0001193125-14-299064.txt : 20140807 0001193125-14-299064.hdr.sgml : 20140807 20140807060408 ACCESSION NUMBER: 0001193125-14-299064 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20140630 FILED AS OF DATE: 20140807 DATE AS OF CHANGE: 20140807 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROVECTUS BIOPHARMACEUTICALS, INC. CENTRAL INDEX KEY: 0000315545 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 900031917 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-36457 FILM NUMBER: 141021626 BUSINESS ADDRESS: STREET 1: 7327 OAK RIDGE HWY STREET 2: SUITE B CITY: KNOXVILLE STATE: TN ZIP: 37931 BUSINESS PHONE: 865-769-4011 MAIL ADDRESS: STREET 1: 7327 OAK RIDGE HWY STREET 2: SUITE B CITY: KNOXVILLE STATE: TN ZIP: 37931 FORMER COMPANY: FORMER CONFORMED NAME: PROVECTUS PHARMACEUTICALS INC DATE OF NAME CHANGE: 20020417 FORMER COMPANY: FORMER CONFORMED NAME: ZAMAGE DIGITAL IMAGING INC DATE OF NAME CHANGE: 20011126 FORMER COMPANY: FORMER CONFORMED NAME: SPM GROUP INC DATE OF NAME CHANGE: 19920703 10-Q 1 d754969d10q.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 001-36457

 

 

PROVECTUS BIOPHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   90-0031917

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

7327 Oak Ridge Highway, Suite A,

Knoxville, Tennessee

  37931
(Address of principal executive offices)   (Zip Code)

866-594-5999

(Registrant’s telephone number, including area code)

N/A

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

 

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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

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

The number of shares outstanding of the registrant’s common stock, par value $.001 per share, as of June 30, 2014 was 176,638,439.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

PART I FINANCIAL INFORMATION  

Cautionary Note Regarding Forward-Looking Statements

    2   

Item 1. Financial Statements (unaudited)

    3   

Condensed Consolidated Balance Sheets

    3   

Condensed Consolidated Statements of Operations

    4   

Condensed Consolidated Statements of Stockholders’ Equity

    5   

Condensed Consolidated Statements of Cash Flow

    10   

Notes to Condensed Consolidated Financial Statements

    12   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

    17   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

    20   

Item 4. Controls and Procedures

    20   
PART II OTHER INFORMATION  

Item 1. Legal Proceedings

    21   

Item 1A. Risk Factors

    22   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

    25   

Item 3. Defaults Upon Senior Securities

    25   

Item 4. Mine Safety Disclosures

    25   

Item 5. Other Information

    25   

Item 6. Exhibits

    26   
SIGNATURES     27   

 

1


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 and 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,” “intend,” “may,” “plan,” “predict,” “project,” “will,” 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.

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 Securities and Exchange Commission (including those described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2013, as supplemented by the risk factors disclosed in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, and elsewhere in this Quarterly Report on Form 10-Q), and the following:

 

    our determination, based on guidance from the FDA, whether to proceed with or without a partner with a phase 3 trial of PV-10 to treat locally advanced cutaneous melanoma and the costs associated with such a trial if it is necessary;

 

    our determination whether to license PV-10, our melanoma drug product candidate, and other solid tumors such as liver cancer, if such licensure is appropriate considering the timing and structure of such a license, or to commercialize PV-10 on our own to treat melanoma and other solid tumors such as liver cancer;

 

    our ability to license our dermatology drug product candidate, PH-10, on the basis of our phase 2 atopic dermatitis and psoriasis results, which are in the process of being further developed in conjunction with mechanism of action studies; and

 

    our ability to raise additional capital if we determine to commercialize PV-10 and/or PH-10 on our own, although our expectation is to be acquired by a prospective pharmaceutical or biotech concern prior to commercialization.

 

2


Table of Contents

PART I FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

PROVECTUS BIOPHARMACEUTICALS, INC.

(A Development-Stage Company)

CONDENSED CONSOLIDATED BALANCE SHEETS

 

     June 30, 2014
(Unaudited)
    December 31,
2013
(Audited)
 

Assets

    

Current Assets

    

Cash and cash equivalents

   $ 18,126,036      $ 15,696,243   
  

 

 

   

 

 

 

Total Current Assets

     18,126,036        15,696,243   

Equipment and furnishings, less accumulated depreciation of $432,763 and $429,331, respectively

     26,681        30,113   

Patents, net of amortization of $7,796,177 and $7,460,617, respectively

     3,919,268        4,254,828   

Other assets

     27,000        27,000   
  

 

 

   

 

 

 
   $ 22,098,985      $ 20,008,184   
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Current Liabilities

    

Accounts payable — trade

   $ 479,857      $ 348,869   

Accrued consulting expense

     104,042        61,282   

Other accrued expenses

     232,568        102,795   
  

 

 

   

 

 

 

Total Current Liabilities

     816,467        512,946   

Long-Term Liability

    

Warrant liability

     1,302,961        12,866,572   
  

 

 

   

 

 

 

Total Liabilities

     2,119,428        13,379,518   
  

 

 

   

 

 

 

Stockholders’ Equity

    

Preferred stock; par value $.001 per share; 25,000,000 shares authorized; Series A 8% convertible preferred stock, 0 and 33,334 shares issued and outstanding, respectively, liquidation preference $0.75 (for 2013 in aggregate $25,001)

     —         33   

Common stock; par value $.001 per share; 300,000,000 authorized; 176,638,439 and 159,751,724 shares issued and outstanding, respectively

     176,638        159,752   

Paid-in capital

     173,164,422        152,519,701   

Deficit accumulated during the development stage

     (153,361,503     (146,050,820
  

 

 

   

 

 

 

Total Stockholders’ Equity

     19,979,557        6,628,666   
  

 

 

   

 

 

 
   $ 22,098,985      $ 20,008,184   
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

3


Table of Contents

PROVECTUS BIOPHARMACEUTICALS, INC.

(A Development-Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

     Three Months
Ended
June 30, 2014
    Three Months
Ended
June 30, 2013
    Six Months
Ended
June 30, 2014
    Six Months
Ended
June 30, 2013
    Cumulative
Amounts from
January 17, 2002
(Inception)
Through
June 30, 2014
 

Revenues

          

OTC product revenue

   $ —       $ —       $ —       $ —       $ 25,648   

Medical device revenue

     —         —         —         —         14,109   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

       —             39,757   

Cost of sales

     —         —         —         —         15,216   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     —         —         —         —         24,541   

Operating expenses

          

Research and development

     1,025,535        778,349        2,183,418        1,518,865        48,877,826   

General and administrative

     2,966,569        2,340,706        6,022,513        4,679,109        80,969,666   

Amortization

     167,780        167,780        335,560        335,560        7,796,177   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating loss

     (4,159,884     (3,286,835     (8,541,491     (6,533,534     (137,619,128

Gain on sale of fixed assets

     —         —         —         —         55,075   

Loss on extinguishment of debt

     —         —         —         —         (825,867

Investment income

     1,443        256        2,816        283        657,358   

(Loss) gain on change in fair value of warrant liability

     3,515,025        909,206        1,227,992        (14,304     (7,530,937

Net interest expense

     —         —         —         —         (8,098,004
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (643,416     (2,377,373     (7,310,683     (6,547,555     (153,361,503

Dividends on preferred stock

     —         (73,024     —         (1,149,958     (12,026,710
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss applicable to common shareholders

   $ (643,416   $ (2,450,397   $ (7,310,683   $ (7,697,513   $ (165,388,213
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted loss per common share

   $ (0.00   $ (0.02   $ (0.04   $ (0.06  
  

 

 

   

 

 

   

 

 

   

 

 

   

Weighted average number of common shares outstanding — basic and diluted

     175,554,000        127,114,868        172,225,322        123,926,235     
  

 

 

   

 

 

   

 

 

   

 

 

   

See accompanying notes to condensed consolidated financial statements.

 

4


Table of Contents

PROVECTUS BIOPHARMACEUTICALS, INC.

(A Development-Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

     Preferred Stock      Common Stock                    
     Number of
Shares
     Par Value      Number of
Shares
    Par Value     Paid in
capital
    Accumulated
Deficit
    Total  

Balance, at January 17, 2002

     —        $  —          —       $ —       $ —       $ —       $ —    

Issuance to founding shareholders

     —          —          6,000,000        6,000        (6,000     —         —    

Sale of stock

     —          —          50,000        50        24,950        —         25,000   

Issuance of stock to employees

     —          —          510,000        510        931,490        —         932,000   

Issuance of stock for services

     —          —          120,000        120        359,880        —         360,000   

Net loss for the period from January 17, 2002 (inception) to April 23, 2002 (date of reverse merger)

     —          —          —         —         —         (1,316,198     (1,316,198
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, at April 23, 2002

     —          $  —          6,680,000      $ 6,680      $ 1,310,320      $ (1,316,198   $ 802   

Shares issued in reverse merger

     —          —          265,763        266        (3,911     —         (3,645

Issuance of stock for services

     —          —          1,900,000        1,900        5,142,100        —         5,144,000   

Purchase and retirement of stock

     —          —          (400,000     (400     (47,600     —         (48,000

Stock issued for acquisition of Valley Pharmaceuticals

     —          —          500,007        500        12,225,820        —         12,226,320   

Exercise of warrants

     —          —          452,919        453        —         —         453   

Warrants issued in connection with convertible debt

     —          —          —         —         126,587        —         126,587   

Stock and warrants issued for acquisition of Pure-ific

     —          —          25,000        25        26,975        —         27,000   

Net loss for the period from April 23, 2002 (date of reverse merger) to December 31, 2002

     —          —          —         —         —         (5,749,937     (5,749,937
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, at December 31, 2002

     —        $  —          9,423,689      $ 9,424      $ 18,780,291      $ (7,066,135   $ 11,723,580   

Issuance of stock for services

     —          —          764,000        764        239,036        —         239,800   

Issuance of warrants for services

     —          —          —         —         145,479        —         145,479   

Stock to be issued for services

     —          —          —         —         281,500        —         281,500   

Employee compensation from stock options

     —          —          —         —         34,659        —         34,659   

Issuance of stock pursuant to Regulation S

     —          —          679,820        680        379,667        —         380,347   

Beneficial conversion related to convertible debt

     —          —          —         —         601,000        —         601,000   

Net loss for the year ended December 31, 2003

     —          —          —         —         —         (3,155,313     (3,155,313
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, at December 31, 2003

     —        $  —          10,867,509      $ 10,868      $ 20,461,632      $ (10,221,448   $ 10,251,052   

Issuance of stock for services

     —          —          733,872        734        449,190        —         449,923   

Issuance of warrants for services

     —          —          —         —         495,480        —         495,480   

Exercise of warrants

     —          —          132,608        133        4,867        —         5,000   

Employee compensation from stock options

     —          —          —         —         15,612        —         15,612   

Issuance of stock pursuant to Regulation S

     —          —          2,469,723        2,469        790,668        —         793,137   

Issuance of stock and warrants pursuant to Regulation D

     —          —          1,930,164        1,930        1,286,930        —         1,288,861   

Beneficial conversion related to convertible debt

     —          —          —         —         360,256        —         360,256   

 

 

5


Table of Contents
     Preferred Stock      Common Stock      Paid in
capital
    Accumulated
Deficit
    Total  
     Number of
Shares
     Par Value      Number of
Shares
     Par Value         

Issuance of convertible debt with warrants

     —          —          —          —          105,250        —         105,250   

Repurchase of beneficial conversion feature

     —          —          —          —          (258,345     —         (258,345

Net loss for the year ended December 31, 2004

     —          —          —          —          —         (4,344,525     (4,344,525
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance, at December 31, 2004

     —        $  —          16,133,876       $ 16,134       $ 23,711,540      $ (14,565,973   $ 9,161,701   

Issuance of stock for services

     —          —          226,733         227         152,058        —         152,285   

Issuance of stock for interest payable

     —          —          263,721         264         195,767        —         196,031   

Issuance of warrants for services

     —          —          —          —          1,534,405        —         1,534,405   

Issuance of warrants for contractual obligations

     —          —          —          —          985,010        —         985,010   

Exercise of warrants and stock options

     —          —          1,571,849         1,572         1,438,223        —         1,439,795   

Employee compensation from stock options

     —          —          —          —          15,752        —         15,752   

Issuance of stock and warrants pursuant to Regulation D

     —          —          6,221,257         6,221         6,506,955        —         6,513,176   

Debt conversion to common stock

     —          —          3,405,541         3,405         3,045,957        —         3,049,362   

Issuance of warrants with convertible debt

     —          —          —          —          1,574,900        —         1,574,900   

Beneficial conversion related to convertible debt

     —          —          —          —          1,633,176        —         1,633,176   

Beneficial conversion related to interest expense

     —          —          —          —          39,529        —         39,529   

Repurchase of beneficial conversion feature

     —          —          —          —          (144,128     —         (144,128

Net loss for the year ended 2005

     —          —          —          —          —         (11,763,853     (11,763,853
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

6


Table of Contents
     Preferred Stock      Common Stock      Paid in
capital
     Accumulated
Deficit
    Total  
     Number of
Shares
     Par Value      Number of
Shares
     Par Value          

Balance, at December 31, 2005

     —        $ —          27,822,977       $ 27,823       $ 40,689,144       $ (26,329,826   $ 14,387,141   

Issuance of stock for services

     —          —          719,246         719         676,024         —         676,743   

Issuance of stock for interest payable

     —          —          194,327         195         183,401         —         183,596   

Issuance of warrants for services

     —          —          —          —          370,023         —         370,023   

Exercise of warrants and stock options

     —          —          1,245,809         1,246         1,188,570         —         1,189,816   

Employee compensation from stock options

     —          —          —          —          1,862,456         —         1,862,456   

Issuance of stock and warrants pursuant to Regulation D

     —          —          10,092,495         10,092         4,120,329         —         4,130,421   

Debt conversion to common stock

     —          —          2,377,512         2,377         1,573,959         —         1,576,336   

Beneficial conversion related to interest expense

     —          —          —          —          16,447         —         16,447   

Net loss for the year ended 2006

     —          —          —          —          —          (8,870,579     (8,870,579
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balance, at December 31, 2006

     —        $ —          42,452,366       $ 42,452       $ 50,680,353       $ (35,200,405   $ 15,522,400   

Issuance of stock for services

     —          —          150,000         150         298,800         —         298,950   

Issuance of stock for interest payable

     —          —          1,141         1         1,257         —         1,258   

Issuance of warrants for services

     —          —          —          —          472,635         —         472,635   

Exercise of warrants and stock options

     —          —          3,928,957         3,929         3,981,712         —         3,985,641   

Employee compensation from stock options

     —          —          —          —          2,340,619         —         2,340,619   

Issuance of stock and warrants pursuant to Regulation D

     —          —          2,376,817         2,377         1,845,761         —         1,848,138   

Debt conversion to common stock

     —          —          490,000         490         367,010         —         367,500   

Net loss for the year ended 2007

     —          —          —          —          —          (10,005,631     (10,005,631
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balance, at December 31, 2007

     —        $ —          49,399,281       $ 49,399       $ 59,988,147       $ (45,206,036   $ 14,831,510   

Issuance of stock for services

     —          —          350,000         350         389,650         —         390,000   

Issuance of warrants for services

     —          —          —          —          517,820         —         517,820   

Exercise of warrants and stock options

     —          —          3,267,795         3,268         2,636,443         —         2,639,711   

Employee compensation from stock options

     —          —          —          —          1,946,066         —         1,946,066   

Net loss for the year ended 2008

     —          —          —          —          —          (10,269,571     (10,269,571
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balance, at December 31, 2008

     —        $ —          53,017,076       $ 53,017       $ 65,478,126       $ (55,475,607   $ 10,055,536   

Issuance of stock for services

     —          —          796,012         796         694,204         —         695,000   

Issuance of warrants for services

     —          —          —          —          1,064,210         —         1,064,210   

Exercise of warrants and stock options

     —          —          3,480,485         3,480         2,520,973         —         2,524,453   

Employee compensation from stock options

     —          —          —          —          870,937         —         870,937   

Issuance of stock and warrants pursuant to Regulation D

           10,116,653         10,117         6,508,571         —         6,518,688   

Net loss for the year ended 2009

     —          —          —          —          —          (12,322,314     (12,322,314
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balance, at December 31, 2009

     —        $ —          67,410,226       $ 67,410       $ 77,137,021       $ (67,797,921   $ 9,406,510   

Issuance of stock for services

     —          —          776,250         776         855,837         —         856,613   

Issuance of warrants for services

     —          —          —          —          1,141,593         —         1,141,593   

Exercise of warrants and stock options

     —          —          3,491,014         3,491         3,100,189         —         3,103,680   

Issuance of common stock pursuant to Regulation S

     —          —          559,000         559         418,691         —         419,250   

Issuance of common stock and warrants pursuant to Regulation D

     —          —          11,168,067         11,169         6,335,820         —         6,346,989   

 

 

7


Table of Contents
    Preferred Stock     Common Stock     Paid in
capital
    Accumulated
Deficit
    Total  
    Number of
Shares
    Par Value     Number of
Shares
    Par Value        

Issuance of preferred stock and warrants pursuant to Regulation D

    13,283,324        13,283        —         —         4,204,107        —         4,217,390   

Preferred stock conversions into common stock

    (7,893,326     (7,893     7,893,326        7,893        —         —         —    

Employee compensation from stock options

    —         —         —         —         3,759,650        —         3,759,650   

Net loss for the year ended 2010

    —         —         —         —         —         (18,552,102     (18,552,102
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, at December 31, 2010

    5,389,998      $ 5,390        91,297,883      $ 91,298      $ 96,952,908      $ (86,350,023   $ 10,699,573   

Issuance of stock for services

    —         —         350,000        350        332,400        —         332,750   

Issuance of warrants for services

    —         —         —         —         945,116        —         945,116   

Exercise of warrants and stock options

    —         —         7,185,522        7,185        6,616,126        —         6,623,311   

Issuance of common stock and warrants pursuant to Regulation D

    —         —         9,905,062        9,905        7,031,334        —         7,041,239   

Sale of non-controlling interest in Pure-ific Corporation and warrants

    —         —         —         —         443,500        —         443,500   

Preferred stock conversions into common stock

    (1,858,333     (1,859     1,858,331        1,859        —         —         —    

Employee compensation from stock options

    —         —         —         —         3,368,950        —         3,368,950   

Net loss for the year ended 2011

    —         —         —         —         —         (19,434,699     (19,434,699
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, at December 31, 2011

    3,531,665      $ 3,531        110,596,798      $ 110,597      $ 115,690,334      $ (105,784,722   $ 10,019,740   

Issuance of stock for services

    —         —         550,000        550        455,950        —         456,500   

Issuance of warrants for services

    —         —         —         —         1,512,026        —         1,512,026   

Issuance of common stock and warrants pursuant to Regulation D

    —         —         6,227,647        6,228        4,784,316        —         4,790,544   

Preferred stock conversions into common stock

    (1,053,480     (1,053     1,053,480        1,053        —         —         —    

Employee compensation from stock options

    —         —         —         —         183,028        —         183,028   

Net loss for the year ended 2012

    —         —         —         —         —         (12,568,354     (12,568,354
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, at December 31, 2012

    2,478,185      $ 2,478        118,427,925      $ 118,428      $ 122,625,654      $ (118,353,076   $ 4,393,484   

Issuance of stock for services

    —         —         750,000        750        525,250        —         526,000   

Issuance of warrants for services

    —         —         —         —         1,786,824        —         1,786,824   

Exercise of warrants and stock options

    —         —         6,319,594        6,320        7,829,150        —         7,835,470   

Issuance of common stock and warrants pursuant to Regulation D

    —         —         28,409,353        28,409        18,390,926        —         18,419,335   

Issuance of preferred stock and warrants pursuant to Regulation D

    3,400,001        3,400        —         —         1,248,650        —         1,252,050   

Preferred stock conversions into common stock

    (5,844,852     (5,845     5,844,852        5,845        —         —         —    

Dividends on preferred stock

    —         —         —         —         (29,063     —         (29,063

Employee compensation from stock options

    —         —         —         —         142,310        —         142,310   

Net loss for the year ended 2013

    —         —         —         —         —         (27,697,744     (27,697,744
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, at December 31, 2013

    33,334      $ 33        159,751,724      $ 159,752      $ 152,519,701      $ (146,050,820   $ 6,628,666   

Issuance of stock for services

    —         —         150,000        150        277,600        —         277,750   

 

8


Table of Contents
     Preferred Stock     Common Stock      Paid in
capital
     Accumulated
Deficit
    Total  
     Number of
Shares
    Par Value     Number of
Shares
     Par Value          

Issuance of warrants for services

     —          —          —           —           1,350,319         —          1,350,319   

Reclassification of warrant liability

     —          —          —           —           10,335,619         —          10,335,619   

Cash proceeds from exercise of warrants and stock options

     —          —          14,703,381         14,703         4,333,183         —          4,347,886   

Issuance of common stock and warrants pursuant to Regulation D

     —          —          2,000,000         2,000         4,348,000         —          4,350,000   

Preferred stock conversions into common stock

     (33,334     (33     33,334         33         —           —          —     

Net loss for the six months ended June 30, 2014

     —          —          —           —           —           (7,310,683     (7,310,683
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balance, at June 30, 2014

     —       $ —          176,638,439       $ 176,638       $ 173,164,422       $ (153,361,503   $ 19,979,557   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

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Table of Contents

PROVECTUS BIOPHARMACEUTICALS, INC.

(A Development-Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

 

     Six Months
Ended
June 30, 2014
    Six Months
Ended
June 30, 2013
    Cumulative
Amounts from
January 17, 2002
(Inception) through
June 30, 2014
 

Cash Flows From Operating Activities

      

Net loss

   $ (7,310,683   $ (6,547,555   $ (153,361,503

Adjustments to reconcile net loss to net cash used in operating activities

      

Depreciation

     3,432        3,100        455,764   

Amortization of patents

     335,560        335,560        7,796,177   

Amortization of original issue discount

     —         —         3,845,721   

Amortization of commitment fee

     —         —         310,866   

Amortization of prepaid consultant expense

     —         —         1,295,226   

Amortization of deferred loan costs

     —         —         2,261,584   

Accretion of United States Treasury Bills

     —         —         (373,295

Loss on extinguishment of debt

     —         —         825,867   

Loss on exercise of warrants

     —         —         236,146   

Beneficial conversion of convertible interest

     —         —         55,976   

Convertible interest

     —         —         389,950   

Compensation through issuance of stock options

     —         —         14,540,039   

Compensation through issuance of stock

     —         —         932,000   

Issuance of stock for services

     277,750        98,250        9,857,261   

Issuance of warrants for services

     1,350,319        1,341,295        9,333,712   

Issuance of warrants for contractual obligations

     —         —         985,010   

Gain on sale of equipment

     —         —         (55,075

Loss (gain) on change in fair value of warrant liability

     (1,227,992     14,304        7,530,937   

Change in assets and liabilities

      

Prepaid expenses and other current assets

     —         (93,034     —    

Accounts payable

     130,988        (178,673     476,212   

Accrued expenses

     172,533        81,437        486,240   
  

 

 

   

 

 

   

 

 

 

Net cash used in operating activities

     (6,268,093     (4,945,316     (92,175,185
  

 

 

   

 

 

   

 

 

 

Cash Flows From Investing Activities

      

Proceeds from sale of fixed assets

     —         —         180,075   

Capital expenditures

     —         —         (96,570

Proceeds from sales of investments

     —         —         37,010,481   

Purchases of investments

     —         —         (36,637,186
  

 

 

   

 

 

   

 

 

 

Net cash provided by investing activities

     —         —         456,800   
  

 

 

   

 

 

   

 

 

 

Cash Flows From Financing Activities

      

Net proceeds from loans from stockholder

     —         —         174,000   

Proceeds from convertible debt

     —         —         6,706,795   

Net proceeds from sales of preferred stock and warrants

     —         2,550,000        11,458,131   

Net proceeds from sales of common stock and warrants

     4,350,000        5,817,698        65,583,856   

Proceeds from exercises of warrants and stock options

     4,347,886        21,000        28,859,292   

Cash paid for preferred dividends

     —         (29,063     (29,063

Cash paid to retire convertible debt

     —         —         (2,385,959

Cash paid for deferred loan costs

     —         —         (747,612

Premium paid on extinguishments of debt

     —         —         (170,519

Net proceeds from sale of non-controlling interest in Pure-ific Corporation

     —         —         443,500   

Purchase and retirement of common stock

     —         —         (48,000
  

 

 

   

 

 

   

 

 

 

Net cash provided by financing activities

     8,697,886        8,359,635        109,844,421   
  

 

 

   

 

 

   

 

 

 

Net change in cash and cash equivalents

   $ 2,429,793      $ 3,414,319      $ 18,126,036   

Cash and cash equivalents, at beginning of period

     15,696,243        1,221,701        —    
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, at end of period

   $ 18,126,036      $ 4,636,020      $ 18,126,036   
  

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Supplemental Disclosure of Noncash Investing and Financing Activities:

During the six months ended June 30, 2014, the Company has reclassified $10,335,619 from warrant liability to equity due to the exercise of a portion of our warrants.

See accompanying notes to condensed consolidated financial statements.

 

11


Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information pursuant to Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. 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 six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ended December 31, 2014. The Company has evaluated subsequent events through the date the condensed consolidated financial statements were issued.

2. Recapitalization and Merger

Provectus Biopharmaceuticals, Inc., formerly known as “Provectus Pharmaceuticals, Inc.,” “Provectus Pharmaceutical, Inc.” and “SPM Group, Inc.,” was incorporated under Colorado law on May 1, 1978. SPM Group ceased operations in 1991, and became a development-stage company effective January 1, 1992, with the new corporate purpose of seeking out acquisitions of properties, businesses, or merger candidates, without limitation as to the nature of the business operations or geographic location of the acquisition candidate.

On April 1, 2002, SPM Group changed its name to “Provectus Pharmaceutical, Inc.” and reincorporated in Nevada in preparation for a transaction with Provectus Pharmaceuticals, Inc., a privately-held Tennessee corporation (“PPI”). On April 23, 2002, an Agreement and Plan of Reorganization between Provectus Pharmaceutical and PPI was approved by the written consent of a majority of the outstanding shares of Provectus Pharmaceutical. As a result, Provectus Pharmaceuticals, Inc. issued 6,680,000 shares of common stock in exchange for all of the issued and outstanding shares of PPI. As part of the acquisition, Provectus Pharmaceutical changed its name to “Provectus Pharmaceuticals, Inc.” and PPI became a wholly-owned subsidiary of Provectus. This transaction was recorded as a recapitalization of PPI.

On November 19, 2002, the Company acquired Valley Pharmaceuticals, Inc., a privately-held Tennessee corporation formerly known as Photogen, Inc., by merging PPI with and into Valley and naming the surviving corporation “Xantech Pharmaceuticals, Inc.” Photogen, Inc. was separated from Photogen Technologies, Inc. in a non-pro-rata split-off to some of its shareholders. The assets of Photogen, Inc. consisted primarily of the equipment and intangibles related to its therapeutic activity and were recorded at their fair value. The majority shareholders of Valley were also the majority shareholders of Provectus. Valley had no revenues prior to the transaction with the Company. By acquiring Valley, the Company acquired its intellectual property, including issued U.S. patents and patentable inventions.

On December 16, 2013, Provectus Pharmaceuticals, Inc. was reincorporated in Delaware and changed its name to Provectus Biopharmaceuticals, Inc.

3. Basic and Diluted Loss Per Common Share

Basic and diluted loss per common share is computed based on the weighted average number of common shares outstanding. Loss per share excludes the impact of outstanding options and warrants and convertible preferred stock as they are antidilutive. Potential common shares excluded from the calculation at June 30, 2014 and 2013, respectively, relate to 58,311,418 and 50,358,525 from warrants, 13,718,334 and 15,097,206 from options, and 0 and 4,881,666 from convertible preferred shares.

4. Equity Transactions

(a) During the three months ended March 31, 2014, the Company issued 75,000 shares of common stock to consultants in exchange for services. Consulting costs charged to operations were $137,500. During the three months ended March 31, 2013, the Company issued 75,000 shares of common stock to consultants in exchange for services. Consulting costs charged to operations were $48,750.

During the three months ended June 30, 2014, the Company issued 75,000 shares of common stock to consultants in exchange for services. Consulting costs charged to operations were $140,250. During the three months ended June 30, 2013, the Company issued 75,000 shares of common stock to consultants in exchange for services. Consulting costs charged to operations were $49,500.

(b) During the three months ended March 31, 2014, the Company issued 733,000 fully vested warrants to consultants in exchange for services. Consulting costs charged to operations were $900,317. During the three months ended March 31, 2014, 121,500 warrants were forfeited. During the three months ended March 31, 2014, 12,522,198 warrants were exercised on a cashless basis resulting in

 

12


Table of Contents

9,100,824 common shares being issued. During the three months ended March 31, 2014, 3,036,218 warrants were exercised for $2,672,364 resulting in 3,036,218 common shares issued. During the three months ended March 31, 2013, the Company issued 1,924,973 fully vested warrants to consultants in exchange for services. Consulting costs charged to operations were $409,640. During the three months ended March 31, 2013, 859,833 warrants were forfeited.

During the three months ended June 30, 2014, the Company issued 202,000 fully vested warrants to consultants in exchange for services. Consulting costs charged to operations were $450,002. During the three months ended June 30, 2014, 315,000 warrants were forfeited. During the three months ended June 30, 2014, 1,594,082 warrants were exercised on a cashless basis resulting in 915,467 common shares being issued. During the three months ended June 30, 2014, 372,000 warrants were exercised for $372,000 resulting in 372,000 common shares issued. During the three months ended June 30, 2013, the Company issued 2,605,000 fully vested warrants to consultants in exchange for services. Consulting costs charged to operations were $931,655. During the three months ended June 30, 2013, 1,051,500 warrants were forfeited.

As the fair market value of these services was not readily determinable, these services were valued based on the fair market value of the warrants, determined using the Black-Scholes option-pricing model.

(c) The Company determined that warrants issued January 13, 2011 and referred to as Series A Warrants and Series C Warrants should be classified as liabilities in accordance with ASC 815 because the warrants in question contain exercise price reset features that require the exercise price of the warrants be adjusted if the Company issues certain other equity related instruments at a lower price per share. The value of the warrant liability was determined based on the Monte-Carlo Simulation model at the date the warrants were issued. The warrant liability is then revalued at each subsequent quarter. For the three months ended March 31, 2014 and 2013, there was a loss recognized from the revaluation of the warrant liability of $1,153,835 and $311,062, respectively. During the three months ended March 31, 2014, 858,825 of the Series A Warrants were exercised. During the three months ended March 31, 2014, 697,092 of the Series C Warrants were exercised. For the three months ended June 30, 2014 and 2013, there was a gain recognized from the revaluation of the warrant liability of $186,262 and $221,149, respectively. The Company determined the fair value of the Series A and Series C Warrants exercised on the date of exercise and adjusted the related warrant liability accordingly. The adjusted fair value of the Series A and Series C Warrants exercised in 2014 of $3,911,370 was reclassified into additional paid-in capital.

(d) In March and April 2010, the Company had an issuance of 8% Convertible Preferred Stock with warrants. The Company determined that warrants issued with the 8% convertible preferred stock should be classified as liabilities in accordance with ASC 815 because the warrants in question contain exercise price reset features that require the exercise price of the warrants be adjusted if the Company issues certain other equity related instruments at a lower price per share. The value of the warrant liability was determined based on the Monte-Carlo Simulation model at the date the warrants were issued. The warrant liability is then revalued at each subsequent quarter. For the three months ended March 31, 2014 and 2013, there was a loss recognized from the revaluation of the warrant liability of $211,422 and $446,698, respectively. During the three months ended March 31, 2014, 1,756,665 of the warrants included in the warrant liability were exercised. For the three months ended June 30, 2014 and 2013, there was a gain recognized from the revaluation of the warrant liability of $3,285,793 and $399,057, respectively. During the three months ended June 30, 2014, 133,232 of the warrants included in the warrant liability were exercised. The Company determined the fair value of the warrants exercised on the date of exercise and adjusted the related warrant liability accordingly. The adjusted fair value of the warrants exercised in 2014 of $2,377,133 was reclassified into additional paid-in capital.

