UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-KSB
Amendment No. 2
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 2002
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission file number: 0-9410
Provectus Pharmaceuticals, Inc.
(Name of Small Business Issuer in Its Charter)
Nevada 90-0031917
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7327 Oak Ridge Highway, Suite A, Knoxville, Tennessee 37931
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Address of Principal Executive Offices) (Zip Code)
865/769-4011
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
None
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(Title of Class)
Securities registered under Section 12(g) of the Exchange Act:
Common shares, par value $.001 per share
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(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for the most recent fiscal year were $0.
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant as of March 21, 2003, was $1,437,854 (based
on the average bid and ask price of $0.32).
The number of shares outstanding of the issuer's stock, $0.001 par value
per share, as of March 21, 2003 was 9,452,689.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
Provectus Pharmaceuticals, Inc.
Annual Report on Form 10-KSB
Table of Contents
Page
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Part I........................................................ ................1
Item 1. Description of Business........................................1
History........................................................1
Description Of Business........................................2
Intellectual Property..........................................7
Competition....................................................8
Federal Regulation of Therapeutic Products.....................9
Personnel.....................................................11
Available Information.........................................12
Item 2. Description of Property.......................................13
Item 3. Legal Proceedings.............................................13
Item 4. Submission of Matters to a Vote of Security Holders...........13
Part II.......................................................................13
Item 5. Market for Common Equity and Related Stockholder Matters......13
Item 6. Management's Discussion and Analysis or Plan of Operation.....15
Going Concern.................................................15
Plan of Operation.............................................16
Item 7. Financial Statements..........................................17
Forward-Looking Statements....................................17
Risk Factors..................................................17
Item 8. Changes in and Disagreements with Accounting and
Financial Disclosure..........................................22
Part III......................................................................22
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a)
of the Exchange Act...........................................22
Item 10. Executive Compensation........................................22
Item 11. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters................22
Item 12. Certain Relationships and Related Transactions................23
Item 13. Exhibits, List and Reports on Form 8-K........................23
Item 14. Controls and Procedures.......................................24
Signatures....................................................................25
Consolidated Financial Statements............................................F-1
Exhibit Index................................................................X-1
2
PROVECTUS PHARMACEUTICALS, INC.
ANNUAL REPORT ON FORM 10-KSB
Part I
Item 1. Description of Business.
HISTORY
Provectus Pharmaceuticals, Inc., formerly known as "Provectus
Pharmaceutical, Inc." and "SPM Group, Inc.," was incorporated under Colorado law
on May 1, 1978. SPM Group ceased operations in 1991, and became a
development-stage company effective January 1, 1992, with the new corporate
purpose of seeking out acquisitions of properties, businesses, or merger
candidates, without limitation as to the nature of the business operations or
geographic location of the acquisition candidate.
On April 1, 2002, SPM Group changed its name to "Provectus Pharmaceutical,
Inc." and reincorporated in Nevada in preparation for a transaction with
Provectus Pharmaceuticals, Inc., a privately-held Tennessee corporation, which
we refer to as "PPI". On April 23, 2002, an Agreement and Plan of Reorganization
between Provectus Pharmaceutical and PPI was approved by the written consent of
a majority of the outstanding shares of Provectus Pharmaceutical. As a result,
holders of 6,680,000 shares of common stock of Provectus Pharmaceutical
exchanged their shares for all of the issued and outstanding shares of PPI. As
part of the acquisition, Provectus Pharmaceutical changed its name to "Provectus
Pharmaceuticals, Inc." and PPI became a wholly owned subsidiary of Provectus.
For accounting purposes, we treat this transaction as a recapitalization of PPI.
On November 19, 2002, we acquired Valley Pharmaceuticals, Inc., a
privately-held Tennessee corporation formerly known as Photogen, Inc., by
merging our subsidiary PPI with and into Valley and naming the surviving
corporation "Xantech Pharmaceuticals, Inc." Photogen, Inc. was separated from
Photogen Technologies, Inc. in a non-prorata split-off to some of its
shareholders. The assets of Photogen, Inc. consisted primarily of the equipment
and intangibles related to its therapeutic activity. The majority shareholders
of Valley were also the majority shareholders of Provectus. Valley had no
revenues prior to the transaction with us. By acquiring Valley, we acquired our
most important intellectual property, including issued U.S. patents and
patentable inventions, with which we intend to develop:
o prescription drugs, medical and other devices (including laser
devices) and over-the-counter pharmaceutical products in the fields of
dermatology and oncology; and
o technologies for the preparation of human and animal vaccines,
diagnosis of infectious diseases and enhanced production of
genetically engineered drugs.
Prior to the acquisition of Valley, we were considered to be, and continue
to be, in the development stage and had not generated any revenues from the
assets we acquired.
On December 5, 2002, we acquired the assets of Pure-ific L.L.C., a Utah
limited liability company, and created a wholly owned subsidiary, Pure-ific
Corporation, to operate that business. We acquired the product formulations for
Pure-ific personal sanitizing sprays, along with the "Pure-ific" trademarks. We
intend to continue product development and begin to market a line of personal
sanitizing sprays and related products to be sold over the counter under the
"Pure-ific" brand name.
DESCRIPTION OF BUSINESS
Overview
Provectus, and its two wholly owned subsidiaries, Xantech Pharmaceuticals,
Inc. and Pure-ific Corporation, develop, license and market and plan to sell
products in three sectors of the healthcare industry:
o Over-the-counter products, which we refer to in this report as "OTC
products;"
o Prescription drugs; and
o Medical device systems
We manage Provectus, Xantech and Pure-ific on an integrated basis, and when
we refer to "we" or "us" or "the Company" in this Annual Report on Form 10-KSB,
we refer to all three corporations considered as a single unit. Our principal
executive offices are located at 7327 Oak Ridge Highway, Suite A, Knoxville,
Tennessee 37931, telephone 865/769-4011.
Through discovery and use of state-of-the-art scientific and medical
technologies, the founders of our pharmaceutical business have developed a
portfolio of patented, patentable, and proprietary technologies that support
multiple products in the prescription drug, medical device and OTC products
categories (including patented technologies for: (a) treatment of cancer; (b)
novel therapeutic medical devices; (c) enhancing contrast in medical imaging;
(d) improving signal processing during biomedical imaging; and (e) enhancing
production of biotechnology products). Our prescription drug products encompass
the areas of dermatology and oncology and involve several types of small
molecule-based drugs. Our medical device systems include therapeutic and
cosmetic lasers, while our OTC products address markets primarily involving
skincare applications. Because our prescription drug candidates and medical
device systems are in the early stages of development, they are not on the
market yet and there is no assurance that they will advance to the point of
commercialization.
Our first commercially available products are directed into the OTC market,
as these products pose minimal or no regulatory compliance barriers to market
introduction. (For more information on these barriers, see "Federal Regulation
of Therapeutic Products" below.) In this fashion, we believe that we can
diminish the risk of regulatory bars to the introduction of safe,
consumer-friendly products and minimize the time required to begin generating
revenues from product sales. At the same time, we continue to develop
higher-margin prescription pharmaceuticals and medical devices, which have
longer development and regulatory approval cycles.
Over-the-Counter Pharmaceuticals
Our OTC products are designed to be safer and more specific than competing
products. Our technologies offer practical solutions for a number of intractable
maladies, using ingredients that have limited or no side effects compared with
existing products. To develop our OTC products, we typically use compounds with
potent antibacterial and antifungal activity as building blocks and combine
these building blocks with anti-inflammatory and moisture-absorbing agents.
Products with these properties can be used for treatment of a large number of
skin afflictions, including:
o hand irritation associated with use of disposable gloves
o eczema
o mild to moderate acne
Where appropriate, we have filed or will file patent applications and will
seek other intellectual property protection to protect our unique formulations
for relevant applications.
2
GloveAid
Personnel in many occupations and industries now use disposable gloves
daily in the performance of their jobs, including:
o Airport security personnel;
o Food handling and preparation personnel;
o Sanitation workers;
o Postal and package delivery handlers and sorters;
o Laboratory researchers;
o Health care workers such as hospital and blood bank personnel; and
o Police, fire and emergency response personnel.
Accompanying the increased use of disposable gloves is a mounting incidence
of chronic skin irritation. To address this market, we have developed GloveAid,
a hand cream with both antiperspirant and antibacterial properties, to increase
the comfort of users' hands during and after the wearing of disposable gloves.
The chronic skin irritation that accompanies the long-term use of
disposable gloves has been characterized as an allergic-like reaction to the
glove materials. Currently, physicians treat the condition using steroids and
other immunosuppressive therapies. To avoid possible regulatory bars, we are
marketing GloveAid as a means to increase users' comfort, not as a long-term
therapy for treatment of chronic skin irritation. However, as we obtain data
regarding people who have existing chronic skin irritation, we may seek
regulatory approval of GloveAid to permit us to market it as a therapy for
chronic skin problems associated with wearing of disposable gloves. If we decide
to obtain this regulatory approval, we anticipate that our projected sales of
GloveAid would increase significantly. Obtaining this approval would require the
completion of glove viability tests required by the United States Food and Drug
Administration, which we refer to as the "FDA," and responding to the FDA's
comments relating to these tests. We estimate regulatory approval would cost
approximately $300,000 and would take from two to three years to obtain.
Pure-ific
Our Pure-ific line of products includes two quick-drying sprays, Pure-ific
and Pure-ific Kids, that immediately kill up to 99.9% of germs on skin and
prevent regrowth for 6 hours. We have determined the effectiveness of Pure-rific
based on our internal testing and testing performed by Paratus Laboratories
H.B., an independent research lab. Pure-ific products help prevent the spread of
germs and thus complement our other OTC products designed to treat irritated
skin or skin conditions such as acne, eczema, dandruff and fungal infections.
Our Pure-ific sprays have been designed with convenience in mind and are
targeted towards mothers, travelers, and anyone concerned about the spread of
sickness-causing germs. We had immaterial revenue from sales of Pure-ific during
2003. We intend to continue developing our distribution network for these
products and expect to expand the Pure-ific product line to include additional
applications.
Dermatology
A number of dermatological conditions, including psoriasis, eczema, and
acne, result from a superficial infection which triggers an overwhelming immune
response. We anticipate developing OTC products similar to the GloveAid line for
the treatment of mild to moderate cases of psoriasis, eczema, and acne. Wherever
possible, we intend to formulate these products to minimize or avoid significant
regulatory bars that might adversely impact time to market.
3
Prescription Drugs
We are developing a number of prescription drugs which we expect will
provide minimally invasive treatment of chronic severe skin afflictions such as
psoriasis, eczema, and acne; and several life-threatening cancers such as those
of the liver, breast and prostate. We believe that our products will be safer
and more specific than currently existing products. Use of topical or other
direct delivery formulations allows these potent products to be conveniently and
effectively delivered only to diseased tissues, thereby enhancing both safety
and effectiveness. The ease of use and superior performance of these products
may eventually lead to extension into OTC applications currently serviced by
less safe, more expensive alternatives. All of these products are in the
pre-clinical or clinical trial stage.
Dermatology
Our most advanced prescription drug candidate for treatment of topical
diseases on the skin is Xantryl, a topical gel. PV-10, the active ingredient in
Xantryl, is "photoactive": it reacts to light of certain wavelengths, increasing
its therapeutic effects. PV-10 also concentrates in diseased or damaged tissue
but quickly dissipates from healthy tissue. By developing a "photodynamic"
treatment regimen (one which combines a photoactive substance with activation by
a source emitting a particular wavelength of light) around these two properties
of PV-10, we can deliver a higher therapeutic effect at lower dosages of active
ingredient, thus minimizing potential side effects including damage to nearby
healthy tissues. PV-10 is especially responsive to green light, which is
strongly absorbed by the skin and thus only penetrates the body to a depth of
about three to five millimeters. For this reason, we have developed Xantryl
combined with green-light activation for topical use in surface applications
where serious damage could result if medicinal effects were to occur in deeper
tissues.
Acute psoriasis. Psoriasis is a common chronic disorder of the skin
characterized by dry scaling patches, called "plaques," for which current
treatments are few and those that are available have potentially serious side
effects. According to Roenigk and Maibach (Psoriasis, Third Edition, 1998),
there are approximately five million people in the United States who suffer from
psoriasis, with an estimated 160,000 to 250,000 new psoriasis cases each year.
There is no known cure for the disease at this time. According to the National
Psoriasis Foundation, the majority of psoriasis sufferers, those with mild to
moderate cases, are treated with topical steroids that can have unpleasant side
effects; none of the other treatments for moderate cases of psoriasis have
proven completely effective. The 25-30% of psoriasis patients who suffer from
more severe cases generally are treated with more intensive drug therapies or
PUVA, a light-based therapy that combines the drug Psoralen with exposure to
ultraviolet A light. While PUVA is one of the more effective treatments, it
increases a patient's risk of skin cancer.
