ITEM 1A. RISK FACTORS.
Our
business and its future performance may be affected by various factors, the most significant of which are discussed below.
Risks Related to Our Business
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, 2021, we have incurred net losses of approximately
$246 million in the aggregate since inception in January 2002. 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 2022 and
beyond, and our ability to obtain the necessary funding is uncertain.
We
need additional capital in 2022 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 August 13, 2021, the Board approved a Financing Term Sheet (the “2021 Term Sheet”), which sets
forth the terms under which the Company will use its best efforts to arrange for financing of a maximum of $5,000,000 (the “2021
Financing”), which amounts will be obtained in several tranches and evidenced by convertible promissory notes (collectively,
the “2021 Notes”). As of December 31, 2021, the Company had received 2021 Notes proceeds of $1,460,000, of which $200,000
is from a related party investor.
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.
There
is substantial doubt as to our ability to continue as a going concern.
Our
cash, cash equivalents, and restricted cash were $3,106,942 at December 31, 2021, which includes $2,423,958 of restricted
cash resulting from a grant received from the State of Tennessee, compared with $97,231 at December 31, 2020. 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 may have access to capital resources through possible public or private equity offerings, including the 2021
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 if they
are approved, 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 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.
Our
business and operations are subject to risks related to climate change.
The
long-term effects of global climate change present risks to our business. Extreme weather or other conditions caused by climate change
could adversely impact our supply chain and the operation of our business. Such conditions could also result in physical damage to our
leased property, clinical trial materials, clinical sites, or the facilities of our contract manufacturers. These events could adversely
affect our operations and our financial performance.
Our business and operations are vulnerable to computer system
failures, cyber-attacks or deficiencies in our cyber-security, which could increase our expenses, divert the attention of our management
and key personnel away from our business operations and adversely affect our results of operations.
Despite the implementation of security measures, our internal computer
systems, and those of third parties on which we rely, are vulnerable to damage from: computer viruses; malware; natural disasters; terrorism;
war; telecommunication and electrical failures; cyber-attacks or cyber-intrusions over the Internet; attachments to emails; persons inside
our organization; or persons with access to systems inside our organization. The risk of a security breach or disruption, particularly
through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased
as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. If such an event
were to occur and cause interruptions in our operations, it could result in a material disruption of our product development programs.
For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory
approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security
breach was to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information,
we could incur material legal claims and liability, and damage to our reputation, and the further development of our product candidates
could be delayed. We could be forced to expend significant resources in response to a cyber security breach, including repairing system
damage, increasing cyber security protection costs by deploying additional personnel and protection technologies, paying regulatory fines
and resolving legal claims and regulatory actions, all of which would increase our expenses, divert the attention of our management and
key personnel away from our business operations and adversely affect our results of operations.
Risks
Related to Our Intellectual Property
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 knowledge 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.
Risks Related to Our Governing Documents and
Securities
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, 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.
In
the event of the liquidation, winding-up or dissolution of the Company or certain mergers, corporate reorganizations or sales
of our assets, holders of Series D and Series D-1 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 2021, 2020 and 2017 Financings, we have issued convertible notes that converted or are convertible into shares of
Series D and Series D-1 Preferred Stock. The Series D and Series D-1 Preferred Stock will have a first priority right to receive proceeds
from the liquidation, winding-up or dissolution of us or certain mergers, corporate reorganizations or sales 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 and Series D-1 Preferred Stock (the “Date of Issuance”), the holders of Series D
and Series D-1 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 and Series D-1 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 and Series D-1 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.
Risks
Related to SARS-CoV-2
We
are subject to risks associated with a pandemic, epidemic or outbreak of a contagious disease, such as the ongoing SARS-CoV-2 pandemic,
which may affect our future access to liquidity and materially adversely affect our business operations, results of operations and financial
condition.
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, 2021.
The
full extent of the SARS-CoV-2 pandemic impacts on the Company’s operations and financial condition is still 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 $6,100 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 15 – Commitments, contingencies and 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 March 25, 2022, we had 821 active stockholders 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 Series D and Series D-1 Preferred
Stock are entitled to receive dividends, if any, that are declared and paid to common stockholders.