(e) In February 2013, the Company had an issuance of Series A 8% Convertible Preferred Stock with warrants. The Company determined that warrants issued with the Series A 8% Convertible Preferred Stock should be classified as liabilities in accordance with ASC 815 because the warrants in question contain exercise price reset features that require the exercise price of the warrants be adjusted if the Company issues certain other equity related instruments at a lower price per share. The preferred stock was determined to have characteristics more akin to equity than debt. As a result, the conversion option was determined to be clearly and closely related to the preferred stock and therefore does not need to be bifurcated and classified as a liability. The proceeds received from the issuance of the preferred stock were first allocated to the fair value of the warrants with the remainder allocated to the preferred stock. The fair value of the preferred stock if converted on the date of issuance was greater than the value allocated to the preferred stock. As a result, a beneficial conversion amount was recorded upon issuance. The fair value of the warrants recorded from the February 2013 issuance was $1,297,950 resulting in a beneficial conversion amount of $1,025,950. The beneficial conversion has been recorded as a deemed dividend as of March 31, 2013 and is included in dividends on preferred stock on the consolidated statements of operations. The value of the warrant liability was determined based on the Monte-Carlo Simulation model at the date the warrants were issued. The warrant liability is then revalued at each subsequent quarter. For the three months ended March 31, 2014 and 2013, there was a loss recognized from the revaluation of the warrant liability of $921,776 and $165,750, respectively. During the three months ended March 31, 2014, 1,650,000 of the warrants included in the warrant liability were exercised. For the three months ended June 30, 2014 and 2013, there was a gain recognized from the revaluation of the warrant liability of $42,970 and $289,000, respectively. During the three months ended June 30, 2014, 200,000 of the warrants included in the warrant liability were exercised. The Company determined the fair value of the warrants exercised on the date of exercise and adjusted the related warrant liability accordingly. The adjusted fair value of the warrants exercised in 2014 of $4,047,116 was reclassified into additional paid-in capital.

 

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Dividends on the Series A 8% Convertible Preferred Stock accrued at an annual rate of 8% of the original issue price and were payable in either cash or common stock. If the dividend was paid in common stock, the number of shares of common stock equaled the quotient of the amount of cash dividends divided by the market price of the stock on the dividend payment date. The dividends were payable quarterly on the 15th day after the quarter-end. The Company paid the dividends in common stock although was required to pay the initial dividends due in cash. The Company had a deficit and, as a result, the dividends were recorded against additional paid-in capital. At March 31, 2013, the Company recognized dividends of $29,063 which are included in dividends on preferred stock on the consolidated statement of operations and were paid in April 2013. At June 30, 2013, the Company recognized dividends of $50,860 which are included in dividends on preferred stock on the consolidated statement of operations. In 2014, the Company recognized no dividends because of the full conversion of preferred stock to common stock as of January 15, 2014.

(f) In January 2014 there were 33,334 shares of the Company’s Series A 8% Convertible Preferred Stock that converted into 33,334 shares of the Company’s common stock. As of January 15, 2014, there were no shares of Series A 8% Convertible Preferred Stock outstanding.

(g) During the three months ended June 30, 2014 the Company completed a private offering of common stock and warrants to accredited investors for gross proceeds of $5,000,000. The Company accepted subscriptions, in the aggregate, for 2,000,000 shares of common stock and five year warrants to purchase 2,000,000 shares of common stock. Investors received five year fully vested warrants to purchase up to 100% of the number of shares purchased by the investors in the offering. The warrants have an exercise price of $3.00 per share. The purchase price for each share of common stock together with the warrants was $2.50. The Company used the proceeds for working capital and other general corporate purposes. Network 1 Financial Securities, Inc. served as placement agent for the offering. In connection with the offering, the Company paid $650,000 and issued five year fully vested warrants to purchase 300,000 shares of common stock with an exercise price of $2.50 to Network 1 Financial Securities, Inc., which represents 15% of the total number of shares of common stock sold to investors solicited by Network 1 Financial Securities, Inc.

5. Stock-Based Compensation

One employee of the Company exercised 25,000 options at an exercise price of $0.95 per share of common stock for $23,750, 14,248 options at an exercise price of $0.75 per share of common stock for $10,686 and 600,000 options at an exercise price of $0.93 per share of common stock for $558,000 during the three months ended March 31, 2014. Another employee of the Company exercised 300,000 options at an exercise price of $1.10 per share of common stock for $330,000 during the three months ended March 31, 2014. Another employee of the Company exercised 189,624 options at an exercise price of $1.10 per share of common stock for $208,586 during the three months ended March 31, 2014. One employee of the Company forfeited 300,000 stock options on February 26, 2014.

One employee of the Company exercised 25,000 options at an exercise price of $0.95 per share of common stock for $23,750 during the three months ended June 30, 2014. Another employee of the Company exercised 100,000 options at an exercise price of $1.25 per share of common stock for $125,000 during the three months ended June 30, 2014. A former non-employee member of the board exercised 25,000 options at an exercise price of $0.95 per share of common stock for $23,750 during the three months ended June 30, 2014. One employee of the Company forfeited 25,000 stock options on May 27, 2014.

6. Related Party Transaction

The Company paid one of the Company’s directors $6,000 as of March 31, 2014, all of which was paid as part of his overall compensation of an aggregate of $85,000 for board and committee service.

7. Fair Value of Financial Instruments

The FASB’s authoritative guidance on fair value measurements establishes a framework for measuring fair value, and expands disclosure about fair value measurements. This guidance enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. Under this guidance, assets and liabilities carried at fair value must be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

In determining the appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are measured and reported on a fair value basis. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3. The fair value of certain of the Company’s financial instruments, including

 

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Cash and cash equivalents and Accounts payable, approximates the carrying value due to the relatively short maturity of such instruments. The fair value of derivative instruments is determined by management with the assistance of an independent third party valuation specialist. The warrant liability is a derivative instrument and is classified as Level 3. The Company used the Monte-Carlo Simulation model to estimate the fair value of the warrants. Significant assumptions used at March 31, 2014 for the 2010 warrants include a weighted average term of 0.9 years, a 5% probability that the warrant exercise price would be reset, volatility range of 66.5% to 129.7% and a risk free interest rate of 0.13%. Significant assumptions used at June 30, 2014 for the 2010 warrants include a weighted average term of 0.7 years, a 5% probability that the warrant exercise price would be reset, volatility of 187.7% and a risk free interest rate of 0.09%. Significant assumptions used at March 31, 2014 for the 2011 warrants include a weighted average term of 1.8 years, a 5% probability that the warrant exercise price would be reset, volatility of 101.8% and a risk free interest rate of 0.29%. Significant assumptions used at June 30, 2014 for the 2011 warrants include a weighted average term of 1.5 years, a 5% probability that the warrant exercise price would be reset, volatility of 132.7% and a risk free interest rate of 0.29%. Significant assumptions used at March 31, 2014 for the 2013 warrants include a weighted average term of 3.9 years, a 5% probability that the warrant exercise price would be reset, volatility of 84.7% and a risk free interest rate range of 0.77% to 1.32%. At June 30, 2014 there are no remaining 2013 warrants and therefore no associated warrant liability.

The warrant liability measured at fair value on a recurring basis is as follows:

 

     Total      Level 1      Level 2      Level 3  

Derivative instruments:

           

Warrant liability at June 30, 2014

   $ 1,302,961       $ —        $ —        $ 1,302,961   

Warrant liability at December 31, 2013

   $ 12,866,572       $ —        $ —        $ 12,866,572   

A reconciliation of the warranty liability measured at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) from January 1, 2014 to June 30, 2014 follows:

 

Balance at January 1, 2014

   $ 12,866,572   

Issuance of warrants

     —    

Change in fair value of warrants included in earnings

     (1,227,992

Reclassification to APIC due to warrant exercises

     (10,335,619
  

 

 

 

Balance at June 30, 2014

   $ 1,302,961   
  

 

 

 

8. Litigation

Kleba Shareholder Derivative Lawsuit

On January 2, 2013, Glenn Kleba (the “Plaintiff”) derivatively on behalf of the Company, filed a shareholder derivative complaint in the Circuit Court for the State of Tennessee, Knox County (the “Court”), against H. Craig Dees, Timothy C. Scott, Eric A. Wachter, and Peter R. Culpepper (collectively, the “Executives”), Stuart Fuchs, Kelly M. McMasters, and Alfred E. Smith, IV (collectively, together with the Executives, the “Individual Defendants”), and against the Company as a nominal defendant (the “Shareholder Derivative Lawsuit”). The Shareholder Derivative Lawsuit alleges (i) breach of fiduciary duties, (ii) waste of corporate assets, and (iii) unjust enrichment, all three claims based on the Plaintiff’s allegations that the defendants authorized and/or accepted stock option awards in violation of the terms of the Company’s 2002 Stock Plan (the “Plan”) by issuing stock options in excess of the amounts authorized under the Plan and delegated to defendant H. Craig Dees the sole authority to grant himself and the other Executives cash bonuses that the Plaintiff alleges to be excessive.

In April 2013, the Company’s Board of Directors appointed a special litigation committee to investigate the allegations of the Shareholder Derivative Complaint and make a determination as to how the matter should be resolved. The special litigation committee conducted its investigation, and proceedings in the case were stayed pending the conclusion of the committee’s investigation. The Company has established a reserve of $100,000 for potential liabilities because such is the amount of the self-insured retention of its insurance policy.

On March 6, 2014, the Company filed a Joint Notice of Settlement (the “Notice of Settlement”) in the Shareholder Derivative Lawsuit. In addition to the Company, the parties to the Notice of Settlement are the Plaintiff and the Individual Defendants.

On June 6, 2014, the Company, in its capacity as a nominal defendant, entered into a Stipulated Settlement Agreement and Mutual Release (the “Settlement”) in the Shareholder Derivative Lawsuit. In addition to the Company and the Individual Defendants, plaintiffs Glenn Kleba and Don B. Dale are parties to the Settlement.

 

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By entering into the Settlement, the settling parties have resolved the derivative claims to their mutual satisfaction. The Individual Defendants have not admitted the validity of any claims or allegations and the settling plaintiffs have not admitted that any claims or allegations lack merit or foundation. Under the terms of the Settlement, (i) the Executives each agreed (A) to re-pay to the Company $2.24 Million of the cash bonuses they each received in 2010 and 2011, which amount equals 70% of such bonuses or an estimate of the after-tax net proceeds to each Executive; provided, however, that subject to certain terms and conditions set forth in the Settlement, the Executives are entitled to a 2:1 credit such that total actual repayment may be $1.12 Million each; (B) to reimburse the Company for 25% of the actual costs, net of recovery from any other source, incurred by the Company as a result of the Shareholder Derivative Lawsuit; and (C) to grant to the Company a first priority security interest in 1,000,000 shares of the Company’s common stock owned by each such Executive to serve as collateral for the amounts due to the Company under the Settlement; (ii) Drs. Dees and Scott and Mr. Culpepper agreed to retain incentive stock options for 100,000 shares but shall forfeit 50% of the nonqualified stock options granted to each such Executive in both 2010 and 2011. The Settlement also requires that each of the Executives enter into new employment agreements with the Company, which were entered into on April 28, 2014, and that the Company adhere to certain corporate governance principles and processes in the future. Under the Settlement, Messrs. Fuchs and Smith and Dr. McMasters have each agreed to pay the Company $25,000 in cash, subject to reduction by such amount that the Company’s insurance carrier pays to the Company on behalf of such defendant pursuant to such defendant’s directors and officers liability insurance policy. The Settlement also provides for an award to plaintiffs’ counsel of attorneys’ fees and reimbursement of expenses in connection with their role in this litigation, subject to Court approval.

On July 24, 2014, the Court approved the terms of the proposed Settlement and awarded $911,000 to plaintiffs’ counsel for attorneys’ fees and reimbursement of expenses in connection with their role in the Shareholder Derivative Lawsuit.

Class Action Lawsuits

On May 27, 2014, Cary Farrah and James H. Harrison, Jr., individually and on behalf of all others similarly situated (the “Farrah Case”), and on May 29, 2014, each of Paul Jason Chaney, individually and on behalf of all others similarly situated (the “Chaney Case”), and Jayson Dauphinee, individually and on behalf of all others similarly situated (the “Dauphinee Case”) (the plaintiffs in the Farrah Case, the Chaney Case and the Dauphinee Case collectively referred to as the “Plaintiffs”), each filed a class action lawsuit in the United States District Court for the Middle District of Tennessee against the Company, H. Craig Dees, Timothy C. Scott and Peter R. Culpepper (the “Defendants”) alleging violations by the Defendants of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. Specifically, the Plaintiffs in each of the Farrah Case, the Chaney Case and the Dauphinee Case allege that the Defendants are liable for making false statements and failing to disclose adverse facts known to them about the Company, in connection with the Company’s application to the FDA for Breakthrough Therapy Designation (“BTD”) in the Spring of 2014 and the FDA’s subsequent denial of the Company’s application for BTD. The Company intends to defend vigorously against all claims in these complaints. However, in view of the inherent uncertainties of litigation and the early stage of this litigation, the outcome of these cases cannot be predicted at this time. Likewise, the amount of any potential loss cannot be reasonably estimated.

On July 9, 2014, the Plaintiffs and the Defendants filed joint motions in the Farrah Case, the Chaney Case and the Dauphinee Case to consolidate the cases and transfer them to United States District Court for the Eastern District of Tennessee. By order dated July 16, 2014, the United States District Court for the Middle District of Tennessee entered an order consolidating the Farrah Case, the Chaney Case and the Dauphinee Case (collectively and, as consolidated, the “Securities Litigation”) and transferred the Securities Litigation to the United States District Court for the Eastern District of Tennessee.

Hurtado Shareholder Derivative Lawsuit

On June 4, 2014, Karla Hurtado (the “Plaintiff”) derivatively on behalf of the Company, filed a shareholder derivative complaint in the United States District Court for the Middle District of Tennessee (the “Court”), against H. Craig Dees, Timothy C. Scott, Jan E. Koe, Kelly M. McMasters, and Alfred E. Smith, IV (collectively, the “Individual Defendants”), and against the Company as a nominal defendant (the “Hurtado Shareholder Derivative Lawsuit”). The Hurtado Shareholder Derivative Lawsuit alleges (i) breach of fiduciary duties and (ii) abuse of control, both claims based on the Plaintiff’s allegations that the Individual Defendants recklessly permitted the Company to disclose false and misleading information and failed to implement adequate controls and procedures to ensure the accuracy of the Company’s disclosures.

On July 25, 2014, the court presiding over the Hurtado Shareholder Derivative Lawsuit entered an order transferring the case to the United District Court for the Eastern District of Tennessee. It is anticipated that an order will be entered by agreement that will stay all activity in the Hurtado Shareholder Derivative Lawsuit pending the resolution of an anticipated motion to dismiss the anticipated consolidated amended complaint in the Securities Litigation.

As a nominal defendant, no relief is sought against the Company itself in the Hurtado Shareholder Derivative Lawsuit.

 

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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, our Annual Report on Form 10-K for the year ended December 31, 2013 (“2013 Form 10-K”), which includes additional information about our critical accounting policies and practices and risk factors, and the risk factors contained in Item 1A of Part II of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 and this report, which updates those 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.

Plan of Operation

We have implemented our integrated business plan, including execution of the current and next phases in clinical development of our pharmaceutical products and continued execution of research programs for new research initiatives.

Our current plans include continuing to operate with our four employees during the immediate future, as well as four primary consultants and various vendor relationships, and anticipate adding additional personnel if necessary in the next 12 months. Our current plans also include minimal purchases of new property, plant and equipment, and increased research and development for additional clinical trials as necessary and appropriate, including our planned phase 3 trial of PV-10 to treat locally advanced cutaneous melanoma.

We believe that our prescription drug candidates PV-10 and PH-10 provide us with two therapeutic products in multiple indications, which have been shown in clinical trials to be safe to treat serious cancers and diseases of the skin, respectively. Also, important immunologic data with PV-10 has been corroborated and characterized by institutions such as Moffitt Cancer Center in Tampa, Florida. We continue to develop clinical trials for these products to show their safety and efficacy, which we believe will continue to be shown based on data in previous studies, and which we hope will result in one or more license transactions with pharmaceutical and/or biotech partners. Together with our non-core technologies, which we intend to sell or license in the future, we believe this combination represents the foundation for maximizing shareholder value this year and beyond.

Results of Operations

Comparison of Three and Six Months Ended June 30, 2014 and June 30, 2013

Revenues

We had no revenue during the three and six months ended June 30, 2014 and 2013.

Research and Development

Research and development costs of $1,025,535 for the three months ended June 30, 2014 included payroll of $260,901, consulting and contract labor of $501,191, legal of $113,758, insurance of $0, lab supplies and pharmaceutical preparations of $126,094, rent and utilities of $21,875, and depreciation expense of $1,716. Research and development costs of $778,349 for the three months ended June 30, 2013 included payroll of $389,821, consulting and contract labor of $291,055, legal of $54,460, insurance of $12,500, lab supplies and pharmaceutical preparations of $10,810, rent and utilities of $18,153, and depreciation expense of $1,550. The decrease in payroll is due to less employee benefit expenses. The increase in consulting and contract labor is due primarily to preparations for a phase 3 trial for the treatment of melanoma and FDA interaction with respect to PV-10; and increased liver and Moffitt Cancer Center mechanism of action feasibility studies activity. The increase in lab supplies and pharmaceutical preparations is due primarily to preparations for phase 3 melanoma drug supply.

Research and development costs of $2,183,418 for the six months ended June 30, 2014 included payroll of $753,159, consulting and contract labor of $735,449, legal of $140,229, insurance of $54,803, lab supplies and pharmaceutical preparations of $452,504, rent and utilities of $43,842, and depreciation expense of $3,432. Research and development costs of $1,518,865 for the six months ended June 30, 2013 included payroll of $723,976, consulting and contract labor of $555,025, legal of $81,024, insurance of $87,500, lab supplies and pharmaceutical preparations of $32,165, rent and utilities of $36,075, and depreciation expense of $3,100. The increase in consulting and contract labor is due primarily to preparations for a phase 3 trial for the treatment of melanoma and FDA interaction with respect to PV-10, and increased liver and Moffitt Cancer Center mechanism of action feasibility studies activity. The increase in lab supplies and pharmaceutical preparations is due primarily to producing phase 3 melanoma drug supply, as well as phase 2 liver and meeting requirements for filing New Drug Approval (NDA) application to the FDA.

 

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General and Administrative

General and administrative expenses increased by $625,863 in the three months ended June 30, 2014 to $2,966,569 from $2,340,706 for the three months ended June 30, 2013. General and administrative expenses were very similar for both periods, except for legal expense which increased by approximately $500,000 primarily due to our NYSE MKT listing and the Controlled Equity OfferingSM Sales Agreement with Cantor Fitzgerald & Co., as well as investor relations and related travel expenses which increased approximately $150,000 for the three months ended June 30, 2014 versus the three months ended June 30, 2013.

General and administrative expenses increased by $1,343,404 in the six months ended June 30, 2014 to $6,022,513 from $4,679,109 for the six months ended June 30, 2013. General and administrative expenses were very similar for both periods; however, almost $600,000 in increased expense is due to the higher stock price during the three months ended March 31, 2014 versus the three months ended March 31, 2013, which resulted in higher noncash expenses charged to operations for the value of both stock and warrants issued for services. Additionally, legal expense increased by about $400,000 primarily due to our NYSE MKT listing and the Controlled Equity OfferingSM Sales Agreement with Cantor Fitzgerald & Co., as well as investor relations and related travel expenses increased approximately $300,000 for the six months ended June 30, 2014 versus the six months ended June 30, 2013.

Investment Income

Investment income was insignificant in both the three and six months ended June 30, 2014 and 2013.

Gain/Loss on change in fair value of warrant liability

Gain on change in fair value of warrant liability increased by $2,605,819 in the three months ended June 30, 2014 to $3,515,025 from $909,206 for the three months ended June 30, 2013. This activity results from accounting for the warrant liability described in Footnotes 4(c), 4(d) and 4(e) to the financial statements which is primarily attributed to a decrease in our common stock price.

Gain on change in fair value of warrant liability increased by $1,242,296 in the six months ended June 30, 2014 to $1,227,992 from a loss of $14,304 for the six months ended June 30, 2013. This activity results from accounting for the warrant liability described in Footnotes 4(c), 4(d) and 4(e) to the financial statements which is primarily attributed to a decrease in our common stock price.

Liquidity and Capital Resources

Our cash and cash equivalents were $18,126,036 at June 30, 2014, compared with $15,696,243 at December 31, 2013. The increase of approximately $2.4 million was due primarily to $4.35 million cash received from warrant and stock option exercises and $4.35 million net proceeds from the sale of our common stock in the six months ended June 30, 2014 offset by $6.3 million of operating cash expenses.

By managing variable cash expenses due to minimal fixed costs, we believe our cash and cash equivalents on hand at June 30, 2014 will be sufficient to meet our current and planned operating needs until well into 2015 without consideration being given to additional cash inflows that might occur from the exercise of existing warrants or future sales of equity securities, although we may, in our sole discretion, direct Alpha Capital Anstalt (“Investor”) to purchase up to an additional $30,000,000 of our common stock per an existing agreement with Investor. In addition, on April 30, 2014, the Company entered into a Controlled Equity OfferingSM Sales Agreement with Cantor Fitzgerald & Co., as sales agent (“Cantor”), under which the Company may issue and sell shares of its common stock having an aggregate offering price of up to $50,000,000 from time to time through Cantor, acting as sales agent.

Therefore, our ability to continue as a going concern is reasonably assured due to our cash and cash equivalents on hand at June 30, 2014. Given our current rate of expenditures and our ability to curtail or defer certain controllable expenditures, we do not anticipate needing to raise additional capital to further develop PV-10 on our own to treat locally advanced cutaneous melanoma, cancers of the liver, recurrent breast cancer, pancreatic cancer and other indications because we plan to strategically monetize PV-10 through appropriate regional license transactions, license PH-10 for psoriasis and other related indications described as inflammatory dermatoses, and also complete the spin-out of Pure-ific Corporation and the other non-core subsidiaries.

We believe that our financial position and corporate governance are such that we will continue to meet the relevant listing requirements of NYSE MKT, although there can be no assurance that we will continue to be listed on NYSE MKT. We believe our efforts to obtain regulatory clarity will be helpful to facilitate such transactions with potential partners. Additionally, the existing and forthcoming clinical and nonclinical mechanism of action data for both PV-10 and PH-10 are expected to further aid in both regulatory clarity and transactions with potential partners. The Company’s current cash position is sufficient to meet our obligations. In addition, management is returning $8.96 million to the Company as a result of the previously announced settlement of a shareholder derivative lawsuit (subject to a 2:1 credit to the executives, such that total actual repayment by the executives may be $1.12 million per executive which would total $4.48 million) and we further enhanced our strength by management’s recent exercise of options. In total, we have adequate funds to operate without a further injection of capital through well into 2015. We believe the existing cash position of the Company is sufficient to fund our operations through obtaining interim data from the planned phase 3 melanoma study as well as other planned programs including generating key liver data, and clinical mechanism of action data for both PV-10 and PH-10.

 

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We have provided data on a confidential basis to both potential global and geographic partners for both PV-10 for oncology, and PH-10 for dermatology, via a secure electronic data room. We are encouraged by the number of companies doing due diligence on our technologies. For instance, we recently had a team in India meeting with potential partners and have two teams focused in China working with potential partners there. We also have begun to consider co-development transactions with one or more pharmaceutical or biotech companies to combine PV-10 with immunology agents such as those referred to as checkpoint protein inhibitors. Whenever we obtain a Memorandum of Understanding (MOU), definitive agreement or similar indication of interest from a potential partner, we will issue a press release and Form 8-K filing to notify the market. Furthermore, the strategy of the company for the benefit of shareholders is a series of partnerships followed by an acquisition of the Company along the lines of Celgene/Abraxis, although there can be no assurance that such partnerships or acquisition will occur. The Company is not in discussions regarding the sale of its business and there can be no assurance, however, that the Company will be able to monetize PV-10 or PH-10 in the manner described herein.

We have already signed an advisory agreement with China’s TriRiver Capital to help identify distribution and joint venture partners for PV-10 in China. This agreement is intended to enhance our reach into China and will bolster our efforts in developing partnering opportunities in various countries in Asia including China, India and Japan, where we have held numerous detailed discussions with pharmaceutical companies over the last year. We are already seeing the results of efforts to enter into partnerships from the activity in our electronic data room. The Company is not in discussions regarding the sale of its business and there can be no assurance, however, that the Company will be able to monetize PV-10 or PH-10 in the manner described herein.

The primary financial objective of the Company is to strategically monetize the core value of PV-10 and PH-10 through the various transactions discussed elsewhere in this report. Ultimately, the Company wants to leverage value creation through the sale of the business or a merger that may include upfront cash, acquirer stock, and/or a contingency value right (CVR) as part of the total consideration. A CVR represents the right for its holder to receive certain defined payments upon the achievement of a specified milestone and would be designed to facilitate potential upside for the Company’s shareholders on a post-transaction basis. A CVR could trade on an exchange. The Company is not in discussions regarding the sale of its business and there can be no assurance, however, that the Company will be able to monetize PV-10 or PH-10 in the manner described herein.

We believe our continued development of PV-10 with existing funds will yield proof-of-concept evidence to support expected best-in-class clinical benefit to treat a wide range of solid tumor indications due to its unique immuno-chemoablation mechanism of action. Likewise, we believe our development of PH-10 with existing funds will yield proof-of-concept evidence to support expected best-in-class clinical benefit to treat a wide range of inflammatory dermatoses due to its unique non-steroidal anti-inflammatory mechanism of action.

However, we cannot assure you that we will be successful in either licensing of PV-10 or PH-10, any equity transaction, or selling a majority stake of the OTC and other non-core assets via a spin-out transaction and licensing our existing non-core products. Moreover, even if we are successful in improving our current cash flow position, we nonetheless plan to seek additional funds to meet our long-term requirements in 2015 and beyond, even though we do not anticipate needing additional capital to develop PV-10 on our own to treat locally advanced cutaneous melanoma. We anticipate that these funds will otherwise come from the proceeds of private placements, 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 shareholders.

Critical Accounting Policies

Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these 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 under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our 2013 Form 10-K.

New Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP.

 

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The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2017. The Company currently does not have revenues but will consider any related impact going forward.

In June 2014, the FASB issued Accounting Standards Update 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation (ASU 2014-10), which eliminates the concept of a development stage entity (DSE) from U.S. GAAP. This change rescinds certain financial reporting requirements that have historically applied to DSEs and is intended to result in cost-savings for affected entities, such as certain start-up or research and development entities. The new standard also changes one related aspect of the variable interest entity (VIE) consolidation guidance in Topic 810.

ASU 2014-10 is effective for public entities for annual reporting periods beginning after December 15, 2014 and interim periods therein. Early adoption is permitted. We are currently evaluating the impact of our pending adoption of ASU 2014-10 on our consolidated financial statements.

Contractual Obligations — Leases

We lease office and laboratory space in Knoxville, Tennessee, on an annual basis, renewable for one year at our option. We have a lease commitment of $30,000 as of June 30, 2014.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We had no holdings of financial or commodity instruments as of June 30, 2014, other than cash and cash equivalents, short-term deposits, money market funds, and interest bearing investments in U.S. governmental debt securities. We have accounted for certain warrants issued in March and April 2010, January 2011 and February 2013 as liabilities at their fair value upon issuance, which are remeasured at each period end with the change in fair value recorded in the statement of operations. See notes 4 and 7 of the interim financial statements contained in this Quarterly Report on Form 10-Q.

All of our business is transacted in U.S. dollars and, accordingly, foreign exchange rate fluctuations have not had a significant impact on us, and they are not expected to have a significant impact on us in the foreseeable future.

 

ITEM 4. CONTROLS AND PROCEDURES.

(a) Evaluation of Disclosure Controls and Procedures. Our chief executive officer and chief financial officer have evaluated the effectiveness of the design and operation of our “disclosure controls and procedures” (as that term is defined in Rule 13a-15(e) under the Exchange Act) as of June 30, 2014, the end of the fiscal quarter covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the chief executive officer and chief financial officer have concluded that our disclosure controls and procedures are effective.

(b) Changes in Internal Controls. 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.

 

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PART II OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

Kleba Shareholder Derivative Lawsuit

On January 2, 2013, Glenn Kleba (the “Plaintiff”) derivatively on behalf of the Company, filed a shareholder derivative complaint in the Circuit Court for the State of Tennessee, Knox County (the “Court”), against H. Craig Dees, Timothy C. Scott, Eric A. Wachter, and Peter R. Culpepper (collectively, the “Executives”), Stuart Fuchs, Kelly M. McMasters, and Alfred E. Smith, IV (collectively, together with the Executives, the “Individual Defendants”), and against the Company as a nominal defendant (the “Shareholder Derivative Lawsuit”). The Shareholder Derivative Lawsuit alleges (i) breach of fiduciary duties, (ii) waste of corporate assets, and (iii) unjust enrichment, all three claims based on the Plaintiff’s allegations that the defendants authorized and/or accepted stock option awards in violation of the terms of the Company’s 2002 Stock Plan (the “Plan”) by issuing stock options in excess of the amounts authorized under the Plan and delegated to defendant H. Craig Dees the sole authority to grant himself and the other Executives cash bonuses that the Plaintiff alleges to be excessive.

In April 2013, the Company’s Board of Directors appointed a special litigation committee to investigate the allegations of the Shareholder Derivative Complaint and make a determination as to how the matter should be resolved. The special litigation committee conducted its investigation, and proceedings in the case were stayed pending the conclusion of the committee’s investigation. The Company has established a reserve of $100,000 for potential liabilities because such is the amount of the self-insured retention of its insurance policy.

On March 6, 2014, the Company filed a Joint Notice of Settlement (the “Notice of Settlement”) in the Shareholder Derivative Lawsuit. In addition to the Company, the parties to the Notice of Settlement are the Plaintiff and the Individual Defendants.

On June 6, 2014, the Company, in its capacity as a nominal defendant, entered into a Stipulated Settlement Agreement and Mutual Release (the “Settlement”) in the Shareholder Derivative Lawsuit. In addition to the Company and the Individual Defendants, plaintiffs Glenn Kleba and Don B. Dale are parties to the Settlement.

By entering into the Settlement, the settling parties have resolved the derivative claims to their mutual satisfaction. The Individual Defendants have not admitted the validity of any claims or allegations and the settling plaintiffs have not admitted that any claims or allegations lack merit or foundation. Under the terms of the Settlement, (i) the Executives each agreed (A) to re-pay to the Company $2.24 Million of the cash bonuses they each received in 2010 and 2011, which amount equals 70% of such bonuses or an estimate of the after-tax net proceeds to each Executive; provided, however, that subject to certain terms and conditions set forth in the Settlement, the Executives are entitled to a 2:1 credit such that total actual repayment may be $1.12 Million each; (B) to reimburse the Company for 25% of the actual costs, net of recovery from any other source, incurred by the Company as a result of the Shareholder Derivative Lawsuit; and (C) to grant to the Company a first priority security interest in 1,000,000 shares of the Company’s common stock owned by each such Executive to serve as collateral for the amounts due to the Company under the Settlement; (ii) Drs. Dees and Scott and Mr. Culpepper agreed to retain incentive stock options for 100,000 shares but shall forfeit 50% of the nonqualified stock options granted to each such Executive in both 2010 and 2011. The Settlement also requires that each of the Executives enter into new employment agreements with the Company, which were entered into on April 28, 2014, and that the Company adhere to certain corporate governance principles and processes in the future. Under the Settlement, Messrs. Fuchs and Smith and Dr. McMasters have each agreed to pay the Company $25,000 in cash, subject to reduction by such amount that the Company’s insurance carrier pays to the Company on behalf of such defendant pursuant to such defendant’s directors and officers liability insurance policy. The Settlement also provides for an award to plaintiffs’ counsel of attorneys’ fees and reimbursement of expenses in connection with their role in this litigation, subject to Court approval.

On July 24, 2014, the Court approved the terms of the proposed Settlement and awarded $911,000 to plaintiffs’ counsel for attorneys’ fees and reimbursement of expenses in connection with their role in the Shareholder Derivative Lawsuit.

Class Action Lawsuits

On May 27, 2014, Cary Farrah and James H. Harrison, Jr., individually and on behalf of all others similarly situated (the “Farrah Case”), and on May 29, 2014, each of Paul Jason Chaney, individually and on behalf of all others similarly situated (the “Chaney Case”), and Jayson Dauphinee, individually and on behalf of all others similarly situated (the “Dauphinee Case”) (the plaintiffs in the Farrah Case, the Chaney Case and the Dauphinee Case collectively referred to as the “Plaintiffs”), each filed a class action lawsuit in the United States District Court for the Middle District of Tennessee against the Company, H. Craig Dees, Timothy C. Scott and Peter R. Culpepper (the “Defendants”) alleging violations by the Defendants of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder.