We believe that Xantryl activated with green light offers a superior
treatment for acute psoriasis because it selectively treats diseased tissue with
negligible potential for side effects in healthy tissue; moreover, the therapy
has shown promise in comprehensive Phase 1 clinical trials. The objective of a
Phase 1 clinical trial is to determine if there are safety concerns with the
therapy. In these studies, involving more than 50 test subjects, Xantryl was
applied topically to psoriatic plaques and then illuminated with green light. In
our first study, a single-dose treatment yielded an average reduction in plaque
thickness of 59% after 30 days, with further response noted at the final
follow-up examination 90 days later. Further, no pain, significant side effects,
or evidence of "rebound" (increased severity of a psoriatic plaque after the
initial reduction in thickness) were observed in any treated areas. This degree
of positive therapeutic response is comparable to that achieved with potent
steroids and other anti-inflammatory agents, but without the serious side
effects associated with such agents. We expect to conduct Phase 2 studies in the
near future, in which we expect to assess the potential for remission of the
disease using a regimen of weekly treatments similar to those used for PUVA.
Actinic Keratosis. According to Schwartz and Stoll (Fitzpatrick's
Dermatology in General Medicine, 1999), actinic keratosis, or "AK" (also called
solar keratosis or senile keratosis), is the most common pre-cancerous skin
lesion among fair-skinned people and is estimated to occur in over 50% of
elderly fair-skinned persons living in sunny climates. These experts note that
nearly half of the approximately five million cases of skin cancer in the U.S.
may have begun as AK. The standard treatments for AK (primarily comprising
excision, cryotherapy, and ablation with topical 5-fluorouracil) are often
painful and frequently yield unacceptable cosmetic outcomes due to scarring.
Building on our experience with psoriasis, we are assessing use of Xantryl with
4
green-light activation as a possible improvement in treatment of early and more
advanced stages of AK. We completed an initial Phase 1 clinical trial of the
therapy for this indication in 2001 with the predecessor company that was
acquired in 2002. This study, involving 24 subjects, examined the safety profile
of a single treatment using topical Xantryl with green light photoactivation; no
significant safety concerns were identified. We are assessing the data from the
study as a possible basis for further clinical development of Xantryl for AK.
Severe Acne. According to Berson et al. (Cutis. 72 (2003) 5-13), acne
vulgaris affects approximately 17 million individuals in the U.S., causing pain,
disfigurement, and social isolation. Moderate to severe forms of the disease
have proven responsive to several photodynamic regimens, and we anticipate that
Xantryl can be used as an advanced treatment for this disease. Pre-clinical
studies show that the active ingredient in Xantryl readily kills bacteria
associated with acne. This finding, coupled with our clinical experience in
psoriasis and actinic keratosis, suggests that therapy with Xantryl will exhibit
no significant side effects and will afford improved performance relative to
other therapeutic alternatives. If correct, this would be a major advance over
currently available products for severe acne.
As noted above, we are researching multiple uses for Xantryl with
green-light activation. Multiple-indication use by a common pool of physicians -
dermatologists, in this case - should reduce market resistance to this new
therapy.
Oncology
Oncology is another major market where our planned products may afford
competitive advantage compared to currently available options. We are developing
Provecta, a sterile injectible form of PV-10, for direct injection into tumors.
Because PV-10 is retained in diseased or damaged tissue but quickly dissipates
from healthy tissue, we believe we can develop therapies that confine treatment
to cancerous tissue and reduce collateral impact on healthy tissue.
Liver Cancer. The current standard of care for liver cancer is ablative
therapy (which seeks to reduce a tumor by poisoning, freezing, heating, or
irradiating it) using either a localized injection of ethanol (alcohol),
cryosurgery, radiofrequency ablation, or ionizing radiation such as X-rays.
Where effective, these therapies have many side effects; selecting therapies
with fewer side effects tends to reduce overall effectiveness. Combined,
ablative therapies have a five-year survival rate of 33% - meaning that only 33%
of those liver cancer patients whose cancers are treated using these therapies
survive for five years after their initial diagnoses. In pre-clinical studies we
have found that direct injection of Provecta into liver tumors quickly ablates
treated tumors, and can trigger an anti-tumor immune response leading to
eradication of residual tumor tissue and distant tumors. Because of the natural
regenerative properties of the liver and the highly localized nature of the
treatment, this approach appears to produce no significant side effects. Based
on these encouraging preclinical results, we are assessing strategies for
initiation of clinical trials of Provecta for treatment of liver cancer.
Breast Cancer. Breast cancer afflicts over 200,000 U.S. citizens annually,
leading to over 40,000 deaths. Surgical resection, chemotherapy, radiation
therapy, and immunotherapy comprise the standard treatments for the majority of
cases, resulting in serious side effects that in many cases are permanent.
Moreover, current treatments are relatively ineffective against metastases,
which in many cases are the eventual cause of patient mortality. Pre-clinical
studies using human breast tumors implanted in mice have shown that direct
injection of Provecta into these tumors ablates the tumors, and, as in the case
of liver tumors, may elicit an anti-tumor immune response that eradicates
distant metastases. Since fine-needle biopsy is a routine procedure for
diagnosis of breast cancer, and since the needle used to conduct the biopsy also
could be used to direct an injection of Provecta into the tumor, localized
destruction of suspected tumors through direct injection of Provecta clearly has
the potential of becoming a primary treatment. We are evaluating options for
initiating clinical studies of direct injection of Provecta into breast tumors,
and expect to formulate final plans based on results from clinical studies of
our indication for Provecta in liver cancer.
Prostate Cancer. Cancer of the prostate afflicts approximately 190,000 U.S.
men annually, leading to over 30,000 deaths. As with breast cancer, surgical
resection, chemotherapy, radiation therapy, and immunotherapy comprise the
5
standard treatments for the majority of cases, and can result in serious,
permanent side effects. We believe that direct injection of Provecta into
prostate tumors may selectively ablate such tumors, and, as in the case of liver
and breast tumors, may also elicit an anti-tumor immune response capable of
eradicating distant metastases. Since trans-urethral ultrasound, guided
fine-needle biopsy and immunotherapy, along with brachytherapy implantation, are
becoming routine procedures for diagnosis and treatment of these cancers, we
believe that localized destruction of suspected tumors through direct injection
of Provecta can become a primary treatment. We are evaluating options for
initiating clinical studies of direct injection of Provecta into prostate
tumors, and expect to formulate final plans based on results from clinical
studies of our indications for Provecta in the treatment of liver and breast
cancer.
Medical Devices
We are developing medical devices to address two major markets:
o cosmetic treatments, such as reduction of wrinkles and elimination of
spider veins and other cosmetic blemishes; and
o therapeutic uses, including photoactivation of Xantryl other
prescription drugs and non-surgical destruction of certain skin
cancers.
We expect to develop medical devices through partnerships with third-party
device manufacturers or, if appropriate opportunities arise, through acquisition
of one or more device manufacturers.
Photoactivation. Our clinical tests of Xantryl for dermatology have, up to
the present, utilized a number of commercially-available lasers for activation
of the drug. This approach has several advantages, including the leveraging of
an extensive base of installed devices present throughout the pool of potential
physician-adopters for Xantryl; access to such a base could play an integral
role in early market capture. However, since the use of such lasers, which were
designed for occasional use in other types of dermatologic treatment, is
potentially too cumbersome and costly for routine treatment of the large
population of patients with psoriasis, we have begun investigating potential use
of other types of photoactivation hardware, such as light booths. The use of
such booths is consistent with current care standards in the dermatology field,
and may provide a cost-effective means for addressing the needs of patients and
physicians alike. We anticipates that such photoactivation hardware would be
developed, manufactured, and supported in conjunction with one or more
third-party device manufacturer.
Melanoma. A high priority in our medical devices field is the development
of a laser-based product for treatment of melanoma. We initially conducted
extensive research on ocular melanoma at the Massachusetts Eye and Ear Infirmary
(a teaching affiliate of Harvard Medical School) using a new laser treatment
that may offer significant advantage over current treatment options. A single
quick non-invasive treatment of ocular melanoma tumors in a rabbit model
resulted in elimination of over 90% of tumors, and may afford significant
advantage over invasive alternatives, such as surgical excision, enucleation, or
radiotherapy implantation. Ocular melanoma is rare, with approximately 2,000 new
cases annually in the U.S. However, we believed that our extremely successful
results could be extrapolated to treatment of primary melanomas of the skin,
which have an incidence of over 52,000 new cases annually in the U.S. and a 13%
five-year survival rate after metastasis of the tumor. We have performed similar
laser treatments on large (averaging approximately 3 millimeters thick)
cutaneous melanoma tumors implanted in mice, and have been able to eradicate
over 90% of these pigmented skin tumors with a single treatment. Moreover, we
have shown that this treatment stimulates an anti-tumor immune response that may
lead to improved outcome at both the treatment site and at sites of distant
metastasis. From these results, we believe that a device for laser treatment of
primary melanomas of the skin and eye is nearly ready for human studies. We
anticipate partnering with a medical device manufacturer to bring it to market
in reliance on a 510(k) notification. For more information about the 510(k)
notification process, see "Federal Regulation of Therapeutic Products" below.
6
Research and Development
We have placed research activities for new product initiatives on hold as
we attempt to conserve available capital and achieve full capitalization of our
company through equity and convertible debt offerings, generation of product
revenues, and other means. All ongoing research and development activities are
directed toward supporting our OTC product launches, our current product
development and maintaining our intellectual property portfolio. We are
maintaining our research facilities in anticipation of a resumption of our
research programs for new product initiatives.
Production
We have determined that the most efficient use of our capital in producing
OTC products is to contract production with experienced entities having previous
success in economically producing such products. We have ongoing relationships
with two OTC product manufacturers, EXAL, Inc. and 220 Laboratories, Inc., and
several other OTC service vendors that will manufacture, package, warehouse and
ship our OTC products. We do not have written agreements with any of our
manufacturers or vendors.
Sales
Our first commercially available products are directed into the OTC market,
as these products pose minimal or no regulatory compliance barriers to market
introduction. In this fashion, we believe that we can diminish the risk of
regulatory bars to the introduction of products and minimize the time required
to begin generating revenues from product sales. At the same time, we continue
to develop higher-margin prescription pharmaceuticals and medical devices, which
have longer development and regulatory approval cycles.
We are commencing limited sales of GloveAid and Pure-ific during the first
half of 2003. We will continue to seek additional markets for our products
through existing distributorships that market and distribute medical products,
ethical pharmaceuticals, and OTC products for the professional and consumer
marketplaces.
In addition to developing and selling products ourselves, we are
negotiating actively with a number of potential licensees for several of our
intellectual properties, including patents and related technologies. To date, we
have not yet entered into any licensing agreements; however, we anticipate
consummating one or more such licenses in the future.
INTELLECTUAL PROPERTY
Patents
We hold a number of U.S. patents covering the technologies we have
developed and are continuing to develop for the production of prescription
drugs, medical devices and OTC pharmaceuticals, including those identified in
the following table:
U.S. Patent No. Title Issue Date Expiration Date
--------------- -------- ---------- ----------------
5,829,448 Method for improved selectivity in November 3, 1998 October 30, 2016
photo-activation of molecular agents
5,832,931 Method for improved selectivity in November 10, 1998 October 30, 2016
photo-activation and detection of
molecular diagnostic agents
5,998,597 Method for improved selectivity in December 7, 1999 October 30, 2016
photo-activation of molecular agents
6,042,603 Method for improved selectivity in March 28, 2000 October 30, 2016
photo-activation of molecular agents
7
6,331,286 Methods for high energy phototherapeutics December 18, 2001 December 21, 2018
6,451,597 Method for enhanced protein stabilization September 17, 2002 April 6, 2020
and for production of cell lines useful
for production of such stabilized proteins
6,468,777 Method for enhanced protein stabilization October 22, 2002 April 6, 2020
and for production of cell lines useful
for production of such stabilized proteins
6,493,570 Method for improved imaging and December 10, 2002 December 10, 2019
photodynamic therapy
6,495,360 Method for enhanced protein stabilization December 17, 2002 April 6, 2020
and for production of cell lines useful
for production of such stabilized proteins
6,519,076 Methods and apparatus for optical imaging February 11, 2003 October 30, 2016
6,525,862 Methods and apparatus for optical imaging February 25, 2003 October 30, 2016
6,541,223 Method for enhanced protein stabilization April 1, 2003 April 6, 2020
and for production of cell lines useful
for production of such stabilized proteins
We continue to pursue patent applications on numerous other developments we
believe to be patentable. We consider our issued patents, our pending patent
applications and any patentable inventions which we may develop to be extremely
valuable assets of our business.
Trademarks
We own the following trademarks used in this document: Xantryl(TM),
Provecta(TM), GloveAid(TM), and Pure-ific(TM) (including Pure-ific(TM) and
Pure-ific(TM) Kids). We also own the registered trademark PulseView(R).
Trademark rights are perpetual provided that we continue to keep the mark in
use. We consider these marks, and the associated name recognition, to be
valuable to our business.
