UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 20182019

or

For the transition period from              to

Commission file number 001-36457

PROVECTUS BIOPHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

866-594-5999

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant: (1) has 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. [X] Yes [  ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [  ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [  ] Yes [X] No

The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of July 31, 2018,August 6, 2019, was 383,111,028.387,591,975.

TABLE OF CONTENTS

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” as defined under U.S. federal securities laws. These statements reflect management’s current knowledge, assumptions, beliefs, estimates, and expectations. These statements also express management’s current views of future performance, results, and trends and may be identified by their use of terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “plan,” “predict,” “project,” “should,” “strategy,” “will,” “wish,” and other similar terms. Forward-looking statements are subject to a number of risks and uncertainties that could cause our actual results to materially differ from those described in the forward-looking statements. Readers should not place undue reliance on forward-looking statements. Such statements are made as of the date of this Quarterly Report on Form 10-Q, and we undertake no obligation to update such statements after this date, unless otherwise required by law.

Risks and uncertainties that could cause our actual results to materially differ from those described in forward-looking statements include those discussed in our filings with the U.S. Securities and Exchange Commission (the “SEC”) (including those described in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2017)2018), and the following:

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTSSTATEMENTS.

PROVECTUS BIOPHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

See accompanying notes to condensed consolidated financial statements.

PROVECTUS BIOPHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

PROVECTUS BIOPHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSCOMPREHENSIVE LOSS

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

PROVECTUS BIOPHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIENCY

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

PROVECTUS BIOPHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

PROVECTUS BIOPHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Business Organization, Nature of Operations and Basis of Presentation

Provectus Biopharmaceuticals, Inc., a Delaware corporation (together with its subsidiaries, “Provectus” or the “Company”), is a clinical-stage biotechnology company that is developing a new class of drugs for oncology, hematology, and dermatology based on an entire, wholly-owned, family of small molecules called halogenated xanthenes. Intralesional PV-10 is undergoing clinical study for adult solid tumor cancers, like melanoma and gastrointestinal cancers, and preclinical study for pediatric cancers. Topical PH-10 is undergoing clinical study for inflammatory dermatoses, like psoriasis and atopic dermatitis. xanthenes:

To date, the Company has not generated any revenues from planned principal operations. The Company’s activities are subject to significant risks and uncertainties, including failing to successfully develop and license or commercialize the Company’s prescription drug candidates.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information pursuant to Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be reviewed in conjunction with the Company’s audited consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 20172018 filed with the U.S. Securities and Exchange Commission (the “SEC”)SEC on March 23, 2018.7, 2019. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 20182019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.2019.

2. Liquidity and Going Concern

The Company’s cash and cash equivalents were $130,633$1,324,228 at June 30, 2018, compared with $105,504 at December 31, 2017.2019. The Company continues to incur significant operating losses. Management expects that significant on-going operating expenditures will be necessary to successfully implement the Company’s business plan and develop and market its products. These circumstances raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these financial statements are issued. Implementation of the Company’s plans and its ability to continue as a going concern will depend upon the Company’s ability to develop PV-10 and PH-10, and to raise additional capital.

The Company plans to access capital resources through possible public or private equity offerings, including the 2017 Financing (as defined in Note 4), exchange offers, debt financings, corporate collaborations or other means. In addition, the Company continues to explore opportunities to strategically monetize its lead drug candidates, PV-10 and PH-10, through potential co-development and licensing transactions, although there can be no assurance that the Company will be successful with such plans. The Company has historically been able to raise capital through equity offerings, butalthough no assurance can be provided that it will continue to be successful in the future. If the Company is unable to raise sufficient capital through the 2017 Financing or otherwise, it will not be able to pay its obligations as they become due. Subsequent to June 30, 2018, the Company received aggregate Loans of $300,000 in connection with the 2017 Financing. See Note 7 – Subsequent Events.

The primary business objective of management is to build the Company into a fully integrated globalcommercial-stage biotechnology company. Thecompany; however, the Company however, cannot assure you that it will be successful in co-developing, licensing, and/or licensingcommercializing PV-10, PH-10, and/or any other halogenated xanthene-based drug product candidate developed by the Company, or entering into any commercial financial transaction. Moreover, even if the Company is successful in improving its current cash flow position, the Company nonetheless plans to seek additional funds to meet its long-term requirements in 20182019 and beyond. The Company anticipates that these funds will otherwise come from the proceeds of private placement transactions, including the 2017 Financing, the exercise of existing warrants and outstanding stock options, or public offerings of debt or equity securities. While the Company believes that it has a reasonable basis for its expectation that it will be able to raise additional funds, the Company cannot provide assuranceassure you that it will be able to complete additional financing in a timely manner. In addition, any such financing may result in significant dilution to stockholders.

3. SignificantCritical Accounting Policies

The Company’s significant accounting policies are disclosed in Note 3 – Significant Accounting Policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. Since the date of the Company’s December 31, 2018 consolidated financial statements were issued in its 2018 Annual Report, there have been no material changes to the Company’s significant accounting policies, except as disclosed below.