 

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Specifically, the Plaintiffs in each of the Farrah Case, the Chaney Case and the Dauphinee Case allege that the Defendants are liable for making false statements and failing to disclose adverse facts known to them about the Company, in connection with the Company’s application to the FDA for Breakthrough Therapy Designation (“BTD”) in the Spring of 2014 and the FDA’s subsequent denial of the Company’s application for BTD. The Company intends to defend vigorously against all claims in these complaints. However, in view of the inherent uncertainties of litigation and the early stage of this litigation, the outcome of these cases cannot be predicted at this time. Likewise, the amount of any potential loss cannot be reasonably estimated.

On July 9, 2014, the Plaintiffs and the Defendants filed joint motions in the Farrah Case, the Chaney Case and the Dauphinee Case to consolidate the cases and transfer them to United States District Court for the Eastern District of Tennessee. By order dated July 16, 2014, the United States District Court for the Middle District of Tennessee entered an order consolidating the Farrah Case, the Chaney Case and the Dauphinee Case (collectively and, as consolidated, the “Securities Litigation”) and transferred the Securities Litigation to the United States District Court for the Eastern District of Tennessee.

Hurtado Shareholder Derivative Lawsuit

On June 4, 2014, Karla Hurtado (the “Plaintiff”) derivatively on behalf of the Company, filed a shareholder derivative complaint in the United States District Court for the Middle District of Tennessee (the “Court”), against H. Craig Dees, Timothy C. Scott, Jan E. Koe, Kelly M. McMasters, and Alfred E. Smith, IV (collectively, the “Individual Defendants”), and against the Company as a nominal defendant (the “Hurtado Shareholder Derivative Lawsuit”). The Hurtado Shareholder Derivative Lawsuit alleges (i) breach of fiduciary duties and (ii) abuse of control, both claims based on the Plaintiff’s allegations that the Individual Defendants recklessly permitted the Company to disclose false and misleading information and failed to implement adequate controls and procedures to ensure the accuracy of the Company’s disclosures.

On July 25, 2014, the court presiding over the Hurtado Shareholder Derivative Lawsuit entered an order transferring the case to the United District Court for the Eastern District of Tennessee. It is anticipated that an order will be entered by agreement that will stay all activity in the Hurtado Shareholder Derivative Lawsuit pending the resolution of an anticipated motion to dismiss the anticipated consolidated amended complaint in the Securities Litigation.

As a nominal defendant, no relief is sought against the Company itself in the Hurtado Shareholder Derivative Lawsuit.

 

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, 2013, as supplemented by the risk factors disclosed in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, other than the additional disclosure of the risk factors listed below.

We may not obtain or maintain the benefits associated with breakthrough therapy designation.

On March 21, 2014, we submitted a request for breakthrough therapy designation (BTD) to the FDA for PV-10 in the treatment of metastatic melanoma in the United States. The FDA denied the request in May 2014, but stated that a new request may be submitted if we obtain new clinical evidence that supports BTD. Accordingly, we are not entitled to the benefits of BTD, including expedited development and review of PV-10 in the treatment of melanoma.

If we resubmit such request for BTD, we may not be granted BTD, or even if granted, we may not receive the benefits associated with BTD. This may result from a failure to maintain breakthrough therapy status if PV-10 is no longer considered to be a breakthrough therapy. For example, a drug’s development program may be granted BTD using early clinical testing that shows a much higher response rate than available therapies. However, subsequent interim data derived from a larger study may show a response that is substantially smaller than the response seen in early clinical testing. Another example is where BTD is granted to two drugs that are being developed for the same use. If one of the two drugs gains traditional approval, the other would not retain its designation unless its sponsor provided evidence that the drug may demonstrate substantial improvement over the recently approved drug. When BTD is no longer supported by emerging data or the designated drug development program is no longer being pursued, the FDA may choose to send a letter notifying the sponsor that the program is no longer designated as a BTD program.

 

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We depend on the successful completion of clinical trials for our product candidates, including PV-10. The positive clinical results obtained for our product candidates in prior clinical studies may not be repeated in future clinical studies.

Before obtaining regulatory approval for the sale of our product candidates, including PV-10, we must conduct additional clinical trials to demonstrate the safety and efficacy of our product candidates. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more of our clinical trials can occur at any stage of testing. The outcome of pre-clinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, pre-clinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in pre-clinical studies and clinical trials have nonetheless failed to obtain marketing approval for their products.

In October 2012, we presented final top-line data from the Phase 2 trial of PV-10 for metastatic melanoma, and in March 2014, applied for BTD with the FDA, which was subsequently denied pending new clinical evidence that supports BTD. We (i) are conducting an expanded phase 1 trial for PV-10 for metastatic liver cancer, which is expected to be completed in 2014; (ii) have completed a phase 1 clinical study for PV-10 for recurrent breast cancer; (iii) are conducting a phase 1 trial for PV-10 in an investigator initial study to ascertain the feasibility of detecting immune cell infiltrates in injected melanoma tumors; (iv) are conducting a phase 2c clinical trial for PH-10 for psoriasis; (v) have completed a Phase 2 clinical trial for PH-10 for atopic dermatitis; and (vi) plan to conduct a phase 3 clinical trial to assess response to intralesional PV-10 versus that of systemic chemotherapy in patients with disease confined to cutaneous and subcutaneous sites. Meetings with scientific advisors, investigators and advocates in the field have led us to expect a starting date for the phase 3 study sometime in the second half of 2014. However, we have never conducted a phase 3 clinical trial. The positive results we have seen to date in our phase 2 clinical trials of PV-10 for metastatic melanoma do not ensure that later clinical trials will demonstrate similar results. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy characteristics despite having progressed satisfactorily through preclinical studies and initial clinical testing. A number of companies in the pharmaceutical and biotechnology industries, including those with greater resources and experience, have suffered significant setbacks in Phase 3 clinical development, even after seeing promising results in earlier clinical trials.

We may experience a number of unforeseen events during clinical trials for our product candidates, including PV-10, that could delay or prevent the commencement and/or completion of our clinical trials, including the following:

 

    regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

 

    the clinical study protocol may require one or more amendments delaying study completion;

 

    clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;

 

    the number of subjects required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be insufficient or slower than we anticipate or subjects may drop out of these clinical trials at a higher rate than we anticipate;

 

    clinical investigators or study subjects fail to comply with clinical study protocols;

 

    trial conduct and data analysis errors may occur, including, but not limited to, data entry and/or labeling errors;

 

    our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;

 

    we might have to suspend or terminate clinical trials of our product candidates for various reasons, including a finding that the subjects are being exposed to unacceptable health risks;

 

    regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements;

 

    the cost of clinical trials of our product candidates may be greater than we anticipate;

 

    the supply or quality of our clinical trial materials or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; and

 

    our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators to suspend or terminate the trials.

We expect our research and development expenses to increase in connection with our ongoing activities, particularly if we commence a phase 3 clinical trial with respect to PV-10 as planned, and undertake additional clinical trials of our other product candidates. Because successful development of our product candidates is uncertain, we are unable to estimate the actual funds required to complete research and development and commercialize our products under development; however, we believe we have sufficient cash on hand to fund the planned phase 3 trial with respect to PV-10.

 

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Negative or inconclusive results of our future clinical trials of PV-10, or any other clinical trial we conduct, could cause the FDA to require that we repeat or conduct additional clinical studies. Despite the results reported in earlier clinical trials for PV-10, we do not know whether any clinical trials we may conduct will demonstrate adequate efficacy and safety to result in regulatory approval to market our product candidates, including PV-10. If later stage clinical trials do not produce favorable results, our ability to obtain regulatory approval for our product candidates, including PV-10, may be adversely impacted.

Delays in clinical trials are common and have many causes, and any delay could result in increased costs to us and jeopardize or delay our ability to obtain regulatory approval.

Clinical testing is expensive, difficult to design and implement, can take many years to complete, and is uncertain as to outcome. We may experience delays in clinical trials at any stage of development and testing of our product candidates. Our planned clinical trials may not begin on time, have an effective design, enroll a sufficient number of subjects, or be completed on schedule, if at all.

Events which may result in delays or unsuccessful completion of clinical trials, including our future clinical trials for PV-10, include the following:

 

    inability to raise funding, if necessary, to initiate or continue a trial;

 

    delays in obtaining regulatory approval to commence a trial;

 

    delays in reaching agreement with the FDA on final trial design;

 

    imposition of a clinical hold following an inspection of our clinical trial operations or trial sites by the FDA or other regulatory authorities;

 

    delays in reaching agreement on acceptable terms with prospective contract research organizations (CROs) and clinical trial sites;

 

    delays in obtaining required institutional review board (IRB) approval at each site;

 

    delays in recruiting suitable patients to participate in a trial;

 

    delays in having subjects complete participation in a trial or return for post-treatment follow-up;

 

    delays caused by subjects dropping out of a trial due to side effects or otherwise;

 

    delays caused by clinical sites dropping out of a trial;

 

    time required to add new clinical sites; and

 

    delays by our contract manufacturers to produce and deliver sufficient supply of clinical trial materials.

If initiation or completion of any of our clinical trials for our product candidates, including PV-10, are delayed for any of the above reasons, our development costs may increase, the approval process could be delayed, any periods during which we may have the exclusive right to commercialize our product candidates may be reduced and our competitors may bring products to market before us. Any of these events could impair our ability to generate revenues from product sales and impair our ability to generate regulatory and commercialization milestones and royalties, all of which could have a material adverse effect on our business.

We are subject to securities class action lawsuits that could adversely affect our business. This litigation, and potential similar or related litigation, could result in substantial damages and may divert management’s time and attention from our business.

Beginning on May 27, 2014, three putative securities class action lawsuits were commenced in the United States District Court for the Middle District of Tennessee against us, and certain of our officers and directors, alleging violations by the defendants of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder, together called the “federal class actions.” The federal class actions allege, among other things, that the defendants made false and materially misleading statements and failed to disclose material information regarding our application to the FDA for BTD.

On July 9, 2014, the plaintiffs and the defendants filed joint motions in the federal class actions to consolidate the cases and transfer them to United States District Court for the Eastern District of Tennessee. By order dated July 16, 2014, the United States District Court for the Middle District of Tennessee entered an order consolidating the federal class actions and transferred the federal class actions to the United States District Court for the Eastern District of Tennessee.

In addition, on June 4, 2014, a shareholder derivative lawsuit captioned Hurtado v. Provectus Biopharmaceuticals, Inc., et al., was filed derivatively on behalf of the Company in the United States District Court for the Middle District of Tennessee (the “Hurtado Shareholder Derivative Lawsuit”). The Hurtado Shareholder Derivative Lawsuit alleges (i) breach of fiduciary duties, and (ii) abuse of control, both claims based on the Plaintiff’s allegations that the Individual Defendants recklessly permitted the Company to disclose false and misleading information and failed to implement adequate controls and procedures to ensure the accuracy of the Company’s disclosures.

 

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On July 25, 2014, the court presiding over the Hurtado Shareholder Derivative Lawsuit entered an order transferring the case to the United District Court for the Eastern District of Tennessee. It is anticipated that an order will be entered by agreement that will stay all activity in the Hurtado Shareholder Derivative Lawsuit pending the resolution of an anticipated motion to dismiss the anticipated consolidated amended complaint in the federal class actions.

As a nominal defendant, no relief is sought against the Company itself in the Hurtado Shareholder Derivative Lawsuit.

We intend to defend these actions vigorously. We are currently unable to estimate a range of payments if any, we may be required to pay, or may agree to pay, with respect to the federal class actions and the Hurtado Shareholder Derivative Lawsuit. We believe, however, that the resolution of these suits will not result in a material adverse effect to our consolidated financial statements. However, due to the inherent uncertainties that accompany litigation of this nature, there can be no assurance that we will be successful, and an adverse resolution of any of the lawsuits could have a material adverse effect on our consolidated financial statements. Furthermore, these actions may divert management’s time and attention from our business, and we could be forced to expend significant resources and pay significant costs and expenses, including legal fees, in connection with defending the lawsuits.

 

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

During the three months ended March 31, 2014, the Company issued 733,000 warrants to consultants in exchange for services.

During the three months ended June 30, 2014, the Company issued 202,000 warrants to consultants in exchange for services.

The Company intends to use any net proceeds from the exercises of these issuances for working capital, FDA trials, securing licensing partnerships, and general corporate purposes.

During the three months ended June 30, 2014 the Company completed a private offering of common stock and warrants to accredited investors for gross proceeds of $5,000,000. The Company accepted subscriptions, in the aggregate, for 2,000,000 shares of common stock and five year warrants to purchase 2,000,000 shares of common stock. Investors received five year fully vested warrants to purchase up to 100% of the number of shares purchased by the investors in the offering. The warrants have an exercise price of $3.00 per share. The purchase price for each share of common stock together with the warrants was $2.50. The Company used the proceeds for working capital and other general corporate purposes. Network 1 Financial Securities, Inc. served as placement agent for the offering. In connection with the offering, the Company paid $650,000 and issued five year fully vested warrants to purchase 300,000 shares of common stock with an exercise price of $2.50 to Network 1 Financial Securities, Inc., which represents 15% of the total number of shares of common stock sold to investors solicited by Network 1 Financial Securities, Inc.

The issuances of the securities were exempt from the registration requirements of the Securities Act of 1933 (the “Securities Act”) by virtue of Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

 

ITEM 5. OTHER INFORMATION.

None.

 

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ITEM 6. EXHIBITS

 

Exhibit

No.

 

Description

  10.1   Controlled Equity OfferingSM Sales Agreement, dated April 30, 2014, by and between Provectus Biopharmaceuticals, Inc. and Cantor Fitzgerald & Co. (incorporated by reference to Exhibit 10.1 to the Company’s Item 1.01 Current Report on Form 8-K filed on April 30, 2014)
  10.2   Amended and Restated Executive Employment Agreement by and between the Company and H. Craig Dees, Ph.D., dated April 28, 2014 (incorporated by reference to Exhibit 10.1 to the Company’s Item 5.02 Current Report on Form 8-K filed on April 30, 2014)
  10.3   Amended and Restated Executive Employment Agreement by and between the Company and Timothy C. Scott, Ph.D., dated April 28, 2014 (incorporated by reference to Exhibit 10.2 to the Company’s Item 5.02 Current Report on Form 8-K filed on April 30, 2014)
  10.4   Amended and Restated Executive Employment Agreement by and between the Company and Eric A. Wachter, Ph.D., dated April 28, 2014 (incorporated by reference to Exhibit 10.3 to the Company’s Item 5.02 Current Report on Form 8-K filed on April 30, 2014)
  10.5   Amended and Restated Executive Employment Agreement by and between the Company and Peter R. Culpepper, dated April 28, 2014 (incorporated by reference to Exhibit 10.4 to the Company’s Item 5.02 Current Report on Form 8-K filed on April 30, 2014)
  10.6**   Stipulated Settlement Agreement and Mutual Release, dated June 6, 2004, by and among the Company as nominal defendant, H. Craig Dees, Timothy C. Scott, Eric A. Wachter, Peter R. Culpepper, Stuart Fuchs, Kelly M. McMasters, and Alfred E. Smith, IV, as defendants, and Glenn Kleba and Don B. Dale, as plaintiffs (Exhibits Omitted)
  31.1**   Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) (Section 302 Certification).
  31.2**   Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) (Section 302 Certification).
  32**   Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 (Section 906 Certification).
101   Interactive Data Files.*

 

* The documents formatted in XBRL (Extensible Business Reporting Language) and attached as Exhibit 101 to this report are deemed not filed as part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act, are deemed not filed for purposes of Section 18 of the Exchange Act, and otherwise are not subject to liability under these sections.
** Filed herewith.

 

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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.

 

    PROVECTUS BIOPHARMACEUTICALS, INC.
August 7, 2014     By:   /s/ Peter R. Culpepper
      Peter R. Culpepper
      On behalf of the registrant and as Chief Financial Officer and Chief Operating Officer (Principal Financial Officer)

 

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EXHIBIT INDEX

 

Exhibit

No.

 

Description

  10.1   Controlled Equity OfferingSM Sales Agreement, dated April 30, 2014, by and between Provectus Biopharmaceuticals, Inc. and Cantor Fitzgerald & Co. (incorporated by reference to Exhibit 10.1 to the Company’s Item 1.01 Current Report on Form 8-K filed on April 30, 2014)
  10.2   Amended and Restated Executive Employment Agreement by and between the Company and H. Craig Dees, Ph.D., dated April 28, 2014 (incorporated by reference to Exhibit 10.1 to the Company’s Item 5.02 Current Report on Form 8-K filed on April 30, 2014)
  10.3   Amended and Restated Executive Employment Agreement by and between the Company and Timothy C. Scott, Ph.D., dated April 28, 2014 (incorporated by reference to Exhibit 10.2 to the Company’s Item 5.02 Current Report on Form 8-K filed on April 30, 2014)
  10.4   Amended and Restated Executive Employment Agreement by and between the Company and Eric A. Wachter, Ph.D., dated April 28, 2014 (incorporated by reference to Exhibit 10.3 to the Company’s Item 5.02 Current Report on Form 8-K filed on April 30, 2014)
  10.5   Amended and Restated Executive Employment Agreement by and between the Company and Peter R. Culpepper, dated April 28, 2014 (incorporated by reference to Exhibit 10.4 to the Company’s Item 5.02 Current Report on Form 8-K filed on April 30, 2014)
  10.6**   Stipulated Settlement Agreement and Mutual Release, dated June 6, 2004, by and among the Company as nominal defendant, H. Craig Dees, Timothy C. Scott, Eric A. Wachter, Peter R. Culpepper, Stuart Fuchs, Kelly M. McMasters, and Alfred E. Smith, IV, as defendants, and Glenn Kleba and Don B. Dale, as plaintiffs (Exhibits Omitted)
  31.1**   Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) (Section 302 Certification).
  31.2**   Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) (Section 302 Certification).
  32**   Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 (Section 906 Certification).
101   Interactive Data Files.*

 

* The documents formatted in XBRL (Extensible Business Reporting Language) and attached as Exhibit 101 to this report are deemed not filed as part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act, are deemed not filed for purposes of Section 18 of the Exchange Act, and otherwise are not subject to liability under these sections.
** Filed herewith.

 

28

EX-10.6 2 d754969dex106.htm EX-10.6 EX-10.6

Exhibit 10.6

IN THE CIRCUIT COURT FOR KNOX COUNTY, TENNESSEE

 

GLENN KLEBA, derivatively on behalf of

nominal defendant PROVECTUS

PHARMACEUTICALS, INC.,

 
    Civil Action No. 3-1-13
  Plaintiff,  
v.     JURY TRIAL DEMANDED

H. CRAIG DEES, TIMOTHY C. SCOTT,

ERIC A. WACHTER, STUART FUCHS,

KELLY M. MCMASTERS, ALFRED E.

SMITH, IV, and PETER R. CULPEPPER,

 
  Defendants,  
and    
PROVECTUS PHARMACEUTICALS, INC.  
  Nominal Defendant.  

NOTICE OF FILING

The Defendants, H. Craig Dees, Timothy C. Scott, Eric A. Wachter and Peter R. Culpepper, (“Officer Defendants”) who are currently serving officers of Nominal Defendant, Provectus Biopharmaceuticals, Inc. f/k/a Provectus Pharmaceuticals, Inc. give notice, pursuant to the deadlines established in the pleadings served by the Special Litigation Committee on May 7 and May 8, 2014, of the filing of settlement agreements signed by the Officer Defendants.


Respectfully submitted,
/s/ John S. Hicks

 

John S. Hicks (BPR #010478)

Baker Donelson Bearman Caldwell & Berkowitz, PC

Baker Donelson Center

211 Commerce Street, Suite 800

Nashville, Tennessee 37201

(615) 726-7337

(615) 744-7337 fax

Attorneys for Nominal Defendant Provectus Pharmaceuticals, Inc. and Specially Appearing for Individual Defendants

CERTIFICATE OF SERVICE

I hereby certify that a copy of the foregoing pleading has been furnished to the parties listed below via electronic mail and first class U.S. Mail, postage prepaid, on this the 12th day of May, 2014:

Al Holifield

HOLIFIELD & ASSOCIATES, P.L.L.C.

8351 E. Walker Springs Lane, Suite 303

Knoxville, Tennessee 37923

Eduard Korinsky, Esq.

Steven J. Purcell, Esq.

30 Broad Street, 24th Floor

New York, New York 10004

Robert J. Walker, Esq.

Charles I. Malone, Esq.

John C. Hayworth, Esq.

Walker, Tipps & Malone, PLC

2300 One Nashville Place

150 Fourth Avenue North

Nashville, Tennessee 37219

 

/s/ John S. Hicks

 

John S. Hicks

 

2


STIPULATED SETTLEMENT AGREEMENT AND MUTUAL RELEASE

This Stipulated Settlement Agreement and Mutual Release (hereinafter “Agreement”) is made and entered into by and between Provectus Biopharmaceuticals, Inc., f/k/a Provectus Pharmaceuticals, Inc. (the “Corporation”) and Peter R. Culpepper (hereinafter “Defendant”), and is consented to and approved by Glenn Kleba and Don B. Dale, derivatively on behalf of the Corporation (the “Plaintiffs”) in Plaintiffs’ shareholder derivative lawsuit. Where appropriate, the Corporation, Defendant, and the Plaintiffs shall collectively be referred to as “the Parties.”

RECITALS

WHEREAS:

A. The Corporation is a Delaware corporation with its principal place of business at 7327 Oak Ridge Highway, Suite A, Knoxville, TN 37931.

B. On or about January 4, 2013, Plaintiff Glenn Kleba, acting by and through counsel, filed a case titled Glenn Kleba, derivatively on behalf of nominal defendant Provectus Pharmaceuticals, Inc., v. H. Craig Dees et al., Civil Action No. 03-1-13, in the Circuit Court for Knox County, Tennessee (the “Lawsuit”). Plaintiffs subsequently filed an Amended Complaint in the Lawsuit adding Don B. Dale as a party plaintiff.

C. On or about April 3, 2013, through a Consent Action By Directors of Provectus Pharmaceuticals, Inc. (“Consent Action”), the Corporation formed a Special Litigation Committee (the “SLC”) and charged the SLC, among other things, “to consider, investigate, review, and analyze the facts, allegations, and circumstances that are the subject of the Shareholder Derivative Lawsuit, as well as any additional facts, allegations, and circumstances that may be raised or put at issue in any related inquiry, investigation, or proceeding” and to “consider and determine whether or not the prosecution of any claims described or asserted in the Shareholder Derivative Lawsuit or any other claims related to the facts, allegations, and circumstances of the Shareholder Derivative Lawsuit is in the best interest of the Corporation and its shareholders, and what action the Corporation should take with respect thereto, including a determination of whether the maintenance of a derivative proceeding with respect to any such claims is or is not in the best interests of the Corporation.”

D. After thorough investigation and extensive deliberation, the SLC unanimously concluded that it was in the best interests of the Corporation and its stockholders to settle the Lawsuit on certain terms and conditions. Defendants agreed to compromise and settle the Lawsuit on such terms and conditions, and Plaintiffs approved and consented to the proposed settlement on such terms and conditions.

E. On or about March 6, 2014, the Parties filed with the Court a Joint Notice in the Lawsuit (the “Joint Notice”) providing notice that they had agreed to the terms, subject to additional definitive documentation, of a settlement evidenced by the execution of a Binding Settlement Term Sheet Agreement.

F. The Parties have agreed to settle the Lawsuit on the terms set forth in this Agreement, and in the associated Stock Pledge Agreement attached as Exhibit A and Option Rescission Agreement attached as Exhibit B (collectively, the “Settlement Documents”).

G. As set forth in Section 6 hereof, the settlement set forth herein and in the Settlement Documents is conditioned upon and subject to final approval of the Court in the Lawsuit, which approval shall be sought by joint motion of the Parties.

 

 

 

Settlement and Release Agreement


TERMS

1. No Admission of Liability. The Parties agree and acknowledge that this Agreement is intended as a compromise of matters involving disputed issues, and that nothing in this Agreement nor the negotiations for this Agreement (including all statements or communications related thereto) by the Parties or their attorneys may be considered an admission of liability or wrongdoing.

2. Cash Payments to the Corporation.

 

  (A) As Related to Prior Cash Bonus Compensation: Defendant agrees and obligates himself to pay to the Corporation TWO MILLION TWO HUNDRED FORTY THOUSAND DOLLARS AND NO/100 ($2,240,000.00) (the “Total Repayment Amount”), except that:

 

  (1) Subject to the satisfaction in full of the conditions set forth in Section 2(C) below and Section 2(A)(2), Defendant shall be entitled to a two-for-one (2:1) credit on the Total Repayment Amount such that his repayment obligation to the Corporation for the Total Repayment Amount shall instead be ONE MILLION ONE HUNDRED TWENTY THOUSAND DOLLARS AND NO/100 ($1,120,000.00) (the “Reduced Repayment Amount”).

 

  (2) To be entitled to the Reduced Repayment Amount instead of the Total Repayment Amount, Defendant must

 

  (a) make all payments of the Reduced Repayment Amount required in this Agreement timely and pursuant to the terms set forth in Section 2(C); and

 

  (b) remain employed by the Company until December 31, 2018, except that termination of Defendant’s employment prior to such date shall not affect Defendant’s right to the Reduced Repayment Amount if such termination is (i) a termination by the Corporation without “Cause” (or any substantively similar provisions as set forth in Defendant’s then-governing employment agreement with the Corporation); (ii) a resignation by Defendant “For Good Reason” (or any substantively similar provisions as set forth in Defendant’s then-governing employment agreement with the Corporation); or (iii) the result of Defendant’s death or disability.

 

 

 

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  (B) As Related to the Litigation Costs of the Shareholder Derivative Lawsuit:

 

  (1) Defendant shall also be obligated to pay TWENTY-FIVE PERCENT (25%) of the Litigation Costs incurred as a result of the Lawsuit. “Litigation Costs” shall be defined as (i) all fees and expenses of the SLC, including but not limited to the fees and expenses of the SLC’s counsel, PLUS (ii) the fees and expenses of the Corporation’s counsel, Baker Donelson Bearman Caldwell & Berkowitz, P.C., in connection with and directly related to the Shareholder Derivative Lawsuit, PLUS (iii) the fees and expenses of Plaintiffs, including but not limited to the fees and expenses of Plaintiffs’ counsel, MINUS (iv) any insurance proceeds offsetting or covering the foregoing costs. For the avoidance of doubt, the obligation to repay any portion of Litigation Costs is not entitled to any 2:1 credit.

 

  (2) No later than within thirty (30) days of the later of (a) Court approval of the settlement and (b) an agreement by the Parties and the other required defendants in the Lawsuit, or a decision of the Court, as to the amount of fees and expenses of Plaintiffs (including attorneys’ fees); the Parties, including the SLC, shall agree on a final Litigation Costs Settlement Statement which shall set forth the total Litigation Costs for purposes of this Agreement.

 

  (C) Terms of Cash Repayment. The “Cash Repayment Obligations” shall equal (i) the Reduced Repayment Amount (or the Total Repayment Amount if Defendant fails to satisfy the conditions set forth in Section 2(A) and this Section 2(C)) PLUS (ii) the Litigation Costs set forth above in Section 2(B).

 

  (1) Term / Annual Minimum:

 

  (a) The Cash Repayment Obligations shall be paid in full by Defendant within five (5) years from the date of this Agreement.

 

  (b) Defendant shall pay a minimum of $200,000.00 per year to the Corporation towards the Cash Repayment Obligations. Defendant authorizes and agrees that, so long as Defendant is employed by the Corporation, the Corporation shall retain from Defendant’s annual salary the sum of $200,000 per year to be applied toward the Cash Repayment Obligations, which amount shall be withheld from each salary payment on a pro rata basis in accordance with the Corporation’s payroll policies and procedures.

 

 

 

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  (2) Acceleration of Payment: All Cash Repayment Obligations outstanding under this Agreement shall become immediately due and payable by Defendant and shall bear an annual interest rate of ten percent (10%) or the maximum allowed by law, whichever is less, upon the occurrence of any one or more of the following: (a) Defendant materially breaches the terms of this Agreement and does not cure such breach within thirty (30) days after notice from the Company that failure to cure the breach will result in acceleration of all cash repayment obligations; or (b) Defendant’s employment with the Corporation is terminated prior to December 31, 2018 for any reason other than those set forth in Paragraph 2(a)(2)(b).

 

  (3) Security: Defendant agrees to grant the Corporation a first-priority security interest in ONE MILLION (1,000,000) shares of Corporation’s common stock beneficially owned by Defendant (the “Common Stock”) to serve as collateral for the Cash Repayment Obligations owing and due to Corporation pursuant to the terms and conditions set forth in the Stock Pledge Agreement, the form of which is attached hereto as Exhibit A.

 

  (4) Prepayment. Defendant shall be entitled to pay in full all Cash Repayment Obligations due and owing pursuant to this Agreement at any time prior to the expiration of the five-year period; provided, however, prepayment of such amounts shall not relieve Defendant of the obligations set forth in Section 2(A)(2) of this Agreement to remain employed by the Corporation until December 31, 2018. For purposes of clarification, even if Defendant has paid all Cash Repayment Obligations due hereunder prior to the expiration of the five-year period, in the event Defendant’s employment with the Corporation is terminated prior to December 31, 2018 for any reason other than those set forth in Paragraph 2(a)(2)(b), Defendant will owe the Corporation the Total Repayment Amount (minus any payments theretofore made by Defendant with regard to the Reduced Repayment Amount or the Total Repayment Amount).

3. Rescission of Certain Stock Options. Defendant agrees that the Corporation shall rescind FIFTY PERCENT (50%) of the Non-Qualified Stock Options granted to Defendant in both 2010 and 2011, pursuant to the Option Rescission Agreement, the form of which is attached hereto as Exhibit B. The Parties agree that the remaining Non-Qualified Stock Options, and all the Incentive Stock Options, granted to Defendant in 2010 and 2011 are valid and enforceable, according to their terms.

4. New or Restated Employment Agreement Between Defendant and the Corporation. Defendant agrees that, to the extent such has not already been completed in 2014, he will within ninety (90) days of the Effective Date of this Agreement enter into a new or restated employment agreement with the Corporation, which employment agreement shall be approved and adopted by the Compensation Committee of the Corporation’s Board of Directors acting with the advice and assistance of the Corporation’s legal counsel.

 

 

 

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5. Representations as to Corporate Governance. Defendant represents, warrants, and covenants as part of this settlement that he – in his individual capacity as an officer, director, and/or shareholder of the Corporation – will (a) take all actions necessary and proper for the Corporation to satisfy the SLC’s recommendations with respect to improvements in the corporate governance of the Corporation (as set forth in Exhibit C to this Agreement, and as approved by Plaintiffs) and (b) will not otherwise take any action contrary to the SLC’s recommendations or contrary to the governance of the Corporation in a manner consistent with his fiduciary duties to the Corporation and its shareholders.

6. Court Approval / Effective Date of Settlement. The settlement, and this Agreement, shall become final and binding upon the Parties only if it is approved by the Court in the Lawsuit. The effective date of the settlement and this Agreement (the “Effective Date”) shall be the date that the Final Approval Order shall be final and not subject to appeal pursuant to the Tennessee Rules of Civil Procedure and other applicable law. In the event the settlement is not approved by the Court, the settlement and this Agreement will be of no force and effect, and shall not be binding on any Party.

7. Plaintiffs’ Fees and Expenses. Within ninety (90) days of Court approval of this settlement or Court award of fees and expenses to Plaintiffs (whichever is later), the Corporation shall pay to Plaintiffs an amount of attorneys fees, expenses and other compensation (i) that has been agreed to by Plaintiffs, Defendants and the SLC; or, alternatively, (ii) that has been ordered by the Court. Pursuant to Section 2(B), such payment shall be part of the Litigation Costs to be borne in part by Defendant.

8. Dismissal of the Lawsuit With Prejudice. Pursuant to the terms of the Final Approval Order and the Joint Motion for Approval, the Lawsuit shall be dismissed with prejudice. The Parties acknowledge and agree that dismissal of the Lawsuit and the terms of this Agreement form good and sufficient consideration, and that none of the Parties is entitled to receive any money or additional consideration from any other party in connection with the Lawsuit other than as expressly provided in this Agreement.

9. Mutual Release. Upon the Effective Date of this Agreement and excluding causes of action that arise out of the breach of this Agreement, the Parties shall be deemed to have forever released and discharged each other and each of their related entities, predecessors, successors, affiliates, attorneys, guarantors, and past and present officers, directors, employees, agents, shareholders, members, and trustees (hereinafter the “Released Parties”) from any and all payments, damages, costs, fees, claims, counterclaims, demands, actions, causes of action, claims of appeal, obligations, penalties and losses, known or unknown, contingent or accrued, now existing or hereafter arising, which relate in any way to the issues alleged, or to compensation related issues that could have been alleged, in the Lawsuit. This release does not and shall not apply to or operate to release any claims arising out of the Parties’ respective obligations in the Settlement Documents.