COMPETITION
In general, the pharmaceutical industry is intensely competitive,
characterized by rapid advances in products and technology. A number of
companies have developed and continue to develop products that address the areas
we have targeted. Some of these companies are major pharmaceutical companies
that are international in scope and very large in size, while others are niche
players that may be less familiar but have been successful in one or more areas
we are targeting. Existing or future pharmaceutical, device, or other
competitors may develop products that accomplish similar functions to our
technologies in ways that are less expensive, receive faster regulatory
approval, or receive greater market acceptance than our products. Many of our
competitors have been in existence for considerably longer than we have, have
greater capital resources, broader internal structure for research, development,
manufacturing and marketing, and are in many ways further along in their
respective product cycles.
At present, our most direct competitors are smaller companies that are
exploiting niches similar to ours. In the field of photodynamic therapy, one
competitor, QLT, Inc., has received FDA approval for use of its agent
Photofrin(R) for treatment of several niche cancer indications, and has a second
product, Visudyne(R), approved for treatment of certain forms of macular
degeneration. Another competitor in this field, Dusa Pharmaceuticals, Inc.
recently received FDA approval of its photodynamic product Levulan(R)
Kerastik(R) for treatment of actinic keratosis. We believe that QLT and Dusa,
among other competitors, have established a working commercial model in
dermatology and oncology, and that we can benefit from this model by offering
products that, when compared to our competitors' products, afford superior
safety and performance, greatly reduced side effects, improved ease of use, and
lower cost, compared to those of our competitors.
While it is possible that eventually we may compete directly with major
pharmaceutical companies, we believe it is more likely that we will enter into
joint development, marketing, or other licensure arrangements with such
competitors.
8
We also have a number of market areas in common with traditional skincare
cosmetics companies, but in contrast to these companies, our products are based
on unique, proprietary formulations and approaches. For example, we are unaware
of any products in our targeted OTC skincare markets that our similar to our
GloveAid and Pure-ific products. Further, proprietary protection of our products
may help limit or prevent market erosion until the our patents expire.
FEDERAL REGULATION OF THERAPEUTIC PRODUCTS
All of the prescription drugs and medical devices we currently contemplate
developing will require approval by the FDA prior to sales within the United
States and by comparable foreign agencies prior to sales outside the United
States. The FDA and comparable regulatory agencies impose substantial
requirements on the manufacturing and marketing of pharmaceutical products and
medical devices. These agencies and other entities extensively regulate, among
other things, research and development activities and the testing,
manufacturing, quality control, safety, effectiveness, labeling, storage, record
keeping, approval, advertising and promotion of our proposed products. While we
attempt to minimize and avoid significant regulatory bars when formulating our
products, some degree of regulation from these regulatory agencies is
unavoidable. Some of the things we do to attempt to minimize and avoid
significant regulatory bars include the following:
o Using chemicals and combinations already allowed by the FDA;
o Carefully making product performance claims to avoid the need for
regulatory approval;
o Using drugs that have been previously approved by the FDA and that
have a long history of safe use;
o Using chemical compounds with known safety profiles; and
o In many cases, developing OTC products which face less regulation than
prescription pharmaceutical products.
The regulatory process required by the FDA, through which our drug or
device products must pass successfully before they may be marketed in the U.S.,
generally involves the following:
o Preclinical laboratory and animal testing;
o Submission of an application that must become effective before
clinical trials may begin;
o Adequate and well-controlled human clinical trials to establish the
safety and efficacy of the product for its intended indication; and
o FDA approval of the application to market a given product for a given
indication.
For pharmaceutical products, preclinical tests include laboratory
evaluation of the product, its chemistry, formulation and stability, as well as
animal studies to assess the potential safety and efficacy of the product. Where
appropriate (for example, for human disease indications for which there exist
inadequate animal models), we will attempt to obtain preliminary data concerning
safety and efficacy of proposed products using carefully designed human pilot
studies. We will require sponsored work to be conducted in compliance with
pertinent local and international regulatory requirements, including those
providing for Institutional Review Board approval, national governing agency
approval and patient informed consent, using protocols consistent with ethical
principles stated in the Declaration of Helsinki and other internationally
recognized standards. We expect any pilot studies to be conducted outside the
United States; but if any are conducted in the United States, they will comply
with applicable FDA regulations. Data obtained through pilot studies will allow
us to make more informed decisions concerning possible expansion into
traditional FDA-regulated clinical trials.
If the FDA is satisfied with the results and data from preclinical tests,
it will authorize human clinical trials. Human clinical trials typically are
9
conducted in three sequential phases which may overlap. Each of the three phases
involves testing and study of specific aspects of the effects of the
pharmaceutical on human subjects, including testing for safety, dosage
tolerance, side effects, absorption, metabolism, distribution, excretion and
clinical efficacy.
Phase 1 clinical trials include the initial introduction of an
investigational new drug into humans. These studies are closely monitored and
may be conducted in patients, but are usually conducted in healthy volunteer
subjects. These studies are designed to determine the metabolic and
pharmacologic actions of the drug in humans, the side effects associated with
increasing doses, and, if possible, to gain early evidence on effectiveness.
While the FDA can cause us to end clinical trials at any phase due to safety
concerns, Phase 1 clinical trials are primarily concerned with safety issues. We
also attempt to obtain sufficient information about the drug's pharmacokinetics
and pharmacological effects during Phase 1 clinical trial to permit the design
of well-controlled, scientifically valid, Phase 2 studies.
Phase 1 studies also evaluate drug metabolism, structure-activity
relationships, and the mechanism of action in humans. These studies also
determine which investigational drugs are used as research tools to explore
biological phenomena or disease processes. The total number of subjects included
in Phase 1 studies varies with the drug, but is generally in the range of twenty
to eighty.
Applicable medical devices can be cleared for commercial distribution
through a notification to the FDA under Section 510(k) of the applicable
statute. The 510(k) notification must demonstrate to the FDA that the device is
as safe and effective and substantially equivalent to a legally marketed or
classified device that is currently in interstate commerce. Such devices may not
require detailed testing. Certain high-risk devices that sustain human life, are
of substantial importance in preventing impairment of human health, or that
present a potential unreasonable risk of illness or injury, are subject to a
more comprehensive FDA approval process initiated by filing a premarket approval
("PMA") application (for devices) or accelerated approval (for drugs).
Phase 2 clinical trials include the early controlled clinical studies
conducted to obtain some preliminary data on the effectiveness of the drug for a
particular indication or indications in patients with the disease or condition.
This phase of testing also helps determine the common short-term side effects
and risks associated with the drug. Phase 2 studies are typically
well-controlled, closely monitored, and conducted in a relatively small number
of patients, usually involving several hundred people.
Phase 3 studies are expanded controlled and uncontrolled trials. They are
performed after preliminary evidence suggesting effectiveness of the drug has
been obtained in Phase 2, and are intended to gather the additional information
about effectiveness and safety that is needed to evaluate the overall
benefit-risk relationship of the drug. Phase 3 studies also provide an adequate
basis for extrapolating the results to the general population and transmitting
that information in the physician labeling. Phase 3 studies usually include
several hundred to several thousand people.
We have established a core clinical development team and have been working
with outside FDA consultants to assist us in developing product-specific
development and approval strategies, preparing the required submittals, guiding
us through the regulatory process, and providing input to the design and site
selection of human clinical studies. Historically, obtaining FDA approval for
photodynamic therapies has been a challenge. Wherever possible, we intend to
utilize lasers or other activating systems that have been previously approved by
the FDA to mitigate the risk that our therapies will not be approved by the FDA.
The FDA has considerable experience with lasers by virtue of having reviewed and
acted upon many 510(k) and premarket approval filings submitted to it for
various photodynamic and non-photodynamic therapy laser applications, including
a large number of cosmetic laser treatment systems used by dermatologists.
The testing and approval process requires substantial time, effort, and
financial resources, and we may not obtain FDA approval on a timely basis, if at
all. Success in preclinical or early-stage clinical trials does not assure
success in later stage clinical trials. The FDA or the research institution
sponsoring the trials may suspend clinical trials or may not permit trials to
advance from one phase to another at any time on various grounds, including a
finding that the subjects or patients are being exposed to an unacceptable
health risk. Once issued, the FDA may withdraw a product approval if we do not
10
comply with pertinent regulatory requirements and standards or if problems occur
after the product reaches the market. If the FDA grants approval of a product,
the approval may impose limitations, including limits on the indicated uses for
which we may market a product. In addition, the FDA may require additional
testing and surveillance programs to monitor the safety and/or effectiveness of
approved products that have been commercialized, and the agency has the power to
prevent or limit further marketing of a product based on the results of these
post-marketing programs. Further, later discovery of previously unknown problems
with a product may result in restrictions on the product, including its
withdrawal from the market.
Marketing our products abroad will require similar regulatory approvals by
equivalent national authorities and is subject to similar risks. To expedite
development, we may pursue some or all of our initial clinical testing and
approval activities outside the United States, and in particular in those
nations where our products may have substantial medical and commercial
relevance. In some such cases any resulting products may be brought to the U.S.
after substantial offshore experience is gained. Accordingly, we intend to
pursue any such development in a manner consistent with U.S. standards so that
the resultant development data is maximally applicable for potential FDA
approval.
OTC products are subject to regulation by the FDA and similar regulatory
agencies but the regulations relating to these products are much less stringent
than those relating to prescription drugs and medical devices. The types of OTC
products developed and sold by us only require that we follow cosmetic rules
relating to labeling and the claims that we make about our product. The process
for obtaining approval of prescription drugs with the FDA does not apply to the
OTC products which we sell. The FDA can, however, require us to stop selling our
product if we fail to comply with the rules applicable to our OTC products.
PERSONNEL
Executive Officers
As of April 15, 2003, our executive officers are:
H. Craig Dees, Ph.D., 51, Chief Executive Officer. Dr. Dees has served as
our Chief Executive Officer and as a member of our Board of Directors since we
acquired PPI on April 23, 2002. Before joining us, from 1997 to 2002 he served
as senior member of the management team of Photogen Technologies, Inc.
("Photogen"), the former corporate parent of Valley when Valley was known as
"Photogen, Inc.," including serving as a member of the Board of Directors of
Photogen from 1997 to 2000. Prior to joining Photogen, Dr. Dees served as a
Group Leader at the Oak Ridge National Laboratory ("ORNL"), and as a senior
member of the management teams of LipoGen Inc., a medical diagnostic company
which used genetic engineering technologies to manufacture and distribute
diagnostic assay kits for auto-immune diseases, and TechAmerica Group Inc., now
a part of Boehringer Ingelheim Vetmedica, Inc., the U.S. animal health
subsidiary of Boehringer Ingelhem GmbH, an international chemical and
pharmaceutical company headquartered in Germany. He has developed numerous
products in a broad range of areas, including ethical vaccines, human
diagnostics, cosmetics and OTC pharmaceuticals, and has set several regulatory
precedents in licensing and developing biotechnology-derived products. For
example, Dr. Dees developed and commercialized the world's first live viral
vaccine produced by recombinant DNA technologies and licensed the first
recombinant antigen human diagnostic assay using a FDA Class II licensure. While
at TechAmerica he developed and obtained USDA approval for the first in vitro
assay for releasing "killed" viral vaccines. Dr. Dees also has licensed
successfully a number of proprietary cosmetic products and formulated strategic
planning for developing cosmetic companies. He earned a Ph.D. in Molecular
Virology from the University of Wisconsin - Madison in 1984.
Timothy C. Scott, Ph.D., 45, President. Dr. Scott has served as our
President and as a member of our Board of Directors since we acquired PPI on
April 23, 2002. Prior to joining us, Dr. Scott was as a senior member of the
Photogen management team from 1997 to 2002, including serving as Photogen's
Chief Operating Officer from 1999 to 2002, as a director of Photogen from 1997
to 2000, and as interim CEO for a period in 2000. Before joining Photogen, he
served as senior management of Genase LLC, a developer of enzymes for fabric
treatment, and held senior research and management positions at ORNL. Dr. Scott
has been involved in developing numerous high-tech innovations in a broad range
of areas, including separations science, biotechnology, biomedical, and advanced
11
materials. He has licensed several of his innovations to the oil and gas and
biotechnology industries. As Director of the Bioprocessing R&D Center at ORNL,
Dr. Scott achieved a national presence in the area of use of advanced
biotechnology for the production of energy, fuels, and chemicals. He earned a
Ph.D. in Chemical Engineering from the University of Wisconsin - Madison in
1985.
Eric A. Wachter, Ph.D., 40, Vice President - Pharmaceuticals. Dr. Wachter
has served as our Vice President - Pharmaceuticals and as a member of our Board
of Directors since we acquired PPI on April 23, 2002. Prior to joining us, from
1997 to 2002 he was a senior member of the management team of Photogen,
including serving as Secretary and a director of Photogen since 1997 and as Vice
President and Secretary and a director of Photogen since 1999. Prior to joining
Photogen, Dr. Wachter served as a senior research staff member with ORNL.
Starting during his affiliation with Photogen, Dr. Wachter has been extensively
involved in pre-clinical development and clinical testing of pharmaceuticals and
medical device systems, as well as with coordination and filing of patents. He
earned a Ph.D. in Chemistry from the University of Wisconsin - Madison in 1988.