Recent Accounting PronouncementsLeases

In May 2017,February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updatea new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of operating lease right-of-use (“ASU”ROU”) No. 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”). ASU 2017-09 provides clarityassets and lease liabilities on the accounting for modifications of stock-based awards. ASU 2017-09 requires adoption on a prospective basisbalance sheet (“ASC 842”) with amendments issued in 2018. Most prominent among the changes in the annualstandard is the recognition of ROU assets and interim periods beginning after December 15, 2017lease liabilities by lessees for share-based payment awards modified on or afterthose leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The Company is also required to recognize and measure new leases at the adoption date. date and recognize a cumulative-effect adjustment in the period of adoption using a modified retrospective approach, with certain practical expedients available.

The adoption of this ASUCompany adopted ASC 842 effective January 1, 2019 and elected to apply the available practical expedients. The standard had an impact on the Company’s condensed consolidated balance sheets but did not have a material impact on the Company’s condensed consolidated financial statements.

In March 2018,statements of operations or condensed consolidated statements of cash flows upon adoption. The most significant impact was the FASB issued ASU No. 2018-05, “Income Taxes (Topic 740), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118” (“ASU 2018-05”). ASU 2018-05 adds various “SEC” paragraphs pursuant torecognition of ROU assets and lease liabilities for operating leases, while the issuance of the December 2017 SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which was effective immediately.Company’s accounting for finance leases remained substantially unchanged. The SEC issued SAB 118 to address concerns about reporting entities’ ability to timely comply with the accounting requirements to recognize all of the effects of the Tax Cuts and Jobs Act in the period of enactment. SAB 118 allows disclosure that timely determination of some or all of the income tax effects from the Tax Cuts and Jobs Act are incomplete by the due date of the financial statements and if possible to provide a reasonable estimate. The Company has accounted for the tax effects of the Tax Cuts and Jobs Act under the guidance of SAB 118 and does not believe that the adoption of ASU 2018-05 willASC 842 did not have a material impact in the current year and prior year comparative periods and as a result, a cumulative-effect adjustment was not required.

Reclassifications

Certain prior year balances have been reclassified in order to conform to current year presentation. These reclassifications have no effect on previously reported results of operations or loss per share.

Stock-Based Compensation

The Company measures the cost of services received in exchange for an award of equity instruments based on the Company’s condensed consolidated financial statements or disclosures.

In June 2018,fair value of the FASB issued ASU No. 2018-07, “Compensation — Stock Compensation (Topic 718), Improvementsaward. The fair value of the award is measured on the grant date and then is recognized over the period during which services are required to Nonemployee Share-Based Payment Accounting” (“ASU 2018-07”). ASU 2018-07 is intended to reduce cost and complexity and to improve financial reportingbe provided in exchange for nonemployee share-based payments. Currently, the accounting requirements for nonemployee and employee share-based payment transactions are significantly different. ASU 2018-07 expandsaward, usually the scope of Topic 718, Compensation — Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. This ASU supersedes Subtopic 505-50, Equity — Equity-Based Payments to Nonemployees. The amendments in this ASU are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606, Revenue from Contracts with Customers.vesting period. The Company is currently evaluating ASU 2018-07computes the fair value of equity-classified warrants and its impact onoptions granted using the Black-Scholes option pricing model. Option valuation models require the input of highly subjective assumptions including the expected volatility factor of the market price of the Company’s condensed consolidated financial statements.common stock which is determined by reviewing its historical public market closing prices.

4. Convertible Notes Payable

On March 23, 2017, the Company entered into an exclusive Definitive Financing Commitment Term Sheet with a group of the Company’s stockholders (the “PRH Group”), which was amended and restated effective as of March 19, 2017 (the “Term Sheet”) that set forth the terms on which the PRH Group would use their best efforts to arrange for a financing of a minimum of $10,000,000 and maximum of $20,000,000 (the “2017 Financing”).

The 2017 Financing isAs of June 30, 2019, the Company had received aggregate loans of $18,782,000 in the form of secured convertible loans (the “Loans”) from the PRH Group or other investors inconnection with the 2017 Financing (the “Investors”). The Loans are evidenced by secured convertible promissory notes (individually a “PRH Note” and collectively, the “PRH Notes”) from the Company to the PRH Group or the investors.

The principal amounts of the PRH Notes and the interest payable under the Loan would automatically convert into shares of the Company’s Series D Preferred Stock at a price per share equal to $0.2862 effective on the 18-month anniversary of the funding of the final tranche of the 2017 Financing subject to certain exceptions if the Company’s Board designates such series of preferred stock in the future.Financing.

As of June 30, 2018,2019, and through the date of filing, the Series D Preferred Stock had not been designated by the Company’s Board and, accordingly, the PRH Notes are not convertible into shares of Series D Preferred Stock.Directors (the “Board”). As a result, the Company did not analyze the Loanloan for a potential beneficial conversion feature as the definition of a firm commitment has not been met since the PRH Notes were not convertible as of their respective dates of issuance or as of June 30, 2018.

As of June 30, 2018, the Company had received aggregate Loans of $12,362,000 in connection with the 2017 Financing from both non-related and related parties. For further details on the terms of the PRH Notes, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 as filed with the SEC on March 23, 2018.2019.

Convertible Notes Payable – Related Parties

On February 21, 2017, the Company issued a promissory note in favor of Eric A. Wachter, Ph.D., the Company’s Chief Technology Officer (“Wachter”), evidencing an unsecured loan from Wachter to the Company in the original principal amount of up to $2,500,000 (the “Wachter Note”). Interest accrues on the outstanding balance of the Wachter Note at six percent (6%) per annum calculated on a 360-day basis.