 

 

 

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10. Reliance on Own Judgment; Authority to Sign. The Parties to this Agreement agree that: (1) no promises or inducements have been made except as set forth herein; (2) they are competent and authorized to execute this Agreement; (3) they execute this Agreement knowingly and voluntarily and accept responsibility therefor; and (4) they have been represented by competent legal counsel of such party’s own choice with regard to this Agreement, or have otherwise had the opportunity to consult with a legal counsel of such party’s own choice, and that all Parties fully understand the same.

11. Binding Effect. This Agreement shall be binding upon and benefit the Parties and their respective heirs, executors, personal representatives, successors and assigns.

12. Counterparts and Execution by Facsimile / Scanned Image. This Agreement may be executed in several counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same instrument. Signatures by facsimile or scanned image shall be accepted as originals.

13. Entire Agreement. The Parties hereto acknowledge they have read this Agreement and freely and voluntarily agree to be bound by its terms. The Parties further agree that the Settlement Documents constitute the complete and the exclusive written expression of the terms of the entire settlement between the Parties and supersede all prior or contemporaneous proposals, oral or written, understandings, representations, conditions, warranties, covenants and all other communications between the Parties relating to the subject matter of the Settlement Documents.

14. Governing Law and Forum. This Agreement shall be construed and enforced in accordance with the laws of the State of Tennessee. The Parties hereby consent to the jurisdiction of the Knox County Circuit Court for the resolution of any and all claims or disputes arising out of the subject matter of this Agreement. The Parties irrevocably waive any right to bring or to remove any action arising or in any way connected to this Agreement to federal court.

15. Default by Defendant. In the event of any default by Defendant with respect to any term(s) of this Agreement, the Pledge Agreement, or the Option Rescission Agreement, the Corporation shall be entitled to recover all costs and reasonable attorney fees incurred in the enforcement of the Corporation’s rights in such agreements.

16. Amendments. This Agreement may only be amended by a writing signed by the Defendant and the Corporation, and written notice of such amendment shall be provided to Plaintiffs’ counsel of record in the Lawsuit and the SLC’s counsel of record.

17. Severability. In the event any provision of this Agreement shall be found to be unenforceable or invalid, such provision shall be severed from this Agreement and the balance of the Agreement shall remain fully valid and enforceable.

18. Construction. Each of the Parties to this Agreement represents that it has legal counsel representing it with respect to this Agreement. The Parties acknowledge and agree that each party has participated in the drafting of this Agreement and that the normal rules of construction to the effect that any ambiguities are to be resolved against the drafting party shall

 

 

 

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not apply to the interpretation of this Agreement. No inference in favor of, or against, any party shall be drawn by the fact that one party has drafted any portion hereof. The Parties also represent that they have had full opportunity to review the terms of this Agreement and have willingly consented to the terms set forth herein.

19. Waiver. Failure by either party to enforce any of its rights hereunder on any particular occasion shall not constitute a waiver of such rights on any subsequent occasion.

20. Actions Necessary to Complete Transaction. Each of the Parties hereby agrees to execute and deliver all such other documents or instruments and take any action as may be reasonably required in order to effectuate the transactions contemplated by this Agreement.

21. Tax Matters. Each of the Parties represents and declares that it has either received or has been afforded the opportunity to obtain its own professional tax advice. Each of the Parties shall be responsible for its own reporting to the tax authorities and shall be responsible for its own taxes that may arise as a result of this Agreement.

22. Notices. All notices, requests, demands or other communications required or permitted hereunder shall be given in writing and personally delivered or sent by certified or registered mail, return receipt requested, postage prepaid, or by a nationally recognized overnight courier service (e.g., Federal Express, UPS, etc.), to the Parties’ address set forth below:

If to Defendant:

Peter R. Culpepper

Provectus Biopharmaceuticals, Inc.

7327 Oak Ridge Hwy

Knoxville, TN 37931

Telephone: (866) 594-5999

With a copy to:

David W. Bernstein

K&L Gates LLP

599 Lexington Avenue

New York, NY 10022

Telephone: (212) 536-4029

If to the Corporation:

Provectus Biopharmaceuticals, Inc.

Attn: Board of Directors

7327 Oak Ridge Hwy

Knoxville, TN 37931

Telephone: (866) 594-5999

 

 

 

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With a copy to:

Tonya Mitchem Grindon

Baker, Donelson, Bearman, Caldwell & Berkowitz, PC

211 Commerce Street, Suite 800

Nashville, TN 37201

Telephone: (615) 726-5607

If notice required pursuant to Section 16 regarding amendments to this Agreement, with copies to:

Plaintiffs’ Counsel of Record:

Al Holifield, Esq.

Holifield & Associates, PLLC

11907 Kingston Pike, Suite 201

Knoxville, TN 37934

Telephone: (865) 566-0115

Eduard Korsinsky, Esq.

Steven J. Purcell, Esq.

Levi & Korsinsky

30 Broad Street, 24th Floor

New York, NY 10004

Telephone: (212) 363-7500

The SLC’s Counsel of Record:

Robert J. Walker

John C. Hayworth

Charles Malone

Walker, Tipps & Malone PLC

2300 One Nashville Place

150 Fourth Avenue North

Nashville, TN 37219

Telephone: (615) 313-6000

Notice solely by e-mail shall not be acceptable although a courtesy copy by e-mail is highly recommended.

23. Continuing Obligations. All obligations of the Parties under this Agreement which are not fully performed as of the expiration or earlier termination of this Agreement shall survive the expiration or earlier termination of the underlying agreement.

24. Section Headings. Headings are used for convenience only and are not intended and shall not be used in interpreting any provisions of this Agreement.

 

 

 

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IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of the day and year set forth below.

 

PROVECTUS BIOPHARMACEUTICALS, INC.,

f/k/a PROVECTUS PHARMACEUTICALS, INC.

By:   /s/ Jan E. Koe
 

 

Name:   Jan E. Koe
Its:   Chairman, Special Litigation Committee
Dated:   June 6, 2014
 

 

PETER R. CULPEPPER
/s/ Peter R. Culpepper

 

Peter R. Culpepper
Dated:  

 

 

APPROVED AND CONSENTED TO:
PLAINTIFFS GLENN KLEBA AND DON B. DALE, DERIVATIVELY ON BEHALF OF PROVECTUS BIOPHARMACEUTICALS, INC.
/s/ Al Holifield

 

By:   Steven Purcell and Al Holifield, Counsel to Plaintiffs
Dated:  

13 May 2014

 

 

 

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Exhibit A

STOCK PLEDGE AGREEMENT

 

 

 

Settlement and Release Agreement


STIPULATED SETTLEMENT AGREEMENT AND MUTUAL RELEASE

This Stipulated Settlement Agreement and Mutual Release (hereinafter “Agreement”) is made and entered into by and between Provectus Biopharmaceuticals, Inc., f/k/a Provectus Pharmaceuticals, Inc. (the “Corporation”) and Timothy C. Scott (hereinafter “Defendant”), and is consented to and approved by Glenn Kleba and Don B. Dale, derivatively on behalf of the Corporation (the “Plaintiffs”) in Plaintiffs’ shareholder derivative lawsuit. Where appropriate, the Corporation, Defendant, and the Plaintiffs shall collectively be referred to as “the Parties.”

RECITALS

WHEREAS:

A. The Corporation is a Delaware corporation with its principal place of business at 7327 Oak Ridge Highway, Suite A, Knoxville, TN 37931.

B. On or about January 4, 2013, Plaintiff Glenn Kleba, acting by and through counsel, filed a case titled Glenn Kleba, derivatively on behalf of nominal defendant Provectus Pharmaceuticals, Inc., v. H. Craig Dees et al., Civil Action No. 03-1-13, in the Circuit Court for Knox County, Tennessee (the “Lawsuit”). Plaintiffs subsequently filed an Amended Complaint in the Lawsuit adding Don B. Dale as a party plaintiff.

C. On or about April 3, 2013, through a Consent Action By Directors of Provectus Pharmaceuticals, Inc. (“Consent Action”), the Corporation formed a Special Litigation Committee (the “SLC”) and charged the SLC, among other things, “to consider, investigate, review, and analyze the facts, allegations, and circumstances that are the subject of the Shareholder Derivative Lawsuit, as well as any additional facts, allegations, and circumstances that may be raised or put at issue in any related inquiry, investigation, or proceeding” and to “consider and determine whether or not the prosecution of any claims described or asserted in the Shareholder Derivative Lawsuit or any other claims related to the facts, allegations, and circumstances of the Shareholder Derivative Lawsuit is in the best interest of the Corporation and its shareholders, and what action the Corporation should take with respect thereto, including a determination of whether the maintenance of a derivative proceeding with respect to any such claims is or is not in the best interests of the Corporation.”

D. After thorough investigation and extensive deliberation, the SLC unanimously concluded that it was in the best interests of the Corporation and its stockholders to settle the Lawsuit on certain terms and conditions. Defendants agreed to compromise and settle the Lawsuit on such terms and conditions, and Plaintiffs approved and consented to the proposed settlement on such terms and conditions.

E. On or about March 6, 2014, the Parties filed with the Court a Joint Notice in the Lawsuit (the “Joint Notice”) providing notice that they had agreed to the terms, subject to additional definitive documentation, of a settlement evidenced by the execution of a Binding Settlement Term Sheet Agreement.

F. The Parties have agreed to settle the Lawsuit on the terms set forth in this Agreement, and in the associated Stock Pledge Agreement attached as Exhibit A and Option Rescission Agreement attached as Exhibit B (collectively, the “Settlement Documents”).

G. As set forth in Section 6 hereof, the settlement set forth herein and in the Settlement Documents is conditioned upon and subject to final approval of the Court in the Lawsuit, which approval shall be sought by joint motion of the Parties.

 

 

 

Settlement and Release Agreement


TERMS

1. No Admission of Liability. The Parties agree and acknowledge that this Agreement is intended as a compromise of matters involving disputed issues, and that nothing in this Agreement nor the negotiations for this Agreement (including all statements or communications related thereto) by the Parties or their attorneys may be considered an admission of liability or wrongdoing.

2. Cash Payments to the Corporation.

 

  (A) As Related to Prior Cash Bonus Compensation: Defendant agrees and obligates himself to pay to the Corporation TWO MILLION TWO HUNDRED FORTY THOUSAND DOLLARS AND NO/100 ($2,240,000.00) (the “Total Repayment Amount”), except that:

 

  (1) Subject to the satisfaction in full of the conditions set forth in Section 2(C) below and Section 2(A)(2), Defendant shall be entitled to a two-for-one (2:1) credit on the Total Repayment Amount such that his repayment obligation to the Corporation for the Total Repayment Amount shall instead be ONE MILLION ONE HUNDRED TWENTY THOUSAND DOLLARS AND NO/100 ($1,120,000.00) (the “Reduced Repayment Amount”).

 

  (2) To be entitled to the Reduced Repayment Amount instead of the Total Repayment Amount, Defendant must

 

  (a) make all payments of the Reduced Repayment Amount required in this Agreement timely and pursuant to the terms set forth in Section 2(C); and

 

  (b) remain employed by the Company until December 31, 2018, except that termination of Defendant’s employment prior to such date shall not affect Defendant’s right to the Reduced Repayment Amount if such termination is (i) a termination by the Corporation without “Cause” (or any substantively similar provisions as set forth in Defendant’s then-governing employment agreement with the Corporation); (ii) a resignation by Defendant “For Good Reason” (or any substantively similar provisions as set forth in Defendant’s then-governing employment agreement with the Corporation); or (iii) the result of Defendant’s death or disability.

 

 

 

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  (B) As Related to the Litigation Costs of the Shareholder Derivative Lawsuit:

 

  (1) Defendant shall also be obligated to pay TWENTY-FIVE PERCENT (25%) of the Litigation Costs incurred as a result of the Lawsuit. “Litigation Costs” shall be defined as (i) all fees and expenses of the SLC, including but not limited to the fees and expenses of the SLC’s counsel, PLUS (ii) the fees and expenses of the Corporation’s counsel, Baker Donelson Bearman Caldwell & Berkowitz, P.C., in connection with and directly related to the Shareholder Derivative Lawsuit, PLUS (iii) the fees and expenses of Plaintiffs, including but not limited to the fees and expenses of Plaintiffs’ counsel, MINUS (iv) any insurance proceeds offsetting or covering the foregoing costs. For the avoidance of doubt, the obligation to repay any portion of Litigation Costs is not entitled to any 2:1 credit.

 

  (2) No later than within thirty (30) days of the later of (a) Court approval of the settlement and (b) an agreement by the Parties and the other required defendants in the Lawsuit, or a decision of the Court, as to the amount of fees and expenses of Plaintiffs (including attorneys’ fees); the Parties, including the SLC, shall agree on a final Litigation Costs Settlement Statement which shall set forth the total Litigation Costs for purposes of this Agreement.

 

  (C) Terms of Cash Repayment. The “Cash Repayment Obligations” shall equal (i) the Reduced Repayment Amount (or the Total Repayment Amount if Defendant fails to satisfy the conditions set forth in Section 2(A) and this Section 2(C)) PLUS (ii) the Litigation Costs set forth above in Section 2(B).

 

  (1) Term / Annual Minimum:

 

  (a) The Cash Repayment Obligations shall be paid in full by Defendant within five (5) years from the date of this Agreement.

 

  (b) Defendant shall pay a minimum of $200,000.00 per year to the Corporation towards the Cash Repayment Obligations. Defendant authorizes and agrees that, so long as Defendant is employed by the Corporation, the Corporation shall retain from Defendant’s annual salary the sum of $200,000 per year to be applied toward the Cash Repayment Obligations, which amount shall be withheld from each salary payment on a pro rata basis in accordance with the Corporation’s payroll policies and procedures.

 

 

 

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  (2) Acceleration of Payment: All Cash Repayment Obligations outstanding under this Agreement shall become immediately due and payable by Defendant and shall bear an annual interest rate of ten percent (10%) or the maximum allowed by law, whichever is less, upon the occurrence of any one or more of the following: (a) Defendant materially breaches the terms of this Agreement and does not cure such breach within thirty (30) days after notice from the Company that failure to cure the breach will result in acceleration of all cash repayment obligations; or (b) Defendant’s employment with the Corporation is terminated prior to December 31, 2018 for any reason other than those set forth in Paragraph 2(a)(2)(b).

 

  (3) Security: Defendant agrees to grant the Corporation a first-priority security interest in ONE MILLION (1,000,000) shares of Corporation’s common stock beneficially owned by Defendant (the “Common Stock”) to serve as collateral for the Cash Repayment Obligations owing and due to Corporation pursuant to the terms and conditions set forth in the Stock Pledge Agreement, the form of which is attached hereto as Exhibit A.

 

  (4) Prepayment. Defendant shall be entitled to pay in full all Cash Repayment Obligations due and owing pursuant to this Agreement at any time prior to the expiration of the five-year period; provided, however, prepayment of such amounts shall not relieve Defendant of the obligations set forth in Section 2(A)(2) of this Agreement to remain employed by the Corporation until December 31, 2018. For purposes of clarification, even if Defendant has paid all Cash Repayment Obligations due hereunder prior to the expiration of the five-year period, in the event Defendant’s employment with the Corporation is terminated prior to December 31, 2018 for any reason other than those set forth in Paragraph 2(a)(2)(b), Defendant will owe the Corporation the Total Repayment Amount (minus any payments theretofore made by Defendant with regard to the Reduced Repayment Amount or the Total Repayment Amount).

3. Rescission of Certain Stock Options. Defendant agrees that the Corporation shall rescind FIFTY PERCENT (50%) of the Non-Qualified Stock Options granted to Defendant in both 2010 and 2011, pursuant to the Option Rescission Agreement, the form of which is attached hereto as Exhibit B. The Parties agree that the remaining Non-Qualified Stock Options, and all the Incentive Stock Options, granted to Defendant in 2010 and 2011 are valid and enforceable, according to their terms.

4. New or Restated Employment Agreement Between Defendant and the Corporation. Defendant agrees that, to the extent such has not already been completed in 2014, he will within ninety (90) days of the Effective Date of this Agreement enter into a new or restated employment agreement with the Corporation, which employment agreement be approved and adopted by the Compensation Committee of the Corporation’s Board of Directors acting with the advice and assistance of the Corporation’s legal counsel.

 

 

 

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5. Representations as to Corporate Governance. Defendant represents, warrants, and covenants as part of this settlement that he – in his individual capacity as an officer, director, and/or shareholder of the Corporation – will (a) take all actions necessary and proper for the Corporation to satisfy the SLC’s recommendations with respect to improvements in the corporate governance of the Corporation (as set forth in Exhibit C to this Agreement, and as approved by Plaintiffs) and (b) will not otherwise take any action contrary to the SLC’s recommendations or contrary to the governance of the Corporation in a manner consistent with his fiduciary duties to the Corporation and its shareholders.

6. Court Approval / Effective Date of Settlement. The settlement, and this Agreement, shall become final and binding upon the Parties only if it is approved by the Court in the Lawsuit. The effective date of the settlement and this Agreement (the “Effective Date”) shall be the date that the Final Approval Order shall be final and not subject to appeal pursuant to the Tennessee Rules of Civil Procedure and other applicable law. In the event the settlement is not approved by the Court, the settlement and this Agreement will be of no force and effect, and shall not be binding on any Party.

7. Plaintiffs’ Fees and Expenses. Within ninety (90) days of Court approval of this settlement or Court award of fees and expenses to Plaintiffs (whichever is later), the Corporation shall pay to Plaintiffs an amount of attorneys fees, expenses and other compensation (i) that has been agreed to by Plaintiffs, Defendants and the SLC; or, alternatively, (ii) that has been ordered by the Court. Pursuant to Section 2(B), such payment shall be part of the Litigation Costs to be borne in part by Defendant.

8. Dismissal of the Lawsuit With Prejudice. Pursuant to the terms of the Final Approval Order and the Joint Motion for Approval, the Lawsuit shall be dismissed with prejudice. The Parties acknowledge and agree that dismissal of the Lawsuit and the terms of this Agreement form good and sufficient consideration, and that none of the Parties is entitled to receive any money or additional consideration from any other party in connection with the Lawsuit other than as expressly provided in this Agreement.

9. Mutual Release. Upon the Effective Date of this Agreement and excluding causes of action that arise out of the breach of this Agreement, the Parties shall be deemed to have forever released and discharged each other and each of their related entities, predecessors, successors, affiliates, attorneys, guarantors, and past and present officers, directors, employees, agents, shareholders, members, and trustees (hereinafter the “Released Parties”) from any and all payments, damages, costs, fees, claims, counterclaims, demands, actions, causes of action, claims of appeal, obligations, penalties and losses, known or unknown, contingent or accrued, now existing or hereafter arising, which relate in any way to the issues alleged, or to compensation related issues that could have been alleged, in the Lawsuit This release does not and shall not apply to or operate to release any claims arising out of the Parties’ respective obligations in the Settlement Documents.

 

 

 

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10. Reliance on Own Judgment; Authority to Sign. The Parties to this Agreement agree that: (1) no promises or inducements have been made except as set forth herein; (2) they are competent and authorized to execute this Agreement; (3) they execute this Agreement knowingly and voluntarily and accept responsibility therefor; and (4) they have been represented by competent legal counsel of such party’s own choice with regard to this Agreement, or have otherwise had the opportunity to consult with a legal counsel of such party’s own choice, and that all Parties fully understand the same.

11. Binding Effect. This Agreement shall be binding upon and benefit the Parties and their respective heirs, executors, personal representatives, successors and assigns.

12. Counterparts and Execution by Facsimile / Scanned Image. This Agreement may be executed in several counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same instrument. Signatures by facsimile or scanned image shall be accepted as originals.

13. Entire Agreement. The Parties hereto acknowledge they have read this Agreement and freely and voluntarily agree to be bound by its terms. The Parties further agree that the Settlement Documents constitute the complete and the exclusive written expression of the terms of the entire settlement between the Parties and supersede all prior or contemporaneous proposals, oral or written, understandings, representations, conditions, warranties, covenants and all other communications between the Parties relating to the subject matter of the Settlement Documents.

14. Governing Law and Forum. This Agreement shall be construed and enforced in accordance with the laws of the State of Tennessee. The Parties hereby consent to the jurisdiction of the Knox County Circuit Court for the resolution of any and all claims or disputes arising out of the subject matter of this Agreement. The Parties irrevocably waive any right to bring or to remove any action arising or in any way connected to this Agreement to federal court.

15. Default by Defendant. In the event of any default by Defendant with respect to any term(s) of this Agreement, the Pledge Agreement, or the Option Rescission Agreement, the Corporation shall be entitled to recover all costs and reasonable attorney fees incurred in the enforcement of the Corporation’s rights in such agreements.

16. Amendments. This Agreement may only be amended by a writing signed by the Defendant and the Corporation, and written notice of such amendment shall be provided to Plaintiffs’ counsel of record in the Lawsuit and the SLC’s counsel of record.

17. Severability. In the event any provision of this Agreement shall be found to be unenforceable or invalid, such provision shall be severed from this Agreement and the of the Agreement shall remain fully valid and enforceable.

18. Construction. Each of the Parties to this Agreement represents that it has legal counsel representing it with respect to this Agreement. The Parties acknowledge and agree that each party has participated in the drafting of this Agreement and that the normal rules of construction to the effect that any ambiguities are to be resolved against the drafting party shall

 

 

 

Settlement and Release Agreement       Page 6


not apply to the interpretation of this Agreement. No inference in favor of, or against, any party shall be drawn by the fact that one party has drafted any portion hereof. The Parties also represent that they have had full opportunity to review the terms of this Agreement and have willingly consented to the terms set forth herein.

19. Waiver. Failure by either party to enforce any of its rights hereunder on any particular occasion shall not constitute a waiver of such rights on any subsequent occasion.

20. Actions Necessary to Complete Transaction. Each of the Parties hereby agrees to execute and deliver all such other documents or instruments and take any action as may be reasonably required in order to effectuate the transactions contemplated by this Agreement.

21. Tax Matters. Each of the Parties represents and declares that it has either received or has been afforded the opportunity to obtain its own professional tax advice. Each of the Parties shall be responsible for its own reporting to the tax authorities and shall be responsible for its own taxes that may arise as a result of this Agreement.

22. Notices. All notices, requests, demands or other communications required or permitted hereunder shall be given in writing and personally delivered or sent by certified or registered mail, return receipt requested, postage prepaid, or by a nationally recognized overnight courier service (e.g., Federal Express, UPS, etc.), to the Parties’ address set forth below:

If to Defendant:

Timothy C. Scott

Provectus Biopharmaceuticals, Inc.

7327 Oak Ridge Hwy

Knoxville, TN 37931

Telephone: (866) 594-5999

With a copy to:

David W. Bernstein

K&L Gates LLP

599 Lexington Avenue

New York, NY 10022

Telephone: (212) 536-4029

If to the Corporation:

Provectus Biopharmaceuticals, Inc.

Attn: Board of Directors

7327 Oak Ridge Hwy

Knoxville, TN 37931

Telephone: (866) 594-5999

 

 

 

Settlement and Release Agreement       Page 7


With a copy to:

Tonya Mitchem Grindon

Baker, Donelson, Bearman, Caldwell & Berkowitz, PC

211 Commerce Street, Suite 800

Nashville, TN 37201

Telephone: (615) 726-5607

If notice required pursuant to Section 16 regarding amendments to this Agreement, with copies to:

Plaintiffs’ Counsel of Record:

Al Holifield, Esq.

Holifield & Associates, PLLC

11907 Kingston Pike, Suite 201

Knoxville, TN 37934

Telephone: (865) 566-0115

Eduard Korsinsky, Esq.

Steven J. Purcell, Esq.

Levi & Korsinsky

30 Broad Street, 24th Floor

New York, NY 10004

Telephone: (212) 363-7500

The SLC’s Counsel of Record:

Robert J. Walker

John C. Hayworth

Charles Malone

Walker, Tipps & Malone PLC

2300 One Nashville Place

150 Fourth Avenue North

Nashville, TN 37219

Telephone: (615) 313-6000

Notice solely by e-mail shall not be acceptable although a courtesy copy by e-mail is highly recommended.

23. Continuing Obligations. All obligations of the Parties under this Agreement which are not fully performed as of the expiration or earlier termination of this Agreement shall survive the expiration or earlier termination of the underlying agreement.

24. Section Headings. Headings are used for convenience only and are not intended and shall not be used in interpreting any provisions of this Agreement.

 

 

 

Settlement and Release Agreement       Page 8


IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of the day and year set forth below.

 

PROVECTUS BIOPHARMACEUTICALS, INC.,

f/k/a PROVECTUS PHARMACEUTICALS, INC.

By:   /s/ Jan E. Koe
 

 

Name:   Jan E. Koe
Its:   Chairman, Special Litigation Committee
Dated:   June 6, 2014
 

 

TIMOTHY C. SCOTT
/s/ Timothy C. Scott

 

Timothy C. Scott
Dated:  

 

APPROVED AND CONSENTED TO:
PLAINTIFFS GLENN KLEBA AND DON B. DALE, DERIVATIVELY ON BEHALF OF PROVECTUS BIOPHARMACEUTICALS, INC.
/s/ Al Holifield

 

By:   Steven Purcell and Al Holifield, Counsel to Plaintiffs
Dated:  

13 May 2014

 

 

 

Settlement and Release Agreement       Page 9


Exhibit A

STOCK PLEDGE AGREEMENT

 

 

 

Settlement and Release Agreement


STIPULATED SETTLEMENT AGREEMENT AND MUTUAL RELEASE

This Stipulated Settlement Agreement and Mutual Release (hereinafter “Agreement”) is made and entered into by and between Provectus Biopharmaceuticals, Inc., f/k/a Provectus Pharmaceuticals, Inc. (the “Corporation”) and H. Craig Dees (hereinafter “Defendant”), and is consented to and approved by Glenn Kleba and Don B. Dale, derivatively on behalf of the Corporation (the “Plaintiffs”) in Plaintiffs’ shareholder derivative lawsuit. Where appropriate, the Corporation, Defendant, and the Plaintiffs shall collectively be referred to as “the Parties.”

RECITALS

WHEREAS:

A. The Corporation is a Delaware corporation with its principal place of business at 7327 Oak Ridge Highway, Suite A, Knoxville, TN 37931.

B. On or about January 4, 2013, Plaintiff Glenn Kleba, acting by and through counsel, filed a case titled Glenn Kleba, derivatively on behalf of nominal defendant Provectus Pharmaceuticals, Inc., v. H. Craig Dees et al., Civil Action No. 03-1-13, in the Circuit Court for Knox County, Tennessee (the “Lawsuit”). Plaintiffs subsequently filed an Amended Complaint in the Lawsuit adding Don B. Dale as a party plaintiff.

C. On or about April 3, 2013, through a Consent Action By Directors of Provectus Pharmaceuticals, Inc. (“Consent Action”), the Corporation formed a Special Litigation Committee (the “SLC”) and charged the SLC, among other things, “to consider, investigate, review, and analyze the facts, allegations, and circumstances that are the subject of the Shareholder Derivative Lawsuit, as well as any additional facts, allegations, and circumstances that may be raised or put at issue in any related inquiry, investigation, or proceeding” and to “consider and determine whether or not the prosecution of any claims described or asserted in the Shareholder Derivative Lawsuit or any other claims related to the facts, allegations, and circumstances of the Shareholder Derivative Lawsuit is in the best interest of the Corporation and its shareholders, and what action the Corporation should take with respect thereto, including a determination of whether the maintenance of a derivative proceeding with respect to any such claims is or is not in the best interests of the Corporation.”

D. After thorough investigation and extensive deliberation, the SLC unanimously concluded that it was in the best interests of the Corporation and its stockholders to settle the Lawsuit on certain terms and conditions. Defendants agreed to compromise and settle the Lawsuit on such terms and conditions, and Plaintiffs approved and consented to the proposed settlement on such terms and conditions.

E. On or about March 6, 2014, the Parties filed with the Court a Joint Notice in the Lawsuit (the “Joint Notice”) providing notice that they had agreed to the terms, subject to additional definitive documentation, of a settlement evidenced by the execution of a Binding Settlement Term Sheet Agreement.

F. The Parties have agreed to settle the Lawsuit on the terms set forth in this Agreement, and in the associated Stock Pledge Agreement attached as Exhibit A and Option Rescission Agreement attached as Exhibit B (collectively, the “Settlement Documents”).

G. As set forth in Section 6 hereof, the settlement set forth herein and in the Settlement Documents is conditioned upon and subject to final approval of the Court in the Lawsuit, which approval shall be sought by joint motion of the Parties.

 

 

 

Settlement and Release Agreement


TERMS

1. No Admission of Liability. The Parties agree and acknowledge that this Agreement is intended as a compromise of matters involving disputed issues, and that nothing in this Agreement nor the negotiations for this Agreement (including all statements or communications related thereto) by the Parties or their attorneys may be considered an admission of liability or wrongdoing.

2. Cash Payments to the Corporation.

 

  (A) As Related to Prior Cash Bonus Compensation: Defendant agrees and obligates himself to pay to the Corporation TWO MILLION TWO HUNDRED FORTY THOUSAND DOLLARS AND NO/100 ($2,240,000.00) (the “Total Repayment Amount”), except that:

 

  (1) Subject to the satisfaction in full of the conditions set forth in Section 2(C) below and Section 2(A)(2), Defendant shall be entitled to a two-for-one (2:1) credit on the Total Repayment Amount such that his repayment obligation to the Corporation for the Total Repayment Amount shall instead be ONE MILLION ONE HUNDRED TWENTY THOUSAND DOLLARS AND NO/100 ($1,120,000.00) (the “Reduced Repayment Amount”).

 

  (2) To be entitled to the Reduced Repayment Amount instead of the Total Repayment Amount, Defendant must

 

  (a) make all payments of the Reduced Repayment Amount required in this Agreement timely and pursuant to the terms set forth in Section 2(C); and

 

  (b) remain employed by the Company until December 31, 2018, except that termination of Defendant’s employment prior to such date shall not affect Defendant’s right to the Reduced Repayment Amount if such termination is (i) a termination by the Corporation without “Cause” (or any substantively similar provisions as set forth in Defendant’s then-governing employment agreement with the Corporation); (ii) a resignation by Defendant “For Good Reason” (or any substantively similar provisions as set forth in Defendant’s then-governing employment agreement with the Corporation); or (iii) the result of Defendant’s death or disability.

 

 

 

Settlement and Release Agreement       Page 2


  (B) As Related to the Litigation Costs of the Shareholder Derivative Lawsuit:

 

  (1) Defendant shall also be obligated to pay TWENTY-FIVE PERCENT (25%) of the Litigation Costs incurred as a result of the Lawsuit. “Litigation Costs” shall be defined as (i) all fees and expenses of the SLC, including but not limited to the fees and expenses of the SLC’s counsel, PLUS (ii) the fees and expenses of the Corporation’s counsel, Baker Donelson Bearman Caldwell & Berkowitz, P.C., in connection with and directly related to the Shareholder Derivative Lawsuit, PLUS (iii) the fees and expenses of Plaintiffs, including but not limited to the fees and expenses of Plaintiffs’ counsel, MINUS (iv) any insurance proceeds offsetting or covering the foregoing costs. For the avoidance of doubt, the obligation to repay any portion of Litigation Costs is not entitled to any 2:1 credit.

 

  (2) No later than within thirty (30) days of the later of (a) Court approval of the settlement and (b) an agreement by the Parties and the other required defendants in the Lawsuit, or a decision of the Court, as to the amount of fees and expenses of Plaintiffs (including attorneys’ fees); the Parties, including the SLC, shall agree on a final Litigation Costs Settlement Statement which shall set forth the total Litigation Costs for purposes of this Agreement.

 

  (C) Terms of Cash Repayment. The “Cash Repayment Obligations” shall equal (i) the Reduced Repayment Amount (or the Total Repayment Amount if Defendant fails to satisfy the conditions set forth in Section 2(A) and this Section 2(C)) PLUS (ii) the Litigation Costs set forth above in Section 2(B).

 

  (1) Term / Annual Minimum:

 

  (a) The Cash Repayment Obligations shall be paid in full by Defendant within five (5) years from the date of this Agreement.

 

  (b) Defendant shall pay a minimum of $200,000.00 per year to the Corporation towards the Cash Repayment Obligations. Defendant authorizes and agrees that, so long as Defendant is employed by the Corporation, the Corporation shall retain from Defendant’s annual salary the sum of $200,000 per year to be applied toward the Cash Repayment Obligations, which amount shall be withheld from each salary payment on a pro rata basis in accordance with the Corporation’s payroll policies and procedures.