Daniel R. Hamilton, 53, Chief Financial Officer. Mr. Hamilton has served as
our Chief Financial Officer since we acquired PPI on April 23, 2002. Before
joining us, from 1997 to 2002 he served as Manager of Finance and Administration
for Photogen. Mr. Hamilton has diversified professional experience working in
all aspects of accounting and financial operations with special emphasis on
planning and objective setting, operational and financial leadership, and
administrative management. He has experience in private companies, public
institutions, and public corporations subject to SEC rules. Mr. Hamilton earned
a Bachelor of Science degree in Business Administration from the University of
Tennessee in 1971, and is a Certified Public Accountant.
Employees
We currently employ five persons, all of whom are full-time employees.
AVAILABLE INFORMATION
Provectus Pharmaceuticals, Inc. is a "public company," and therefore we are
subject to the informational requirements of the Securities Exchange Act of
1934, as amended, which we refer to as the "Exchange Act." To comply with those
requirements, we file annual reports, quarterly reports, periodic reports and
other reports and statements with the Securities and Exchange Commission, which
we refer to as the "SEC." You may read and copy any materials that we file with
the SEC at the SEC's Public Reference Room, at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You can obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC
maintains an Internet site at http://www.sec.gov, from which you can access
electronic copies of materials we file with the SEC.
Our Internet address is http://www.pvct.com. Because of our recent
reorganization, we are undertaking an extensive renovation of our Web site. As
part of this renovation, we have made available, through a link to the SEC's Web
site, electronic copies of the materials we file with the SEC (including our
annual reports on Form 10-KSB, our quarterly reports on Form 10-QSB, our current
reports on Form 8-K and amendments to those reports). To receive paper copies of
our SEC materials, please contact us by U.S. mail, telephone, facsimile or
electronic mail at the following address:
Provectus Pharmaceuticals, Inc.
Attention: President
7327 Oak Ridge Highway, Suite A
Knoxville, TN 37931
Telephone: 865/769-4011
Facsimile: 865/769-4013
Electronic mail: info@pvct.com
If possible, please provide us with your electronic mail address so that we
may deliver electronic copies to you free of charge.
12
Item 2. Description of Property.
We currently lease approximately 4,000 square feet of space outside of
Knoxville, Tennessee for our corporate office and operations. Our monthly rental
charge for these offices is approximately $2,800 per month, and the lease is
renewed on a month-to-month basis. We believe that these offices generally are
adequate for our current needs and our needs in the immediate future.
Item 3. Legal Proceedings.
From time to time, we are party to litigation or other legal proceedings
that we consider to be a part of the ordinary course of our business. At
present, we are not involved in any legal proceedings nor are we party to any
pending claims that we believe could reasonably be expected to have a material
adverse effect on our business, financial condition, or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
During the three months ended December 31, 2002, we did not submit any
matters to a vote of our stockholders.
Part II
Item 5. Market for Common Equity and Related Stockholder Matters.
Market Information and Holders
Quotations for our common stock are reported on the OTC Bulletin Board
under the symbol "PVCT." The following table sets forth the range of high and
low bid information for the periods indicated since January 1, 2001:
2001 High Low
---- ---- ---
First Quarter (January 1 to March 31) $1.00 $1.88
Second Quarter (April 1 to June 30) $2.75 $1.50
Third Quarter (July 1 to September 30) $2.75 $1.01
Fourth Quarter (October 1 to December 31) $3.00 $1.00
2002
----
First Quarter (January 1 to March 31) $2.60 $0.02
Second Quarter (April 1 to June 30) $10.01 $0.30
Third Quarter (July 1 to September 30) $1.05 $0.12
Fourth Quarter (October 1 to December 31) $0.55 $0.07
High and low quotation information was obtained from data provided by
Yahoo! Inc. Quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not reflect actual transactions.
As of March 21, 2003, we had 1,546 stockholders of record of our common
stock.
Dividend Policy
We have never declared or paid any cash dividends on our capital 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.
13
Recent Sales of Unregistered Securities
During the year ended December 31, 2002, we did not sell any securities
which were not registered under the Securities Act of 1933, as amended, which we
refer to as the "Securities Act" except as follows:
1. Pursuant to the Agreement and Plan of Reorganization dated as of April
22, 2002, among the Company, PPI and the shareholders of PPI (the
"Reorganization Agreement"), the Company issued 6,680,000 shares of
common stock to the shareholders of PPI in exchange for all of the
issued and outstanding shares of PPI. As of the close of business on
April 22, 2002, the value of our common stock was $3.00 per share. We
relied on an exemption from registration pursuant to Section 4(2) of
the Securities Act, based on the sale of these shares to a limited
number of purchasers in a transaction not involving any general
solicitation or general advertising.
2. Pursuant to the Reorganization Agreement, the Company issued an
aggregate of 800,000 shares of common stock to Kelly Adams, Justeene
Blankenship, Michael Labertew and R. Ratliff as consideration for
services performed by those individuals in connection with the
transactions described in the Reorganization Agreement. As of the
close of business on April 22, 2002, the value of our common stock was
$3.00 per share. We relied on an exemption from registration pursuant
to Section 4(2) of the Securities Act, based on the sale of these
shares to a limited number of purchasers in a transaction not
involving any general solicitation or general advertising.
3. Pursuant to a Consulting Agreement dated August 15, 2002 between the
Company and Numark Capital Corporation ("Numark"), the Company issued
Numark 100,000 shares of common stock as consideration for management
consulting services, business advisory services, shareholder
information services and public relations services performed and to be
performed for the Company by Numark. As of the close of business on
August 16, 2002, the value of our common stock was $0.23 per share. We
relied on an exemption from registration pursuant to Section 4(2) of
the Securities Act, based on the sale of these shares to a single
purchaser in a transaction not involving any general solicitation or
general advertising.
4. Pursuant to a letter agreement dated June 7, 2002 between the Company
and Nace Pharma, LLC ("Nace Pharma"), the Company granted Nace Pharma
a warrant for the purchase of 100,000 shares of common stock at a
price of approximately $2.29 per share. These warrants will become
exercisable only when and if Nace Pharma successfully introduces the
Company to one of a group of designated major pharmaceutical companies
and that introduction results in a transaction with an estimated value
to the Company of at least $10 million, and will expire on June 7,
2005 if not exercised before that date. We relied on an exemption from
registration pursuant to Section 4(2) of the Securities Act, based on
the issuance of the warrants, and the sale of the shares of common
stock issuable upon exercise of the warrants, to a single purchaser in
a transaction not involving any general solicitation or general
advertising.
5. On November 19, 2002, the Company issued an aggregate of 500,007
shares of common stock to the former owners of Valley as consideration
for the acquisition of the Valley assets. As of the close of business
on November 19, 2002, the value of our common stock was $0.40 per
share. We relied on an exemption from registration pursuant to Section
4(2) of the Securities Act, based on the sale of these shares to a
limited number of purchasers in a transaction not involving any
general solicitation or general advertising.
6. Pursuant to a Convertible Secured Promissory Note and Warrant Purchase
Agreement dated November 26, 2002 (the "Gryffindor Agreement") between
the Company and Gryffindor Capital Partners I, L.L.C., a Delaware
limited liability company ("Gryffindor"), the Company issued to
Gryffindor a Convertible Secured Promissory Note dated November 26,
2002 in the original principal amount of $1 million (the "Note"). The
Note bears interest at 8% per annum, payable quarterly in arrears, and
14
is due and payable in full on November 26, 2004. Our obligations under
the Note are secured by a first priority security interest in all of
our Company's assets, including the assets held by our Xantech and
Pure-ific subsidiaries. Subject to certain exceptions, the Note is
convertible into shares of our common stock beginning on the November
26, 2003; the principal amount of the Note is convertible at the rate
of one share of common stock for each $0.737 of principal converted,
while accrued but unpaid interest on the Note is convertible at the
rate of one share of common stock for each $0.55 of accrued but unpaid
interest converted. Pursuant to the Purchase Agreement, the Company
also issued to Gryffindor and to Stuart Fuchs Common Stock Purchase
Warrants dated November 26, 2002 (the "Warrants"), entitling
Gryffindor and Mr. Fuchs to purchase, in the aggregate, up to 452,919
Common Shares at a price of $0.001 per share. These warrants were
exercised immediately upon issuance. We relied on an exemption from
registration pursuant to Section 4(2) of the Securities Act, based on
the issuance of the Note and the Warrants, and the sale of the shares
of common stock issuable upon conversion of the Note and exercise of
the Warrant, to a limited number of purchasers in a transaction not
involving any general solicitation or general advertising.
7. On December 5, 2002, the Company issued an aggregate of 25,000 shares
of common stock to the former owners of Pure-ific as consideration for
the acquisition of the Pure-ific assets. As of the close of business
on December 5, 2002, the value of our common stock was $0.50 per
share. In addition to the shares issued at closing, the Company will
issue the former owners of Pure-ific warrants entitling them to
purchase an aggregate of 80,000 shares of common stock at an exercise
price of $0.50 per share (the closing price of our common stock on
December 5, 2002) upon (i) the achievement of certain targets for
sales of Pure-ific personal sanitizing sprays; and (ii) December 5,
2003, 2004 and 2005. We relied on an exemption from registration
pursuant to Section 4(2) of the Securities Act, based on the sale of
these shares to a limited number of purchasers i a transaction not
involving any general solicitation or general advertising.
Item 6. Management's Discussion and Analysis or Plan of Operation.
The following discussion is intended to assist in the understanding and
assessment of significant changes and trends related to our results of
operations and our financial condition together with our consolidated
subsidiaries. This discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto included elsewhere in
this Annual Report on Form 10-KSB. Historical results and percentage
relationships set forth in the statement of operations, including trends which
might appear, are not necessarily indicative of future operations.
GOING CONCERN
In connection with their audit report on our consolidated financial
statements as of December 31, 2002, BDO Seidman LLP, our independent certified
public accountants, expressed substantial doubt about our ability to continue as
a going concern because such continuance is dependent upon our ability to raise
capital.
Our technologies are in early stages of development. We have not generated
revenues from sales or operations and we do not expect to generate sufficient
revenues to enable us to be profitable for several calendar quarters. In
November 2002, we obtained $1 million from Gryffindor through the sale of the
Note and the Warrant. In addition, at critical junctures during 2002 we obtained
approximately $109,000 in additional funding through loans from Eric A. Wachter,
our Vice President - Pharmaceuticals, a member of our Board of Directors, and a
major shareholder. These funds allowed us to complete our planned corporate
reorganization and acquisitions, complete initial production runs for several of
our OTC products, and maintain our facilities and intellectual property
portfolio. We require additional funding to continue initial production and
distribution of OTC products in order to achieve meaningful sales volumes. In
addition, we must raise substantial additional funds in order to fully implement
our integrated business plan, including execution of the next phases in clinical
development of our pharmaceutical products and full resumption of research
programs for new research initiatives that are currently delayed.
15
Ultimately, we must achieve profitable operations if we are to be a viable
entity. We intend to proceed as rapidly as possible with the development of OTC
products that can be sold with a minimum of regulatory compliance and with the
development of revenue sources through licensing of our existing intellectual
property portfolio. Although we believe that there is a reasonable basis for our
expectation that we will successfully raise the needed funds, we cannot assure
you that we will be able to raise sufficient capital to sustain operations
before we can commence revenue generation or that we will be able to achieve, or
maintain, a level of profitability sufficient to meet our operating expenses.
PLAN OF OPERATION
With the reorganization of Provectus and PPI and the acquisition and
integration into the company of Valley and Pure-ific, we believe we have
obtained a unique combination of OTC products and core intellectual properties.
This combination represents the foundation for a successful operating company
that we believe will provide both short-term profitability and long-term growth.
In 2003, through careful control of expenditures, escalating sales of OTC
products, and issuance of debt and equity, we plan to build on that foundation
to increase shareholder value.
In the short term, we intend to develop our business by marketing,
manufacturing, and distributing our existing OTC products, principally GloveAid
and Pure-ific. In the longer term, we expect to continue the process of
developing, testing and obtaining FDA approval of prescription drugs and medical
devices. Additionally, we intend to restart our research programs that will
identify additional conditions that our intellectual properties may be used to
treat and additional treatments for those and other conditions.
Research and development costs comprising the total of $50,714 for 2002
include lab expense of $250, insurance of $2,244, legal of $1,374, payroll of
$38,996, and rent and utilities of $7,850.
Cash Flow
As of December 31, 2002, we held approximately $717,000 in cash. At our
current cash expenditure rate, this amount will be sufficient to meet our needs
until the end of June 2003. We already have begun to reduce our expenditure rate
by delaying some of our research programs for new research initiatives; in
addition, we are seeking to improve our cash flow by increasing sales of OTC
products. However, we cannot assure that we will be successful either in
increasing sales of OTC products or in reducing expenditures. Moreover, even if
we are successful in improving our current cash flow position, we nonetheless
will require additional funds to meet our short-term and long-term needs. We
anticipate these funds will come from the proceeds of private placements or
public offerings of debt or equity securities, but we cannot assure you that we
will be able to obtain such funds.
