $11,538.
During
the year ended December 31, 2020, we issued 1,062,500 shares of common stock as incentive compensation with a value of $69,088.
During
the year ended December 31, 2020, we issued 62,500 three-year immediately vested warrants to board members to purchase an aggregate
of 62,500 shares of common stock with exercise price of $.28620 per share. The warrants had an aggregate grant date fair value
of $1,372, which was recognized immediately within stock compensation in general and administrative expenses.
During
the year ended December 31, 2020, pursuant to the Company’s 2017 Equity Compensation Plan (the “Compensation Plan”),
we issued 2,425,000 five-year immediately vested stock options to a board member/officer to purchase an aggregate of 2,425,000
shares of common stock with an exercise price of $0.12 per share. The stock options had an aggregate grant date fair value of
$62,880, which was recognized immediately within stock compensation in general and administrative expenses.
During
the year ended December 31, 2020, pursuant to the Compensation Plan, we issued 100,000 five-year immediately vested stock options
to a board member to purchase an aggregate of 100,000 shares of common stock with an exercise price of $0.2862 per share. The
stock options had an aggregate grant date fair value of $1,414, which was recognized immediately within stock compensation in
general and administrative expenses.
The
issuances of the securities were exempt from the registration requirements of the Securities Act of 1933 by virtue of Section
4(a)(2) and Rule 506 promulgated under Regulation D thereunder as transactions not involving a public offering.
Securities
Authorized for Issuance under Equity Compensation Plans
Information
about the securities authorized for issuance under our equity compensation plans will be set forth under the heading “Equity
Compensation Plan Information” in the definitive Proxy Statement for our 2021 Annual Meeting of Stockholders, which will
be filed with the SEC pursuant to Regulation 14A under the Exchange Act, incorporated by reference in Part III, Item 12 of this
Annual Report on Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA.
Not
applicable.
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 in this Annual Report on Form 10-K.
Historical results and percentage relationships set forth in the statement of operations, including trends which might appear,
are not necessarily indicative of future operations.
Overview
Provectus
Biopharmaceuticals, Inc is a clinical-stage biotechnology company developing immunotherapy medicines based on an entire, wholly-owned,
family of small molecules called halogenated xanthenes (“HXs”). The Company’s lead HX molecule is proprietary
current Good Manufacturing Practice (“cGMP”) rose bengal disodium (“RBD”).
Recent
Developments
2017
Financing
On
March 23, 2017, the Company entered into the 2017 Term Sheet with the PRH Group that set forth the terms on which the PRH
Group would use their best efforts to arrange for a financing of a minimum of $10,000,000 and maximum of $20,000,000 (the “2017
Financing”).
As
of December 31, 2020, the Company had received aggregate Loans, as defined below, of $20,067,000 in connection with the 2017 Financing.
The
2017 Financing is in the form of a secured convertible loan (the “1st Loan”) from the PRH Group or other
investors in the 2017 Financing (the “1st Loan Investors”). The 1st Loan is evidenced by secured
convertible promissory notes (individually a “2017 Note” and collectively, the “2017 Notes”) from the
Company to the PRH Group or the 1st Loan Investors. In addition to the customary provisions, the 2017 Notes contains
the following provisions:
(i) It is secured by a first priority security interest on the Company’s IP,
Pursuant
to the 2017 Term Sheet, the PRH Group concluded its best-efforts activity to arrange for a financing of $20,000,000, which amounts
were provided in a number of tranches, between the first tranche on April 4, 2017 and the Final Tranche, on December 20, 2019.
As a result, the 2017 Notes under the 1st Loan will convert into shares of Series D Preferred Stock (once designated)
of the Company on or before June 20, 2021, which is the 18-month anniversary of the funding of the Final Tranche of the 2017 Financing,
subject to certain exceptions.
Upon
conversion of the 2017 Notes, the 1st Loan Investors will release their first lien on the Company’s IP.
2020
Financing
On
December 31, 2019, the Board approved a Definitive Financing Term Sheet (the “2020 Term Sheet”), which sets forth
the terms under which the Company will use its best efforts to arrange for financing of a maximum of $20,000,000 (the “2020
Financing”).
As
of December 31, 2020, the Company had received aggregate 2nd Loan, as defined below, of $3,325,000 in connection with
the 2020 Financing.
Pursuant
to the 2020 Term Sheet, the 2020 Notes (defined below) will convert into shares of the Company’s Series D Preferred Stock
on or before June 20, 2021, subject to certain exceptions. As of December 31, 2020, and through the date of filing, the Series
D Preferred Stock had not been designated by the Board.
The
2020 Term Sheet is similar to the 2017 Term Sheet. Subject to the terms and conditions of the 2020 Term Sheet, the Company will
use its best efforts to arrange for the 2020 Financing, which amounts will be obtained in several tranches. The proceeds from
the 2020 Financing will be used to fund the Company’s clinical development program, as currently constituted and envisioned,
and to fund the Company’s general and administrative expenses.
The
2020 Financing will be in the form of a secured convertible loan (the “2nd Loan”) from the Investors (the
“2nd Loan Investors”) that will be evidenced by convertible promissory notes (individually, a “2020
Note” and collectively, the “2020 Notes”) subordinate to the 2017 Notes in right of payment and to the security
interests granted to holders of the 2017 Notes. In addition to customary provisions, the 2020 Notes contains the following provisions:
(i)
It will be secured by a second priority security interest on the Company’s IP subordinate to the first priority security
interest of the 2017 Notes;
(ii)
The 2nd Loan will bear interest at the rate of eight percent (8%) per annum on the outstanding principal amount of
the 2nd Loan that has been funded to the Company;
(iii)
In the event there is a change of control of the Company’s Board, the term of the 2020 Notes will be accelerated and all
amounts due under the 2020 Notes will be immediately due and payable, plus interest at the rate of eight percent (8%) per annum,
plus a penalty in the amount equal to ten times (10x) the outstanding principal amount of the 2nd Loan that has been
funded to the Company;
(iv)
The outstanding principal amount and interest payable under the 2nd Loan will become convertible at the sole discretion
of the 2nd Loan Investors into shares of the Company’s Series D Preferred Stock, a series of preferred stock
to be designated by the Board, at a price per share equal to $2.8620; and
(v)
Notwithstanding (iv) above, the principal amount of the 2020 Notes and the interest payable under the 2nd Loan will
automatically convert into shares of the Company’s Series D Preferred Stock at a price per share equal to $2.8620 effective
on June 20, 2021 subject to certain exceptions.