 

 

 

Settlement and Release Agreement       Page 3


  (2) Acceleration of Payment: All Cash Repayment Obligations outstanding under this Agreement shall become immediately due and payable by Defendant and shall bear an annual interest rate of ten percent (10%) or the maximum allowed by law, whichever is less, upon the occurrence of any one or more of the following: (a) Defendant materially breaches the terms of this Agreement and does not cure such breach within thirty (30) days after notice from the Company that failure to cure the breach will result in acceleration of all cash repayment obligations; or (b) Defendant’s employment with the Corporation is terminated prior to December 31, 2018 for any reason other than those set forth in Paragraph 2(a)(2)(b).

 

  (3) Security: Defendant agrees to grant the Corporation a first-priority security interest in ONE MILLION (1,000,000) shares of Corporation’s common stock beneficially owned by Defendant (the “Common Stock”) to serve as collateral for the Cash Repayment Obligations owing and due to Corporation pursuant to the terms and conditions set forth in the Stock Pledge Agreement, the form of which is attached hereto as Exhibit A.

 

  (4) Prepayment. Defendant shall be entitled to pay in full all Cash Repayment Obligations due and owing pursuant to this Agreement at any time prior to the expiration of the five-year period; provided, however, prepayment of such amounts shall not relieve Defendant of the obligations set forth in Section 2(A)(2) of this Agreement to remain employed by the Corporation until December 31, 2018. For purposes of clarification, even if Defendant has paid all Cash Repayment Obligations due hereunder prior to the expiration of the five-year period, in the event Defendant’s employment with the Corporation is terminated prior to December 31, 2018 for any reason other than those set forth in Paragraph 2(a)(2)(b), Defendant will owe the Corporation the Total Repayment Amount (minus any payments theretofore made by Defendant with regard to the Reduced Repayment Amount or the Total Repayment Amount).

3. Rescission of Certain Stock Options. Defendant agrees that the Corporation shall rescind FIFTY PERCENT (50%) of the Non-Qualified Stock Options granted to Defendant in both 2010 and 2011, pursuant to the Option Rescission Agreement, the form of which is attached hereto as Exhibit B. The Parties agree that the remaining Non-Qualified Stock Options, and all the Incentive Stock Options, granted to Defendant in 2010 and 2011 are valid and enforceable, according to their terms.

4. New or Restated Employment Agreement Between Defendant and the Corporation. Defendant agrees that, to the extent such has not already been completed in 2014, he will within ninety (90) days of the Effective Date of this Agreement enter into a new or restated employment agreement with the Corporation, which employment agreement shall be approved and adopted by the Compensation Committee of the Corporation’s Board of Directors acting with the advice and assistance of the Corporation’s legal counsel.

 

 

 

Settlement and Release Agreement       Page 4


5. Representations as to Corporate Governance. Defendant represents, warrants, and covenants as part of this settlement that he – in his individual capacity as an officer, director, and/or shareholder of the Corporation – will (a) take all actions necessary and proper for the Corporation to satisfy the SLC’s recommendations with respect to improvements in the corporate governance of the Corporation (as set forth in Exhibit C to this Agreement, and as approved by Plaintiffs) and (b) will not otherwise take any action contrary to the SLC’s recommendations or contrary to the governance of the Corporation in a manner consistent with his fiduciary duties to the Corporation and its shareholders.

6. Court Approval / Effective Date of Settlement. The settlement, and this Agreement, shall become final and binding upon the Parties only if it is approved by the Court in the Lawsuit. The effective date of the settlement and this Agreement (the “Effective Date”) shall be the date that the Final Approval Order shall be final and not subject to appeal pursuant to the Tennessee Rules of Civil Procedure and other applicable law. In the event the settlement is not approved by the Court, the settlement and this Agreement will be of no force and effect, and shall not be binding on any Party.

7. Plaintiffs’ Fees and Expenses. Within ninety (90) days of Court approval of this settlement or Court award of fees and expenses to Plaintiffs (whichever is later), the Corporation shall pay to Plaintiffs an amount of attorneys fees, expenses and other compensation (i) that has been agreed to by Plaintiffs, Defendants and the SLC; or, alternatively, (ii) that has been ordered by the Court. Pursuant to Section 2(B), such payment shall be part of the Litigation Costs to be borne in part by Defendant.

8. Dismissal of the Lawsuit With Prejudice. Pursuant to the terms of the Final Approval Order and the Joint Motion for Approval, the Lawsuit shall be dismissed with prejudice. The Parties acknowledge and agree that dismissal of the Lawsuit and the terms of this Agreement form good and sufficient consideration, and that none of the Parties is entitled to receive any money or additional consideration from any other party in connection with the Lawsuit other than as expressly provided in this Agreement.

9. Mutual Release. Upon the Effective Date of this Agreement and excluding causes of action that arise out of the breach of this Agreement, the Parties shall be deemed to have forever released and discharged each other and each of their related entities, predecessors, successors, affiliates, attorneys, guarantors, and past and present officers, directors, employees, agents, shareholders, members, and trustees (hereinafter the “Released Parties”) from any and all payments, damages, costs, fees, claims, counterclaims, demands, actions, causes of action, claims of appeal, obligations, penalties and losses, known or unknown, contingent or accrued, now existing or hereafter arising, which relate in any way to the issues alleged, or to compensation related issues that could have been alleged, in the Lawsuit. This release does not and shall not apply to or operate to release any claims arising out of the Parties’ respective obligations in the Settlement Documents.

 

 

 

Settlement and Release Agreement       Page 5


10. Reliance on Own Judgment; Authority to Sign. The Parties to this Agreement agree that: (1) no promises or inducements have been made except as set forth herein; (2) they are competent and authorized to execute this Agreement; (3) they execute this Agreement knowingly and voluntarily and accept responsibility therefor; and (4) they have been represented by competent legal counsel of such party’s own choice with regard to this Agreement, or have otherwise had the opportunity to consult with a legal counsel of such party’s own choice, and that all Parties fully understand the same.

11. Binding Effect. This Agreement shall be binding upon and benefit the Parties and their respective heirs, executors, personal representatives, successors and assigns.

12. Counterparts and Execution by Facsimile / Scanned Image. This Agreement may be executed in several counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same instrument. Signatures by facsimile or scanned image shall be accepted as originals.

13. Entire Agreement. The Parties hereto acknowledge they have read this Agreement and freely and voluntarily agree to be bound by its terms. The Parties further agree that the Settlement Documents constitute the complete and the exclusive written expression of the terms of the entire settlement between the Parties and supersede all prior or contemporaneous proposals, oral or written, understandings, representations, conditions, warranties, covenants and all other communications between the Parties relating to the subject matter of the Settlement Documents.

14. Governing Law and Forum. This Agreement shall be construed and enforced in accordance with the laws of the State of Tennessee. The Parties hereby consent to the jurisdiction of the Knox County Circuit Court for the resolution of any and all claims or disputes arising out of the subject matter of this Agreement. The Parties irrevocably waive any right to bring or to remove any action arising or in any way connected to this Agreement to federal court.

15. Default by Defendant. In the event of any default by Defendant with respect to any term(s) of this Agreement, the Pledge Agreement, or the Option Rescission Agreement, the Corporation shall be entitled to recover all costs and reasonable attorney fees incurred in the enforcement of the Corporation’s rights in such agreements.

16. Amendments. This Agreement may only be amended by a writing signed by the Defendant and the Corporation, and written notice of such amendment shall be provided to Plaintiffs’ counsel of record in the Lawsuit and the SLC’s counsel of record.

17. Severability. In the event any provision of this Agreement shall be found to be unenforceable or invalid, such provision shall be severed from this Agreement and the balance of the Agreement shall remain fully valid and enforceable.

18. Construction. Each of the Parties to this Agreement represents that it has legal counsel representing it with respect to this Agreement. The Parties acknowledge and agree that each party has participated in the drafting of this Agreement and that the normal rules of construction to the effect that any ambiguities are to be resolved against the drafting party shall

 

 

 

Settlement and Release Agreement       Page 6


not apply to the interpretation of this Agreement. No inference in favor of, or against, any party shall be drawn by the fact that one party has drafted any portion hereof. The Parties also represent that they have had full opportunity to review the terms of this Agreement and have willingly consented to the terms set forth herein.

19. Waiver. Failure by either party to enforce any of its rights hereunder on any particular occasion shall not constitute a waiver of such rights on any subsequent occasion.

20. Actions Necessary to Complete Transaction. Each of the Parties hereby agrees to execute and deliver all such other documents or instruments and take any action as may be reasonably required in order to effectuate the transactions contemplated by this Agreement.

21. Tax Matters. Each of the Parties represents and declares that it has either received or has been afforded the opportunity to obtain its own professional tax advice. Each of the Parties shall be responsible for its own reporting to the tax authorities and shall be responsible for its own taxes that may arise as a result of this Agreement.

22. Notices. All notices, requests, demands or other communications required or permitted hereunder shall be given in writing and personally delivered or sent by certified or registered mail, return receipt requested, postage prepaid, or by a nationally recognized overnight courier service (e.g., Federal Express, UPS, etc.), to the Parties’ address set forth below:

If to Defendant:

H. Craig Dees

Provectus Biopharmaceuticals, Inc.

7327 Oak Ridge Hwy

Knoxville, TN 37931

Telephone: (866) 594-5999

With a copy to:

David W. Bernstein

K&L Gates LLP

599 Lexington Avenue

New York, NY 10022

Telephone: (212) 536-4029

If to the Corporation:

Provectus Biopharmaceuticals, Inc.

Attn: Board of Directors

7327 Oak Ridge Hwy

Knoxville, TN 37931

Telephone: (866) 594-5999

 

 

 

Settlement and Release Agreement       Page 7


With a copy to:

Tonya Mitchem Grindon

Baker, Donelson, Bearman, Caldwell & Berkowitz, PC

211 Commerce Street, Suite 800

Nashville, TN 37201

Telephone: (615) 726-5607

If notice required pursuant to Section 16 regarding amendments to this Agreement, with copies to:

Plaintiffs’ Counsel of Record:

Al Holifield, Esq.

Holifield & Associates, PLLC

11907 Kingston Pike, Suite 201

Knoxville, TN 37934

Telephone: (865) 566-0115

Eduard Korsinsky, Esq.

Steven J. Purcell, Esq.

Levi & Korsinsky

30 Broad Street, 24th Floor

New York, NY 10004

Telephone: (212) 363-7500

The SLC’s Counsel of Record:

Robert J. Walker

John C. Hayworth

Charles Malone

Walker, Tipps & Malone PLC

2300 One Nashville Place

150 Fourth Avenue North

Nashville, TN 37219

Telephone: (615) 313-6000

Notice solely by e-mail shall not be acceptable although a courtesy copy by e-mail is highly recommended.

23. Continuing Obligations. All obligations of the Parties under this Agreement which are not fully performed as of the expiration or earlier termination of this Agreement shall survive the expiration or earlier termination of the underlying agreement.

24. Section Headings. Headings are used for convenience only and are not intended and shall not be used in interpreting any provisions of this Agreement.

 

 

 

Settlement and Release Agreement       Page 8


IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of the day and year set forth below.

 

PROVECTUS BIOPHARMACEUTICALS, INC., f/k/a PROVECTUS PHARMACEUTICALS, INC.
By:   /s/ Jan E. Koe
 

 

Name:   Jan E. Koe
Its:   Chairman, Special Litigation Committee
Dated:   June 6, 2014
 

 

H. CRAIG DEES
/s/ H Craig Dees

 

H Craig Dees
Dated:  
 

 

APPROVED AND CONSENTED TO:
PLAINTIFFS GLENN KLEBA AND DON B. DALE, DERIVATIVELY ON BEHALF OF PROVECTUS BIOPHARMACEUTICALS, INC.
/s/ Al Holifield

 

By:   Steven Purcell and Al Holifield, Counsel to Plaintiffs
Dated:   13 May 2014
 

 

 

 

 

Settlement and Release Agreement       Page 9


Exhibit A

STOCK PLEDGE AGREEMENT

 

 

 

Settlement and Release Agreement


STIPULATED SETTLEMENT AGREEMENT AND MUTUAL RELEASE

This Stipulated Settlement Agreement and Mutual Release (hereinafter “Agreement”) is made and entered into by and between Provectus Biopharmaceuticals, Inc., f/k/a Provectus Pharmaceuticals, Inc. (the “Corporation”) and Eric A. Wachter (hereinafter “Defendant”), and is consented to and approved by Glenn Kleba and Don B. Dale, derivatively on behalf of the Corporation (the “Plaintiffs”) in Plaintiffs’ shareholder derivative lawsuit. Where appropriate, the Corporation, Defendant, and the Plaintiffs shall collectively be referred to as “the Parties.”

RECITALS

WHEREAS:

A. The Corporation is a Delaware corporation with its principal place of business at 7327 Oak Ridge Highway, Suite A, Knoxville, TN 37931.

B. On or about January 4, 2013, Plaintiff Glenn Kleba, acting by and through counsel, filed a case titled Glenn Kleba, derivatively on behalf of nominal defendant Provectus Pharmaceuticals, Inc., v. H. Craig Dees et al., Civil Action No. 03-1-13, in the Circuit Court for Knox County, Tennessee (the “Lawsuit”). Plaintiffs subsequently filed an Amended Complaint in the Lawsuit adding Don B. Dale as a party plaintiff.

C. On or about April 3, 2013, through a Consent Action By Directors of Provectus Pharmaceuticals, Inc. (“Consent Action”), the Corporation formed a Special Litigation Committee (the “SLC”) and charged the SLC, among other things, “to consider, investigate, review, and analyze the facts, allegations, and circumstances that are the subject of the Shareholder Derivative Lawsuit, as well as any additional facts, allegations, and circumstances that may be raised or put at issue in any related inquiry, investigation, or proceeding” and to “consider and determine whether or not the prosecution of any claims described or asserted in the Shareholder Derivative Lawsuit or any other claims related to the facts, allegations, and circumstances of the Shareholder Derivative Lawsuit is in the best interest of the Corporation and its shareholders, and what action the Corporation should take with respect thereto, including a determination of whether the maintenance of a derivative proceeding with respect to any such claims is or is not in the best interests of the Corporation.”

D. After thorough investigation and extensive deliberation, the SLC unanimously concluded that it was in the best interests of the Corporation and its stockholders to settle the Lawsuit on certain terms and conditions. Defendants agreed to compromise and settle the Lawsuit on such terms and conditions, and Plaintiffs approved and consented to the proposed settlement on such terms and conditions.

E. On or about March 6, 2014, the Parties filed with the Court a Joint Notice in the Lawsuit (the “Joint Notice”) providing notice that they had agreed to the terms, subject to additional definitive documentation, of a settlement evidenced by the execution of a Binding Settlement Term Sheet Agreement.

F. The Parties have agreed to settle the Lawsuit on the terms set forth in this Agreement, and in the associated Stock Pledge Agreement attached as Exhibit A and Option Rescission Agreement attached as Exhibit B (collectively, the “Settlement Documents”).

G. As set forth in Section 6 hereof, the settlement set forth herein and in the Settlement Documents is conditioned upon and subject to final approval of the Court in the Lawsuit, which approval shall be sought by joint motion of the Parties.

 

 

 

Settlement and Release Agreement


TERMS

1. No Admission of Liability. The Parties agree and acknowledge that this Agreement is intended as a compromise of matters involving disputed issues, and that nothing in this Agreement nor the negotiations for this Agreement (including all statements or communications related thereto) by the Parties or their attorneys may be considered an admission of liability or wrongdoing.

2. Cash Payments to the Corporation.

 

  (A) As Related to Prior Cash Bonus Compensation: Defendant agrees and obligates himself to pay to the Corporation TWO MILLION TWO HUNDRED FORTY THOUSAND DOLLARS AND NO/100 ($2,240,000.00) (the “Total Repayment Amount”), except that:

 

  (1) Subject to the satisfaction in full of the conditions set forth in Section 2(C) below and Section 2(A)(2), Defendant shall be entitled to a two-for-one (2:1) credit on the Total Repayment Amount such that his repayment obligation to the Corporation for the Total Repayment Amount shall instead be ONE MILLION ONE HUNDRED TWENTY THOUSAND DOLLARS AND NO/100 ($1,120,000.00) (the “Reduced Repayment Amount”).

 

  (2) To be entitled to the Reduced Repayment Amount instead of the Total Repayment Amount, Defendant must

 

  (a) make all payments of the Reduced Repayment Amount required in this Agreement timely and pursuant to the terms set forth in Section 2(C); and

 

  (b) remain employed by the Company until December 31, 2018, except that termination of Defendant’s employment prior to such date shall not affect Defendant’s right to the Reduced Repayment Amount if such termination is (i) a termination by the Corporation without “Cause” (or any substantively similar provisions as set forth in Defendant’s then-governing employment agreement with the Corporation); (ii) a resignation by Defendant “For Good Reason” (or any substantively similar provisions as set forth in Defendant’s then-governing employment agreement with the Corporation); or (iii) the result of Defendant’s death or disability.

 

 

 

Settlement and Release Agreement       Page 2


  (B) As Related to the Litigation Costs of the Shareholder Derivative Lawsuit:

 

  (1) Defendant shall also be obligated to pay TWENTY-FIVE PERCENT (25%) of the Litigation Costs incurred as a result of the Lawsuit. “Litigation Costs” shall be defined as (i) all fees and expenses of the SLC, including but not limited to the fees and expenses of the SLC’s counsel, PLUS (ii) the fees and expenses of the Corporation’s counsel, Baker Donelson Bearman Caldwell & Berkowitz, P.C., in connection with and directly related to the Shareholder Derivative Lawsuit, PLUS (iii) the fees and expenses of Plaintiffs, including but not limited to the fees and expenses of Plaintiffs’ counsel, MINUS (iv) any insurance proceeds offsetting or covering the foregoing costs. For the avoidance of doubt, the obligation to repay any portion of Litigation Costs is not entitled to any 2:1 credit.

 

  (2) No later than within thirty (30) days of the later of (a) Court approval of the settlement and (b) an agreement by the Parties and the other required defendants in the Lawsuit, or a decision of the Court, as to the amount of fees and expenses of Plaintiffs (including attorneys’ fees); the Parties, including the SLC, shall agree on a final Litigation Costs Settlement Statement which shall set forth the total Litigation Costs for purposes of this Agreement.

 

  (C) Terms of Cash Repayment. The “Cash Repayment Obligations” shall equal (i) the Reduced Repayment Amount (or the Total Repayment Amount if Defendant fails to satisfy the conditions set forth in Section 2(A) and this Section 2(C)) PLUS (ii) the Litigation Costs set forth above in Section 2(B).

 

  (1) Term / Annual Minimum:

 

  (a) The Cash Repayment Obligations shall be paid in full by Defendant within five (5) years from the date of this Agreement.

 

  (b) Defendant shall pay a minimum of $200,000.00 per year to the Corporation towards the Cash Repayment Obligations. Defendant authorizes and agrees that, so long as Defendant is employed by the Corporation, the Corporation shall retain from Defendant’s annual salary the sum of $200,000 per year to be applied toward the Cash Repayment Obligations, which amount shall be withheld from each salary payment on a pro rata basis in accordance with the Corporation’s payroll policies and procedures.

 

 

 

Settlement and Release Agreement       Page 3


  (2) Acceleration of Payment: All Cash Repayment Obligations outstanding under this Agreement shall become immediately due and payable by Defendant and shall bear an annual interest rate of ten percent (10%) or the maximum allowed by law, whichever is less, upon the occurrence of any one or more of the following: (a) Defendant materially breaches the terms of this Agreement and does not cure such breach within thirty (30) days after notice from the Company that failure to cure the breach will result in acceleration of all cash repayment obligations; or (b) Defendant’s employment with the Corporation is terminated prior to December 31, 2018 for any reason other than those set forth in Paragraph 2(a)(2)(b).

 

  (3) Security: Defendant agrees to grant the Corporation a first-priority security interest in ONE MILLION (1,000,000) shares of Corporation’s common stock beneficially owned by Defendant (the “Common Stock”) to serve as collateral for the Cash Repayment Obligations owing and due to Corporation pursuant to the terms and conditions set forth in the Stock Pledge Agreement, the form of which is attached hereto as Exhibit A.

 

  (4) Prepayment. Defendant shall be entitled to pay in full all Cash Repayment Obligations due and owing pursuant to this Agreement at any time prior to the expiration of the five-year period; provided, however, prepayment of such amounts shall not relieve Defendant of the obligations set forth in Section 2(A)(2) of this Agreement to remain employed by the Corporation until December 31, 2018. For purposes of clarification, even if Defendant has paid all Cash Repayment Obligations due hereunder prior to the expiration of the five-year period, in the event Defendant’s employment with the Corporation is terminated prior to December 31, 2018 for any reason other than those set forth in Paragraph 2(a)(2)(b), Defendant will owe the Corporation the Total Repayment Amount (minus any payments theretofore made by Defendant with regard to the Reduced Repayment Amount or the Total Repayment Amount).

3. [This Section 3 intentionally left blank.]

4. New or Restated Employment Agreement Between Defendant and the Corporation. Defendant agrees that, to the extent such has not already been completed in 2014, he will within ninety (90) days of the Effective Date of this Agreement enter into a new or restated employment agreement with the Corporation, which employment agreement shall be approved and adopted by the Compensation Committee of the Corporation’s Board of Directors acting with the advice and assistance of the Corporation’s legal counsel.

 

 

 

Settlement and Release Agreement       Page 4


5. Representations as to Corporate Governance. Defendant represents, warrants, and covenants as part of this settlement that he – in his individual capacity as an officer, director, and/or shareholder of the Corporation – will (a) take all actions necessary and proper for the Corporation to satisfy the SLC’s recommendations with respect to improvements in the corporate governance of the Corporation (as set forth in Exhibit C to this Agreement, and as approved by Plaintiffs) and (b) will not otherwise take any action contrary to the SLC’s recommendations or contrary to the governance of the Corporation in a manner consistent with his fiduciary duties to the Corporation and its shareholders.

6. Court Approval / Effective Date of Settlement. The settlement, and this Agreement, shall become final and binding upon the Parties only if it is approved by the Court in the Lawsuit. The effective date of the settlement and this Agreement (the “Effective Date”) shall be the date that the Final Approval Order shall be final and not subject to appeal pursuant to the Tennessee Rules of Civil Procedure and other applicable law. In the event the settlement is not approved by the Court, the settlement and this Agreement will be of no force and effect, and shall not be binding on any Party.

7. Plaintiffs’ Fees and Expenses. Within ninety (90) days of Court approval of this settlement or Court award of fees and expenses to Plaintiffs (whichever is later), the Corporation shall pay to Plaintiffs an amount of attorneys fees, expenses and other compensation (i) that has been agreed to by Plaintiffs, Defendants and the SLC; or, alternatively, (ii) that has been ordered by the Court. Pursuant to Section 2(B), such payment shall be part of the Litigation Costs to be borne in part by Defendant.

8. Dismissal of the Lawsuit With Prejudice. Pursuant to the terms of the Final Approval Order and the Joint Motion for Approval, the Lawsuit shall be dismissed with prejudice. The Parties acknowledge and agree that dismissal of the Lawsuit and the terms of this Agreement form good and sufficient consideration, and that none of the Parties is entitled to receive any money or additional consideration from any other party in connection with the Lawsuit other than as expressly provided in this Agreement.

9. Mutual Release. Upon the Effective Date of this Agreement and excluding causes of action that arise out of the breach of this Agreement, the Parties shall be deemed to have forever released and discharged each other and each of their related entities, predecessors, successors, affiliates, attorneys, guarantors, and past and present officers, directors, employees, agents, shareholders, members, and trustees (hereinafter the “Released Parties”) from any and all payments, damages, costs, fees, claims, counterclaims, demands, actions, causes of action, claims of appeal, obligations, penalties and losses, known or unknown, contingent or accrued, now existing or hereafter arising, which relate in any way to the issues alleged, or to compensation related issues that could have been alleged, in the Lawsuit. This release does not and shall not apply to or operate to release any claims arising out of the Parties’ respective obligations in the Settlement Documents.

 

 

 

Settlement and Release Agreement       Page 5


10. Reliance on Own Judgment; Authority to Sign. The Parties to this Agreement agree that: (1) no promises or inducements have been made except as set forth herein; (2) they are competent and authorized to execute this Agreement; (3) they execute this Agreement knowingly and voluntarily and accept responsibility therefor; and (4) they have been represented by competent legal counsel of such party’s own choice with regard to this Agreement, or have otherwise had the opportunity to consult with a legal counsel of such party’s own choice, and that all Parties fully understand the same.

11. Binding Effect. This Agreement shall be binding upon and benefit the Parties and their respective heirs, executors, personal representatives, successors and assigns.

12. Counterparts and Execution by Facsimile / Scanned Image. This Agreement may be executed in several counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same instrument. Signatures by facsimile or scanned image shall be accepted as originals.

13. Entire Agreement. The Parties hereto acknowledge they have read this Agreement and freely and voluntarily agree to be bound by its terms. The Parties further agree that the Settlement Documents constitute the complete and the exclusive written expression of the terms of the entire settlement between the Parties and supersede all prior or contemporaneous proposals, oral or written, understandings, representations, conditions, warranties, covenants and all other communications between the Parties relating to the subject matter of the Settlement Documents.

14. Governing Law and Forum. This Agreement shall be construed and enforced in accordance with the laws of the State of Tennessee. The Parties hereby consent to the jurisdiction of the Knox County Circuit Court for the resolution of any and all claims or disputes arising out of the subject matter of this Agreement. The Parties irrevocably waive any right to bring or to remove any action arising or in any way connected to this Agreement to federal court.

15. Default by Defendant. In the event of any default by Defendant with respect to any term(s) of this Agreement, the Pledge Agreement, or the Option Rescission Agreement, the Corporation shall be entitled to recover all costs and reasonable attorney fees incurred in the enforcement of the Corporation’s rights in such agreements.

16. Amendments. This Agreement may only be amended by a writing signed by the Defendant and the Corporation, and written notice of such amendment shall be provided to Plaintiffs’ counsel of record in the Lawsuit and the SLC’s counsel of record.

17. Severability. In the event any provision of this Agreement shall be found to be unenforceable or invalid, such provision shall be severed from this Agreement and the balance of the Agreement shall remain fully valid and enforceable.

18. Construction. Each of the Parties to this Agreement represents that it has legal counsel representing it with respect to this Agreement. The Parties acknowledge and agree that each party has participated in the drafting of this Agreement and that the normal rules of construction to the effect that any ambiguities are to be resolved against the drafting party shall

 

 

 

Settlement and Release Agreement       Page 6


not apply to the interpretation of this Agreement. No inference in favor of, or against, any party shall be drawn by the fact that one party has drafted any portion hereof. The Parties also represent that they have had full opportunity to review the terms of this Agreement and have willingly consented to the terms set forth herein.

19. Waiver. Failure by either party to enforce any of its rights hereunder on any particular occasion shall not constitute a waiver of such rights on any subsequent occasion.

20. Actions Necessary to Complete Transaction. Each of the Parties hereby agrees to execute and deliver all such other documents or instruments and take any action as may be reasonably required in order to effectuate the transactions contemplated by this Agreement.

21. Tax Matters. Each of the Parties represents and declares that it has either received or has been afforded the opportunity to obtain its own professional tax advice. Each of the Parties shall be responsible for its own reporting to the tax authorities and shall be responsible for its own taxes that may arise as a result of this Agreement.

22. Notices. All notices, requests, demands or other communications required or permitted hereunder shall be given in writing and personally delivered or sent by certified or registered mail, return receipt requested, postage prepaid, or by a nationally recognized overnight courier service (e.g., Federal Express, UPS, etc.), to the Parties’ address set forth below:

If to Defendant:

Eric A. Wachter

Provectus Biopharmaceuticals, Inc.

7327 Oak Ridge Hwy

Knoxville, TN 37931

Telephone: (866) 594-5999

With a copy to:

David W. Bernstein

K&L Gates LLP

599 Lexington Avenue

New York, NY 10022

Telephone: (212) 536-4029

If to the Corporation:

Provectus Biopharmaceuticals, Inc.

Attn: Board of Directors

7327 Oak Ridge Hwy

Knoxville, TN 37931

Telephone: (866) 594-5999

 

 

 

Settlement and Release Agreement       Page 7


With a copy to:

Tonya Mitchem Grindon

Baker, Donelson, Bearman, Caldwell & Berkowitz, PC

211 Commerce Street, Suite 800

Nashville, TN 37201

Telephone: (615) 726-5607

If notice required pursuant to Section 16 regarding amendments to this Agreement, with copies to:

Plaintiffs’ Counsel of Record:

Al Holifield, Esq.

Holifield & Associates, PLLC

11907 Kingston Pike, Suite 201

Knoxville, TN 37934

Telephone: (865) 566-0115

Eduard Korsinsky, Esq.

Steven J. Purcell, Esq.

Levi & Korsinsky

30 Broad Street, 24th Floor

New York, NY 10004

Telephone: (212) 363-7500

The SLC’s Counsel of Record:

Robert J. Walker

John C. Hayworth

Charles Malone

Walker, Tipps & Malone PLC

2300 One Nashville Place

150 Fourth Avenue North

Nashville, TN 37219

Telephone: (615) 313-6000

Notice solely by e-mail shall not be acceptable although a courtesy copy by e-mail is highly recommended.

23. Continuing Obligations. All obligations of the Parties under this Agreement which are not fully performed as of the expiration or earlier termination of this Agreement shall survive the expiration or earlier termination of the underlying agreement.

24. Section Headings. Headings are used for convenience only and are not intended and shall not be used in interpreting any provisions of this Agreement.

 

 

 

Settlement and Release Agreement       Page 8


IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of the day and year set forth below.

 

PROVECTUS BIOPHARMACEUTICALS, INC., f/k/a PROVECTUS PHARMACEUTICALS, INC.
By:   /s/ Jan E. Koe
 

 

Name:   Jan E. Koe
Its:   Chairman, Special Litigation Committee
Dated:   June 6, 2014
 

 

ERIC A. WACHTER
/s/ Eric A. Wachter

 

Eric A. Wachter
Dated:   12 May 2014
 

 

APPROVED AND CONSENTED TO:
PLAINTIFFS GLENN KLEBA AND DON B. DALE, DERIVATIVELY ON BEHALF OF PROVECTUS BIOPHARMACEUTICALS, INC.
/s/ Al Holifield

 

By:   Steven Purcell and Al Holifield, Counsel to Plaintiffs
Dated:   13 May 2014
 

 

 

 

 

Settlement and Release Agreement       Page 9


Exhibit A

STOCK PLEDGE AGREEMENT

 

 

 

Settlement and Release Agreement

EX-31.1 3 d754969dex311.htm EX-31.1 EX-31.1

Exhibit 31.1

CERTIFICATION

I, H. Craig Dees, Ph.D., certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Provectus Biopharmaceuticals, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

 

  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 7, 2014     By:   /s/ H. Craig Dees
      H. Craig Dees, Ph.D.
      Chief Executive Officer
EX-31.2 4 d754969dex312.htm EX-31.2 EX-31.2

Exhibit 31.2

CERTIFICATION

I, Peter R. Culpepper, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Provectus Biopharmaceuticals, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

 

  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 7, 2014     By:   /s/ Peter R. Culpepper
      Peter R. Culpepper
      Chief Financial Officer
      Chief Operating Officer
EX-32 5 d754969dex32.htm EX-32 EX-32

Exhibit 32

CERTIFICATION PURSUANT TO RULE 13a-14(b) UNDER

THE SECURITIES EXCHANGE ACT OF 1934 AND

SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE

Each of the undersigned, H. Craig Dees, the Chief Executive Officer of Provectus Biopharmaceuticals, Inc. (the “Company”), and Peter R. Culpepper, Chief Financial Officer and Chief Operating Officer of the Company, certifies, pursuant to Rule 13a-14(b) under the Securities and Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code, that (1) this Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act, and (2) the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of the Company.

This Certification is signed on August 7, 2014.

