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

ExerciseCommon 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.

Warrants

During the threesix months ended March 31,June 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 100,000 shares of common stock at a price of $0.0533 per share. In connection with these exercises, the Company received aggregate cash proceeds of $5,330 and issued 100,000 shares of common stock to the warrant holders.

6.7. Leases

The 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 threesix months ended March 31,June 30, 2019 was $34,806,$57,134, of which, $23,204$38,089 was included within research and development and $11,602$19,045 was included within general and administrative expenses on the condensed consolidated statement of operations. Total rent expense for the threesix months ended March 31,June 30, 2018 was $22,153,$44,233, of which, $14,768$29,489 was included within research and development and $7,385$14,744 was included within general and administrative expenses on the condensed consolidated statement of operations. Total rent expense during the three months ended June 30, 2019 was $22,329, of which, $14,886 was included within research and development and $7,443 was included within general and administrative expenses on the condensed consolidated statement of 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 March 31,June 30, 2019, the Company had no leases that were classified as a financing lease. As of March 31,June 30, 2019, the Company did not have additional operating and financing leases that have not yet commenced. 

A summary of the Company’s right-of-use assets and liabilities is as follows:

Future minimum payments under non-cancellable lease as of March 31,June 30, 2019 were as follows:

7.8. Commitments, Contingencies and Litigation

Culpepper Travel Expenses and Related Collection Efforts

On December 27, 2016, the then-Board of Directors (the “then-Board”) unanimously voted to terminate then-interim Chief Executive Officer, and Chiefthen-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, “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 then-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 took 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 March 31,June 30, 2019 and December 31, 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 disputed 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 the Company and the Company’s claims against Culpepper for improper expense reimbursements and amounts Culpepper owes the Company under the Derivative Lawsuit Settlement (the “Culpepper Arbitration”). The Culpepper Arbitration hearing was held from May 15-18,15 to 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 Culpepper Employment Agreement and instructed the parties that a final award was forthcoming. On September 12, 2018, the arbitrator issued his final award in favor of the Company. On October 4, 2018, the Company filed a petition 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 Bible Harris Smith Lawsuit

On November 17, 2016,judgment (the “Culpepper Appeal”). Culpepper has submitted a Culpepper Appeal brief, and the Company filedplans to submit a lawsuitCulpepper 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 the accounting services provided by BHS to the Company. On January 28, 2019, this matter was resolved pursuant to a settlement between the parties, the terms of which are confidential. The proceeds from the settlement were received and recorded during the three months ended March 31, 2019.

The RSM USA LLP LawsuitWachter Kleba Settlement Agreement Satisfaction

On June 9, 2017, the Company filed a lawsuit in the Circuit Court for Mecklenburg County, North Carolina against RSM USA LLP (“RSM”) 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 RSMPursuant to the Company. On February 27, 2019, the matter was resolved pursuant to a settlement between the parties, the terms of which are confidential. The proceeds from the settlement were received and recorded during the three months ended March 31, 2019.

Employmentconditions of Chief Financial Officer

On March 25, 2019, the Company entered into a one-year employment agreement with its Chief Financial Officer (“CFO”) that will be renewed automatically for successive one-year periods, unless the Company or CFO provides a notice of non-renewal at least thirty (30) days prior to the end of the term. In the event that coincident with or following a Change in Control (as defined in the agreement), the CFO’s employment with the Company is terminated or the employment agreement is not extended (a) by action of the CFO coincident with or following a Change in Control including the CFO’s death, disability or retirement, or (b) by action of the Company not For Cause (as defined in the agreement) coincident with or following a Change in Control, the Company shall pay the CFO a severance payment equal to 50% of the base salary in the preceding calendar year, payable over six months, as well as certain other specified benefits. In connection with the employment agreement, the CFO was entitled to 50,000 shares of immediately-vested common stock. As of March 31, 2019, and through the date of filing, the Company has not issued the shares and, as a result, has accrued approximately $3,000 for this obligation on the condensed consolidated balance sheet as of March 31, 2019.