Capital Resources
As noted above, our present cash flow is not sufficient to meet our
short-term operating needs for initial production and distribution of OTC
products in order to achieve meaningful sales volumes, much less to meet our
longer-term needs for investment in our business through execution of the next
phases in clinical development of our pharmaceutical products and resumption of
our currently suspended research programs. We anticipate that the majority of
the funds for our operating and development needs in 2003 will come from the
proceeds of private placements or public offerings of debt or equity securities.
We are currently in discussions with multiple funding sources and feel confident
adequate operating funding and development funding will result. While we believe
that we have reasonable basis for our expectation that we will be able to raise
additional funds, we cannot give you an assurances that we will be able to do so
on commercially reasonable terms. In addition, any such financing may result in
significant dilution to shareholders.
16
Item 7. Financial Statements.
Our consolidated financial statements, together with the report thereon of
BDO Seidman LLP, independent accountants, are set forth on the pages of this
Annual Report on Form 10-KSB indicated below.
Page
Provectus Pharmaceuticals, Inc. Consolidated Financial Statements
Report of Independent Certified Public Accountant.........................F-1
Consolidated Balance Sheet at December 31, 2002 ..........................F-2
Consolidated Statement of Operations for the period from
January 17, 2002 (inception) to December 31, 2002........................F-3
Consolidated Statements of Shareholders' Equity for the
period from January 17, 2002 (inception) to December 31, 2002............F-4
Consolidated Statements of Cash Flows for the period from
January 17, 2002 (inception) to December 31, 2002........................F-5
Notes to Consolidated Financial Statements................................F-6
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-KSB contains forward-looking statements
regarding, among other things, our anticipated financial and operating results.
Forward-looking statements reflect our management's current assumptions,
beliefs, and expectations. Words such as "anticipate," "believe, "estimate,"
"expect," "intend," "plan," and similar expressions are intended to identify
forward-looking statements. While we believe that the expectations reflected in
our forward-looking statements are reasonable, we can give no assurance that
such expectations will prove correct. Forward-looking statements are subject to
risks and uncertainties that could cause our actual results to differ materially
from the future results, performance, or achievements expressed in or implied by
any forward-looking statement we make. Some of the relevant risks and
uncertainties that could cause our actual performance to differ materially from
the forward-looking statements contained in this report are discussed below
under the heading "Risk Factors" and elsewhere in this Annual Report on Form
10-KSB. We caution investors that these discussions of important risks and
uncertainties are not exclusive, and our business may be subject to other risks
and uncertainties which are not detailed there.
Investors are cautioned not to place undue reliance on our forward-looking
statements. We make forward-looking statements as of the date on which this
Annual Report on Form 10-KSB is filed with the SEC, and we assume no obligation
to update the forward-looking statements after the date hereof whether as a
result of new information or events, changed circumstances, or otherwise, except
as required by law.
RISK FACTORS
Our business is subject to various risks, including those described below.
You should carefully consider these risk factors, together with all of the other
information included in this Annual Report on Form 10-KSB. Any of these risks
could materially adversely affect our business, operating results and financial
condition:
Our independent auditors have expressed doubt about our ability to continue
as a going concern.
Our independent public accountants have expressed doubt about our ability
to continue as a going concern in their report on our December 31, 2002
financial statements. Currently, our continuance as a going concern is dependent
upon our ability to raise capital. There can be no assurance that we will be
able to raise sufficient capital or generate sufficient cash from operations to
continue as a going concern.
Because of our limited operations and the fact that we are currently generating
limited revenue, we may be unable to pay our debts when they become due.
17
We currently have approximately $1,117,000 in debt outstanding, consisting
of $1 million in principal and $8,000 in accrued but unpaid interest owed to
Gryffindor pursuant to the Note and $109,000 in principal, plus a small amount
of accrued interest, owed to Dr. Wachter. We are trying to secure additional
financing, but have not yet succeeded in doing so. Our ability to satisfy our
current debt service obligations and any additional obligations we might incur
will depend upon our future financial and operating performance, which, in turn,
is subject to prevailing economic conditions and financial, business,
competitive, legislative and regulatory factors, many of which are beyond our
control. If our cash flow and capital resources continue to be insufficient to
fund our debt service obligations, we may be forced to reduce or delay planned
acquisitions, expansion and capital expenditures, sell assets, obtain additional
equity capital or restructure our debt. We cannot assure you that our operating
results, cash flow and capital resources will be sufficient for payment of our
debt service and other obligations in the future.
We will need additional capital to conduct our operations and develop our
products, and our ability to obtain the necessary funding is uncertain.
We will require substantial capital resources in order to conduct our
operations and develop our products. We estimate that our existing capital
resources will be sufficient to fund our current and planned operations only
through June 2003, and we cannot guarantee that we will not need additional
capital at an earlier date. We intend to acquire additional funding through
public or private equity financings or other financing sources that may be
available. Additional financing may not be available on acceptable terms, or at
all. As discussed in more detail below, additional equity financing could result
in significant dilution to shareholders. Further, in the event that additional
funds are obtained through licensing or other arrangements, these arrangements
may require us to relinquish rights to some of our technologies, product
candidates or products that we would otherwise seek to develop and commercialize
ourselves. If sufficient capital is not available, we may be required to delay,
reduce the scope of or eliminate one or more of our programs, any of which could
have a material adverse effect on our business.
Existing shareholders may face dilution from our financing efforts
We must raise additional capital from external sources to execute our
business plan. We plan to issue debt securities, capital stock, or a combination
of these securities. We may not be able to sell these securities, particularly
under current market conditions. Even if we are successful in finding buyers for
our securities, the buyers could demand high interest rates or require us to
agree to onerous operating covenants, which could in turn harm our ability to
operate our business by reducing our cash flow and restricting our operating
activities. If we were to sell our capital stock, we might be forced to sell
shares at a depressed market price, which could result in substantial dilution
to our existing shareholders. In addition, any shares of capital stock we may
issue may have rights, privileges, and preferences superior to those of our
common shareholders.
The prescription drug and medical device products in our internal pipeline
are at an early stage of development, and they may fail in subsequent
development or commercialization.
We are continuing to pursue clinical development of our most advanced
pharmaceutical drug products, Xantryl and Provecta, for use as treatments for
specific conditions. These products and other pharmaceutical drug and medical
device products that we are currently developing will require significant
additional research, formulation and manufacture development, and pre-clinical
and extensive clinical testing prior to regulatory licensure and
commercialization. Pre-clinical and clinical studies of our pharmaceutical drug
and medical device products under development 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 drug and medical device 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 the following:
o a product may be found to be ineffective or have harmful side effects
during subsequent pre-clinical testing or clinical trials;
18
o a product may fail to receive necessary regulatory clearance;
o a product may be too difficult to manufacture on a large scale;
o a product may be too expensive to manufacture or market;
o a product may not achieve broad market acceptance;
o others may hold proprietary rights that will prevent a product from
being marketed; or
o others may market equivalent or superior products.
We do not expect any pharmaceutical drug products or medical device
products we are developing to be commercially available for at least several
years, if at all. Our research and product development efforts may not be
successfully completed and may not result in any successfully commercialized
products. Further, after commercial introduction of a new product, discovery of
problems through adverse event reporting could result in restrictions on the
product, including withdrawal from the market and, in certain cases, civil or
criminal penalties.
Our OTC products are at an early stage of introduction, and we cannot be
sure that they will be widely accepted in the marketplace or that we will have
adequate capital to market and distribute these products which are an important
factor in the future success of our business.
We recently have begun marketing GloveAid and Pure-ific, our first two OTC
products, on a limited basis. In order for these products to become commercially
successful, we must increase significantly our distribution of them. Increasing
distribution of these products requires, in turn, that we or distributors
representing us increase marketing of these products. In view of our limited
financial resources, we may be unable to afford increases in our marketing of
our OTC products sufficient to improve our distribution of our products. Even if
we can and do increase our marketing of our OTC products, we cannot give you any
assurances that we can successfully increase our distribution of our products.
If we do begin increasing our distribution of our OTC products, we must
increase our production of these products in order to fill our distribution
channels. Increased production will require additional financial resources that
we do not have at present. Additionally, we may succeed in increasing production
without succeeding in increasing sales, which could leave us with excess,
possibly unsaleable, inventory.
If we are unable to successfully introduce, market and distribute these
products, our business, financial condition, results of operations and cash
flows could be materially adversely affected.
Competition in the prescription drug, medical device and OTC
pharmaceuticals markets is intense, and we may be unable to succeed if our
competitors have more funding or better marketing.
The pharmaceutical and biotechnology industries are intensely competitive.
Other pharmaceutical and biotechnology companies and research organizations
currently engage in or have in the past engaged in research efforts related to
treatment of dermatological conditions or cancers of the skin, liver and breast,
which could lead to the development of products or therapies that could compete
directly with the prescription drug, medical device and OTC products that we are
seeking to develop and market.
Many companies are also developing alternative therapies to treat cancer
and dermatological conditions and, in this regard, are out competitors. Many of
the pharmaceutical companies developing and marketing these competing products
have significantly greater financial resources and expertise than we do in:
o research and development;
o manufacturing;
o preclinical and clinical testing;
19
o obtaining regulatory approvals; and
o marketing.
Smaller companies may also prove to be significant competitors,
particularly through collaborative arrangements with large and established
companies. Academic institutions, government agencies and other public and
private research organizations also may conduct research, seek patent protection
and establish collaborative arrangements for research, clinical development and
marketing of products similar to ours. These companies and institutions compete
with us in recruiting and retaining qualified scientific and management
personnel as well as in acquiring technologies complementary to our programs.
In addition to the above factors, we expect to face competition in the
following areas:
o product efficacy and safety;
o the timing and scope of regulatory consents;
o availability of resources;
o reimbursement coverage;
o price; and
o patent position, including potentially dominant patent positions of
others.
As a result of the foregoing, our competitors may develop more effective or
more affordable products or achieve earlier product commercialization than we
do.
Product Competition. Additionally, since our currently marketed products
are generally established and commonly sold, they are subject to competition
from products with similar qualities.
Our OTC product Pure-ific competes in the market with other hand sanitizing
products, including in particular, the following hand sanitizers:
o Purell (manufactured by GOJO Industries),
o Avagard D (manufactured by 3M) and
o a large number of generic and private-label equivalents to these
market leaders.
Our OTC product GloveAid represents a new product category that has no
direct competitors; however, other types of products, such as AloeTouch(R)
disposable gloves (manufactured by Medline Industries) target the same market
niche.
Since our prescription products Provecta and Xantryl have not yet been
approved by the FDA or introduced to the marketplace, we cannot estimate what
competition these products might face when they are finally introduced, if at
all. We cannot assure you that these products will not face significant
competition for other prescription drugs and generic equivalents.
If we are unable to secure or enforce patent rights, trademarks, trade
secrets or other intellectual property our business could be harmed.
We may not be successful in securing or maintaining proprietary patent
protection for our products or products and technologies we develop or license.
In addition, our competitors may develop products similar to ours using methods
and technologies that are beyond the scope of our intellectual property
protection, which could reduce our anticipated sales. While some of our products
have proprietary patent protection, a challenge to these patents can be subject
to expensive litigation. Litigation concerning patents, other forms of
intellectual property and proprietary technology is becoming more widespread and
can be protracted and expensive and can distract management and other personnel
from performing their duties for us.
We also rely upon trade secrets, unpatented proprietary know-how and
20
continuing technological innovation in order to develop a competitive position.
We cannot assure you that others will not independently develop substantially
equivalent proprietary technology and techniques or otherwise gain access to our
trade secrets and technology, or that we can adequately protect our trade
secrets and technology.
If we are unable to secure or enforce patent rights, trademarks, trade
secrets or other intellectual property, our business, financial condition,
results of operations and cash flows could be materially adversely affected.
If we infringe on the intellectual property of others, our business could
be harmed.
We could be sued for infringing patents or other intellectual property that
purportedly cover products and/or methods of using such products held by persons
other than us. Litigation arising from an alleged infringement could result in
removal from the market, or a substantial delay in, or prevention of, the
introduction of our products, any of which could have a material adverse effect
on our business, financial condition, or results of operations and cash flows.
If we do not update and enhance our technologies, they will become
obsolete.
The pharmaceutical market is characterized by rapid technological change,
and our future success will depend on our ability to conduct successful research
in our fields of expertise, to discover new technologies as a result of that
research, to develop products based on our technologies, and to commercialize
those products. While we currently believe that our current technology is
adequate for our present needs, if we fail to stay at the forefront of
technological development, we will be unable to compete effectively. Our
competitors are using substantial resources to develop new pharmaceutical
technologies and to commercialize products based on those technologies.
Accordingly, our technologies may be rendered obsolete by advances in existing
technologies or the development of different technologies by one or more of our
current or future competitors.
If we lose any of our key personnel, we may be unable to successfully
execute our business plan.
Our business is presently managed by four key employees:
o H. Craig Dees, Ph.D., our Chief Executive Officer;
o Timothy C. Scott, Ph.D., our President;
o Eric A. Wachter, Ph.D. our Vice President - Pharmaceuticals; and
o Daniel R. Hamilton, our Chief Financial Officer.