 

By:   /s/ H. Craig Dees
  H. Craig Dees, Ph.D.
  Chief Executive Officer

 

By:   /s/ Peter R. Culpepper
  Peter R. Culpepper
  Chief Financial Officer
  Chief Operating Officer
EX-101.INS 6 pvct-20140630.xml XBRL INSTANCE DOCUMENT 0 0 0 0 0 33334 802 -1316198 6680000 6680 1310320 100000 2240000 0.25 1000000 100000 25000 4636020 1025950 1297950 3036218 176638439 176638439 300000000 3.00 176638439 372000 0.001 25000000 0.001 432763 816467 176638 -153361503 19979557 232568 22098985 7796177 173164422 104042 2119428 479857 18126036 26681 3919268 22098985 27000 18126036 1 1302961 1302961 1302961 1302961 0.75 0 0 0.08 25001 -153361503 176638439 176638 173164422 0 2000000 2.50 300000 11723580 -7066135 9423689 9424 18780291 10251052 -10221448 10867509 10868 20461632 9161701 -14565973 16133876 16134 23711540 14387141 -26329826 27822977 27823 40689144 15522400 -35200405 42452366 42452 50680353 14831510 -45206036 49399281 49399 59988147 10055536 -55475607 53017076 53017 65478126 9406510 -67797921 67410226 67410 77137021 10699573 -86350023 91297883 91298 5389998 5390 96952908 10019740 -105784722 110596798 110597 3531665 3531 115690334 4393484 1221701 -118353076 118427925 118428 2478185 2478 122625654 159751724 159751724 300000000 0.001 25000000 0.001 429331 33 512946 159752 -146050820 6628666 102795 20008184 7460617 152519701 61282 13379518 348869 15696243 30113 4254828 20008184 27000 15696243 12866572 12866572 12866572 12866572 0.75 33334 33334 0.08 25001 -146050820 159751724 159752 33334 33 152519701 -4945316 123926235 -0.06 -6533534 -7697513 -6547555 283 93034 1518865 335560 3414319 3100 81437 8359635 1149958 4679109 -178673 1341295 2550000 -14304 -14304 5817698 29063 21000 98250 4881666 50358525 15097206 50860 <div> <p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"> <b>3.</b> <b>Basic and Diluted Loss Per Common Share</b></p> <p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"> Basic and diluted loss per common share is computed based on the weighted average number of common shares outstanding. Loss per share excludes the impact of outstanding options and warrants and convertible preferred stock as they are antidilutive. Potential common shares excluded from the calculation at June&#xA0;30, 2014 and 2013, respectively, relate to 58,311,418 and 50,358,525 from warrants, 13,718,334 and 15,097,206 from options, and 0 and 4,881,666 from convertible preferred shares.</p> </div> <div> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%"> A reconciliation of the warranty liability measured at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) from January&#xA0;1, 2014 to June&#xA0;30, 2014 follows:</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt"> &#xA0;</p> <table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="68%" align="center" border="0"> <tr> <td width="83%"></td> <td valign="bottom" width="6%"></td> <td></td> <td></td> <td></td> </tr> <tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF"> <td valign="top"> <p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em"> Balance at January&#xA0;1, 2014</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">12,866,572</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"> <td valign="top"> <p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em"> Issuance of warrants</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom" nowrap="nowrap">&#xA0;</td> <td valign="bottom" nowrap="nowrap" align="right"> &#x2014;&#xA0;&#xA0;</td> <td valign="bottom" nowrap="nowrap">&#xA0;</td> </tr> <tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF"> <td valign="top"> <p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em"> Change in fair value of warrants included in earnings</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">(1,227,992</td> <td valign="bottom" nowrap="nowrap">)&#xA0;</td> </tr> <tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"> <td valign="top"> <p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em"> Reclassification to APIC due to warrant exercises</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">(10,335,619</td> <td valign="bottom" nowrap="nowrap">)&#xA0;</td> </tr> <tr style="FONT-SIZE: 1px"> <td valign="bottom"></td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td>&#xA0;</td> </tr> <tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF"> <td valign="top"> <p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em"> Balance at June&#xA0;30, 2014</p> </td> <td valign="bottom"><font style="FONT-SIZE: 8pt">&#xA0;&#xA0;</font></td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,302,961</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-SIZE: 1px"> <td valign="bottom"></td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td>&#xA0;</td> </tr> </table> </div> 10-Q PROVECTUS BIOPHARMACEUTICALS, INC. Accelerated Filer -6268093 <div> <p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"> <b>6.</b> <b>Related Party Transaction</b></p> <p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"> The Company paid one of the Company&#x2019;s directors $6,000 as of March&#xA0;31, 2014, all of which was paid as part of his overall compensation of an aggregate of $85,000 for board and committee service.</p> </div> <div> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt"> (c) The Company determined that warrants issued January&#xA0;13, 2011 and referred to as Series A Warrants and Series C Warrants should be classified as liabilities in accordance with ASC 815 because the warrants in question contain exercise price reset features that require the exercise price of the warrants be adjusted if the Company issues certain other equity related instruments at a lower price per share. The value of the warrant liability was determined based on the Monte-Carlo Simulation model at the date the warrants were issued. The warrant liability is then revalued at each subsequent quarter. For the three months ended March&#xA0;31, 2014 and 2013, there was a loss recognized from the revaluation of the warrant liability of $1,153,835 and $311,062, respectively. During the three months ended March&#xA0;31, 2014, 858,825 of the Series A Warrants were exercised. During the three months ended March&#xA0;31, 2014, 697,092 of the Series C Warrants were exercised. For the three months ended June&#xA0;30, 2014 and 2013, there was a gain recognized from the revaluation of the warrant liability of $186,262 and $221,149, respectively. The Company determined the fair value of the Series A and Series C Warrants exercised on the date of exercise and adjusted the related warrant liability accordingly. The adjusted fair value of the Series A and Series C Warrants exercised in 2014 of $3,911,370 was reclassified into additional paid-in capital.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt"> (d) In March and April 2010, the Company had an issuance of 8% Convertible Preferred Stock with warrants. The Company determined that warrants issued with the 8% convertible preferred stock should be classified as liabilities in accordance with ASC 815 because the warrants in question contain exercise price reset features that require the exercise price of the warrants be adjusted if the Company issues certain other equity related instruments at a lower price per share. The value of the warrant liability was determined based on the Monte-Carlo Simulation model at the date the warrants were issued. The warrant liability is then revalued at each subsequent quarter. For the three months ended March&#xA0;31, 2014 and 2013, there was a loss recognized from the revaluation of the warrant liability of $211,422 and $446,698, respectively. During the three months ended March&#xA0;31, 2014, 1,756,665 of the warrants included in the warrant liability were exercised. For the three months ended June&#xA0;30, 2014 and 2013, there was a gain recognized from the revaluation of the warrant liability of $3,285,793 and $399,057, respectively. During the three months ended June&#xA0;30, 2014, 133,232 of the warrants included in the warrant liability were exercised. The Company determined the fair value of the warrants exercised on the date of exercise and adjusted the related warrant liability accordingly. The adjusted fair value of the warrants exercised in 2014 of $2,377,133 was reclassified into additional paid-in capital.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt"> (e) In February 2013, the Company had an issuance of Series A 8% Convertible Preferred Stock with warrants. The Company determined that warrants issued with the Series A 8% Convertible Preferred Stock should be classified as liabilities in accordance with ASC 815 because the warrants in question contain exercise price reset features that require the exercise price of the warrants be adjusted if the Company issues certain other equity related instruments at a lower price per share. The preferred stock was determined to have characteristics more akin to equity than debt. As a result, the conversion option was determined to be clearly and closely related to the preferred stock and therefore does not need to be bifurcated and classified as a liability. The proceeds received from the issuance of the preferred stock were first allocated to the fair value of the warrants with the remainder allocated to the preferred stock. The fair value of the preferred stock if converted on the date of issuance was greater than the value allocated to the preferred stock. As a result, a beneficial conversion amount was recorded upon issuance. The fair value of the warrants recorded from the February 2013 issuance was $1,297,950 resulting in a beneficial conversion amount of $1,025,950. The beneficial conversion has been recorded as a deemed dividend as of March&#xA0;31, 2013 and is included in dividends on preferred stock on the consolidated statements of operations. The value of the warrant liability was determined based on the Monte-Carlo Simulation model at the date the warrants were issued. The warrant liability is then revalued at each subsequent quarter. For the three months ended March&#xA0;31, 2014 and 2013, there was a loss recognized from the revaluation of the warrant liability of $921,776 and $165,750, respectively. During the three months ended March&#xA0;31, 2014, 1,650,000 of the warrants included in the warrant liability were exercised. For the three months ended June&#xA0;30, 2014 and 2013, there was a gain recognized from the revaluation of the warrant liability of $42,970 and $289,000, respectively. During the three months ended June&#xA0;30, 2014, 200,000 of the warrants included in the warrant liability were exercised. The Company determined the fair value of the warrants exercised on the date of exercise and adjusted the related warrant liability accordingly. The adjusted fair value of the warrants exercised in 2014 of $4,047,116 was reclassified into additional paid-in capital.</p> <p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 12px"> &#xA0;</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt"> Dividends on the Series A 8% Convertible Preferred Stock accrued at an annual rate of 8% of the original issue price and were payable in either cash or common stock. If the dividend was paid in common stock, the number of shares of common stock equaled the quotient of the amount of cash dividends divided by the market price of the stock on the dividend payment date. The dividends were payable quarterly on the 15th day after the quarter-end. The Company paid the dividends in common stock although was required to pay the initial dividends due in cash. The Company had a deficit and, as a result, the dividends were recorded against additional paid-in capital. At March&#xA0;31, 2013, the Company recognized dividends of $29,063 which are included in dividends on preferred stock on the consolidated statement of operations and were paid in April 2013. At June&#xA0;30, 2013, the Company recognized dividends of $50,860 which are included in dividends on preferred stock on the consolidated statement of operations. In 2014, the Company recognized no dividends because of the full conversion of preferred stock to common stock as of January&#xA0;15, 2014.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt"> (f) In January 2014 there were 33,334 shares of the Company&#x2019;s Series A 8% Convertible Preferred Stock that converted into 33,334 shares of the Company&#x2019;s common stock. As of January&#xA0;15, 2014, there were no shares of Series A 8% Convertible Preferred Stock outstanding.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt"> (g) During the three months ended June&#xA0;30, 2014 the Company completed a private offering of common stock and warrants to accredited investors for gross proceeds of $5,000,000. The Company accepted subscriptions, in the aggregate, for 2,000,000 shares of common stock and five year warrants to purchase 2,000,000 shares of common stock. Investors received five year fully vested warrants to purchase up to 100% of the number of shares purchased by the investors in the offering. The warrants have an exercise price of $3.00 per share. The purchase price for each share of common stock together with the warrants was $2.50. The Company used the proceeds for working capital and other general corporate purposes. Network 1 Financial Securities, Inc. served as placement agent for the offering. In connection with the offering, the Company paid $650,000 and issued five year fully vested warrants to purchase 300,000 shares of common stock with an exercise price of $2.50 to Network 1 Financial Securities, Inc., which represents 15% of the total number of shares of common stock sold to investors solicited by Network 1 Financial Securities, Inc.</p> </div> 172225322 2014-06-30 <div> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%"> The warrant liability measured at fair value on a recurring basis is as follows:</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt"> &#xA0;</p> <table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="92%" align="center" border="0"> <tr> <td width="64%"></td> <td valign="bottom" width="3%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="3%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="3%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="1%"></td> <td></td> <td></td> <td valign="bottom" width="2%"></td> </tr> <tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman"> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom" colspan="2" align="center"><b>Total</b></td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom" colspan="2" align="center"> <b>Level&#xA0;1</b></td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom" colspan="2" align="center"> <b>Level&#xA0;2</b></td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom" colspan="2" align="center"><b>Level 3</b></td> <td valign="bottom">&#xA0;</td> </tr> <tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF"> <td valign="top"> <p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em"> Derivative instruments:</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> </tr> <tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"> <td valign="top"> <p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em"> Warrant liability at June&#xA0;30, 2014</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,302,961</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom" nowrap="nowrap">$</td> <td valign="bottom" nowrap="nowrap" align="right"> &#x2014;&#xA0;&#xA0;</td> <td valign="bottom" nowrap="nowrap">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom" nowrap="nowrap">$</td> <td valign="bottom" nowrap="nowrap" align="right"> &#x2014;&#xA0;&#xA0;</td> <td valign="bottom" nowrap="nowrap">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,302,961</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF"> <td valign="top"> <p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em"> Warrant liability at December&#xA0;31, 2013</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">12,866,572</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom" nowrap="nowrap">$</td> <td valign="bottom" nowrap="nowrap" align="right"> &#x2014;&#xA0;&#xA0;</td> <td valign="bottom" nowrap="nowrap">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom" nowrap="nowrap">$</td> <td valign="bottom" nowrap="nowrap" align="right"> &#x2014;&#xA0;&#xA0;</td> <td valign="bottom" nowrap="nowrap">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">12,866,572</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> </table> </div> false --12-31 2014 <div> <p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"> <b>2.</b> <b>Recapitalization and Merger</b></p> <p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"> Provectus Biopharmaceuticals, Inc., formerly known as &#x201C;Provectus Pharmaceuticals, Inc.,&#x201D; &#x201C;Provectus Pharmaceutical, Inc.&#x201D; and &#x201C;SPM Group, Inc.,&#x201D; was incorporated under Colorado law on May&#xA0;1, 1978. SPM Group ceased operations in 1991, and became a development-stage company effective January&#xA0;1, 1992, with the new corporate purpose of seeking out acquisitions of properties, businesses, or merger candidates, without limitation as to the nature of the business operations or geographic location of the acquisition candidate.</p> <p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"> On April&#xA0;1, 2002, SPM Group changed its name to &#x201C;Provectus Pharmaceutical, Inc.&#x201D; and reincorporated in Nevada in preparation for a transaction with Provectus Pharmaceuticals, Inc., a privately-held Tennessee corporation (&#x201C;PPI&#x201D;). On April&#xA0;23, 2002, an Agreement and Plan of Reorganization between Provectus Pharmaceutical and PPI was approved by the written consent of a majority of the outstanding shares of Provectus Pharmaceutical. As a result, Provectus Pharmaceuticals, Inc. issued 6,680,000 shares of common stock in exchange for all of the issued and outstanding shares of PPI. As part of the acquisition, Provectus Pharmaceutical changed its name to &#x201C;Provectus Pharmaceuticals, Inc.&#x201D; and PPI became a wholly-owned subsidiary of Provectus. This transaction was recorded as a recapitalization of PPI.</p> <p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"> On November&#xA0;19, 2002, the Company acquired Valley Pharmaceuticals, Inc., a privately-held Tennessee corporation formerly known as Photogen, Inc., by merging PPI with and into Valley and naming the surviving corporation &#x201C;Xantech Pharmaceuticals, Inc.&#x201D; Photogen, Inc. was separated from Photogen Technologies, Inc. in a non-pro-rata split-off to some of its shareholders. The assets of Photogen, Inc. consisted primarily of the equipment and intangibles related to its therapeutic activity and were recorded at their fair value. The majority shareholders of Valley were also the majority shareholders of Provectus. Valley had no revenues prior to the transaction with the Company. By acquiring Valley, the Company acquired its intellectual property, including issued U.S. patents and patentable inventions.</p> <p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"> On December&#xA0;16, 2013, Provectus Pharmaceuticals, Inc. was reincorporated in Delaware and changed its name to Provectus Biopharmaceuticals, Inc.</p> </div> <div> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt"> <b>8. Litigation</b></p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt"> <i>Kleba Shareholder Derivative Lawsuit</i></p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt"> On January&#xA0;2, 2013, Glenn Kleba (the &#x201C;Plaintiff&#x201D;) derivatively on behalf of the Company, filed a shareholder derivative complaint in the Circuit Court for the State of Tennessee, Knox County (the &#x201C;Court&#x201D;), against H. Craig Dees, Timothy C. Scott, Eric A. Wachter, and Peter R. Culpepper (collectively, the &#x201C;Executives&#x201D;), Stuart Fuchs, Kelly M. McMasters, and Alfred E. Smith, IV (collectively, together with the Executives, the &#x201C;Individual Defendants&#x201D;), and against the Company as a nominal defendant (the &#x201C;Shareholder Derivative Lawsuit&#x201D;). The Shareholder Derivative Lawsuit alleges (i)&#xA0;breach of fiduciary duties, (ii)&#xA0;waste of corporate assets, and (iii)&#xA0;unjust enrichment, all three claims based on the Plaintiff&#x2019;s allegations that the defendants authorized and/or accepted stock option awards in violation of the terms of the Company&#x2019;s 2002 Stock Plan (the &#x201C;Plan&#x201D;) by issuing stock options in excess of the amounts authorized under the Plan and delegated to defendant H. Craig Dees the sole authority to grant himself and the other Executives cash bonuses that the Plaintiff alleges to be excessive.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt"> In April 2013, the Company&#x2019;s Board of Directors appointed a special litigation committee to investigate the allegations of the Shareholder Derivative Complaint and make a determination as to how the matter should be resolved. The special litigation committee conducted its investigation, and proceedings in the case were stayed pending the conclusion of the committee&#x2019;s investigation. The Company has established a reserve of $100,000 for potential liabilities because such is the amount of the self-insured retention of its insurance policy.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt"> On March&#xA0;6, 2014, the Company filed a Joint Notice of Settlement (the &#x201C;Notice of Settlement&#x201D;) in the Shareholder Derivative Lawsuit. In addition to the Company, the parties to the Notice of Settlement are the Plaintiff and the Individual Defendants.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt"> On June&#xA0;6, 2014, the Company, in its capacity as a nominal defendant, entered into a Stipulated Settlement Agreement and Mutual Release (the &#x201C;Settlement&#x201D;) in the Shareholder Derivative Lawsuit. In addition to the Company and the Individual Defendants, plaintiffs Glenn Kleba and Don B. Dale are parties to the Settlement.</p> <p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 12px"> &#xA0;</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt"> By entering into the Settlement, the settling parties have resolved the derivative claims to their mutual satisfaction. The Individual Defendants have not admitted the validity of any claims or allegations and the settling plaintiffs have not admitted that any claims or allegations lack merit or foundation. Under the terms of the Settlement, (i)&#xA0;the Executives each agreed (A)&#xA0;to re-pay to the Company $2.24 Million of the cash bonuses they each received in 2010 and 2011, which amount equals 70% of such bonuses or an estimate of the after-tax net proceeds to each Executive; provided, however, that subject to certain terms and conditions set forth in the Settlement, the Executives are entitled to a 2:1 credit such that total actual repayment may be $1.12 Million each; (B)&#xA0;to reimburse the Company for 25% of the actual costs, net of recovery from any other source, incurred by the Company as a result of the Shareholder Derivative Lawsuit; and (C)&#xA0;to grant to the Company a first priority security interest in 1,000,000 shares of the Company&#x2019;s common stock owned by each such Executive to serve as collateral for the amounts due to the Company under the Settlement; (ii)&#xA0;Drs. Dees and Scott and Mr.&#xA0;Culpepper agreed to retain incentive stock options for 100,000 shares but shall forfeit 50% of the nonqualified stock options granted to each such Executive in both 2010 and 2011. The Settlement also requires that each of the Executives enter into new employment agreements with the Company, which were entered into on April&#xA0;28, 2014, and that the Company adhere to certain corporate governance principles and processes in the future. Under the Settlement, Messrs. Fuchs and Smith and Dr.&#xA0;McMasters have each agreed to pay the Company $25,000 in cash, subject to reduction by such amount that the Company&#x2019;s insurance carrier pays to the Company on behalf of such defendant pursuant to such defendant&#x2019;s directors and officers liability insurance policy. The Settlement also provides for an award to plaintiffs&#x2019; counsel of attorneys&#x2019; fees and reimbursement of expenses in connection with their role in this litigation, subject to Court approval.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt"> On July&#xA0;24, 2014, the Court approved the terms of the proposed Settlement and awarded $911,000 to plaintiffs&#x2019; counsel for attorneys&#x2019; fees and reimbursement of expenses in connection with their role in the Shareholder Derivative Lawsuit.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt"> <i>Class Action Lawsuits</i></p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt"> On May&#xA0;27, 2014, Cary Farrah and James H. Harrison, Jr., individually and on behalf of all others similarly situated (the &#x201C;Farrah Case&#x201D;), and on May&#xA0;29, 2014, each of Paul Jason Chaney, individually and on behalf of all others similarly situated (the &#x201C;Chaney Case&#x201D;), and Jayson Dauphinee, individually and on behalf of all others similarly situated (the &#x201C;Dauphinee Case&#x201D;) (the plaintiffs in the Farrah Case, the Chaney Case and the Dauphinee Case collectively referred to as the &#x201C;Plaintiffs&#x201D;), each filed a class action lawsuit in the United States District Court for the Middle District of Tennessee against the Company, H. Craig Dees, Timothy C. Scott and Peter R. Culpepper (the &#x201C;Defendants&#x201D;) alleging violations by the Defendants of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. Specifically, the Plaintiffs in each of the Farrah Case, the Chaney Case and the Dauphinee Case allege that the Defendants are liable for making false statements and failing to disclose adverse facts known to them about the Company, in connection with the Company&#x2019;s application to the FDA for Breakthrough Therapy Designation (&#x201C;BTD&#x201D;) in the Spring of 2014 and the FDA&#x2019;s subsequent denial of the Company&#x2019;s application for BTD. The Company intends to defend vigorously against all claims in these complaints. However, in view of the inherent uncertainties of litigation and the early stage of this litigation, the outcome of these cases cannot be predicted at this time. Likewise, the amount of any potential loss cannot be reasonably estimated.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt"> On July&#xA0;9, 2014, the Plaintiffs and the Defendants filed joint motions in the Farrah Case, the Chaney Case and the Dauphinee Case to consolidate the cases and transfer them to United States District Court for the Eastern District of Tennessee. By order dated July&#xA0;16, 2014, the United States District Court for the Middle District of Tennessee entered an order consolidating the Farrah Case, the Chaney Case and the Dauphinee Case (collectively and, as consolidated, the &#x201C;Securities Litigation&#x201D;) and transferred the Securities Litigation to the United States District Court for the Eastern District of Tennessee.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt"> <i>Hurtado Shareholder Derivative Lawsuit</i></p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt"> On June&#xA0;4, 2014, Karla Hurtado (the &#x201C;Plaintiff&#x201D;) derivatively on behalf of the Company, filed a shareholder derivative complaint in the United States District Court for the Middle District of Tennessee (the &#x201C;Court&#x201D;), against H. Craig Dees, Timothy C. Scott, Jan E. Koe, Kelly M. McMasters, and Alfred E. Smith, IV (collectively, the &#x201C;Individual Defendants&#x201D;), and against the Company as a nominal defendant (the &#x201C;Hurtado Shareholder Derivative Lawsuit&#x201D;). The Hurtado Shareholder Derivative Lawsuit alleges (i)&#xA0;breach of fiduciary duties and (ii)&#xA0;abuse of control, both claims based on the Plaintiff&#x2019;s allegations that the Individual Defendants recklessly permitted the Company to disclose false and misleading information and failed to implement adequate controls and procedures to ensure the accuracy of the Company&#x2019;s disclosures.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt"> On July&#xA0;25, 2014, the court presiding over the Hurtado Shareholder Derivative Lawsuit entered an order transferring the case to the United District Court for the Eastern District of Tennessee. It is anticipated that an order will be entered by agreement that will stay all activity in the Hurtado Shareholder Derivative Lawsuit pending the resolution of an anticipated motion to dismiss the anticipated consolidated amended complaint in the Securities Litigation.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt"> As a nominal defendant, no relief is sought against the Company itself in the Hurtado Shareholder Derivative Lawsuit.</p> </div> <div> <p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"> <b>1.</b> <b>Basis of Presentation</b></p> <p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"> The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information pursuant to Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. 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 six months ended June&#xA0;30, 2014 are not necessarily indicative of the results that may be expected for the year ended December&#xA0;31, 2014. The Company has evaluated subsequent events through the date the condensed consolidated financial statements were issued.</p> </div> 0000315545 <div> <p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"> <b>5. Stock-Based Compensation</b></p> <p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"> One employee of the Company exercised 25,000 options at an exercise price of $0.95 per share of common stock for $23,750, 14,248 options at an exercise price of $0.75 per share of common stock for $10,686 and 600,000 options at an exercise price of $0.93 per share of common stock for $558,000 during the three months ended March&#xA0;31, 2014. Another employee of the Company exercised 300,000 options at an exercise price of $1.10 per share of common stock for $330,000 during the three months ended March&#xA0;31, 2014. Another employee of the Company exercised 189,624 options at an exercise price of $1.10 per share of common stock for $208,586 during the three months ended March&#xA0;31, 2014. One employee of the Company forfeited 300,000 stock options on February&#xA0;26, 2014.</p> <p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"> One employee of the Company exercised 25,000 options at an exercise price of $0.95 per share of common stock for $23,750 during the three months ended June&#xA0;30, 2014. Another employee of the Company exercised 100,000 options at an exercise price of $1.25 per share of common stock for $125,000 during the three months ended June&#xA0;30, 2014. A former non-employee member of the board exercised 25,000 options at an exercise price of $0.95 per share of common stock for $23,750 during the three months ended June&#xA0;30, 2014. One employee of the Company forfeited 25,000 stock options on May&#xA0;27, 2014.</p> </div> -0.04 <div> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt"> <b>7.</b> <b>Fair Value of Financial Instruments</b></p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt"> The FASB&#x2019;s authoritative guidance on fair value measurements establishes a framework for measuring fair value, and expands disclosure about fair value measurements. This guidance enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. Under this guidance, assets and liabilities carried at fair value must be classified and disclosed in one of the following three categories:</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt"> Level 1: Quoted market prices in active markets for identical assets or liabilities.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt"> Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt"> Level 3: Unobservable inputs that are not corroborated by market data.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt"> In determining the appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are measured and reported on a fair value basis. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3. The fair value of certain of the Company&#x2019;s financial instruments, including Cash and cash equivalents and Accounts payable, approximates the carrying value due to the relatively short maturity of such instruments. The fair value of derivative instruments is determined by management with the assistance of an independent third party valuation specialist. The warrant liability is a derivative instrument and is classified as Level 3. The Company used the Monte-Carlo Simulation model to estimate the fair value of the warrants. Significant assumptions used at March&#xA0;31, 2014 for the 2010 warrants include a weighted average term of 0.9 years, a 5% probability that the warrant exercise price would be reset, volatility range of 66.5% to 129.7% and a risk free interest rate of 0.13%. Significant assumptions used at June&#xA0;30, 2014 for the 2010 warrants include a weighted average term of 0.7 years, a 5% probability that the warrant exercise price would be reset, volatility of 187.7% and a risk free interest rate of 0.09%. Significant assumptions used at March&#xA0;31, 2014 for the 2011 warrants include a weighted average term of 1.8 years, a 5% probability that the warrant exercise price would be reset, volatility of 101.8% and a risk free interest rate of 0.29%. Significant assumptions used at June&#xA0;30, 2014 for the 2011 warrants include a weighted average term of 1.5 years, a 5% probability that the warrant exercise price would be reset, volatility of 132.7% and a risk free interest rate of 0.29%. Significant assumptions used at March&#xA0;31, 2014 for the 2013 warrants include a weighted average term of 3.9 years, a 5% probability that the warrant exercise price would be reset, volatility of 84.7% and a risk free interest rate range of 0.77% to 1.32%. At June&#xA0;30, 2014 there are no remaining 2013 warrants and therefore no associated warrant liability.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%"> The warrant liability measured at fair value on a recurring basis is as follows:</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt"> &#xA0;</p> <table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="92%" align="center" border="0"> <tr> <td width="64%"></td> <td valign="bottom" width="3%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="3%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="3%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="1%"></td> <td></td> <td></td> <td valign="bottom" width="2%"></td> </tr> <tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman"> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom" colspan="2" align="center"><b>Total</b></td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom" colspan="2" align="center"> <b>Level&#xA0;1</b></td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom" colspan="2" align="center"> <b>Level&#xA0;2</b></td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom" colspan="2" align="center"><b>Level 3</b></td> <td valign="bottom">&#xA0;</td> </tr> <tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF"> <td valign="top"> <p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em"> Derivative instruments:</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> </tr> <tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"> <td valign="top"> <p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em"> Warrant liability at June&#xA0;30, 2014</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,302,961</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom" nowrap="nowrap">$</td> <td valign="bottom" nowrap="nowrap" align="right"> &#x2014;&#xA0;&#xA0;</td> <td valign="bottom" nowrap="nowrap">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom" nowrap="nowrap">$</td> <td valign="bottom" nowrap="nowrap" align="right"> &#x2014;&#xA0;&#xA0;</td> <td valign="bottom" nowrap="nowrap">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,302,961</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF"> <td valign="top"> <p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em"> Warrant liability at December&#xA0;31, 2013</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">12,866,572</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom" nowrap="nowrap">$</td> <td valign="bottom" nowrap="nowrap" align="right"> &#x2014;&#xA0;&#xA0;</td> <td valign="bottom" nowrap="nowrap">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom" nowrap="nowrap">$</td> <td valign="bottom" nowrap="nowrap" align="right"> &#x2014;&#xA0;&#xA0;</td> <td valign="bottom" nowrap="nowrap">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">12,866,572</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> </table> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%"> A reconciliation of the warranty liability measured at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) from January&#xA0;1, 2014 to June&#xA0;30, 2014 follows:</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt"> &#xA0;</p> <table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="68%" align="center" border="0"> <tr> <td width="83%"></td> <td valign="bottom" width="6%"></td> <td></td> <td></td> <td></td> </tr> <tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF"> <td valign="top"> <p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em"> Balance at January&#xA0;1, 2014</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">12,866,572</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"> <td valign="top"> <p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em"> Issuance of warrants</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom" nowrap="nowrap">&#xA0;</td> <td valign="bottom" nowrap="nowrap" align="right"> &#x2014;&#xA0;&#xA0;</td> <td valign="bottom" nowrap="nowrap">&#xA0;</td> </tr> <tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF"> <td valign="top"> <p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em"> Change in fair value of warrants included in earnings</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">(1,227,992</td> <td valign="bottom" nowrap="nowrap">)&#xA0;</td> </tr> <tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"> <td valign="top"> <p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em"> Reclassification to APIC due to warrant exercises</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">(10,335,619</td> <td valign="bottom" nowrap="nowrap">)&#xA0;</td> </tr> <tr style="FONT-SIZE: 1px"> <td valign="bottom"></td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td>&#xA0;</td> </tr> <tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF"> <td valign="top"> <p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em"> Balance at June&#xA0;30, 2014</p> </td> <td valign="bottom"><font style="FONT-SIZE: 8pt">&#xA0;&#xA0;</font></td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,302,961</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-SIZE: 1px"> <td valign="bottom"></td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td>&#xA0;</td> </tr> </table> </div> Q2 -8541491 -7310683 -7310683 2816 85000 2183418 335560 2429793 3432 172533 8697886 6022513 130988 1350319 1227992 1227992 4327886 <div> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt"> <b>4.</b> <b>Equity Transactions</b></p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt"> (a) During the three months ended March&#xA0;31, 2014, the Company issued 75,000 shares of common stock to consultants in exchange for services. Consulting costs charged to operations were $137,500. During the three months ended March&#xA0;31, 2013, the Company issued 75,000 shares of common stock to consultants in exchange for services. Consulting costs charged to operations were $48,750.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt"> During the three months ended June&#xA0;30, 2014, the Company issued 75,000 shares of common stock to consultants in exchange for services. Consulting costs charged to operations were $140,250. During the three months ended June&#xA0;30, 2013, the Company issued 75,000 shares of common stock to consultants in exchange for services. Consulting costs charged to operations were $49,500.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt"> (b) During the three months ended March&#xA0;31, 2014, the Company issued 733,000 fully vested warrants to consultants in exchange for services. Consulting costs charged to operations were $900,317. During the three months ended March&#xA0;31, 2014, 121,500 warrants were forfeited. During the three months ended March&#xA0;31, 2014, 12,522,198 warrants were exercised on a cashless basis resulting in 9,100,824 common shares being issued. During the three months ended March&#xA0;31, 2014, 3,036,218 warrants were exercised for $2,672,364 resulting in 3,036,218 common shares issued. During the three months ended March&#xA0;31, 2013, the Company issued 1,924,973 fully vested warrants to consultants in exchange for services. Consulting costs charged to operations were $409,640. During the three months ended March&#xA0;31, 2013, 859,833 warrants were forfeited.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt"> During the three months ended June&#xA0;30, 2014, the Company issued 202,000 fully vested warrants to consultants in exchange for services. Consulting costs charged to operations were $450,002. During the three months ended June&#xA0;30, 2014, 315,000 warrants were forfeited. During the three months ended June&#xA0;30, 2014, 1,594,082 warrants were exercised on a cashless basis resulting in 915,467 common shares being issued. During the three months ended June&#xA0;30, 2014, 372,000 warrants were exercised for $372,000 resulting in 372,000 common shares issued. During the three months ended June&#xA0;30, 2013, the Company issued 2,605,000 fully vested warrants to consultants in exchange for services. Consulting costs charged to operations were $931,655. During the three months ended June&#xA0;30, 2013, 1,051,500 warrants were forfeited.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt"> As the fair market value of these services was not readily determinable, these services were valued based on the fair market value of the warrants, determined using the Black-Scholes option-pricing model.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt"> (c) The Company determined that warrants issued January&#xA0;13, 2011 and referred to as Series A Warrants and Series C Warrants should be classified as liabilities in accordance with ASC 815 because the warrants in question contain exercise price reset features that require the exercise price of the warrants be adjusted if the Company issues certain other equity related instruments at a lower price per share. The value of the warrant liability was determined based on the Monte-Carlo Simulation model at the date the warrants were issued. The warrant liability is then revalued at each subsequent quarter. For the three months ended March&#xA0;31, 2014 and 2013, there was a loss recognized from the revaluation of the warrant liability of $1,153,835 and $311,062, respectively. During the three months ended March&#xA0;31, 2014, 858,825 of the Series A Warrants were exercised. During the three months ended March&#xA0;31, 2014, 697,092 of the Series C Warrants were exercised. For the three months ended June&#xA0;30, 2014 and 2013, there was a gain recognized from the revaluation of the warrant liability of $186,262 and $221,149, respectively. The Company determined the fair value of the Series A and Series C Warrants exercised on the date of exercise and adjusted the related warrant liability accordingly. The adjusted fair value of the Series A and Series C Warrants exercised in 2014 of $3,911,370 was reclassified into additional paid-in capital.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt"> (d) In March and April 2010, the Company had an issuance of 8% Convertible Preferred Stock with warrants. The Company determined that warrants issued with the 8% convertible preferred stock should be classified as liabilities in accordance with ASC 815 because the warrants in question contain exercise price reset features that require the exercise price of the warrants be adjusted if the Company issues certain other equity related instruments at a lower price per share. The value of the warrant liability was determined based on the Monte-Carlo Simulation model at the date the warrants were issued. The warrant liability is then revalued at each subsequent quarter. For the three months ended March&#xA0;31, 2014 and 2013, there was a loss recognized from the revaluation of the warrant liability of $211,422 and $446,698, respectively. During the three months ended March&#xA0;31, 2014, 1,756,665 of the warrants included in the warrant liability were exercised. For the three months ended June&#xA0;30, 2014 and 2013, there was a gain recognized from the revaluation of the warrant liability of $3,285,793 and $399,057, respectively. During the three months ended June&#xA0;30, 2014, 133,232 of the warrants included in the warrant liability were exercised. The Company determined the fair value of the warrants exercised on the date of exercise and adjusted the related warrant liability accordingly. The adjusted fair value of the warrants exercised in 2014 of $2,377,133 was reclassified into additional paid-in capital.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt"> (e) In February 2013, the Company had an issuance of Series A 8% Convertible Preferred Stock with warrants. The Company determined that warrants issued with the Series A 8% Convertible Preferred Stock should be classified as liabilities in accordance with ASC 815 because the warrants in question contain exercise price reset features that require the exercise price of the warrants be adjusted if the Company issues certain other equity related instruments at a lower price per share. The preferred stock was determined to have characteristics more akin to equity than debt. As a result, the conversion option was determined to be clearly and closely related to the preferred stock and therefore does not need to be bifurcated and classified as a liability. The proceeds received from the issuance of the preferred stock were first allocated to the fair value of the warrants with the remainder allocated to the preferred stock. The fair value of the preferred stock if converted on the date of issuance was greater than the value allocated to the preferred stock. As a result, a beneficial conversion amount was recorded upon issuance. The fair value of the warrants recorded from the February 2013 issuance was $1,297,950 resulting in a beneficial conversion amount of $1,025,950. The beneficial conversion has been recorded as a deemed dividend as of March&#xA0;31, 2013 and is included in dividends on preferred stock on the consolidated statements of operations. The value of the warrant liability was determined based on the Monte-Carlo Simulation model at the date the warrants were issued. The warrant liability is then revalued at each subsequent quarter. For the three months ended March&#xA0;31, 2014 and 2013, there was a loss recognized from the revaluation of the warrant liability of $921,776 and $165,750, respectively. During the three months ended March&#xA0;31, 2014, 1,650,000 of the warrants included in the warrant liability were exercised. For the three months ended June&#xA0;30, 2014 and 2013, there was a gain recognized from the revaluation of the warrant liability of $42,970 and $289,000, respectively. During the three months ended June&#xA0;30, 2014, 200,000 of the warrants included in the warrant liability were exercised. The Company determined the fair value of the warrants exercised on the date of exercise and adjusted the related warrant liability accordingly. The adjusted fair value of the warrants exercised in 2014 of $4,047,116 was reclassified into additional paid-in capital.</p> <p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 12px"> &#xA0;</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt"> Dividends on the Series A 8% Convertible Preferred Stock accrued at an annual rate of 8% of the original issue price and were payable in either cash or common stock. If the dividend was paid in common stock, the number of shares of common stock equaled the quotient of the amount of cash dividends divided by the market price of the stock on the dividend payment date. The dividends were payable quarterly on the 15th day after the quarter-end. The Company paid the dividends in common stock although was required to pay the initial dividends due in cash. The Company had a deficit and, as a result, the dividends were recorded against additional paid-in capital. At March&#xA0;31, 2013, the Company recognized dividends of $29,063 which are included in dividends on preferred stock on the consolidated statement of operations and were paid in April 2013. At June&#xA0;30, 2013, the Company recognized dividends of $50,860 which are included in dividends on preferred stock on the consolidated statement of operations. In 2014, the Company recognized no dividends because of the full conversion of preferred stock to common stock as of January&#xA0;15, 2014.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt"> (f) In January 2014 there were 33,334 shares of the Company&#x2019;s Series A 8% Convertible Preferred Stock that converted into 33,334 shares of the Company&#x2019;s common stock. As of January&#xA0;15, 2014, there were no shares of Series A 8% Convertible Preferred Stock outstanding.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt"> (g) During the three months ended June&#xA0;30, 2014 the Company completed a private offering of common stock and warrants to accredited investors for gross proceeds of $5,000,000. The Company accepted subscriptions, in the aggregate, for 2,000,000 shares of common stock and five year warrants to purchase 2,000,000 shares of common stock. Investors received five year fully vested warrants to purchase up to 100% of the number of shares purchased by the investors in the offering. The warrants have an exercise price of $3.00 per share. The purchase price for each share of common stock together with the warrants was $2.50. The Company used the proceeds for working capital and other general corporate purposes. Network 1 Financial Securities, Inc. served as placement agent for the offering. In connection with the offering, the Company paid $650,000 and issued five year fully vested warrants to purchase 300,000 shares of common stock with an exercise price of $2.50 to Network 1 Financial Securities, Inc., which represents 15% of the total number of shares of common stock sold to investors solicited by Network 1 Financial Securities, Inc.</p> </div> 4350000 4347886 10355619 1350319 277750 277750 4350000 0 58311418 13718334 -1227992 -10335619 0 -7310683 33334 33 2000000 150000 14703 14703381 150 2000 -33334 -33 4313183 10355619 1350319 277600 4348000 0.05 1.877 0.0009 P8M12D 0.05 1.327 0.0029 P1Y6M 300000 25000 6680000 1120000 2 0.70 0.50 911000 0 -5749937 126587 48000 12226320 27000 453 -3645 5144000 -5749937 400000 400 265763 500 1900000 25 452919 453 500007 25000 266 1900 126587 47600 12225820 26975 -3911 5142100 0.08 0.08 33334 0.08 6000 -3155313 601000 34659 281500 145479 380347 239800 -3155313 764000 680 679820 764 601000 34659 281500 145479 379667 239036 3049362 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Litigation - Additional Information (Detail) (USD $)
0 Months Ended 0 Months Ended 0 Months Ended
Jun. 06, 2014
Apr. 30, 2013
Jun. 06, 2014
Executive Officer [Member]
Jun. 06, 2014
Other Defendants [Member]
Jul. 24, 2014
Subsequent Event [Member]
Loss Contingencies [Line Items]          
Reserve for litigation   $ 100,000      
Damages sought to be receivable 2,240,000     25,000  
Estimated bonus percentage 70.00%        
Future payment ratio of contingent consideration 2        
Repayment under contingency 1,120,000        
Reimbursement cost percentage 25.00%        
Number of shares acquired under litigation     1,000,000    
Stock option issued to employees     100,000    
Share-based compensation forfeiture rate     50.00%    
Attorney's fees and reimbursement of expenses         $ 911,000