On April 3, 2017, the Company entered into a PRH Note with Cal Enterprises LLC, a Nevada limited liability company, an affiliate of Dominic Rodrigues, a director of the Company, in the principal amount of up to $2,500,000. As of June 30, 2018, the Company had borrowed the entire $2,500,000 under this note.

During the six months ended June 30, 2018, the Company amended the above notes to modify the maturity date from 24 months to 18 months in order to be consistent with the other outstanding PRH Notes. The actual maturity dates will be determined after the completion of the 2017 Financing.

During the six months ended June 30, 2018,2019, the Company entered into additional related party PRH Notes with related parties in the aggregate principal amount of $950,000. $25,000.

As of June 30, 2018,2019, the Company had drawn down the entire $950,000 under these notes.borrowed $6,895,000 of related party PRH Notes that were outstanding.

Convertible Notes Payable – Non-Related Parties

During the six months ended June 30, 2018,2019, the Company entered into additional non-related party PRH Notes with accredited investors in the aggregate principal amount of $1,956,000. $4,825,000.

As of June 30, 2018,2019, the Company had drawn down the entire $1,956,000 under these notes. Included in the $1,956,000 is oneborrowed $11,887,000 of non-related party PRH note totaling $500,000 with terms of principal and interest due twenty-four (24) months from date of signing. This note will mature in June 2020.Notes that were outstanding.

5. Receivables

The following table summarizes the receivables at June 30, 2019 and December 31, 2018:

During the six months ended June 30, 2019, officers of the Company offset their settlement amounts owed to the Company against accrued payroll and other payables totaling $252,750. This offset reduced the amount of the settlement and was approved by the Company’s Board.

6. Stockholders’ Deficiency

Common Stock

During the six months ended June 30, 2019, the Company issued an aggregate of 191,590 shares of immediately vested restricted common stock to an employee and consultants with an issuance date fair value of $8,962, which was recognized immediately.

Exercise of Warrants

During the six months ended June 30,2018,30, 2019, the Company issued 387,500 five-year immediately vested warrants to a consultant to purchase an aggregate of 387,500 shares of common stock with exercise prices ranging from $1.00 to $2.00 per share. The warrants had an aggregate grant date fair value of $10,113, which was recognized immediately under stock compensation in general and administrative.

In applying the Black-Scholes option pricing model to warrants issued, the Company used the following assumptions:

During the six months ended June 30, 2019, warrant holders exercised warrants to purchase an aggregate of 11,149,577100,000 shares of commonscommon stock at a price of $0.0533 per share. In connection with these exercises, the Company received aggregate cash proceeds of $594,273$5,330 and issued 11,149,577100,000 shares of common stock to the warrant holders.

Other Common Stock Issuances7. Leases

DuringThe Company currently leases 4,500 square feet of corporate office space in Knoxville, Tennessee through an operating lease agreement for a term of five years ending on June 30, 2022. Payments range from approximately $7,300 to $7,800 per month.

Total rent expense for the six months ended June 30, 2019 was $57,134, of which, $38,089 was included within research and development and $19,045 was included within general and administrative expenses on the condensed consolidated statement of operations. Total rent expense for the six months ended June 30, 2018 was $44,233, of which, $29,489 was included within research and development and $14,744 was included within general and administrative expenses on the Company issued 1,000,000 sharescondensed consolidated statement of common stock in paymentoperations. Total rent expense during the three months ended June 30, 2019 was $22,329, of services with a grant date fair valuewhich, $14,886 was included within research and development and $7,443 was included within general and administrative expenses on the condensed consolidated statement of $80,000.operations. Total rent expense during the three months ended June 30, 2018 was $22,080, of which, $14,720 was included within research and development and $7,360 was included within general and administrative expenses on the condensed consolidated statement of operations.

As of June 30, 2019, the Company had no leases that were classified as a financing lease. As of June 30, 2019, the Company did not have additional operating and financing leases that have not yet commenced. 

As the fair market value

A summary of the service was not readily determinable, the service was valued based on the fair market valueCompany’s right-of-use assets and liabilities is as follows:

Future minimum payments under non-cancellable lease as of the stock at grant date.June 30, 2019 were as follows:

6.8. Commitments, Contingencies and Litigation

Culpepper Travel Expenses and Related Collection Efforts

On December 27, 2016, the Company’s Boardthen-Board of Directors (the “then-Board”) unanimously voted to terminate then-interim Chief Executive Officer, then-Chief Operating Officer, and former Chief Financial Officer, Peter Culpepper (“Culpepper”), effective immediately, from all positions he held with the Company and each of its subsidiaries, including interim Chief Executive Officer and Chief Operating Officer of the Company, “for cause”,cause,” in accordance with the terms of the Amended and Restated Executive Employment Agreement entered into by Culpepper and the Company on April 28, 2014 (the “Culpepper Employment Agreement”), based on the results of the investigation conducted by the Audit Committee of the Board of Directorsthen-Board regarding improper expense reimbursements to Culpepper.

The Audit Committee retained independent counsel and an advisory firm with forensic accounting expertise to assist the Audit Committee in conducting the investigation. The Audit Committee found that Culpepper received $294,255 in expense reimbursements that were unsubstantiated or otherwise improper. The Company seeks to recover from Culpepper the entire $294,255 in expense reimbursements, as well as all attorney’s fees and auditors’/experts’ fees incurred by the Company in connection with the examination of his expense reimbursements. On December 12, 2017, Culpepper agreed to an order by the SEC to pay disgorgement of $140,115, and prejudgment interest of $12,261, for a total of $152,376, to the Company within 30 days. The Company received the payment of $152,376 in January 2018.