Upon
conversion of the 2nd Loan, the 2nd Loan Investors will release their second lien on the IP. 2nd
Loan Investors in the 2020 Financing will hold Series D Preferred Stock pari passu with the Series D Preferred Stock of
1st Loan Investors in the 2017 Financing.
The
Series D Preferred Stock
As
of December 31, 2020, and through the date of filing, the Series D Preferred Stock had not been designated by the Board. Per the
terms of the 2017 Notes and 2020 Notes, if the Company has not designated the Series D Preferred Stock or if an insufficient number
of Series D Preferred shares exist upon a conversion by a note holder, then the outstanding loans will continue to accrue interest
at a rate of 8% per annum until which time the Company has designated a sufficient number of Series D Preferred shares.
The
Series D Preferred Stock will have a first priority right to receive proceeds from the sale, liquidation or dissolution of the
Company or any of the Company’s assets (each, a “Company Event”).
If
a Company Event occurs within two (2) years of the date of issuance of the Series D Preferred Stock (the “Date of Issuance”),
the holders of Series D Preferred Stock will receive a preference of four times (4x) their respective investment amount. If a
Company Event occurs after the second (2nd) anniversary of the Date of Issuance, the holders of the Series D Preferred Stock will
receive a preference of six times (6x) their respective investment amount.
The
Series D Preferred Stock will be convertible at the option of the holders thereof into shares of the Company’s common stock
based on a formula to achieve a one-for-ten conversion ratio. The Series D Preferred Stock will automatically convert into shares
of the Company’s common stock upon the fifth (5th) anniversary of the Date of Issuance.
On
an as-converted basis, the Series D Preferred Stock will carry the right to ten (10) votes per share. The Series D Preferred Stock
will not have any dividend preference but will be entitled to receive, on a pari passu basis, dividends, if any, that are
declared and paid on any other class of the Company’s capital stock. The holders of Series D Preferred Stock will not have
anti-dilution protection.
Exercise
of Warrants
In
2020 holders of 7,855,062 warrants to purchase the common stock of the Company at $0.0533 per share, have exercised these warrants.
The Company has received proceeds in the aggregate amount of $418,675.
Components
of Operating Results
Research
and Development Expenses
A
large component of our total operating expenses is the Company’s investment in research and development activities, including
the clinical development of our product candidates. Research and development expenses represent costs incurred to conduct research
and undertake clinical trials to develop our drug product candidates. These expenses consist primarily of:
● other outside service costs including cost of contract manufacturing;
● the costs of supplies and reagents;
● occupancy and depreciation charges.
We
expense research and development costs as incurred.
Research
and development activities are central to our business model. We expect our research and development expenses to increase in the
future as we advance our existing product candidates through clinical trials and pursue their regulatory approval. Undertaking
clinical development and pursuing regulatory approval are both costly and time-consuming activities. As a result of known and
unknown uncertainties, we are unable to determine the duration and completion costs of our research and development activities,
or if, when, and to what extent we will generate revenue from any subsequent commercialization and sale of our drug product candidates.
General
and Administrative Expenses
General
and administrative expense consists primarily of salaries, stock-based compensation expense and other related costs for personnel
in executive, finance, accounting, business development, legal, information technology and corporate communication functions.
Other costs include facility costs not otherwise included in research and development expense, insurance, and professional fees
for legal, patent and accounting services.
Comparison
of the Years Ended December 31, 2020 and 2019
Overview
Total
operating expenses were $4,963,576 for the year ended December 31, 2020, a decrease of $1,336,120 or 21.2% compared to the year
ended December 31, 2019. The decrease was driven by our continued transformation and process improvement efforts within the Company,
along with slower recruitment and treatment in clinical trials due to the effects of SARS-CoV-2. Net loss for the year ended December
31, 2020 was $6,677,587, a decrease of $244,950 or 3.5% compared to the year ended December 31, 2019, which resulted from costs
incurred in connection with our preclinical and clinical trial programs and general and administrative costs.
For the Years Ended
December 31,
Operating Expenses:
Other Income/(Expense):
Research
and Development
Research
and development expenses were $2,812,760 for the year ended December 31, 2020, a decrease of $1,189,254 or 29.7% compared to the
year ended December 31, 2019. The decrease was due to (i) lower clinical operations due to closure of Phase III study in early
2019 and slower recruitment and treatment in clinical trials due to the effects of SARS-CoV-2, (ii) lower amortization
due to patents being fully amortized, and (iii) lower payroll and related taxes due to a lower negotiated employment agreement.
The
following table summarizes our research and development expenses incurred during the year ended December 31, 2020 and 2019:
For the Years Ended
December 31,
Research and development:
General
and Administrative
General
and administrative expenses were $2,150,816 for the year ended December 31, 2020, a decrease of $146,866 or 6.4% compared to the
year ended December 31, 2019. The decrease was due to (i) lower legal fees as we concluded the Company’s lawsuits against
former accounting vendors and a former officer, (ii) lower payroll and related taxes due to a lower negotiated employment agreement,