Recent
Issuances of Unregistered Securities
During
the year ended December 31, 2020, the company issued 1,062,500 shares of common stock as incentive compensation with a value of
$69,088.
During
the year ended December 31, 2021, the Company issued an aggregate of 300,000 shares of immediately vested restricted
common stock with a grant date value of $23,199 for services.
During
the year ended December 31, 2020, the Company issued three-year immediately vested warrants to board members to purchase
an aggregate of 62,500 shares of common stock with an exercise price of $0.28620 per share.
During
the year ended December 31, 2021, the Company issued three-year immediately vested warrants to a board member to purchase
an aggregate of 25,000 shares of common stock with an exercise price of $0.28620 per share.
During
the year ended December 31, 2020, pursuant to the Company’s 2017 Equity Compensation Plan (the “Compensation Plan”),
the Company issued 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.
During
the year ended December 31, 2020, pursuant to the Compensation Plan, the Company issued 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.
During
the year ended December 31, 2021, the Company did not issue any stock options.
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 2022 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. [RESERVED].
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 a family of small
molecules called halogenated xanthenes (“HXs”). The Company’s lead HX molecule is rose bengal sodium (“RBS”).
Recent
Developments
The
Series D and D-1 Convertible Preferred Stock
On
June 20, 2021, the outstanding non-amended 2017 Notes converted into 12,373,247 shares of Series D Convertible Preferred Stock at the
Original Conversion Price of $0.2862, and all the outstanding Amended 2017 Notes and outstanding 2020 Notes converted into 9,440,594
shares of Series D-1 Convertible Preferred Stock at the New Conversion Price of $2.862.
As
a result of the conversion of the 2017 Notes and 2020 Notes into convertible preferred stock, all the security interests of these notes
in the Company’s intellectual property were released.
2021
Financing
On
August 13, 2021, the Board approved a Financing Term Sheet (the “2021 Term Sheet”), which sets forth the terms under which
the Company will use its best efforts to arrange for financing of a maximum of $5,000,000 (the “2021 Financing”), which amounts
will be obtained in several tranches.
As
of December 31, 2021, the Company had received 2021 Notes proceeds of $1,460,000, as defined below, of which $200,000 is from a related
party investor.
Pursuant
to the 2021 Term Sheet, the 2021 Notes (defined below) will be paid back, convert into shares of the Company’s Series D-1 Preferred
Stock, or convert into Company equity securities and/or debt instruments of certain future financings on or before twelve months after
the issue date of a 2021 Note, subject to certain exceptions.
The
2021 Financing will be in the form of unsecured convertible loans from the investors and evidenced by convertible promissory notes (individually,
a “2021 Note” and collectively, the “2021 Notes”). In addition to customary provisions, the 2021 Notes will contain
the following provisions:
On
an as-converted basis, the Series D-1 Preferred Stock carries the right to ten (10) votes per share. The Series D-1 Preferred
Stock does 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-1 Preferred Stock do
not have anti-dilution protection.
Warrants
In
2021, holders of 18,052,966 warrants to purchase the common stock of the Company at $0.053 per share, have exercised these warrants.
The Company has received proceeds in the aggregate amount of $962,223. On August 30, 2021, a total of 68,723,698 of August 2016 warrants
expired.
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; and
● 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, 2021 and 2020
Overview
Total
operating expenses were $4,672,254 for the year ended December 31, 2021, a decrease of $291,322 or 5.9% compared to the year ended December
31, 2020. The decrease was driven by our continued transformation and process improvement efforts within the Company, along with lower
amortization expense and reduced professional service fees. Net loss for the year ended December 31, 2021 was $5,539,543, a decrease
of $1,138,044 or 17.0% compared to the year ended December 31, 2020, which resulted from reduced costs incurred in connection with our
preclinical and clinical trial programs, general and administrative costs, and interest expense due to the conversion of the 2017 and
2020 Notes, plus the gain associated with the extinguishment of the Company’s PPP loan.
For the Years Ended
December 31,
Operating Expenses:
Other Income/(Expense):
Gain from forgiveness of PPP Loan and interest 63,094 - 63,094 0.0 %
Research
and Development
Research
and development expenses were $2,608,357 for the year ended December 31, 2021, a decrease of $204,403 or 7.3% compared to the year ended
December 31, 2020. The decrease was due to (i) lower amortization due to patents being fully amortized, and (ii) lower insurance cost,
partially offset by (iii) increased clinical trial costs as sites resumed enrollment and treatments.