In addition to their responsibilities for management of our overall
business strategy, Drs. Dees, Scott and Wachter are our chief researchers in the
fields in which we are developing and planning to develop prescription drug,
medical device and OTC products. If we lose any of these four key employees, it
could have a material adverse effect on our operations, and our ability to
execute our business plan might be negatively impacted. Any of these key
employees may leave their employment with us if they choose to do so, and we
cannot guarantee that they will not choose to do so, or that we would be able to
hire similarly qualified executives if any of our key employees should choose to
leave.
Because we have a limited number of employees, our management may be unable
to successfully manage our business.
In order to successfully execute our business plan, our management must
succeed in all of the following critical areas:
o Researching diseases and possible therapies in the areas of
dermatology and skin care, oncology, and biotechnology;
o Developing prescription drug, medical device and OTC products based on
our research;
21
o Marketing and selling developed products;
o Obtaining additional capital to finance research, development,
production and marketing of our products; and
o Managing our business as it grows.
As discussed above, we currently have only five employees, all of whom are
full-time employees. The greatest burden of succeeding in the above areas
therefore falls on Drs. Dees, Scott and Wachter and Mr. Hamilton. Focusing on
any one of these areas may divert their attention from our other areas of
concern and could affect our ability to manage other aspects of our business. We
cannot assure you that our management will be able to succeed in all of these
areas or, even if we do so succeed, that our business will be successful as a
result.
Our common stock price can be volatile because of several factors,
including a limited public float.
During the twelve-month period ended December 31, 2002, the sale price of
our common stock fluctuated from $10.012 to $0.07 per share. We believe that our
common stock is subject to wide price fluctuations because of several factors,
including:
o absence meaningful earnings and external financing,
o a relatively thin trading market for our common stock, which causes
trades of small blocks of stock to have a significant impact on our
stock price,
o general volatility of the stock markets and the market prices of other
publicly traded companies, and
o investor sentiment regarding equity markets generally, including
public perception of corporate ethics and governance and the accuracy
and transparency of financial reporting.
It is our policy not to pay dividends.
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.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
On January 3, 2003 we filed a Current Report on Form 8-K reporting that on
December 20, 2002 we engaged BDO Seidman, LLP to audit our books and records for
2002 and dismissed Bierwolf, Nilson & Associates, formerly Crouch, Bierwolf &
Associates, as our independent auditors.
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
The information called for by this item with respect to our executive
officers as of March 15, 2003 is furnished in Part I of this report under the
heading Personnel--Executive Officers." The information called for by this item,
to the extent it relates to our directors or to certain filing obligations of
our directors and executive officers under the federal securities laws, is
incorporated herein by reference to the Proxy Statement for our Annual Meeting
of Stockholders to be held on May 15, 2003, which will be filed with the SEC
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended.
22
Item 10. Executive Compensation.
The information called for by this item is incorporated herein by reference
to the Proxy Statement for our Annual Meeting of Stockholders to be held on May
15, 2003, which will be filed with the SEC pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended.
Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
The information called for by this item is incorporated herein by reference
to the Proxy Statement for our Annual Meeting of Stockholders to be held on May
15, 2003, which will be filed with the SEC pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended.
Item 12. Certain Relationships and Related Transactions.
The information called for by this item is incorporated herein by reference
to the Proxy Statement for our Annual Meeting of Stockholders to be held on May
15, 2003, which will be filed with the SEC pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended.
Item 13. Exhibits, List and Reports on Form 8-K.
(a) Exhibits. Exhibits required by Item 601 of Regulation S-B are incorporated
herein by reference and are listed on the attached Exhibit Index, which
begins on page X-1 of this Annual Report on Form 10-KSB.
(b) Reports on Form 8-K. During the fiscal quarter ended December 31, 2002, we
filed the following Current Reports on Form 8-K:
1. On November 27, 2002, we filed a Current Report on Form 8-K reporting
that on November 19, 2002, we had completed the acquisition of Valley
by merging our wholly owned subsidiary PPI with and into Valley and
naming the surviving corporation "Xantech Pharmaceuticals, Inc."
23
2. On December 10, 2002, we filed a Current Report on Form 8-K reporting
that on November 26, 2002, we had entered into the Gryffindor
Agreement and issued the Note to Gryffindor and the Warrants to
Gryffindor and Mr. Fuchs, and had appointed Mr. Fuchs to our Board of
Directors.
3. On December 20, 2002, we filed a Current Report on Form 8-K reporting
that on December 5, 2002, we had completed the acquisition of
Pure-ific.
4. On January 3, 2003 we filed, and on January 9, 2003 we amended, a
Current Report on Form 8-K reporting that on December 20, 2002 we
engaged BDO Seidman, LLP to audit our books and records for 2002 and
dismissed Bierwolf, Nilson & Associates, formerly Crouch, Bierwolf &
Associates, as our independent auditors.
Item 14. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures. Our chief executive
officer and chief financial officer have evaluated the effectiveness of the
design and operation of our "disclosure controls and procedures" (as that
term is defined in Rule 13a-14(c) under the Exchange Act) as of a date
within 90 days of the filing date of this Annual Report on Form 10-KSB.
Based on that evaluation, the chief executive officer and chief financial
officer have concluded that our disclosure controls and procedures are
effective to ensure that material information relating to the Company and
the Company's consolidated subsidiaries is made known to such officers by
others within these entities, particularly during the period this Annual
Report on Form 10-KSB was prepared, in order to allow timely decisions
regarding required disclosure.
(b) Changes in Internal Controls. There have not been any significant changes
in our internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation.
24
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PROVECTUS PHARMACEUTICALS, INC.
By: /s/ H. Craig Dees, Ph.D.
------------------------------------------
H. Craig Dees, Ph.D.
Chief Executive Officer
Date: October 7, 2004
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Signature Title Date
--------- ----- -----
/s/ H. Craig Dees Chief Executive Officer (principal October 7, 2004
---------------------- executive officer)
H. Craig Dees, Ph.D.
/s/ Peter R. Culpepper Chief Financial Officer (principal October 7, 2004
---------------------- financial officer and principal
Peter R. Culpepper accounting officer)
25
PROVECTUS PHARMACEUTICALS, INC.
(A Development-Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
Board of Directors
Provectus Pharmaceuticals, Inc.
Knoxville, Tennessee
We have audited the accompanying consolidated balance sheet of Provectus
Pharmaceuticals, Inc. a development stage company, as of December 31, 2002, and
the related consolidated statements of operations, shareholders' equity and cash
flows for the period from January 17, 2002 (inception) to December 31, 2002.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Provectus
Pharmaceuticals, Inc. at December 31, 2002 and the results of its operations and
its cash flows for the period from January 17, 2002 (inception) to December 31,
2002, in conformity with accounting principles generally accepted in the United
States.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the financial statements, the Company has reported accumulated losses of
$7,121,754 and without additional financing, lacks sufficient working capital to
fund operations for the entire year ending December 31, 2003, which raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ BDO Siedman LLP
Chicago, Illinois
March 5, 2003
F-1
PROVECTUS PHARMACEUTICALS, INC.
(A Development-Stage Company)
Consolidated Balance Sheet
December 31, 2002
--------------------------------------------------------------------------------
Assets
Current Assets
Cash $ 717,833
Prepaid expenses 35,481
----------------
Total Current Assets 753,314
Equipment and Furnishings, less accumulated depreciation of $39,446 471,429
Patents, net of amortization of $133,916 (Note 2) 19,903,644
Other Assets 27,000
----------------
$ 21,155,387
================
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable - trade $ 98,874
Accrued expenses 77,781
----------------
Total Current Liabilities 176,655
Loan From Shareholder (Note 7) 109,000
Convertible Long-Term Debt (net of debt discount of $120,344 (Note 6)) 879,656
Shareholders' Equity (Notes 2, 4 and 6)
Common stock; par value $.001 per share; 100,000,000 shares
authorized; 9,423,689 shares issued and outstanding 9,424
Paid-in capital 27,102,406
Deficit accumulated during the development stage (7,121,754)
----------------
Total Shareholders' Equity 19,990,076
----------------
$ 21,155,387
================
See accompanying notes to financial statements.
F-2
PROVECTUS PHARMACEUTICALS, INC.
(A Development-Stage Company)
Consolidated Statement of Operations
For the period January 17, 2002 (inception) to December 31, 2002
--------------------------------------------------------------------------------
Operating Expenses
Research and development $ 50,714
General and administrative
(including noncash stock compensation of $6,436,000) 6,922,946
Amortization 133,916
------------------
Total operating loss (7,107,576)
Interest expense (14,178)
------------------
Net Loss Applicable to Common Shareholders $ (7,121,754)
==================
Basic and Diluted Loss Per Common Share $ (0.89)
==================
Weighted Average Number of Common Shares Outstanding
- Basis and Diluted 7,981,876
==================
See accompanying notes to financial statements.
F-3
PROVECTUS PHARMACEUTICALS, INC.
(A Development-Stage Company)
Consolidated Statement of Shareholders' Equity
------------------------------------------------------------------------------------------------------------------------------------
Common Stock
------------------------
Number of Paid-in Accumulated
Shares Par Value Capital Deficit Total
-------------------------------------------------------------------- ------------- ------------ -------------- ------------
Balance, at January 17, 2002 - $ - $ - $ - $ -
Issuance to founding shareholders 6,000,000 6,000 (6,000) - -
Sale of stock 50,000 50 24,950 - 25,000
Issuance of stock to employees 510,000 510 931,490 - 932,000
Issuance of stock for services 120,000 120 359,880 - 360,000
Net loss for the period from January 17, 2002(inception)
to April 23, 2002 (date of reverse merger) - - - (1,316,198) (1,316,198)
--------- ------------ ------------ -------------- ------------
Balance, at April 23, 2002 6,680,000 6,680 1,310,320 (1,316,198) 802
Shares issued in reverse merger 265,763 266 (3,911) - (3,645)
Issuance of stock for services 1,900,000 1,900 5,142,100 - 5,144,000
Purchase and retirement of stock (400,000) (400) (47,600) - (48,000)
Stock issued for acquisition of Valley 500,007
Pharmaceuticals 500 20,547,935 - 20,548,435
Exercise of warrants 452,919 453 - - 453
Warrants issued in connection with convertible debt - - 126,587 - 126,587
Stock and warrants issued for acquisition of 25,000
Pure-ific 25 26,975 - 27,000
Net loss for the period from April 23, 2002 (date of
reverse merger) to December 31, 2002 - - - (5,805,556) (5,805,556)
--------- ------------ ------------ -------------- ------------
Balance, at December 31, 2002 9,423,689 $ 9,424 $ 27,102,406 $ (7,121,754) $ 19,990,076
========= ============ ============ ============== =============
See accompanying notes to financial statements.
F-4
PROVECTUS PHARMACEUTICALS, INC.
(A Development-Stage Company)
Consolidated Statement of Cash Flows
For the period January 17, 2002 (inception) to December 31, 2002
-----------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net loss $ (7,121,754)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation 39,446
Amortization of patents 133,916
Amortization of original issue discount 6,243
Compensation through issuance of stock 932,000
Issuance of stock for services rendered 5,504,000
Increase in assets net of acquisitions
Prepaid expenses (35,481)
Increase (decrease) in liabilities
Accounts payable 95,229
Accrued expenses 77,781
-------------
Net cash used in operating activities (368,620)
-------------
Cash Flows From Financing Activities
Proceeds from loans from shareholder 109,000
Proceeds from convertible debt 1,000,000
Proceeds from sale of common stock 25,000
Proceeds from exercise of warrants 453
Purchase and retirement of common stock (48,000)
-------------
Net cash provided by financing activities 1,086,453
-------------
Net Change in Cash 717,833
Cash, at January 17, 2002 -
-------------
Cash, at end of year $ 717,833
=============
Supplemental Disclosures of Cash Flow Information
Acquisition of Valley Pharmaceuticals, Inc. through the issuance of 500,007
shares of the Company's common stock. The value of the assets purchased
was $20,548,435
Acquisition of Pure-ific through the issuance of common stock valued at
$12,500 and warrants valued at $14,500. Assets valued at $27,000 were
acquired.
Discount recorded on convertible debt with warrants of $126,587.
See accompanying notes to financial statements.
F-5
PROVECTUS PHARMACEUTICALS, INC.
(A Development-Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Provectus Pharmaceuticals, Inc. (together with its subsidiaries, the
"Company") is a development-stage biopharmaceutical company that is focusing on
developing minimally invasive products for the treatment of psoriasis and other
topical diseases, cancer, and certain laser device technology. Through a recent
acquisition, the Company also intends to develop, manufacture, and distribute
over-the-counter pharmaceuticals. To date the Company has no revenues.