The Company takestook the position that under the terms of the Culpepper Employment Agreement, Culpepper is owed no severance payments as a result of his termination “for cause” as that term is defined in the Culpepper Employment Agreement. Furthermore, Culpepper is no longer entitled to the 2:1 credit under the Stipulated Settlement Agreement and Mutual Release in the Kleba Derivative Lawsuit Settlement (the “Derivative Lawsuit Settlement”) such that the total $2,240,000 owed by Culpepper pursuant to the Derivative Lawsuit Settlement plus Culpepper’s proportionate share of the litigation cost in the amount of $227,750, less the amount that he repaid as of December 31, 2016, is immediately due and payable. The Company sent Culpepper a notice of default in January 2017 for the total amount he owes the Company and is in the process of pursuing these claims in accordance with the alternative dispute resolution provision of the Culpepper Employment Agreement. The Company has established a reserve of $2,051,083 as of June 30, 20182019 and December 31, 2017,2018, which amount represents the amount the Company currently believes Culpepper owes to the Company under the Derivative Lawsuit Settlement (excluding the amount of attorneys’ fees incurred in enforcing the terms of the Derivative Lawsuit Settlement), while the Company pursues collection of this amount.

Culpepper disputesdisputed that he was terminated “for cause” under the Culpepper Employment Agreement. Pursuant to the alternative dispute resolution provisions of that agreement, the Company and Culpepper participated in a mediation of their dispute on June 28, 2017. Having reached no resolution during the mediation, the parties participated in arbitration under the commercial rules of the American Arbitration Association, arbitrating both Culpepper’s claim for severance against Provectusthe Company and Provectus’the Company’s claims against Culpepper for improper expense reimbursements and amounts Culpepper owes Provectusthe Company under the Derivative Lawsuit Settlement (the “Culpepper Arbitration”). The Culpepper Arbitration hearing was held from May 15 2018 throughto May 18, 2018.

On July 12, 2018, the arbitrator issued an interim award in favor of the Company, the terms of which are confidential pursuant to the terms of the Culpepper Employment Agreement and instructed the parties that a final award iswas forthcoming.

The Bible Harris Smith Lawsuit

On November 17, 2016,September 12, 2018, the arbitrator issued his final award in favor of the Company. On October 4, 2018, the Company filed a lawsuitpetition with the Chancery Court for Davidson County, Tennessee to confirm the arbitration award. On November 7, 2018, the Company received Culpepper’s answer to the petition filed on October 4, 2018. This court entered an order confirming the arbitrator’s award on January 23, 2019. On February 20, 2019, Culpepper filed a motion to alter or amend this judgment. On March 22, 2019, the Chancery Court upheld the arbitration award in favor of the Company. On April 16, 2019, Culpepper filed a Notice of Appeal with the Tennessee Court of Appeals regarding the judgment confirming the arbitration award and the order denying Culpepper’s motion to alter or amend the judgment (the “Culpepper Appeal”). Culpepper has submitted a Culpepper Appeal brief, and the Company plans to submit a Culpepper Appeal brief in the Circuit Court for Knox County, Tennessee against Bible Harris Smith PC (“BHS”) for professional negligence, common law negligence and breachthird quarter of fiduciary duty arising from accounting services provided by BHS to the Company. The Company alleges that between 2013 and 2015, Dees received approximately $2.4 million in advanced or reimbursed travel and entertainment expenses from the Company and that Dees did not submit back-up documentation in support of substantially all of the advances he received purportedly for future travel and entertainment expenses. The Company further alleges that had BHS provided competent accounting and tax preparation services, it would have discovered Dees’ failure to submit back-up documentation supporting the advanced travel funds at the inception of Dees’ conduct, and prevented the misuse of these and future funds. The Company has made a claim for damages against BHS in an amount in excess of $3 million. The complaint against BHS has been filed and served, an answer has been received, and the parties are in the midst of discovery. BHS filed a Motion for Summary Judgment, which was denied in full by the Court on June 21, 2018.2019.

The RSM LawsuitWachter Kleba Settlement Agreement Satisfaction

On June 9, 2017,Pursuant to the terms and conditions of the Stipulated Settlement Agreement and Mutual Release made and entered into by and between the Company filed a lawsuit(then-Provectus Pharmaceuticals, Inc.) and Eric A. Wachter, Ph.D. on June 6, 2014, and consented to and approved by Glenn Kleba and Don B. Dale (the “Plaintiffs”), derivatively on behalf of the Company in the Circuit CourtPlaintiffs’ shareholder derivative lawsuit (the “Kleba Settlement Agreement”), Dr. Wachter completed prepayment of Mecklenburg County, North Carolina against RSM USA LLP (“RSM”)his Cash Repayment Obligations (as defined in the Kleba Settlement Agreement) on June 28, 2019. Dr. Wachter’s Cash Repayment Obligations equaled (i) the Reduced Repayment Amount (as defined in the Kleba Settlement Agreement) of $1,199,303, including imputed interest, plus (ii) Dr. Wachter’s pro rata portion of the Company’s Litigation Costs (as defined in the Kleba Settlement Agreement) of $227,750, for professional negligence, common law negligence, gross negligence, intentional misrepresentation, negligent misrepresentation and breach of fiduciary duty arising from accounting, internal auditing and consulting services provided by RSMa total payment to the Company. The Company alleges that between 2013of $1,427,053. Pursuant to the terms and 2015, Dees received approximately $2.4 million in advanced or reimbursed travel and entertainment expenses from the Company and that Dees did not submit back-up documentation in support of substantially allconditions of the advances he received purportedlyStock Pledge Agreement related to the Kleba Settlement Agreement, satisfaction of his Cash Repayment Obligations removed the Company’s first-priority security interest in 1,000,000 shares of the Company’s common stock beneficially owned by Dr. Wachter, which had served as collateral for future travel and entertainment expenses. The Company similarly alleges that Culpepper received $294,255 in travel expense reimbursements and advances that were unsubstantiated. The Company further alleges that had RSM provided competent accounting, internal audit and consulting services, it would have discovered Dees’ and Culpepper’s conduct at its inception and prevented the misuse of these and future funds. The Company has made a claim for damages against RSM in an amount in excess of $10 million. The Complaint against RSM has been filed and RSM has movedCash Repayment Obligations owed to dismiss the Complaint. The motion to dismiss has been briefed and argued and the parties are awaiting a ruling.Company.