XML 16 R9.htm IDEA: XBRL DOCUMENT v2.4.0.8
Basic and Diluted Loss Per Common Share
6 Months Ended
Jun. 30, 2014
Earnings Per Share [Abstract]  
Basic and Diluted Loss Per Common Share

3. Basic and Diluted Loss Per Common Share

Basic and diluted loss per common share is computed based on the weighted average number of common shares outstanding. Loss per share excludes the impact of outstanding options and warrants and convertible preferred stock as they are antidilutive. Potential common shares excluded from the calculation at June 30, 2014 and 2013, respectively, relate to 58,311,418 and 50,358,525 from warrants, 13,718,334 and 15,097,206 from options, and 0 and 4,881,666 from convertible preferred shares.

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Recapitalization and Merger
6 Months Ended
Jun. 30, 2014
Business Combinations [Abstract]  
Recapitalization and Merger

2. Recapitalization and Merger

Provectus Biopharmaceuticals, Inc., formerly known as “Provectus Pharmaceuticals, Inc.,” “Provectus Pharmaceutical, Inc.” and “SPM Group, Inc.,” was incorporated under Colorado law on May 1, 1978. SPM Group ceased operations in 1991, and became a development-stage company effective January 1, 1992, with the new corporate purpose of seeking out acquisitions of properties, businesses, or merger candidates, without limitation as to the nature of the business operations or geographic location of the acquisition candidate.

On April 1, 2002, SPM Group changed its name to “Provectus Pharmaceutical, Inc.” and reincorporated in Nevada in preparation for a transaction with Provectus Pharmaceuticals, Inc., a privately-held Tennessee corporation (“PPI”). On April 23, 2002, an Agreement and Plan of Reorganization between Provectus Pharmaceutical and PPI was approved by the written consent of a majority of the outstanding shares of Provectus Pharmaceutical. As a result, Provectus Pharmaceuticals, Inc. issued 6,680,000 shares of common stock in exchange for all of the issued and outstanding shares of PPI. As part of the acquisition, Provectus Pharmaceutical changed its name to “Provectus Pharmaceuticals, Inc.” and PPI became a wholly-owned subsidiary of Provectus. This transaction was recorded as a recapitalization of PPI.

On November 19, 2002, the Company acquired Valley Pharmaceuticals, Inc., a privately-held Tennessee corporation formerly known as Photogen, Inc., by merging PPI with and into Valley and naming the surviving corporation “Xantech Pharmaceuticals, Inc.” Photogen, Inc. was separated from Photogen Technologies, Inc. in a non-pro-rata split-off to some of its shareholders. The assets of Photogen, Inc. consisted primarily of the equipment and intangibles related to its therapeutic activity and were recorded at their fair value. The majority shareholders of Valley were also the majority shareholders of Provectus. Valley had no revenues prior to the transaction with the Company. By acquiring Valley, the Company acquired its intellectual property, including issued U.S. patents and patentable inventions.

On December 16, 2013, Provectus Pharmaceuticals, Inc. was reincorporated in Delaware and changed its name to Provectus Biopharmaceuticals, Inc.

XML 19 R2.htm IDEA: XBRL DOCUMENT v2.4.0.8
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)
Jun. 30, 2014
Dec. 31, 2013
Current Assets    
Cash and cash equivalents $ 18,126,036 $ 15,696,243
Total Current Assets 18,126,036 15,696,243
Equipment and furnishings, less accumulated depreciation of $432,763 and $429,331, respectively 26,681 30,113
Patents, net of amortization of $7,796,177 and $7,460,617, respectively 3,919,268 4,254,828
Other assets 27,000 27,000
Total Assets 22,098,985 20,008,184
Current Liabilities    
Accounts payable - trade 479,857 348,869
Accrued consulting expense 104,042 61,282
Other accrued expenses 232,568 102,795
Total Current Liabilities 816,467 512,946
Long-Term Liability    
Warrant liability 1,302,961 12,866,572
Total Liabilities 2,119,428 13,379,518
Stockholders' Equity    
Preferred stock; par value $.001 per share; 25,000,000 shares authorized; Series A 8% convertible preferred stock, 0 and 33,334 shares issued and outstanding, respectively, liquidation preference $0.75 (for 2013 in aggregate $25,001)   33
Common stock; par value $.001 per share; 300,000,000 authorized; 176,638,439 and 159,751,724 shares issued and outstanding, respectively 176,638 159,752
Paid-in capital 173,164,422 152,519,701
Deficit accumulated during the development stage (153,361,503) (146,050,820)
Total Stockholders' Equity 19,979,557 6,628,666
Total Liabilities and Stockholders' Equity $ 22,098,985 $ 20,008,184
XML 20 R6.htm IDEA: XBRL DOCUMENT v2.4.0.8
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited) (USD $)
6 Months Ended 149 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Cash Flows From Operating Activities      
Net loss $ (7,310,683) $ (6,547,555) $ (153,361,503)
Adjustments to reconcile net loss to net cash used in operating activities      
Depreciation 3,432 3,100 455,764
Amortization of patents 335,560 335,560 7,796,177
Amortization of original issue discount     3,845,721
Amortization of commitment fee     310,866
Amortization of prepaid consultant expense     1,295,226
Amortization of deferred loan costs     2,261,584
Accretion of United States Treasury Bills     (373,295)
Loss on extinguishment of debt     825,867
Loss on exercise of warrants     236,146
Beneficial conversion of convertible interest     55,976
Convertible interest     389,950
Compensation through issuance of stock options     14,540,039
Compensation through issuance of stock     932,000
Issuance of stock for services 277,750 98,250 9,857,261
Issuance of warrants for services 1,350,319 1,341,295 9,333,712
Issuance of warrants for contractual obligations     985,010
Gain on sale of equipment     (55,075)
Loss (gain) on change in fair value of warrant liability (1,227,992) 14,304 7,530,937
Change in assets and liabilities      
Prepaid expenses and other current assets   (93,034)  
Accounts payable 130,988 (178,673) 476,212
Accrued expenses 172,533 81,437 486,240
Net cash used in operating activities (6,268,093) (4,945,316) (92,175,185)
Cash Flows From Investing Activities      
Proceeds from sale of fixed assets     180,075
Capital expenditures     (96,570)
Proceeds from sales of investments     37,010,481
Purchases of investments     (36,637,186)
Net cash provided by investing activities     456,800
Cash Flows From Financing Activities      
Net proceeds from loans from stockholder     174,000
Proceeds from convertible debt     6,706,795
Net proceeds from sales of preferred stock and warrants   2,550,000 11,458,131
Net proceeds from sales of common stock and warrants 4,350,000 5,817,698 65,583,856
Proceeds from exercises of warrants and stock options 4,347,886 21,000 28,859,292
Cash paid for preferred dividends   (29,063) (29,063)
Cash paid to retire convertible debt     (2,385,959)
Cash paid for deferred loan costs     (747,612)
Premium paid on extinguishments of debt     (170,519)
Net proceeds from sale of non-controlling interest in Pure-ific Corporation     443,500
Purchase and retirement of common stock     (48,000)
Net cash provided by financing activities 8,697,886 8,359,635 109,844,421
Net change in cash and cash equivalents 2,429,793 3,414,319 18,126,036
Cash and cash equivalents, at beginning of period 15,696,243 1,221,701  
Cash and cash equivalents, at end of period 18,126,036 4,636,020 18,126,036
Supplemental Disclosure of Noncash Investing and Financing Activities      
Reclassification of warrant liability to equity due to exercise of warrants $ 10,355,619    
XML 21 R22.htm IDEA: XBRL DOCUMENT v2.4.0.8
Fair Value of Financial Instruments - Additional Information (Detail) (USD $)
3 Months Ended 6 Months Ended
Mar. 31, 2014
Jun. 30, 2014
2010 Warrants [Member]
   
Class of Stock [Line Items]    
Weighted average term 10 months 24 days 8 months 12 days
Warrant exercise price probability 5.00% 5.00%
Percentage of volatility   187.70%
Risk free interest rate 0.13% 0.09%
2010 Warrants [Member] | Minimum [Member]
   
Class of Stock [Line Items]    
Percentage of volatility 66.50%  
2010 Warrants [Member] | Maximum [Member]
   
Class of Stock [Line Items]    
Percentage of volatility 129.70%  
2011 Warrants [Member]
   
Class of Stock [Line Items]    
Weighted average term 1 year 9 months 18 days 1 year 6 months
Warrant exercise price probability 5.00% 5.00%
Percentage of volatility 101.80% 132.70%
Risk free interest rate 0.29% 0.29%
2013 Warrants [Member]
   
Class of Stock [Line Items]    
Weighted average term 3 years 10 months 24 days  
Warrant exercise price probability 5.00%  
Percentage of volatility 84.70%  
Warrant Liability   0
2013 Warrants [Member] | Minimum [Member]
   
Class of Stock [Line Items]    
Risk free interest rate 0.77%  
2013 Warrants [Member] | Maximum [Member]
   
Class of Stock [Line Items]    
Risk free interest rate 1.32%  
XML 22 R24.htm IDEA: XBRL DOCUMENT v2.4.0.8
Fair Value of Financial Instruments - Reconciliation of the Warranty Liability Measured at Fair Value on a Recurring Basis (Detail) (USD $)
6 Months Ended
Jun. 30, 2014
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]  
Reclassification to APIC due to warrant exercises $ 10,355,619
Recurring [Member] | Level 3 [Member] | Warrants [Member]
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]  
Beginning Balance 12,866,572
Issuance of warrants   
Change in fair value of warrants included in earnings (1,227,992)
Reclassification to APIC due to warrant exercises (10,335,619)
Ending Balance $ 1,302,961
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Basis of Presentation
6 Months Ended
Jun. 30, 2014
Accounting Policies [Abstract]  
Basis of Presentation

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information pursuant to Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. 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 six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ended December 31, 2014. The Company has evaluated subsequent events through the date the condensed consolidated financial statements were issued.

XML 25 R3.htm IDEA: XBRL DOCUMENT v2.4.0.8
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
Jun. 30, 2014
Dec. 31, 2013
Accumulated depreciation on equipment and furnishings $ 432,763 $ 429,331
Amortization on patents 7,796,177 7,460,617
Preferred stock, par value $ 0.001 $ 0.001
Preferred stock, shares authorized 25,000,000 25,000,000
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 300,000,000 300,000,000
Common stock, shares issued 176,638,439 159,751,724
Common stock, shares outstanding 176,638,439 159,751,724
Series A 8% Convertible Preferred Stock [Member]
   
Preferred stock, shares issued 0 33,334
Preferred stock, shares outstanding 0 33,334
Preferred stock, liquidation preference per share $ 0.75 $ 0.75
Aggregate liquidation preference $ 25,001 $ 25,001
Convertible preferred stock 8.00% 8.00%
XML 26 R17.htm IDEA: XBRL DOCUMENT v2.4.0.8
Recapitalization and Merger - Additional Information (Detail)
0 Months Ended
Apr. 23, 2002
Business Combinations [Abstract]  
Common stock shares issued 6,680,000
XML 27 R1.htm IDEA: XBRL DOCUMENT v2.4.0.8
Document and Entity Information
6 Months Ended
Jun. 30, 2014
Document And Entity Information [Abstract]  
Document Type 10-Q
Amendment Flag false
Document Period End Date Jun. 30, 2014
Document Fiscal Year Focus 2014
Document Fiscal Period Focus Q2
Entity Registrant Name PROVECTUS BIOPHARMACEUTICALS, INC.
Entity Central Index Key 0000315545
Current Fiscal Year End Date --12-31
Entity Filer Category Accelerated Filer
Entity Common Stock, Shares Outstanding 176,638,439
XML 28 R18.htm IDEA: XBRL DOCUMENT v2.4.0.8
Basic and Diluted Loss Per Common Share - Additional Information (Detail)
6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Warrants [Member]
   
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Common shares excluded from the calculation 58,311,418 50,358,525
Stock Options [Member]
   
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Common shares excluded from the calculation 13,718,334 15,097,206
8% Convertible Preferred Stock [Member]
   
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Common shares excluded from the calculation 0 4,881,666
XML 29 R4.htm IDEA: XBRL DOCUMENT v2.4.0.8
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD $)
3 Months Ended 6 Months Ended 149 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Revenues          
OTC product revenue         $ 25,648
Medical device revenue         14,109
Total revenues         39,757
Cost of sales         15,216
Gross profit         24,541
Operating expenses          
Research and development 1,025,535 778,349 2,183,418 1,518,865 48,877,826
General and administrative 2,966,569 2,340,706 6,022,513 4,679,109 80,969,666
Amortization 167,780 167,780 335,560 335,560 7,796,177
Total operating loss (4,159,884) (3,286,835) (8,541,491) (6,533,534) (137,619,128)
Gain on sale of fixed assets         55,075
Loss on extinguishment of debt         (825,867)
Investment income 1,443 256 2,816 283 657,358
(Loss) gain on change in fair value of warrant liability 3,515,025 909,206 1,227,992 (14,304) (7,530,937)
Net interest expense         (8,098,004)
Net loss (643,416) (2,377,373) (7,310,683) (6,547,555) (153,361,503)
Dividends on preferred stock   (73,024)   (1,149,958) (12,026,710)
Net loss applicable to common shareholders $ (643,416) $ (2,450,397) $ (7,310,683) $ (7,697,513) $ (165,388,213)
Basic and diluted loss per common share $ 0.00 $ (0.02) $ (0.04) $ (0.06)  
Weighted average number of common shares outstanding - basic and diluted 175,554,000 127,114,868 172,225,322 123,926,235  
XML 30 R12.htm IDEA: XBRL DOCUMENT v2.4.0.8
Related Party Transaction
6 Months Ended
Jun. 30, 2014
Related Party Transactions [Abstract]  
Related Party Transaction

6. Related Party Transaction

The Company paid one of the Company’s directors $6,000 as of March 31, 2014, all of which was paid as part of his overall compensation of an aggregate of $85,000 for board and committee service.

XML 31 R11.htm IDEA: XBRL DOCUMENT v2.4.0.8
Stock-Based Compensation
6 Months Ended
Jun. 30, 2014
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Stock-Based Compensation

5. Stock-Based Compensation

One employee of the Company exercised 25,000 options at an exercise price of $0.95 per share of common stock for $23,750, 14,248 options at an exercise price of $0.75 per share of common stock for $10,686 and 600,000 options at an exercise price of $0.93 per share of common stock for $558,000 during the three months ended March 31, 2014. Another employee of the Company exercised 300,000 options at an exercise price of $1.10 per share of common stock for $330,000 during the three months ended March 31, 2014. Another employee of the Company exercised 189,624 options at an exercise price of $1.10 per share of common stock for $208,586 during the three months ended March 31, 2014. One employee of the Company forfeited 300,000 stock options on February 26, 2014.

One employee of the Company exercised 25,000 options at an exercise price of $0.95 per share of common stock for $23,750 during the three months ended June 30, 2014. Another employee of the Company exercised 100,000 options at an exercise price of $1.25 per share of common stock for $125,000 during the three months ended June 30, 2014. A former non-employee member of the board exercised 25,000 options at an exercise price of $0.95 per share of common stock for $23,750 during the three months ended June 30, 2014. One employee of the Company forfeited 25,000 stock options on May 27, 2014.

XML 32 R23.htm IDEA: XBRL DOCUMENT v2.4.0.8
Fair Value of Financial Instruments - Warrant Liability Measured at Fair Value on a Recurring Basis (Detail) (Recurring [Member], Warrants [Member], USD $)
Jun. 30, 2014
Dec. 31, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Warrant liability $ 1,302,961 $ 12,866,572
Level 1 [Member]
   
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Warrant liability     
Level 2 [Member]
   
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Warrant liability     
Level 3 [Member]
   
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Warrant liability $ 1,302,961 $ 12,866,572
XML 33 R19.htm IDEA: XBRL DOCUMENT v2.4.0.8
Equity Transactions - Additional Information (Detail) (USD $)
0 Months Ended 1 Months Ended 3 Months Ended 6 Months Ended 149 Months Ended 3 Months Ended 1 Months Ended 3 Months Ended 1 Months Ended 3 Months Ended 6 Months Ended 3 Months Ended
Jan. 15, 2014
Jan. 31, 2014
Jun. 30, 2014
Mar. 31, 2014
Jun. 30, 2013
Mar. 31, 2013
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2014
Network 1 Financial Securities [Member]
Mar. 31, 2014
Series A Warrants [Member]
Mar. 31, 2014
Series C Warrants [Member]
Jun. 30, 2014
Series A and Series C Warrants [Member]
Jun. 30, 2014
Five Year Warrant [Member]
Jun. 30, 2014
Common Stock [Member]
Mar. 31, 2014
Common Stock [Member]
Jun. 30, 2013
Common Stock [Member]
Mar. 31, 2013
Common Stock [Member]
Apr. 30, 2010
8% Convertible Preferred Stock [Member]
Mar. 31, 2010
8% Convertible Preferred Stock [Member]
Jun. 30, 2014
Warrants [Member]
Mar. 31, 2014
Warrants [Member]
Jun. 30, 2013
Warrants [Member]
Mar. 31, 2013
Warrants [Member]
Feb. 28, 2014
Series A 8% Convertible Preferred Stock [Member]
Jun. 30, 2014
Series A 8% Convertible Preferred Stock [Member]
Mar. 31, 2014
Series A 8% Convertible Preferred Stock [Member]
Mar. 31, 2013
Series A 8% Convertible Preferred Stock [Member]
Jun. 30, 2014
Series A 8% Convertible Preferred Stock [Member]
Jun. 30, 2013
Series A 8% Convertible Preferred Stock [Member]
Jun. 30, 2014
Warrant A [Member]
Mar. 31, 2014
Warrant A [Member]
Jun. 30, 2013
Warrant A [Member]
Mar. 31, 2013
Warrant A [Member]
Class of Stock [Line Items]                                                                  
Issuance of common stock to consultants     75,000 75,000 75,000 75,000                                                      
Consulting costs charges                           $ 140,250 $ 137,500 $ 49,500 $ 48,750                                
Issuance of warrants to consultants     202,000 733,000 2,605,000 1,924,973                                                      
Consulting costs charges related to warrants     450,002 900,317 931,655 409,640                                                      
Warrants forfeited     315,000 121,500 1,051,500 859,833                                                      
Warrants exercised on cashless basis     1,594,082 12,522,198                                                          
Shares issued in cashless exercise     915,467 9,100,824                                                          
Warrants exercised     372,000 3,036,218                                                          
Exercise price of warrants     372,000 2,672,364                                                          
Common stock to be issued on exercise of warrant     372,000 3,036,218       372,000 300,000                                                
Gain (loss) on revaluation of warrants liability     186,262 (1,153,835) 221,149 (311,062)                           3,285,793 (211,422) 399,057 (446,698)             42,970 (921,776) 289,000 (165,750)
Warrants series exercised                   858,825 697,092                                            
Adjusted fair value of warrants exercised                       3,911,370               2,377,133         4,047,116                
Convertible preferred stock       8.00%                           8.00% 8.00%         8.00%                  
Issued warrants                                       133,232 1,756,665       200,000 1,650,000              
Fair value of the warrants         1,297,950   1,297,950                                                    
Beneficial conversion amount         1,025,950   1,025,950                                                    
Dividends on preferred stock         73,024   1,149,958 12,026,710                                     29,063 0 50,860        
Converted preferred stock 0 33,334                                                              
Preferred stock converted into shares   33,334                                                              
Gross proceeds from private offering of common stock and warrants to accredited investors     5,000,000                                                            
Company accepted subscriptions in aggregate     2,000,000                                                            
Expiration of warrants                         5 years                                        
Number of shares issuable on exercises of warrants issued                         2,000,000                                        
Investors received five year warrants     100.00%                                                            
Exercise price of common stock     $ 3.00         $ 3.00 $ 2.50                                                
Purchase price of common stock with warrants     $ 2.50                                                            
Payment of fully vested warrants                 $ 650,000                                                
Percentage of total number of shares of common stock sold to investors                 15.00%                                                
XML 34 R15.htm IDEA: XBRL DOCUMENT v2.4.0.8
Equity Transactions (Policies)
6 Months Ended
Jun. 30, 2014
Text Block [Abstract]  
Derivatives Policies

(c) The Company determined that warrants issued January 13, 2011 and referred to as Series A Warrants and Series C Warrants should be classified as liabilities in accordance with ASC 815 because the warrants in question contain exercise price reset features that require the exercise price of the warrants be adjusted if the Company issues certain other equity related instruments at a lower price per share. The value of the warrant liability was determined based on the Monte-Carlo Simulation model at the date the warrants were issued. The warrant liability is then revalued at each subsequent quarter. For the three months ended March 31, 2014 and 2013, there was a loss recognized from the revaluation of the warrant liability of $1,153,835 and $311,062, respectively. During the three months ended March 31, 2014, 858,825 of the Series A Warrants were exercised. During the three months ended March 31, 2014, 697,092 of the Series C Warrants were exercised. For the three months ended June 30, 2014 and 2013, there was a gain recognized from the revaluation of the warrant liability of $186,262 and $221,149, respectively. The Company determined the fair value of the Series A and Series C Warrants exercised on the date of exercise and adjusted the related warrant liability accordingly. The adjusted fair value of the Series A and Series C Warrants exercised in 2014 of $3,911,370 was reclassified into additional paid-in capital.

(d) In March and April 2010, the Company had an issuance of 8% Convertible Preferred Stock with warrants. The Company determined that warrants issued with the 8% convertible preferred stock should be classified as liabilities in accordance with ASC 815 because the warrants in question contain exercise price reset features that require the exercise price of the warrants be adjusted if the Company issues certain other equity related instruments at a lower price per share. The value of the warrant liability was determined based on the Monte-Carlo Simulation model at the date the warrants were issued. The warrant liability is then revalued at each subsequent quarter. For the three months ended March 31, 2014 and 2013, there was a loss recognized from the revaluation of the warrant liability of $211,422 and $446,698, respectively. During the three months ended March 31, 2014, 1,756,665 of the warrants included in the warrant liability were exercised. For the three months ended June 30, 2014 and 2013, there was a gain recognized from the revaluation of the warrant liability of $3,285,793 and $399,057, respectively. During the three months ended June 30, 2014, 133,232 of the warrants included in the warrant liability were exercised. The Company determined the fair value of the warrants exercised on the date of exercise and adjusted the related warrant liability accordingly. The adjusted fair value of the warrants exercised in 2014 of $2,377,133 was reclassified into additional paid-in capital.

(e) In February 2013, the Company had an issuance of Series A 8% Convertible Preferred Stock with warrants. The Company determined that warrants issued with the Series A 8% Convertible Preferred Stock should be classified as liabilities in accordance with ASC 815 because the warrants in question contain exercise price reset features that require the exercise price of the warrants be adjusted if the Company issues certain other equity related instruments at a lower price per share. The preferred stock was determined to have characteristics more akin to equity than debt. As a result, the conversion option was determined to be clearly and closely related to the preferred stock and therefore does not need to be bifurcated and classified as a liability. The proceeds received from the issuance of the preferred stock were first allocated to the fair value of the warrants with the remainder allocated to the preferred stock. The fair value of the preferred stock if converted on the date of issuance was greater than the value allocated to the preferred stock. As a result, a beneficial conversion amount was recorded upon issuance. The fair value of the warrants recorded from the February 2013 issuance was $1,297,950 resulting in a beneficial conversion amount of $1,025,950. The beneficial conversion has been recorded as a deemed dividend as of March 31, 2013 and is included in dividends on preferred stock on the consolidated statements of operations. The value of the warrant liability was determined based on the Monte-Carlo Simulation model at the date the warrants were issued. The warrant liability is then revalued at each subsequent quarter. For the three months ended March 31, 2014 and 2013, there was a loss recognized from the revaluation of the warrant liability of $921,776 and $165,750, respectively. During the three months ended March 31, 2014, 1,650,000 of the warrants included in the warrant liability were exercised. For the three months ended June 30, 2014 and 2013, there was a gain recognized from the revaluation of the warrant liability of $42,970 and $289,000, respectively. During the three months ended June 30, 2014, 200,000 of the warrants included in the warrant liability were exercised. The Company determined the fair value of the warrants exercised on the date of exercise and adjusted the related warrant liability accordingly. The adjusted fair value of the warrants exercised in 2014 of $4,047,116 was reclassified into additional paid-in capital.