The
following table summarizes our research and development expenses incurred during the years ended December 31, 2021 and 2020:
For the Years Ended
December 31,
Operating Expenses:
Research and development:
General
and Administrative
General
and administrative expenses were $2,063,897 for the year ended December 31, 2021, a decrease of $86,919 or 4.0% compared to the year
ended December 31, 2020. The decrease was due to (i) lower insurance cost, (ii) lower professional fees, and (iii) lower other general
and administrative cost, partially offset by (iv) higher legal fees from conversion of 2017 and 2020 Notes and addition of 2021 Notes,
and (v) higher payroll and related taxes due to an additional employee.
The
following table summarizes our general and administrative expenses incurred during the years ended December 31, 2021 and 2020:
For the Years Ended
December 31,
Operating Expenses:
General and administrative:
Other
Income/(Expense)
Other
income increased by $60,304 from $34,109 for the year ended December 31, 2020 to $94,413 for the year ended December 31, 2021, mainly
due to the forgiveness of the PPP Loan.
Interest
expense decreased by $786,418 from $1,748,120 for the year ended December 31, 2020 to $961,702 for the year ended December 31, 2021.
The decrease was due to the conversion of the 2017 and 2020 Notes into shares of Series D and Series D-1 Convertible Preferred Stock.
The
following table summarizes our Other Income/(Expenses) incurred during the years ended December 31, 2021 and 2020:
For the Years Ended
December 31,
Other Income/(Expense):
Gain from forgiveness of PPP Loan and interest 63,094 - 63,094 0.0 %
Liquidity
and Going Concern
Our
cash, cash equivalents, and restricted cash were $3,106,942 at December 31, 2021, which includes the $2,423,958
of restricted cash associated with the grant received from the State of Tennessee, compared with $97,231 at December 31, 2020. The consolidated
financial statements and notes thereto included in this Annual Report on Form 10-K have been prepared on a basis that contemplates the
realization of assets and the satisfaction of liabilities and commitments in the normal course of business. We have continuing net losses
and negative cash flows from operating activities. In addition, we have an accumulated deficit of $246,033,958 as of December 31, 2021.
These conditions raise substantial doubt about our ability to continue as a going concern for a period of at least one year from the
date that the consolidated financial statements included elsewhere in this Annual Report on Form 10-K are issued. Our financial
statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should we
be unable to continue as a going concern. Our ability to continue as a going concern depends on our ability to obtain additional financing
as may be required to fund current operations.
Management’s
plans include selling our equity securities and obtaining other financing to fund our capital requirement and on-going operations, including
the 2021 Financing discussed above; however, there can be no assurance we will be successful in these efforts. Significant funds will
be needed to continue and complete our ongoing and planned clinical trials.
As of December 31, 2021 and 2020, we had cash and cash equivalents of $3,106,942,
including $2,423,958 of restricted cash, and $97,231, respectively, and a working capital deficit of $4,258,679 and $30,288,035, respectively.
Cash requirements for our current liabilities include approximately, $3,352,184 for accounts payable and accrued expenses (including lease
liabilities) and a $238,452 note payable related to our short-term financing of our commercial insurance policies. Also, if not converted
prior to maturity, convertible debt in the amount of $1,460,000 plus accrued interest will mature one year from the date of the notes.
There are no cash requirements for long term liabilities at December 31, 2021. The Company intends to meet these cash requirements from
its current cash balance and from future financing.
Access
to Capital
Management
plans to access capital resources through possible public or private equity offerings, including the 2021 Financing, exchange offers,
debt financings, corporate collaborations, or other means. If we are unable to raise sufficient capital through the 2021 Financing or
otherwise, we will not be able to pay our obligations as they become due.
The