The BDO Matter

On November 16, 2017, the Company filed a demand for arbitration with the American Arbitration Association that alleged professional negligence, common law negligence, gross negligence, intentional misrepresentation, negligent misrepresentation, and breach of fiduciary duty by the Company’s former external audit firm, BDO USA LLP (“BDO”), arising from accounting, external auditing, and consulting services provided by BDO related to travel and expense advances and reimbursements received by Dees and former Company executive Culpepper. During the quarter ended June 30, 2018, this matter was resolved pursuant to a settlement between the parties, the terms of which are confidential.

Subsequent to June 30, 2018, the proceeds from the settlement were received.

7.9. Subsequent Events

Convertible Notes PayableExercise of Warrants

Subsequent to June 30, 2018,2019, warrant holders exercised warrants to purchase an aggregate of 2,985,857 shares of common stock at $0.0533 per share. In connection with these exercises, the Company entered into a PRH Note with a related party in the principal amount of $200,000 and a PRH Note with a non-related party in the principal amount of $100,000. The Company has received theaggregate cash proceeds of $300,000 relating$159,146 and issued 2,985,857 shares of common stock to these notes.the warrant holders.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion is intended to assist in the understanding and assessment of significant changes and trends related to our results of operations and our financial condition together with our consolidated subsidiaries. This discussion and analysis should be read in conjunction with the accompanying unaudited financial statements and our Annual Report on Form 10-K for the year ended December 31, 20172018 filed with the SEC on March 7, 2019 (“20172018 Form 10-K”), which includes additional information about our critical accounting policies and practices and risk factors. Historical results and percentage relationships set forth in the statement of operations, including trends which might appear, are not necessarily indicative of future operations.

Overview of Core Technologies

Provectus is a clinical-stage biotechnology company developing a new class of drugs for oncology, hematology, and dermatology based on an entire, wholly-owned, family of chemical small molecules called halogenated xanthenes, such as Rose Bengalrose bengal (4,5,6,7-tetrachloro-2’,4’,5’,7’-tetraiodofluorescein). Intralesional (aka intratumoral) PV-10, the first small molecule oncolytic immunotherapy, which can induce immunogenic cell death, is undergoing clinical study for adult solid tumor cancers, like melanoma and gastrointestinal cancers,GI tumors (like hepatocellular carcinoma, metastatic colorectal cancer, metastatic neuroendocrine tumors, and metastatic uveal melanoma, among others), and preclinical study for pediatric cancers.solid tumor cancers (like neuroblastoma, Ewing sarcoma, rhabdomyosarcoma, and osteosarcoma) and blood cancers (like leukemia). Topical PH-10 is undergoing clinical study for inflammatory dermatoses like psoriasis and atopic dermatitis.

Our Core Science and Technology

Oncology.PV-10 is an injectable formulation of rose bengal disodium (4,5,6,7-tetrachloro-2’,4’,5’,7’-tetraiodofluorescein disodium salt). PV-10 drug product is a bright rose red solution containing 10% w/v rose bengal disodium in 0.9% saline for injection, which is supplied in single-use glass vials containing 5 mL (to deliver) of solution and administered without dilution to solid tumors via intralesional (intratumoral) injection. PV-10 selectively accumulates in the lysosomes of cancer cells. Physicochemical properties of lysosomes trap PV-10. Lumenal pH of 4.5 to 5 is ideal for the conversion of soluble rose bengal disodium into insoluble rose bengal lactone.

Lysosomes are the central organelles for intracellular degradation of biological macromolecules and organelles. Discovered by Christian de Duve, M.D. in 1955, lysosomes have been linked with a number of biological processes like cell death, inflammasome activation, and immune response. In 1959, Dr. de Duve described lysosomes as “suicide bags,” because their rupture led to cell death and tissue autolysis. Lysosomes have been shown to play a role in each of the three major, distinct pathways of cell death, which are apoptosis, autophagy, and necrosis. Dr. de Duve was awarded the Nobel Prize in 1974 for discovering and characterizing lysosomes.

Provectus showed that PV-10 selectively accumulates in the lysosomes of cancer cells and disrupts them, causing the cancer cells to die. PV-10 (rose bengal) has also been shown by Provectus and independent researchers to trigger each major, distinct form of lysosomal cell death; that is, apoptosis, autophagy, and necrosis.