Liquidity and Basis of Presentation
The Company will continue to require additional capital to develop its
products and develop sales and distribution channels for its products. However,
the Company believes it lacks sufficient working capital to fund operations for
the entire fiscal year ending December 31, 2003. Management believes there are a
number of potential alternatives available to meet the Company's continuing
capital requirements, including proceeding as rapidly as possible with the
development of over-the-counter products that can be sold with a minimum of
regulatory compliance and developing revenue sources through licensing of our
existing intellectual property portfolio. In addition, the Company is pursuing
actively additional debt and/or equity capital in order to support ongoing
operations. There can be no assurance that the Company will be able to obtain
sufficient additional working capital on commercially reasonable terms or
conditions, or at all.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. Continuing as a going concern is
dependent upon successfully obtaining additional working capital as described
above. The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets and
amounts and classifications of liabilities that might result from the outcome of
this uncertainty.
Principles of Consolidation
Intercompany balances and transactions have been eliminated in
consolidation.
Estimates
The financial statements include estimated amounts and disclosures based on
management's assumptions about future events. Actual results may differ from
those estimates.
Equipment and Furnishings
Equipment and furnishings acquired through the acquisition of Valley
Pharmaceuticals, Inc. (Note 2) have been stated at fair market value. Other
equipment and furnishings are stated at cost. Depreciation of equipment is
provided for using the straight-line method over the estimated useful lives of
the assets. Computers and laboratory equipment are being depreciated over five
years, furniture and fixtures are being depreciated over seven years.
Depreciation expense was $39,446 for the year.
Long-Lived Assets
The Company reviews the carrying values of its long-lived assets for
possible impairment whenever an event or change in circumstances indicates that
the carrying amount of the assets may not be recoverable. Any long-lived assets
held for disposal are reported at the lower of their carrying amounts or fair
value less cost to sell.
F-6
PROVECTUS PHARMACEUTICALS, INC.
(A Development-Stage Company)
Patent Costs
Internal patent costs are expensed in the period incurred. Patents
purchased are capitalized and amortized over the remaining life of the patent.
Purchased patents at December 31, 2002 were acquired as a result of the
merger with Valley Pharmaceuticals, Inc. ("Valley") (Note 2). The majority
shareholders of Provectus also owned the majority of Valley and therefore the
acquisition was treated as an acquisition of an entity under common control and
the assets of Valley were recorded at their carry over basis. The patents are
being amortized over the remaining lives of the patents, which range from 13-17
years. Annual amortization of the patents is expected to be approximately
$1,148,000 per year for the next five years.
Research and Development
Research and development costs are charged to expense when incurred.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the tax basis and
financial reporting basis of certain assets and liabilities based upon currently
enacted tax rates expected to be in effect when such amounts are realized or
settled.
The Company has not recorded an income tax benefit for net operating losses
incurred of approximately $550,000, expiring in 2022. The Company is in the
development stage and realization of the losses is not considered more likely
than not. An income tax valuation allowance has been provided for the losses
realized to date. The amortization of patents and noncash stock compensation is
not deductible for tax purposes.
Basic and Diluted Loss Per Common Share
Basic and diluted loss per common share is computed based on the weighted
average number of common shares outstanding. Loss per share excludes the impact
of outstanding options, warrants, and convertible debt as they are antidilutive.
Potential common shares excluded from the calculation at December 31, 2002 are
1,371,398 shares issuable upon conversion of convertible debt and accrued
interest. Additionally, the Company is committed to issue 30,000 warrants (Note
4(e)).
Financial Instruments
The carrying amounts reported in the consolidated balance sheets for cash,
accounts payable and accrued expenses approximate fair value because of the
short-term nature of these amounts. The Company believes the fair value of its
fixed-rate borrowings approximates the market value.
Stock Options
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" (SFAS 123), and applies the intrinsic value method set forth in
Accounting Principles Board Opinion No. 25 for stock options granted to
employees and directors. The Company expenses the fair value of stock options
granted to nonemployees. As of December 31, 2002, the Company has not issued any
stock options.
F-7
Recent Accounting Pronouncements
In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." The standard requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination cost and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity.
Previous accounting guidance provided by
EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)" is replaced by this Statement. Statement 146 is to be
applied prospectively to exit or disposal activities initiated after December
31, 2002. Management does not anticipate that the adoption of this Statement
will have a significant effect on the Company's financial statements.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, including Indirect
Guarantees of Indebtedness of Others" ("Interpretation"). This Interpretation
elaborates on the existing disclosure requirements for most guarantees,
including loan guarantees such as standby letters of credit. It also clarifies
that at the time a company issues a guarantee, the company must recognize an
initial liability for the fair market value of the obligations it assumes under
that guarantee and must disclose that information in its interim and annual
financial statements. The initial recognition and measurement provisions of the
Interpretation apply on a prospective basis to guarantees issued or modified
after December 31, 2002. The Company does not expect the adoption of this
interpretation will have any impact on the financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure." SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 148 provides, among other
things, alternative methods of transition for a voluntary change to the fair
value method of accounting for stock-based compensation and requires pro forma
disclosures of the effect on net income and earnings per share had the fair
value method been used in annual and interim reports and disclosure of the
effect of the transition method used if the accounting method was changed. SFAS
No. 148 disclosures are effective for annual reports of fiscal years ending
after December 15, 2002 and interim reports ending after December 15, 2002. The
Company plans to use the intrinsic value method of accounting for stock-based
compensation if and when it issues stock options to its employees or directors.
2. RECAPITALIZATION AND MERGER
On April 23, 2002, Provectus Pharmaceutical, Inc., a Nevada corporation and a
Merger "blank check" public company, acquired Provectus Pharmaceuticals, Inc., a
privately held Tennessee corporation ("PPI"), by issuing 6,680,000 shares of
common stock of Provectus Pharmaceutical to the stockholders of PPI in exchange
for all of the issued and outstanding shares of PPI, as a result of which
Provectus Pharmaceutical changed its name to Provectus Pharmaceuticals, Inc.
(the "Company") and PPI became a wholly owned subsidiary of the Company. Prior
to the transaction, PPI had no significant operations and had not generated any
revenues.
For financial reporting purposes, the transaction has been reflected in the
accompanying financial statements as a recapitalization of PPI and the financial
statements reflect the historical financial information of PPI which was
incorporated on January 17, 2002. Therefore, for accounting purposes, the shares
recorded as issued in the reverse merger are the 265,763 shares owned by
Provectus Pharmaceuticals, Inc. shareholders prior to the reverse merger.
The issuance of 6,680,000 shares of common stock of Provectus Pharmaceutical,
Inc. to the stockholders of PPI in exchange for all of the issued and
outstanding shares of PPI was done in anticipation of PPI acquiring Valley
Pharmaceuticals, Inc, which owned the intellectual property to be used in the
Company's operations.
On November 19, 2002, the Company acquired Valley Pharmeceuticals, Inc,
("Valley") a privately-held Tennessee corporation by merging PPI with and into
Valley and naming the surviving company Xantech Pharmaceuticals, Inc. Valley had
F-8
no significant operations and had not generated any revenues. Valley was formed
to hold certain intangible assets which were transferred from an entity which
was majority owned by the shareholders of Valley. Those shareholders gave up
their shares of the other company in exchange for the intangible assets in a
non-pro rata split off. The intangible assets were valued based on the market
price of the stock given up in the split-off. The shareholders of Valley also
owned the majority of the shares of the Company at the time of the transaction.
The Company issued 500,007 shares of stock in exchange for the net assets of
Valley which were valued at $20,548,435 and included patents of $20,037,560 and
equipment and furnishings of $510,875.
3. COMMITMENTS
At December 31, 2002, the Company leases office and laboratory space in
Knoxville, Tennessee, on a month-by-month basis. The Company also has equipment
operating leases. Minimum future rental payments under noncancellable equipment
operating leases are as follows:
Year ending December 31, Leases
-------------------------------------------------------------
2003 $ 25,527
2004 15,214
2005 1,242
------------
Total $ 41,983
============
Total rental expense charged to operations for the year ended December 31,
2002 was $10,200.
4. EQUITY TRANSACTIONS
(a) During 2002, the Company issued 2,020,000 shares of stock in exchange
for consulting services. These services were valued based on the fair market
value of the stock exchanged which resulted in consulting costs charged to
operations of $5,504,000.
(b) During 2002, the Company issued 510,000 shares of stock to employees in
exchange for services rendered. These services were valued based on the fair
market value of the stock exchanged which resulted in compensation costs charged
to operations of $932,000.
(c) In February 2002, the Company sold 50,000 shares of stock to a related
party in exchange for proceeds of $25,000.
(d) In June 2002, the Company issued a warrant to a consultant for the
purchase of 100,000 shares at $2.29 per share. The warrant is only exercisable
upon the successful introduction of the Company to a designated pharmaceutical
company.
(e) In October 2002, the Company purchased 400,000 outstanding shares of
stock from one shareholder for $48,000. These shares were then retired.
(f) On December 5, 2002, the Company purchased the assets of Pure-ific
L.L.C, a Utah limited liability company, and created a wholly owned subsidiary
called Pure-ific Corporation, to operate the Pure-ific business which consists
of product formulations for Pure-ific personal sanitizing sprays, along with the
Pure-ific trademarks. The assets of Pure-ific were acquired through the issuance
of 25,000 shares of the Company's stock with a fair market value of $0.50 and
the issuance of various warrants. These warrants included warrants to purchase
10,000 shares of the Company's stock at an exercise price of $0.50 issuable on
the first, second and third anniversary dates of the acquisition. Accordingly,
the fair market value of these warrants of $14,500, determined using the
Black-Scholes option pricing model, was recorded as additional purchase price
for the acquisition of the Pure-ific assets. In addition, warrants to purchase
80,000 shares of stock at an exercise price of $0.50 will be issued upon the
achievement of certain sales targets of the Pure-ific product. At December 31,
2002, none of these targets have been met and accordingly, no costs have been
recorded.
F-9
PROVECTUS PHARMACEUTICALS, INC.
(A Development-Stage Company)
5. STOCK INCENTIVE PLAN
The Company maintains one long-term incentive compensation plan, the
Provectus Pharmaceuticals, Inc. 2002 Stock Plan, which provides for the issuance
of up to 1,000,000 shares of common stock pursuant to stock options, stock
appreciation rights, stock purchase rights and long-term performance awards
granted to key employees and directors of and consultants to the Company.
Options granted under the 2002 Stock Plan may be either "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code or
options which are not incentive stock options. The stock options are exercisable
over a period determined by the Board of Directors (through its Compensation
Committee), but generally no longer than 10 years after the date they are
granted. As of December 31, 2002, no options have been granted under this plan.
6. LONG-TERM CONVERTIBLE DEBT
Pursuant to a Convertible Secured Promissory Note and Warrant Purchase
Agreement dated November 26, 2002 (the "Purchase Agreement") between the Company
and Gryffindor Capital Partners I, L.L.C., a Delaware limited liability company
("Gryffindor"), Gryffindor purchased the Company's $1 million Convertible
Secured Promissory Note dated November 26, 2002 (the "Note"). The Note bears
interest at 8% per annum, payable quarterly in arrears, and is due and payable
in full on November 26, 2004. Subject to certain exceptions, the Note is
convertible into shares of the Company's common stock on or after November 26,
2003, at which time the principal amount of the Note is convertible into common
stock at the rate of one share for each $0.737 of principal so converted and
accrued but unpaid interest on the Note is convertible at the rate of one share
for each $0.55 of accrued but unpaid interest so converted.
The Company's obligations under the Note are secured by a first priority
security interest in all of the Company's assets, including the capital stock of
the Company's wholly owned subsidiary Xantech Pharmaceuticals, Inc., a Tennessee
corporation ("Xantech"). In addition, the Company's obligations to Gryffindor
are guaranteed by Xantech, and Xantech's guarantee is secured by a first
priority security interest in all of Xantech's assets.
Pursuant to the Purchase Agreement, the Company also issued to Gryffindor
and to another individual Common Stock Purchase Warrants dated November 26, 2002
(the "Warrants"), entitling these parties to purchase, in the aggregate, up to
452,919 shares of common stock at a price of $0.001 per share. Simultaneously
with the completion of the transactions described in the Purchase Agreement, the
Warrants were exercised in their entirety.
The $1,000,000 in proceeds received was allocated between the long-term
debt and the warrants on a pro-rata basis. The value of the warrants was
determined to be $126,587 using a Black-Scholes option pricing model. The fair
value of these warrants was recorded as a discount on the related debt and is
being amortized over the life of the debt using the interest method.
Amortization of $6,243 has been recorded as additional interest expense as of
December 31, 2002.
7. LOAN FROM SHAREHOLDER
During 2002, a shareholder who is also an employee and member of the
Company's board of directors, loaned the Company $109,000. Interest on the loan
is 5%, compounded monthly. Principal is due on December 31, 2009 and interest is
payable quarterly in arrears beginning on June 30, 2003.
F-10
EXHIBIT INDEX
Exhibit No. Description
------------ -----------
2.1* Agreement and Plan of Reorganization dated April 23, 2002, among
Provectus Pharmaceutical, Inc., a Nevada corporation
("Provectus"), Provectus Pharmaceuticals, Inc., a Tennessee
corporation ("PPI"), and the stockholders of PPI identified
therein, incorporated herein by reference to Exhibit 99 to the
Company's Current Report on Form 8-K dated April 23, 2002, as
filed with the SEC on April 24, 2002.