8. Subsequent Events

Receivables

Subsequent to March 31, 2019, Dr. Wachter reduced his portion of legal fees and other expenses incurred by the Company under the Stipulated Settlement Agreement and Mutual Release made and entered into by and between the Company (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 Plaintiffs’ shareholder derivative lawsuit (the “Kleba Settlement Agreement”), Dr. Wachter completed prepayment of his Cash Repayment Obligations (as defined in the Kleba shareholder derivative lawsuit by offsetting accrued payroll owed bySettlement 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 a total payment to the Company of $1,427,053. Pursuant to him totaling $90,066.the terms and conditions of the Stock 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 the Cash Repayment Obligations owed to the Company.

Exercise of Warrants

Subsequent to June 30, 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 received aggregate cash proceeds of $159,146 and issued 2,985,857 shares of common stock to 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, 2018 filed with the Securities and Exchange Commission (“SEC)SEC on March 7, 2019 (“2018 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 March 31,June 30, 2019 and March 31,June 30, 2018

Overview

Research and Development Expenses

Research and development expenses were $1,208,324 for the three months ended June 30, 2019, an increase of $221,085 or 22% compared to the 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 to $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 resolved pursuant to a settlement between the party and the Company, the terms of which are confidential.

Interest expense increased by $121,978 from $234,473 for the three months ended June 30, 2018 to $356,451 for the three months ended June 30, 2019. The increase was due to the increased number of convertible notes payable relating to the PRH Notes.

Comparison of Six Months Ended June 30, 2019 and June 30, 2018

Overview

Research and Development

Research and development expenses decreased by $905,732 from $1,943,063were $2,245,655 for the threesix months ended March 31, 2018 to $1,037,331 for the three months ended March 31,June 30, 2019, a decrease of approximately 47% year-over-year.$684,647 or 23% compared to the six months ended June 30, 2018. The decrease was due primarily to (i) lower contractorclinical operations due to drug manufacturing in 2018 and lower consultant costs, of $896,205,(ii) lower insurance costs, of $11,190, travel cost of $18,191, offset by an increase inand (iii) lower payroll of $4,272, conference costs of $12,233, and other costs totaling $3,349.related taxes due to a lower negotiated employment agreement.

ResearchThe following table summarizes our research and development costs of $1,037,331 forexpenses incurred during the threesix months ended March 31,June 30, 2019 included amortization of patents of $167,780, payroll of $149,475, conferences of $22,233, consulting and contract labor of $560,468, insurance of $64,529, lab supplies and pharmaceutical preparations of $17,232, travel cost of $23,379, rent and utilities of $24,415, depreciation expense of $2,162, and other costs of $5,658.2018:

Research and development costs of $1,943,063 for the three months ended March 31, 2018 included patent amortization expense of $167,780, payroll of $139,423, conferences of $10,000, consulting and contract labor of $1,456,673, insurance of $75,719, lab supplies and pharmaceutical preparations of $21,285, travel of $41,570, rent and utilities of $17,859, depreciation expense of $2,162, and other costs of $10,592.

General and Administrative

General and administrative expenses increased by $3,101, from $756,151were $1,390,316 for the threesix months ended March 31, 2018June 30, 2019, a decrease of $473,571 or 25% compared to $759,252 for the threesix months ended March 31, 2019, an increase of approximately .4% year-over-year.June 30, 2018. The increasedecrease was due primarily to (i) lower legal fees as we concluded the Company’s lawsuits against former accounting vendors, (ii) lower payroll and related taxes, and (iii) lower other general and administrative cost, partially offset by (vi) increased director fees (from having period-over-period, a $40,000 increasefive-member Board compared to a four-member Board in directors’previous year), and (v) increased professional fees which were accrued, (ii) an increase in accounting fees of $88,806, (iii) an increase in investor relations of $132,599 due to creditscredit received in 2018 totaling $144,747,from a vendor after negotiating reduced rates.