PV-10’s lysosomal targeting comprises:

Dermatology.For psoriasis, pathways significantly improved include published psoriasis transcriptomes and cellular responses mediated by IL-17, IL-22, and interferons. Clinical work has shown that more than 500 disease-related genes were down-regulated after four weeks of PH-10 application and expression of a wide-range of central “psoriasis related” genes including IL-23, IL-17, IL-22, S100A7, IL-19, IL-36, and CXCL1 were effectively normalized – treated lesional skin had values in the same range as baseline non-lesional skin.

Our approachDrug Development Strategy for Oncology

The Company’s strategy is designed to (i) demonstrate the single-agent activity of PV-10; that is, safety and activity in T cell and non-T cell inflamed tumor types, and in high and low tumor mutation burden tumor types, (ii) demonstrate the T cell response generated by PV-10 treatment, and (iii) contrast and compare PV-10 treatment – safety, activity, and induced immune response – with that of checkpoint inhibitor (“CI”) and other drug classes in monotherapy and combination therapy settings.

We believe this strategy should quicken the advancement of single-agent PV-10 along a pathway-to-approval in solid tumor cancer indications where there is high unmet need, limited activity from other therapies, and the opportunity to display the immune response from PV-10 treatment, such as for metastatic neuroendocrine tumors (NCT02693067). This strategy also should permit the Company to develop and advance a cancer combination therapy involving a CI or other drug class along a pathway-to-approval in a disease indication where there is high unmet need, limited activity from standard of care (“SOC”) treatment, and the opportunity to display how PV-10 augments clinical response to existing or emerging SOCs, such as for metastatic uveal melanoma (i.e., combination therapy with anti-CTLA-4 and anti-PD-1 agents) (NCT00986661).

Our Drug Development Strategy for Dermatology

The Company’s strategy is designed to (i) demonstrate 12-week single-agent administration proof-of-concept (“POC”) for PH-10 that includes (a) a preclinical safety study of extended 12-week administration (compared to, previously, four weeks), (b) a clinical mechanism of action study in atopic dermatitis, which would be a “book-end” trial to the already completed clinical mechanism study in psoriasis, (c) Phase 2 randomized controlled trials of PH-10 for the treatment of psoriasis and atopic dermatitis that may potentially utilize SOC comparators, and (d) End-of-Phase 2 meetings with the FDA upon the completion of the abovementioned Phase 2 trials, and (ii) expand POC PH-10 treatment to include dermatology combination therapy. Our goal for this POC work is to achieve Phase 3 trial-ready status for PH-10 in both psoriasis and atopic dermatitis.

Components of Operating Results

Research and Development Expenses

A large component of our total operating expenses is the Company’s investment in research and development comprises two related, complementary,activities, including the clinical development program paths based on the features of our investigational drugsproduct candidates. Research and their clinically rational applicabilitydevelopment expenses represent costs incurred to different patient populations. In solid tumor cancers for adults, for example, we believe PV-10 has important implicationsconduct research and undertake clinical trials to develop our drug product candidates. We recognize all research and development costs as a single agent for earlier states of disease (i.e., locally advanced disease, or Stage III or earlier), whilethey are incurred. Clinical trial costs, contractor labor, personnel cost, and other research and development-based costs incurred by third parties are expensed as the combination of PV-10 with other classes of therapy or therapeutic agent (e.g., chemotherapy, immunotherapy, radiotherapy, targeted therapy)contracted work is more appropriate for more advanced disease states (i.e., widely metastatic disease, or Stage IV).performed.

We expect our research and development expenses to increase in the future as we advance our existing product candidates through clinical trials and pursue their regulatory approval. Undertaking clinical development and pursuing regulatory approval are both costly and time-consuming activities. As a result of known and unknown uncertainties, we are unable to determine the duration and completion costs of our research and development activities, or if, when, and to what extent we will generate revenue from any subsequent commercialization and sale of our drug product candidates.

General and Administrative Expenses

General and administrative expenses include personnel costs, expenses for outside professional services, and other allocated expenses. Personnel costs consists of salaries, benefits, and stock-based compensation. Outside professional services consist of accounting and audit services, administrative services, and other consulting fees.

Results of Operations

Comparison of the Three Months Ended June 30, 20182019 and June 30, 20172018

Overview

Research and Development Expenses

Research and development expenses decreased by $1,265,651, from $2,252,890were $1,208,324 for the three months ended June 30, 20172019, an increase of $221,085 or 22% compared to $987,239the three months ended June 30, 2018. The increase was due to (i) higher clinical operations costs from closure activities related to our Phase 3 clinical trial (PV-10 Intralesional Injection vs Systemic Chemotherapy or Oncolytic Viral Therapy for Treatment of Locally Advanced Cutaneous Melanoma), partially offset by (ii) lower insurance costs, and (iii) a decrease in payroll and related taxes due to a lower negotiated employment agreement.

The following table summarizes our research and development expenses incurred during the three months ended June 30, 2019 and June 30, 2018:

General and Administrative Expenses

General and administrative expenses were $631,063 for the three months ended June 30, 2019, a decrease of $476,674 or 43% compared to the three months ended June 30, 2018. The decrease was due to (i) lower legal fees as we concluded the Company’s lawsuits against former accounting vendors, (ii) a decrease in payroll and related taxes, and (iii) lower professional fees, partially offset by (iii) increased director fees (from having, period-over-period, a five-member Board compared to a four-member Board in previous year).