2.2* Agreement and Plan of Reorganization dated as of November 15,
2002 among the Company, PPI, Valley Pharmaceuticals, Inc., a
Tennessee corporation formerly known as Photogen, Inc., H. Craig
Dees, Ph.D., Dees Family Foundation, Walter Fisher, Ph.D., Fisher
Family Investment Limited Partnership, Walt Fisher 1998
Charitable Remainder Unitrust, Timothy C. Scott, Ph.D., Scott
Family Investment Limited Partnership, John T. Smolik, Smolik
Family LLP, Eric A. Wachter, Ph.D., and Eric A. Wachter 1998
Charitable Remainder Unitrust, incorporated herein by reference
to Exhibit 2.1 to the Company's Current Report on Form 8-K dated
November 19, 2002, as filed with the SEC on November 27, 2002.
2.3* Asset Purchase Agreement dated as of December 5, 2002 among
Pure-ific Corporation, a Nevada corporation ("Pure-ific"),
Pure-ific, L.L.C., a Utah limited liability company, and Avid
Amiri and Daniel Urmann, incorporated herein by reference to
Exhibit 2.1 to the Company's Current Report on Form 8-K dated
December 5, 2002, as filed with the SEC on December 20, 2002.
2.4* Stock Purchase Agreement dated as of December 5, 2002 among the
Company, Pure-ific, and Avid Amiri and Daniel Urmann,
incorporated herein by reference to Exhibit 2.2 to the Company's
Current Report on Form 8-K dated December 5, 2002, as filed with
the SEC on December 20, 2002.
3.1.1 Articles of Incorporation of Provectus, incorporated herein by
reference to Exhibit 3.i.2 to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 2001, as filed with
the SEC on April 17, 2002.
3.1.2 Articles of Merger of Provectus Pharmaceuticals, Inc., a Colorado
corporation, with and into Provectus, incorporated herein by
reference to Exhibit 3.i.3 to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 2001, as filed with
the SEC on April 17, 2002.
3.1.3+ Certificate of Amendment of Articles of Incorporation of
Provectus.
3.2 Bylaws of Provectus, incorporated herein by reference to Exhibit
3.ii to the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2001, as filed with the SEC on April 17,
2002.
4.1+ Specimen certificate for the common shares, $.001 par value per
share, of Provectus Pharmaceuticals, Inc.
4.2+ Convertible Secured Promissory Note and Warrant Purchase
Agreement dated as of November 26, 2002 between the Company and
Gryffindor Capital Partners I, L.L.C. ("Gryffindor").
4.3 Convertible Secured Promissory Note of the Company dated November
26, 2002, issued to Gryffindor, incorporated herein by reference
to Exhibit 4.2 to the Company's Current Report on Form 8-K dated
November 26, 2002, as filed with the SEC on December 10, 2002.
4.4 Common Stock Purchase Warrant dated November 26, 2002, issued to
Gryffindor, incorporated herein by reference to Exhibit 4.3 to
the Company's Current Report on Form 8-K dated November 26, 2002,
as filed with the SEC on December 10, 2002.
X-1
4.5 Common Stock Purchase Warrant dated November 26, 2002, issued to
Stuart Fuchs, incorporated herein by reference to Exhibit 4.4 to
the Company's Current Report on Form 8-K dated November 26, 2002,
as filed with the SEC on December 10, 2002.
4.6 Stock Pledge Agreement dated as of November 26, 2002 between the
Company and Gryffindor, incorporated herein by reference to
Exhibit 4.5 to the Company's Current Report on Form 8-K dated
November 26, 2002, as filed with the SEC on December 10, 2002.
4.7 Guaranty dated November 26, 2002 from Xantech Pharmaceuticals,
Inc., a Tennessee corporation and a wholly owned subsidiary of
Provectus ("Xantech"), to Gryffindor, incorporated herein by
reference to Exhibit 4.6 to the Company's Current Report on Form
8-K dated November 26, 2002, as filed with the SEC on December
10, 2002.
4.8 Form of Security Agreement between the Company and Gryffindor,
incorporated herein by reference to Exhibit 4.7 to the Company's
Current Report on Form 8-K dated November 26, 2002, as filed with
the SEC on December 10, 2002.
4.9 Form of Patent and License Security Agreement between the Company
and Gryffindor, incorporated herein by reference to Exhibit 4.8
to the Company's Current Report on Form 8-K dated November 26,
2002, as filed with the SEC on December 10, 2002.
4.10 Form of Trademark Collateral Assignment and Security Agreement
between the Company and Gryffindor, incorporated herein by
reference to Exhibit 4.9 to the Company's Current Report on Form
8-K dated November 26, 2002, as filed with the SEC on December
10, 2002.
4.11 Form of Copyright Security Agreement between the Company and
Gryffindor, incorporated herein by reference to Exhibit 4.10 to
the Company's Current Report on Form 8-K dated November 26, 2002,
as filed with the SEC on December 10, 2002.
4.12 Registration Rights Agreement dated as of November 26, 2002
between the Company and Gryffindor, incorporated herein by
reference to Exhibit 4.11 to the Company's Current Report on Form
8-K dated November 26, 2002, as filed with the SEC on December
10, 2002.
4.13* Shareholders' Agreement dated as of November 26, 2002 among
Provectus, Gryffindor, H. Craig Dees, Ph.D., Dees Family
Foundation, Walter Fisher, Ph.D., Fisher Family Investment
Limited Partnership, Walt Fisher 1998 Charitable Remainder
Unitrust, Timothy C. Scott, Ph.D., Scott Family Investment
Limited Partnership, John T. Smolik, Smolik Family LLP, Eric A.
Wachter, Ph.D., and Eric A. Wachter 1998 Charitable Remainder
Unitrust, incorporated herein by reference to Exhibit 4.12 to the
Company's Current Report on Form 8-K dated November 26, 2002, as
filed with the SEC on December 10, 2002.
4.14* Warrant Agreement dated as of December 5, 2002 among Provectus,
Avid Amiri and Daniel Urmann, incorporated herein by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K dated
December 5, 2002, as filed with the SEC on December 20, 2002.
X-2
4.15 Form of Warrant issuable pursuant to the Warrant Agreement,
incorporated herein by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-K dated December 5, 2002, as filed with
the SEC on December 20, 2002.
4.16*+ Promissory Note of the Company dated December 31, 2002, issued to
Eric A. Wachter.
10.1 Consultant Compensation Agreement dated April 23, 2002 among
Provectus and Russell Ratliff, Justeene Blankenship, Michael L.
Labertew, and Phillip Baker, incorporated herein by reference to
Exhibit 99.1 to the Company's Registration Statement on Form S-8
(Registration No. 333-86896), as filed with the SEC on April 24,
2002.
10.2** Provectus Pharmaceuticals, Inc. 2002 Stock Plan, incorporated
herein by reference to Exhibit 99.3 to the Company's Registration
Statement on Form S-8 (Registration No. 333-86896), as filed with
the SEC on April 24, 2002.
10.3+ Consulting Agreement dated August 15, 2002 between Provectus and
Numark Capital Corporation ("Numark").
10.4 Consulting Agreement dated August 28, 2002 between Provectus and
Robert S. Arndt, incorporated herein by reference to Exhibit 4.1
to the Company's Registration Statement on Form S-8 (Registration
No. 333-99639), as filed with the SEC on September 17, 2002.
10.5 Consulting Agreement dated August 28, 2002 between Provectus and
Nunzio Valerie, Jr., incorporated herein by reference to Exhibit
4.2 to the Company's Registration Statement on Form S-8
(Registration No. 333-99639), as filed with the SEC on September
17, 2002.
10.6 Letter Agreement dated June 7, 2002 between Provectus and Nace
Pharma, LLC, incorporated herein by reference to Exhibit
10.6 to the Company's Annual Report on Form 10-KSB/A dated
December 31, 2003, as filed with the SEC on October 7, 2004.
10.7+ Letter Agreement dated August 29,2002 between Provectus and Nace
Resources, Inc.
10.8+ Confidentiality, Inventions and Non-competition Agreement between
the Company and H. Craig Dees.
10.9+ Confidentiality, Inventions and Non-competition Agreement
between the Company and Timothy C. Scott.
10.10+ Confidentiality, Inventions and Non-competition Agreement
between the Company and Eric A. Wachter.
16.1 Letter of Bierwolf Nilson & Associates dated January 8, 2003,
pursuant to Item 304(a)(3) of Regulation S-B, regarding change of
certifying accountant, incorporated herein by reference to
Exhibit 16.1 to the Company's Current Report on Form 8-K dated
December 20, 2003.
21.1+ List of Subsidiaries.
23.1+ Consent of BDO Seidman, LLP.
31.1++ Certification Pursuant to Rule 13a-14(a) (Section 302
Certification), dated October 7, 2004, executed by H. Craig Dees,
Ph.D., Chief Executive Officer of the Company.
31.2++ Certification Pursuant to Rule 13a-14(a) (Section 302
Certification), dated October 7, 2004, executed by Peter R.
Culpepper, Chief Financial Officer of the Company.
32.1++ Certification Pursuant to 18 U.S.C. ss. 1350 (Section 906
Certification), dated October 7, 2004, executed by H. Craig Dees,
Ph.D., Chief Executive Officer of the Company, and Peter R.
Culpepper, Chief Financial Officer of the Company.
-----------------------------
X-3
* The Company agrees by this filing to supplementally furnish to the
SEC, upon request, a copy of the exhibits and/or schedules to this
agreement.
** Management compensation contract or plan.
+ Previously filed.
++ Filed herewith.
X-4
Exhibit 31.1
Certification Pursuant to Rule 13a-14(a)
Section 302 Certification
I, H. Craig Dees, Ph.D., the Chief Executive Officer of Provectus
Pharmaceuticals, Inc., certify that:
1. I have reviewed this annual report on Form 10-KSB/A of Provectus
Pharmaceuticals, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the small business issuer as of, and for, the periods
presented in this annual report;
4. The small business issuer's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
small business issuer, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
(b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this annual
report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(c) Disclosed in this report any change in the small business
issuer's internal control over financial reporting that occurred
during the small business issuer's most recent fiscal quarter
(the small business issuer's fourth fiscal quarter in the case of
an annual report) that has materially affected, or is reasonably
likely to materially affect, the small business issuer's internal
control over financial reporting; and.
5. The small business issuer's other certifying officer and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the small business issuer's auditors and
the audit committee of small business issuer's board of directors (or
persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal control over financial reporting which are reasonably
likely to adversely affect the small business issuer's ability to
record, process, summarize and report financial data and have
identified for the small business issuer's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business
issuer's internal controls.
Date: October 7, 2004
/s/ H. Craig Dees
----------------------------------
H. Craig Dees, Ph.D.
Chief Executive Officer
X-5
Exhibit 31.2
Certification Pursuant to Rule 13a-14(a)
Section 302 Certification
I, Peter R. Culpepper, the Chief Financial Officer of Provectus
Pharmaceuticals, Inc., certify that:
1. I have reviewed this annual report on Form 10-KSB/A of Provectus
Pharmaceuticals, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the small business issuer as of, and for, the periods
presented in this annual report;
4. The small business issuer's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
small business issuer, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
(b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this annual
report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(c) Disclosed in this report any change in the small business
issuer's internal control over financial reporting that occurred
during the small business issuer's most recent fiscal quarter
(the small business issuer's fourth fiscal quarter in the case of
an annual report) that has materially affected, or is reasonably
likely to materially affect, the small business issuer's internal
control over financial reporting; and.
5. The small business issuer's other certifying officer and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the small business issuer's auditors and
the audit committee of small business issuer's board of directors (or
persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal control over financial reporting which are reasonably
likely to adversely affect the small business issuer's ability to
record, process, summarize and report financial data and have
identified for the small business issuer's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business
issuer's internal controls.
Date: October 7, 2004
/s/ Peter R. Culpepper
------------------------------------
Peter R. Culpepper
Chief Financial Officer
X-6
Exhibit 32.1
Certification Pursuant to 18 U.S.C. ss. 1350
Section 906 Certifications
Pursuant to 18 U.S.C. ss. 1350, as enacted by Section 906 of the
Sarbanes-Oxley Act of 2002 (Public Law 107-204), the undersigned, H. Craig Dees,
Ph.D., the Chief Executive Officer of Provectus Pharmaceuticals, Inc., a Nevada
corporation (the "Company"), and Peter R. Culpepper, the Chief Financial Officer
of the Company, hereby certify that:
1. The Company's Annual Report on Form 10-KSB/A for the year ended December
31, 2002, as filed with the U.S. Securities and Exchange Commission on the
date hereof (the "Report"), fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
This Certification is signed on October 7, 2004.
/s/ H. Craig Dees
-------------------------------------
H. Craig Dees, Ph.D.
Chief Executive Officer
Provectus Pharmaceuticals,Inc.
/s/ Peter R. Culpepper
-------------------------------------
Peter R. Culpepper
Chief Financial Officer
Provectus Pharmaceuticals, Inc.
X-7