The following table summarized our general and other cost increases of $9,609, partially offset by (iv) decreased legaladministrative expenses of $179,813 due to wind down of lawsuits, (v) a decrease of $42,176 in finance expenses, (vi) decreased payroll expense of $20,122,incurred during the six months ended June 30, 2019 and (vii) decreased travel cost of $25,802.2018:

Other Income/(Expense)

Other income increaseddecreased by $627,152$99,564 from $(200,398)$879,410 for the threesix months ended March 31,June 30, 2018 to $426,754$779,846 for the threesix months ended March 31,June 30, 2019. InDuring the quartersix months ended March 31,June 30, 2019, the matters with BHSformer accounting vendors Bible Harris Smith, PC (“BHS”) and RSM US LLP (“RSM”) were resolved pursuant to a settlement between these parties and the Company, the terms of which are confidential. During the six months ended June 30, 2018, the matter with BDO, former external audit firm, was resolved pursuant to a settlement between the party and the Company, the terms of which are confidential.

Interest expense increased by $128,006$249,983 from $206,567$441,041 for the threesix months ended March 31,June 30, 2018 to $334,573$691,024 for the threesix months ended March 31,June 30, 2019. The increase was due to the increased number of convertible notes payable relating to the PRH Notes.

Liquidity and Capital Resources

Our cash and cash equivalents were $1,767,900$1,324,228 at March 31,June 30, 2019, compared to $50,986 at December 31, 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 $228,264,121$230,441,440 as of March 31,June 30, 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; 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 to continue and complete our ongoing and planned clinical trials.

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 commercial-stage biotechnology company; however, we cannot assure you that management will be successful in implementing the 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 2019 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 outstanding stock options, or public offerings of debt or equity securities. While we believe that we have a reasonable basis for our expectation that we will be able to raise additional funds, we cannot assure you that we will be able to complete additional financing in a timely manner. In addition, any such financing may result in significant dilution to stockholders.

Critical Accounting Policies

For a description of our critical accounting policies, see Note 3 – SignificantCritical Accounting Policies in Part 1, Item 1 of this Quarterly Report on Form 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 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

Effective January 1, 2019, we adopted Accounting Standards Codification (“ASC”) 842, “Leases” (“ASC 842”). ASC 842 requires management to make significant judgments and estimates. As a result, we implemented changes to our internal controls related to lease evaluation during the three months ended March 31, 2019. These changes include updated accounting policies affected by ASC 842 as well as redesigned internal controls over financial reporting related to ASC 842 implementation. Additionally, management has expanded data gathering procedures to comply with the additional disclosure requirements and ongoing contract review requirements.

Except as stated above, thereThere 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 7.8.

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, 2018.

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

2017 Financing

During the threesix months ended March 31,June 30, 2019, the Company entered into additional PRH Notes with related parties in the aggregate principal amount of $25,000. As of March 31,June 30, 2019, the Company had drawn down the entire $25,000 under these notes.

During the threesix months ended March 31,June 30, 2019, the Company entered into additional PRH Notes with non-related party accredited investors in the aggregate principal amount of $3,775,000.$4,825,000. As of March 31,June 30, 2019, the Company had drawn down the entire $3,775,000$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 our Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the SEC on March 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. As of March 31,On May 2, 2019, and through the date of filing, the Company has not issued the shares to the CFO.

Incentive Compensation to Consultants

Exercise of Warrants

During the threesix months ended March 31,June 30, 2019, warrant holders exercisedthe Company issued an aggregate of 141,590 shares of common stock to 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 consultant to purchase an aggregate of 100,000387,500 shares of common stock at a price of $0.0533with exercise prices ranging from $1.00 to $2.00 per share. In connection with these exercises,The Company believes that such transactions were exempt from the Company received aggregate cash proceedsregistration requirements of $5,330 and issued 100,000 sharesthe Securities Act in reliance on Section 4(a)(2) of common stock to the warrant holders.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.

None.

ITEM 4.Mine Safety Disclosures.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

** Filed herewith.

*** Furnished herewith.

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.