The following table summarizes our general and administrative expenses incurred during the three months ended June 30, 2019 and June 30, 2018:

Other Income/(Expense)

Other income decreased by $854,722 from $873,241 for the three months ended June 30, 2018 a decrease of approximately 56% year-over-year. The decreaseto $18,519 for the three months ended June 30, 2019. In the quarter ended June 30, 2018, the matter with BDO USA LLP (“BDO”), former external audit firm, was due primarilyresolved pursuant to thea settlement between the Companyparty and a former contract research organization whereby the Company, received a credit for $1,051,116 against its overall amounts due coupled with overall lower contractor costthe terms of $325,854, and conference expense of $25,506, offset by an increase in lab supplies and pharmaceutical preparations of $15,815, payroll of $47,116, travel cost of $61,935, and other costs totaling $11,959.which are confidential.

Research and development costs of $987,239Interest expense increased by $121,978 from $234,473 for the three months ended June 30, 2018 included amortization of patents of $167,780, payroll of $133,654, conference expense of $5,000, consulting and contract labor of $484,967, insurance of $75,233, lab supplies and pharmaceutical preparations of $20,390, travel cost of $61,935, rent and utilities of $15,757, depreciation expense of $2,162, and other costs of $20,361.

Research and development costs of $2,252,890to $356,451 for the three months ended June 30, 2017 included patent amortization expense of $167,780, payroll of $86,538, conference expense of $30,506, consulting and contract labor of $1,861,937, insurance of $76,047, lab supplies and pharmaceutical preparations of $4,575, rent and utilities of $18,716, and depreciation expense of $6,791.

General and Administrative

General and administrative expenses increased by $292,206 from $1,050,004 for the three months ended June 30, 2017 to $1,342,210 for the three months ended June 30, 2018, an increase of approximately 28% year-over-year.2019. The increase was due primarily to (i)the increased legal expensesnumber of approximately $195,194 relatedconvertible notes payable relating to lawsuits, (ii) an approximate $48,774 increase in directors’ fees, which were accrued, (iii) increased investor relations expense of $79,880, which was paid in shares of common stock, partially offset by (iv) a decrease in information technology charges of $26,120, and (v) other costs savings of $5,522.the PRH Notes.

Comparison of Six Months Ended June 30, 20182019 and June 30, 20172018

Overview

Research and Development

Research and development expenses decreased by $1,076,236, from$4,006,538were $2,245,655 for the six months ended June 30, 20172019, a decrease of $684,647 or 23% compared to $2,930,302the six months ended June 30, 2018. The decrease was due to (i) lower clinical operations due to drug manufacturing in 2018 and lower consultant costs, (ii) lower insurance costs, and (iii) lower payroll and related taxes due to a lower negotiated employment agreement.

The following table summarizes our research and development expenses incurred during the six months ended June 30, 2019 and 2018:

Other income decreased by $99,564 from $879,410 for the six months ended June 30, 2018 to $779,846 for the six months ended June 30, 2019. During the six months ended June 30, 2019, the matters with former accounting vendors Bible Harris Smith, PC (“BHS”) and RSM US LLP (“RSM”) were resolved pursuant to a decreasesettlement between these parties and the Company, the terms of approximately 27% year-over-year.The decreasewhich are confidential. During the six months ended June 30, 2018, the matter with BDO, former external audit firm, was due primarilyresolved pursuant to thea settlement between the Companyparty and a former contract research organization whereby the Company, received a credit for $1,051,116 against its overall amounts due coupled with lower consulting and contract labor cost on clinical trialsthe terms of $248,980, and other cost reductions of $11,976, partially offset by an increase in travel expense of $103,505, lab supplies and pharmaceutical preparations of $27,223, payroll expense of $93,590, and other cost increases of $11,518.which are confidential.

Research and development costs of $2,930,302Interest expense increased by $249,983 from $441,041 for the six months ended June 30, 2018 included patent amortization expense of $335,560, payroll of $273,077, conference expense of $15,000, consulting and contract labor of $1,941,640, insurance of $150,952, lab supplies and pharmaceutical preparations of $41,674, travel cost of $103,505, rent and utilities of $33,616, depreciation expense of $4,324, and other cost of $30,954.

Research and development costs of $4,006,538to $691,024 for the six months ended June 30, 2017 included patent amortization expense of $335,560, payroll of $179,487, conference expense of $34,054, consulting and contract labor of $3,241,736, insurance of $153,888, lab supplies and pharmaceutical preparations of $14,451, rent and utilities of $37,940, and depreciation expense of $9,422.

General and Administrative

General and administrative expenses decreased by $1,389,601, from $3,694,529 for the six months ended June 30, 2017 to $2,304,928 for the six months ended June 30, 2018,a decrease of approximately 38% year-over-year.2019. The decreaseincrease was primarily due to (i) decreased legal expense of $536,681 due to a decline in investigations and litigations, (ii) an approximate $1.1 million decrease in professional fees due to the termination and reduction in scopeincreased number of certain vendor services contracts, (iii) offset by an increase in director’s fees of $105,024, which were accrued, (iv) a credit of $97,500 applied in 2017 for contributions not contributed, (v) increased rent expense of $14,233, and (vi) other cost increases of $30,323.convertible notes payable relating to the PRH Notes.

Investment Income

Investment income is immaterial for all periods presented.

Liquidity and Capital Resources

Our cash and cash equivalents were $130,633$1,324,228 at June 30, 2018,2019, compared to $105,504$50,986 at December 31, 2017.2018. The condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q have been prepared on a basis that contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. We have continuing net losses and negative cash flows from operating activities. In addition, we have an accumulated deficit of $223,097,056$230,441,440 as of June 30, 2018.2019. These conditions raise substantial doubt about our ability to continue as a going concern for a period within one year from the date that the financial statements included elsewhere in this Quarterly Report on Form 10-Q are issued. Our financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern. Our ability to continue as a going concern depends on our ability to obtain additional financing as may be required to fund current operations.

Management’s plans include selling our equity securities and obtaining other financing to fund our capital requirement and on-going operations, including the 2017 Financing discussed elsewhere in this filing;Financing; however, there can be no assurance we will be successful in these efforts. The financial statements do not include any adjustment that might be necessary if we are unable to continue as a going concern. Significant funds will be needed for us to continue and complete our Phase 3ongoing and otherplanned clinical trials.

Subsequent to June 30, 2018, the Company entered into a PRH Note with a related party in the principal amount of $200,000 and a PRH Note with a non-related party in the principal amount of $100,000. The Company has received the proceeds of $300,000 relating to these notes.

Access to Capital

Management plans to access capital resources through possible public or private equity offerings, including the 2017 Financing, exchange offers, debt financings, corporate collaborations or other means. If we are unable to raise sufficient capital through the 2017 Financing or otherwise, we will not be able to pay our obligations as they become due.

The primary business objective of management is to build the Company into a fully integratedcommercial-stage biotechnology company; however, we cannot assure you that management will be successful in implementing itsthe Company’s business plan of developing, licensing, and/or commercializing our prescription drug product candidates. Moreover, even if we are successful in improving our current cash flow position, we nonetheless plan to seek additional funds to meet our current and long-term requirements in 20182019 and beyond. We anticipate that these funds will otherwise come from the proceeds of private placement transactions, including the 2017 Financing, the exercise of existing warrants and/orand outstanding stock options, or public offerings of debt and/or equity securities. While we believe that we have a reasonable basis for our expectation that we will be able to raise additional funds, we cannot assure you that we will be able to complete additional financing in a timely manner. In addition, any such financing may result in significant dilution to stockholders.

Critical Accounting Policies

Management’s discussion and analysisFor a description of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Management bases its estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe there have been no material changes to the items that we disclosed as our critical accounting policies, undersee Note 3 – Critical Accounting Policies in Part II,1, Item 7, “Management’s Discussion and Analysis1 of Financial Condition and Results of Operations,” in our 2017this Quarterly Report on Form 10-K.10-Q.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as special purpose entities (“SPEs”).

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s (the “SEC’s”)SEC’s rules and forms, and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

The information required by this item is incorporated by reference from Part I, Item 1. Financial Statements, Notes to Condensed Consolidated Financial Statements, Note 6 – Litigation.8.

ITEM 1A. RISK FACTORS.

There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017.2018.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

2017 Financing

During the six months ended June 30, 2018,2019, the Company entered into additional PRH Notes with related parties in the aggregate principal amount of $950,000.$25,000. As of June 30, 2018,2019, the Company had drawn down the entire $950,000$25,000 under these notes.

During the six months ended June 30, 2018,2019, the Company entered into additional PRH Notes with non-related party accredited investors in the aggregate principal amount of $1,956,000.$4,825,000. As of June 30, 2018,2019, the Company had drawn down the entire $1,956,000$4,825,000 under these notes.

The Company believes that such transactions were exempt from the registration requirements of the Securities Act of 1933, as amended, (the “Securities Act”), in reliance on Section 4(a)(2) of the Securities Act (or Rule 506 of Regulation D promulgated thereunder) as transactions by an issuer not involving a public offering.

For further details on the terms of the PRH Notes, refer to in our Annual Report on Form 10-K for the year ended December 31, 20172018 as filed with the SEC on March 23, 2018.7, 2019.

Incentive Compensation to Chief Financial Officer

On March 25, 2019, the Company entered into an employment agreement (the “Employment Agreement”) with its Chief Financial Officer (“CFO”). The Employment Agreement provides that the CFO shall receive initial incentive compensation of 50,000 shares of common stock. The Company believes that such transaction was exempt from the registration requirements of the Securities Act in reliance on Section 4(a)(2) of the Securities Act (or Rule 506 of Regulation D promulgated thereunder) as a transaction by an issuer not involving a public offering. On May 2, 2019, the Company issued the shares to the CFO.

Incentive Compensation to Consultants

Exercise of Warrants

During the six months ended June 30, 2018, warrant holders exercised warrants to purchase 11,149,5772019, the Company issued an aggregate of 141,590 shares of common stock atto consultants in connection with services rendered. During the six months ended June 30, 2019, the Company issued 387,500 five-year immediately vested warrants to a priceconsultant to purchase an aggregate of $0.0533387,500 shares of common stock with exercise prices ranging from $1.00 to $2.00 per share or $594,273.share. The Company believes that such transactions were exempt from the registration requirements of the Securities Act in reliance on Section 4(a)(2) of the Securities Act (or Rule 506 of Regulation D promulgated thereunder) as a transaction by an issuer not involving a public offering.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

NoneNone.

ITEM 4.Mine Safety Disclosures.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.