 

Dividends on the Series A 8% Convertible Preferred Stock accrued at an annual rate of 8% of the original issue price and were payable in either cash or common stock. If the dividend was paid in common stock, the number of shares of common stock equaled the quotient of the amount of cash dividends divided by the market price of the stock on the dividend payment date. The dividends were payable quarterly on the 15th day after the quarter-end. The Company paid the dividends in common stock although was required to pay the initial dividends due in cash. The Company had a deficit and, as a result, the dividends were recorded against additional paid-in capital. At March 31, 2013, the Company recognized dividends of $29,063 which are included in dividends on preferred stock on the consolidated statement of operations and were paid in April 2013. At June 30, 2013, the Company recognized dividends of $50,860 which are included in dividends on preferred stock on the consolidated statement of operations. In 2014, the Company recognized no dividends because of the full conversion of preferred stock to common stock as of January 15, 2014.

(f) In January 2014 there were 33,334 shares of the Company’s Series A 8% Convertible Preferred Stock that converted into 33,334 shares of the Company’s common stock. As of January 15, 2014, there were no shares of Series A 8% Convertible Preferred Stock outstanding.

(g) During the three months ended June 30, 2014 the Company completed a private offering of common stock and warrants to accredited investors for gross proceeds of $5,000,000. The Company accepted subscriptions, in the aggregate, for 2,000,000 shares of common stock and five year warrants to purchase 2,000,000 shares of common stock. Investors received five year fully vested warrants to purchase up to 100% of the number of shares purchased by the investors in the offering. The warrants have an exercise price of $3.00 per share. The purchase price for each share of common stock together with the warrants was $2.50. The Company used the proceeds for working capital and other general corporate purposes. Network 1 Financial Securities, Inc. served as placement agent for the offering. In connection with the offering, the Company paid $650,000 and issued five year fully vested warrants to purchase 300,000 shares of common stock with an exercise price of $2.50 to Network 1 Financial Securities, Inc., which represents 15% of the total number of shares of common stock sold to investors solicited by Network 1 Financial Securities, Inc.

XML 35 R13.htm IDEA: XBRL DOCUMENT v2.4.0.8
Fair Value of Financial Instruments
6 Months Ended
Jun. 30, 2014
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments

7. Fair Value of Financial Instruments

The FASB’s authoritative guidance on fair value measurements establishes a framework for measuring fair value, and expands disclosure about fair value measurements. This guidance enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. Under this guidance, assets and liabilities carried at fair value must be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

In determining the appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are measured and reported on a fair value basis. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3. The fair value of certain of the Company’s financial instruments, including Cash and cash equivalents and Accounts payable, approximates the carrying value due to the relatively short maturity of such instruments. The fair value of derivative instruments is determined by management with the assistance of an independent third party valuation specialist. The warrant liability is a derivative instrument and is classified as Level 3. The Company used the Monte-Carlo Simulation model to estimate the fair value of the warrants. Significant assumptions used at March 31, 2014 for the 2010 warrants include a weighted average term of 0.9 years, a 5% probability that the warrant exercise price would be reset, volatility range of 66.5% to 129.7% and a risk free interest rate of 0.13%. Significant assumptions used at June 30, 2014 for the 2010 warrants include a weighted average term of 0.7 years, a 5% probability that the warrant exercise price would be reset, volatility of 187.7% and a risk free interest rate of 0.09%. Significant assumptions used at March 31, 2014 for the 2011 warrants include a weighted average term of 1.8 years, a 5% probability that the warrant exercise price would be reset, volatility of 101.8% and a risk free interest rate of 0.29%. Significant assumptions used at June 30, 2014 for the 2011 warrants include a weighted average term of 1.5 years, a 5% probability that the warrant exercise price would be reset, volatility of 132.7% and a risk free interest rate of 0.29%. Significant assumptions used at March 31, 2014 for the 2013 warrants include a weighted average term of 3.9 years, a 5% probability that the warrant exercise price would be reset, volatility of 84.7% and a risk free interest rate range of 0.77% to 1.32%. At June 30, 2014 there are no remaining 2013 warrants and therefore no associated warrant liability.

The warrant liability measured at fair value on a recurring basis is as follows:

 

     Total      Level 1      Level 2      Level 3  

Derivative instruments:

           

Warrant liability at June 30, 2014

   $ 1,302,961       $ —        $ —        $ 1,302,961   

Warrant liability at December 31, 2013

   $ 12,866,572       $ —        $ —        $ 12,866,572   

A reconciliation of the warranty liability measured at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) from January 1, 2014 to June 30, 2014 follows:

 

Balance at January 1, 2014

   $ 12,866,572   

Issuance of warrants

     —    

Change in fair value of warrants included in earnings

     (1,227,992

Reclassification to APIC due to warrant exercises

     (10,335,619
  

 

 

 

Balance at June 30, 2014

   $ 1,302,961   
  

 

 

 
XML 36 R14.htm IDEA: XBRL DOCUMENT v2.4.0.8
Litigation
6 Months Ended
Jun. 30, 2014
Commitments And Contingencies Disclosure [Abstract]  
Litigation

8. Litigation

Kleba Shareholder Derivative Lawsuit

On January 2, 2013, Glenn Kleba (the “Plaintiff”) derivatively on behalf of the Company, filed a shareholder derivative complaint in the Circuit Court for the State of Tennessee, Knox County (the “Court”), against H. Craig Dees, Timothy C. Scott, Eric A. Wachter, and Peter R. Culpepper (collectively, the “Executives”), Stuart Fuchs, Kelly M. McMasters, and Alfred E. Smith, IV (collectively, together with the Executives, the “Individual Defendants”), and against the Company as a nominal defendant (the “Shareholder Derivative Lawsuit”). The Shareholder Derivative Lawsuit alleges (i) breach of fiduciary duties, (ii) waste of corporate assets, and (iii) unjust enrichment, all three claims based on the Plaintiff’s allegations that the defendants authorized and/or accepted stock option awards in violation of the terms of the Company’s 2002 Stock Plan (the “Plan”) by issuing stock options in excess of the amounts authorized under the Plan and delegated to defendant H. Craig Dees the sole authority to grant himself and the other Executives cash bonuses that the Plaintiff alleges to be excessive.

In April 2013, the Company’s Board of Directors appointed a special litigation committee to investigate the allegations of the Shareholder Derivative Complaint and make a determination as to how the matter should be resolved. The special litigation committee conducted its investigation, and proceedings in the case were stayed pending the conclusion of the committee’s investigation. The Company has established a reserve of $100,000 for potential liabilities because such is the amount of the self-insured retention of its insurance policy.

On March 6, 2014, the Company filed a Joint Notice of Settlement (the “Notice of Settlement”) in the Shareholder Derivative Lawsuit. In addition to the Company, the parties to the Notice of Settlement are the Plaintiff and the Individual Defendants.

On June 6, 2014, the Company, in its capacity as a nominal defendant, entered into a Stipulated Settlement Agreement and Mutual Release (the “Settlement”) in the Shareholder Derivative Lawsuit. In addition to the Company and the Individual Defendants, plaintiffs Glenn Kleba and Don B. Dale are parties to the Settlement.

 

By entering into the Settlement, the settling parties have resolved the derivative claims to their mutual satisfaction. The Individual Defendants have not admitted the validity of any claims or allegations and the settling plaintiffs have not admitted that any claims or allegations lack merit or foundation. Under the terms of the Settlement, (i) the Executives each agreed (A) to re-pay to the Company $2.24 Million of the cash bonuses they each received in 2010 and 2011, which amount equals 70% of such bonuses or an estimate of the after-tax net proceeds to each Executive; provided, however, that subject to certain terms and conditions set forth in the Settlement, the Executives are entitled to a 2:1 credit such that total actual repayment may be $1.12 Million each; (B) to reimburse the Company for 25% of the actual costs, net of recovery from any other source, incurred by the Company as a result of the Shareholder Derivative Lawsuit; and (C) to grant to the Company a first priority security interest in 1,000,000 shares of the Company’s common stock owned by each such Executive to serve as collateral for the amounts due to the Company under the Settlement; (ii) Drs. Dees and Scott and Mr. Culpepper agreed to retain incentive stock options for 100,000 shares but shall forfeit 50% of the nonqualified stock options granted to each such Executive in both 2010 and 2011. The Settlement also requires that each of the Executives enter into new employment agreements with the Company, which were entered into on April 28, 2014, and that the Company adhere to certain corporate governance principles and processes in the future. Under the Settlement, Messrs. Fuchs and Smith and Dr. McMasters have each agreed to pay the Company $25,000 in cash, subject to reduction by such amount that the Company’s insurance carrier pays to the Company on behalf of such defendant pursuant to such defendant’s directors and officers liability insurance policy. The Settlement also provides for an award to plaintiffs’ counsel of attorneys’ fees and reimbursement of expenses in connection with their role in this litigation, subject to Court approval.

On July 24, 2014, the Court approved the terms of the proposed Settlement and awarded $911,000 to plaintiffs’ counsel for attorneys’ fees and reimbursement of expenses in connection with their role in the Shareholder Derivative Lawsuit.

Class Action Lawsuits

On May 27, 2014, Cary Farrah and James H. Harrison, Jr., individually and on behalf of all others similarly situated (the “Farrah Case”), and on May 29, 2014, each of Paul Jason Chaney, individually and on behalf of all others similarly situated (the “Chaney Case”), and Jayson Dauphinee, individually and on behalf of all others similarly situated (the “Dauphinee Case”) (the plaintiffs in the Farrah Case, the Chaney Case and the Dauphinee Case collectively referred to as the “Plaintiffs”), each filed a class action lawsuit in the United States District Court for the Middle District of Tennessee against the Company, H. Craig Dees, Timothy C. Scott and Peter R. Culpepper (the “Defendants”) alleging violations by the Defendants of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. Specifically, the Plaintiffs in each of the Farrah Case, the Chaney Case and the Dauphinee Case allege that the Defendants are liable for making false statements and failing to disclose adverse facts known to them about the Company, in connection with the Company’s application to the FDA for Breakthrough Therapy Designation (“BTD”) in the Spring of 2014 and the FDA’s subsequent denial of the Company’s application for BTD. The Company intends to defend vigorously against all claims in these complaints. However, in view of the inherent uncertainties of litigation and the early stage of this litigation, the outcome of these cases cannot be predicted at this time. Likewise, the amount of any potential loss cannot be reasonably estimated.

On July 9, 2014, the Plaintiffs and the Defendants filed joint motions in the Farrah Case, the Chaney Case and the Dauphinee Case to consolidate the cases and transfer them to United States District Court for the Eastern District of Tennessee. By order dated July 16, 2014, the United States District Court for the Middle District of Tennessee entered an order consolidating the Farrah Case, the Chaney Case and the Dauphinee Case (collectively and, as consolidated, the “Securities Litigation”) and transferred the Securities Litigation to the United States District Court for the Eastern District of Tennessee.

Hurtado Shareholder Derivative Lawsuit

On June 4, 2014, Karla Hurtado (the “Plaintiff”) derivatively on behalf of the Company, filed a shareholder derivative complaint in the United States District Court for the Middle District of Tennessee (the “Court”), against H. Craig Dees, Timothy C. Scott, Jan E. Koe, Kelly M. McMasters, and Alfred E. Smith, IV (collectively, the “Individual Defendants”), and against the Company as a nominal defendant (the “Hurtado Shareholder Derivative Lawsuit”). The Hurtado Shareholder Derivative Lawsuit alleges (i) breach of fiduciary duties and (ii) abuse of control, both claims based on the Plaintiff’s allegations that the Individual Defendants recklessly permitted the Company to disclose false and misleading information and failed to implement adequate controls and procedures to ensure the accuracy of the Company’s disclosures.

On July 25, 2014, the court presiding over the Hurtado Shareholder Derivative Lawsuit entered an order transferring the case to the United District Court for the Eastern District of Tennessee. It is anticipated that an order will be entered by agreement that will stay all activity in the Hurtado Shareholder Derivative Lawsuit pending the resolution of an anticipated motion to dismiss the anticipated consolidated amended complaint in the Securities Litigation.

As a nominal defendant, no relief is sought against the Company itself in the Hurtado Shareholder Derivative Lawsuit.

XML 37 R16.htm IDEA: XBRL DOCUMENT v2.4.0.8
Fair Value of Financial Instruments (Tables)
6 Months Ended
Jun. 30, 2014
Fair Value Disclosures [Abstract]  
Warrant Liability Measured at Fair Value on a Recurring Basis

The warrant liability measured at fair value on a recurring basis is as follows:

 

     Total      Level 1      Level 2      Level 3  

Derivative instruments:

           

Warrant liability at June 30, 2014

   $ 1,302,961       $ —        $ —        $ 1,302,961   

Warrant liability at December 31, 2013

   $ 12,866,572       $ —        $ —        $ 12,866,572   
Reconciliation of the Warranty Liability Measured at Fair Value on a Recurring Basis

A reconciliation of the warranty liability measured at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) from January 1, 2014 to June 30, 2014 follows:

 

Balance at January 1, 2014

   $ 12,866,572   

Issuance of warrants

     —    

Change in fair value of warrants included in earnings

     (1,227,992

Reclassification to APIC due to warrant exercises

     (10,335,619
  

 

 

 

Balance at June 30, 2014

   $ 1,302,961   
  

 

 

 
XML 38 R21.htm IDEA: XBRL DOCUMENT v2.4.0.8
Related Party Transaction - Additional Information (Detail) (USD $)
1 Months Ended 6 Months Ended
Mar. 31, 2014
Jun. 30, 2014
Directors
Related Party Transactions [Abstract]    
Payment for board and committee service $ 6,000 $ 85,000
Number of directors to whom board and committee service paid   1
XML 39 R5.htm IDEA: XBRL DOCUMENT v2.4.0.8
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) (USD $)
Total
Preferred Stock [Member]
Common Stock [Member]
Paid in Capital [Member]
Accumulated Deficit [Member]
Beginning Balance at Jan. 17, 2002          
Issuance to founding shareholders     $ 6,000 $ (6,000)  
Issuance to founding shareholders, shares     6,000,000    
Sale of stock 25,000   50 24,950  
Sale of stock, shares     50,000    
Issuance of stock to employees 932,000   510 931,490  
Issuance of stock to employees, shares     510,000    
Issuance of stock for services 360,000   120 359,880  
Issuance of stock for services, shares     120,000    
Net loss (1,316,198)       (1,316,198)
Ending Balance at Apr. 23, 2002 802   6,680 1,310,320 (1,316,198)
Ending Balance, shares at Apr. 23, 2002     6,680,000    
Shares issued in reverse merger (3,645)   266 (3,911)  
Shares issued in reverse merger, shares     265,763    
Purchase and retirement of stock (48,000)   (400) (47,600)  
Purchase and retirement of stock, shares     (400,000)    
Stock issued for acquisition of Valley Pharmaceuticals 12,226,320   500 12,225,820  
Stock issued for acquisition of Valley Pharmaceuticals, shares     500,007    
Exercise of warrants 453   453    
Issuance of stock for services 5,144,000   1,900 5,142,100  
Exercise of warrants, shares     452,919    
Warrants issued in connection with convertible debt 126,587     126,587  
Issuance of stock for services, shares     1,900,000    
Stock and warrants issued for acquisition of Pure-ific 27,000   25 26,975  
Stock and warrants issued for acquisition of Pure-ific, shares     25,000    
Net loss (5,749,937)       (5,749,937)
Ending Balance at Dec. 31, 2002 11,723,580   9,424 18,780,291 (7,066,135)
Ending Balance, shares at Dec. 31, 2002     9,423,689    
Stock to be issued for services 281,500     281,500  
Issuance of warrants for services 145,479     145,479  
Issuance of common stock pursuant to Regulation S 380,347   680 379,667  
Issuance of stock pursuant to Regulation S, shares     679,820    
Issuance of stock for services 239,800   764 239,036  
Issuance of stock for services, shares     764,000    
Employee compensation from stock options 34,659     34,659  
Beneficial conversion related to convertible debt 601,000     601,000  
Net loss (3,155,313)       (3,155,313)
Ending Balance at Dec. 31, 2003 10,251,052   10,868 20,461,632 (10,221,448)
Ending Balance, shares at Dec. 31, 2003     10,867,509    
Issuance of warrants for services 495,480     495,480  
Issuance of common stock pursuant to Regulation S 793,137   2,469 790,668  
Issuance of stock pursuant to Regulation S, shares     2,469,723    
Exercise of warrants 5,000   133 4,867  
Issuance of stock for services 449,923   734 449,190  
Exercise of warrants, shares     132,608    
Issuance of stock for services, shares     733,872    
Employee compensation from stock options 15,612     15,612  
Issuance of convertible debt with warrants 105,250     105,250  
Issuance of stock and warrants pursuant to Regulation D 1,288,861   1,930 1,286,930  
Issuance of stock and warrants pursuant to Regulation D, shares     1,930,164    
Beneficial conversion related to convertible debt 360,256     360,256  
Repurchase of beneficial conversion feature (258,345)     (258,345)  
Net loss (4,344,525)       (4,344,525)
Ending Balance at Dec. 31, 2004 9,161,701   16,134 23,711,540 (14,565,973)
Ending Balance, shares at Dec. 31, 2004     16,133,876    
Issuance of stock for interest payable 196,031   264 195,767  
Issuance of stock for interest payable, shares     263,721    
Issuance of warrants for services 1,534,405     1,534,405  
Issuance of warrants for contractual obligations 985,010     985,010  
Cash proceeds from exercise of warrants and stock options 1,439,795   1,572 1,438,223  
Cash proceeds from exercise of warrants and stock options, shares     1,571,849    
Issuance of stock for services 152,285   227 152,058  
Issuance of stock for services, shares     226,733    
Employee compensation from stock options 15,752     15,752  
Issuance of convertible debt with warrants 1,574,900     1,574,900  
Issuance of stock and warrants pursuant to Regulation D 6,513,176   6,221 6,506,955  
Issuance of stock and warrants pursuant to Regulation D, shares     6,221,257    
Beneficial conversion related to interest expense 39,529     39,529  
Preferred stock conversions into common stock 3,049,362   3,405 3,045,957  
Beneficial conversion related to convertible debt 1,633,176     1,633,176  
Repurchase of beneficial conversion feature (144,128)     (144,128)  
Preferred stock/Debt conversions into common stock, shares     3,405,541    
Net loss (11,763,853)       (11,763,853)
Ending Balance at Dec. 31, 2005 14,387,141   27,823 40,689,144 (26,329,826)
Ending Balance, shares at Dec. 31, 2005     27,822,977    
Issuance of stock for interest payable 183,596   195 183,401  
Issuance of stock for interest payable, shares     194,327    
Issuance of warrants for services 370,023     370,023  
Cash proceeds from exercise of warrants and stock options 1,189,816   1,246 1,188,570  
Cash proceeds from exercise of warrants and stock options, shares     1,245,809    
Issuance of stock for services 676,743   719 676,024  
Issuance of stock for services, shares     719,246    
Employee compensation from stock options 1,862,456     1,862,456  
Issuance of stock and warrants pursuant to Regulation D 4,130,421   10,092 4,120,329  
Issuance of stock and warrants pursuant to Regulation D, shares     10,092,495    
Beneficial conversion related to interest expense 16,447     16,447  
Preferred stock conversions into common stock 1,576,336   2,377 1,573,959  
Preferred stock/Debt conversions into common stock, shares     2,377,512    
Net loss (8,870,579)       (8,870,579)
Ending Balance at Dec. 31, 2006 15,522,400   42,452 50,680,353 (35,200,405)
Ending Balance, shares at Dec. 31, 2006     42,452,366    
Issuance of stock for interest payable 1,258   1 1,257  
Issuance of stock for interest payable, shares     1,141    
Issuance of warrants for services 472,635     472,635  
Cash proceeds from exercise of warrants and stock options 3,985,641   3,929 3,981,712  
Cash proceeds from exercise of warrants and stock options, shares     3,928,957    
Issuance of stock for services 298,950   150 298,800  
Issuance of stock for services, shares     150,000    
Employee compensation from stock options 2,340,619     2,340,619  
Issuance of stock and warrants pursuant to Regulation D 1,848,138   2,377 1,845,761  
Issuance of stock and warrants pursuant to Regulation D, shares     2,376,817    
Preferred stock conversions into common stock 367,500   490 367,010  
Preferred stock/Debt conversions into common stock, shares     490,000    
Net loss (10,005,631)       (10,005,631)
Ending Balance at Dec. 31, 2007 14,831,510   49,399 59,988,147 (45,206,036)
Ending Balance, shares at Dec. 31, 2007     49,399,281    
Issuance of warrants for services 517,820     517,820  
Cash proceeds from exercise of warrants and stock options 2,639,711   3,268 2,636,443  
Cash proceeds from exercise of warrants and stock options, shares     3,267,795    
Issuance of stock for services 390,000   350 389,650  
Issuance of stock for services, shares     350,000    
Employee compensation from stock options 1,946,066     1,946,066  
Net loss (10,269,571)       (10,269,571)
Ending Balance at Dec. 31, 2008 10,055,536   53,017 65,478,126 (55,475,607)
Ending Balance, shares at Dec. 31, 2008     53,017,076    
Issuance of warrants for services 1,064,210     1,064,210  
Cash proceeds from exercise of warrants and stock options 2,524,453   3,480 2,520,973  
Cash proceeds from exercise of warrants and stock options, shares     3,480,485    
Issuance of stock for services 695,000   796 694,204  
Issuance of stock for services, shares     796,012    
Employee compensation from stock options 870,937     870,937  
Issuance of stock and warrants pursuant to Regulation D 6,518,688   10,117 6,508,571  
Issuance of stock and warrants pursuant to Regulation D, shares     10,116,653    
Net loss (12,322,314)       (12,322,314)
Ending Balance at Dec. 31, 2009 9,406,510   67,410 77,137,021 (67,797,921)
Ending Balance, shares at Dec. 31, 2009     67,410,226    
Issuance of warrants for services 1,141,593     1,141,593  
Issuance of common stock pursuant to Regulation S 419,250   559 418,691  
Issuance of stock pursuant to Regulation S, shares     559,000    
Cash proceeds from exercise of warrants and stock options 3,103,680   3,491 3,100,189  
Cash proceeds from exercise of warrants and stock options, shares     3,491,014    
Issuance of common stock and warrants pursuant to Regulation D 6,346,989   11,169 6,335,820  
Issuance of preferred stock and warrants pursuant to Regulation D 4,217,390 13,283   4,204,107  
Issuance of common stock and warrants pursuant to Regulation D, shares     11,168,067    
Issuance of stock for services 856,613   776 855,837  
Issuance of preferred stock and warrants pursuant to Regulation D, shares   13,283,324      
Issuance of stock for services, shares     776,250    
Employee compensation from stock options 3,759,650     3,759,650  
Preferred stock conversions into common stock   (7,893) 7,893    
Preferred stock/Debt conversions into common stock, shares   (7,893,326) 7,893,326    
Net loss (18,552,102)       (18,552,102)
Ending Balance at Dec. 31, 2010 10,699,573 5,390 91,298 96,952,908 (86,350,023)
Ending Balance, shares at Dec. 31, 2010   5,389,998 91,297,883    
Issuance of warrants for services 945,116     945,116  
Cash proceeds from exercise of warrants and stock options 6,623,311   7,185 6,616,126  
Sale of non-controlling interest in Pure-ific Corporation and warrants 443,500     443,500  
Cash proceeds from exercise of warrants and stock options, shares     7,185,522    
Issuance of common stock and warrants pursuant to Regulation D 7,041,239   9,905 7,031,334  
Issuance of common stock and warrants pursuant to Regulation D, shares     9,905,062    
Issuance of stock for services 332,750   350 332,400  
Issuance of stock for services, shares     350,000    
Employee compensation from stock options 3,368,950     3,368,950  
Preferred stock conversions into common stock   (1,859) 1,859    
Preferred stock/Debt conversions into common stock, shares   (1,858,333) 1,858,331    
Net loss (19,434,699)       (19,434,699)
Ending Balance at Dec. 31, 2011 10,019,740 3,531 110,597 115,690,334 (105,784,722)
Ending Balance, shares at Dec. 31, 2011   3,531,665 110,596,798    
Issuance of warrants for services 1,512,026     1,512,026  
Issuance of common stock and warrants pursuant to Regulation D 4,790,544   6,228 4,784,316  
Issuance of common stock and warrants pursuant to Regulation D, shares     6,227,647    
Issuance of stock for services 456,500   550 455,950  
Issuance of stock for services, shares     550,000    
Employee compensation from stock options 183,028     183,028  
Preferred stock conversions into common stock   (1,053) 1,053    
Preferred stock/Debt conversions into common stock, shares   (1,053,480) 1,053,480    
Net loss (12,568,354)       (12,568,354)
Ending Balance at Dec. 31, 2012 4,393,484 2,478 118,428 122,625,654 (118,353,076)
Ending Balance, shares at Dec. 31, 2012   2,478,185 118,427,925    
Issuance of warrants for services 1,786,824     1,786,824  
Cash proceeds from exercise of warrants and stock options 7,835,470   6,320 7,829,150  
Cash proceeds from exercise of warrants and stock options, shares     6,319,594    
Issuance of common stock and warrants pursuant to Regulation D 18,419,335   28,409 18,390,926  
Issuance of preferred stock and warrants pursuant to Regulation D 1,252,050 3,400   1,248,650  
Issuance of common stock and warrants pursuant to Regulation D, shares     28,409,353    
Issuance of stock for services 526,000   750 525,250  
Issuance of preferred stock and warrants pursuant to Regulation D, shares   3,400,001      
Issuance of stock for services, shares     750,000    
Employee compensation from stock options 142,310     142,310  
Dividends on preferred stock (29,063)     (29,063)  
Preferred stock conversions into common stock   (5,845) 5,845    
Preferred stock/Debt conversions into common stock, shares   (5,844,852) 5,844,852    
Net loss (27,697,744)       (27,697,744)
Ending Balance at Dec. 31, 2013 6,628,666 33 159,752 152,519,701 (146,050,820)
Ending Balance, shares at Dec. 31, 2013   33,334 159,751,724    
Reclassification of warrant liability 10,355,619     10,355,619  
Issuance of warrants for services 1,350,319     1,350,319  
Cash proceeds from exercise of warrants and stock options 4,327,886   14,703 4,313,183  
Cash proceeds from exercise of warrants and stock options, shares     14,703,381    
Issuance of common stock and warrants pursuant to Regulation D 4,350,000   2,000 4,348,000  
Issuance of common stock and warrants pursuant to Regulation D, shares     2,000,000    
Issuance of stock for services 277,750   150 277,600  
Issuance of stock for services, shares     150,000    
Preferred stock conversions into common stock   (33) 33    
Preferred stock/Debt conversions into common stock, shares   (33,334) 33,334    
Net loss (7,310,683)       (7,310,683)
Ending Balance at Jun. 30, 2014 $ 19,979,557   $ 176,638 $ 173,164,422 $ (153,361,503)
Ending Balance, shares at Jun. 30, 2014     176,638,439    
XML 40 R10.htm IDEA: XBRL DOCUMENT v2.4.0.8
Equity Transactions
6 Months Ended
Jun. 30, 2014
Text Block [Abstract]  
Equity Transactions

4. Equity Transactions

(a) During the three months ended March 31, 2014, the Company issued 75,000 shares of common stock to consultants in exchange for services. Consulting costs charged to operations were $137,500. During the three months ended March 31, 2013, the Company issued 75,000 shares of common stock to consultants in exchange for services. Consulting costs charged to operations were $48,750.

During the three months ended June 30, 2014, the Company issued 75,000 shares of common stock to consultants in exchange for services. Consulting costs charged to operations were $140,250. During the three months ended June 30, 2013, the Company issued 75,000 shares of common stock to consultants in exchange for services. Consulting costs charged to operations were $49,500.

(b) During the three months ended March 31, 2014, the Company issued 733,000 fully vested warrants to consultants in exchange for services. Consulting costs charged to operations were $900,317. During the three months ended March 31, 2014, 121,500 warrants were forfeited. During the three months ended March 31, 2014, 12,522,198 warrants were exercised on a cashless basis resulting in 9,100,824 common shares being issued. During the three months ended March 31, 2014, 3,036,218 warrants were exercised for $2,672,364 resulting in 3,036,218 common shares issued. During the three months ended March 31, 2013, the Company issued 1,924,973 fully vested warrants to consultants in exchange for services. Consulting costs charged to operations were $409,640. During the three months ended March 31, 2013, 859,833 warrants were forfeited.

During the three months ended June 30, 2014, the Company issued 202,000 fully vested warrants to consultants in exchange for services. Consulting costs charged to operations were $450,002. During the three months ended June 30, 2014, 315,000 warrants were forfeited. During the three months ended June 30, 2014, 1,594,082 warrants were exercised on a cashless basis resulting in 915,467 common shares being issued. During the three months ended June 30, 2014, 372,000 warrants were exercised for $372,000 resulting in 372,000 common shares issued. During the three months ended June 30, 2013, the Company issued 2,605,000 fully vested warrants to consultants in exchange for services. Consulting costs charged to operations were $931,655. During the three months ended June 30, 2013, 1,051,500 warrants were forfeited.

As the fair market value of these services was not readily determinable, these services were valued based on the fair market value of the warrants, determined using the Black-Scholes option-pricing model.

(c) The Company determined that warrants issued January 13, 2011 and referred to as Series A Warrants and Series C Warrants should be classified as liabilities in accordance with ASC 815 because the warrants in question contain exercise price reset features that require the exercise price of the warrants be adjusted if the Company issues certain other equity related instruments at a lower price per share. The value of the warrant liability was determined based on the Monte-Carlo Simulation model at the date the warrants were issued. The warrant liability is then revalued at each subsequent quarter. For the three months ended March 31, 2014 and 2013, there was a loss recognized from the revaluation of the warrant liability of $1,153,835 and $311,062, respectively. During the three months ended March 31, 2014, 858,825 of the Series A Warrants were exercised. During the three months ended March 31, 2014, 697,092 of the Series C Warrants were exercised. For the three months ended June 30, 2014 and 2013, there was a gain recognized from the revaluation of the warrant liability of $186,262 and $221,149, respectively. The Company determined the fair value of the Series A and Series C Warrants exercised on the date of exercise and adjusted the related warrant liability accordingly. The adjusted fair value of the Series A and Series C Warrants exercised in 2014 of $3,911,370 was reclassified into additional paid-in capital.

(d) In March and April 2010, the Company had an issuance of 8% Convertible Preferred Stock with warrants. The Company determined that warrants issued with the 8% convertible preferred stock should be classified as liabilities in accordance with ASC 815 because the warrants in question contain exercise price reset features that require the exercise price of the warrants be adjusted if the Company issues certain other equity related instruments at a lower price per share. The value of the warrant liability was determined based on the Monte-Carlo Simulation model at the date the warrants were issued. The warrant liability is then revalued at each subsequent quarter. For the three months ended March 31, 2014 and 2013, there was a loss recognized from the revaluation of the warrant liability of $211,422 and $446,698, respectively. During the three months ended March 31, 2014, 1,756,665 of the warrants included in the warrant liability were exercised. For the three months ended June 30, 2014 and 2013, there was a gain recognized from the revaluation of the warrant liability of $3,285,793 and $399,057, respectively. During the three months ended June 30, 2014, 133,232 of the warrants included in the warrant liability were exercised. The Company determined the fair value of the warrants exercised on the date of exercise and adjusted the related warrant liability accordingly. The adjusted fair value of the warrants exercised in 2014 of $2,377,133 was reclassified into additional paid-in capital.

(e) In February 2013, the Company had an issuance of Series A 8% Convertible Preferred Stock with warrants. The Company determined that warrants issued with the Series A 8% Convertible Preferred Stock should be classified as liabilities in accordance with ASC 815 because the warrants in question contain exercise price reset features that require the exercise price of the warrants be adjusted if the Company issues certain other equity related instruments at a lower price per share. The preferred stock was determined to have characteristics more akin to equity than debt. As a result, the conversion option was determined to be clearly and closely related to the preferred stock and therefore does not need to be bifurcated and classified as a liability. The proceeds received from the issuance of the preferred stock were first allocated to the fair value of the warrants with the remainder allocated to the preferred stock. The fair value of the preferred stock if converted on the date of issuance was greater than the value allocated to the preferred stock. As a result, a beneficial conversion amount was recorded upon issuance. The fair value of the warrants recorded from the February 2013 issuance was $1,297,950 resulting in a beneficial conversion amount of $1,025,950. The beneficial conversion has been recorded as a deemed dividend as of March 31, 2013 and is included in dividends on preferred stock on the consolidated statements of operations. The value of the warrant liability was determined based on the Monte-Carlo Simulation model at the date the warrants were issued. The warrant liability is then revalued at each subsequent quarter. For the three months ended March 31, 2014 and 2013, there was a loss recognized from the revaluation of the warrant liability of $921,776 and $165,750, respectively. During the three months ended March 31, 2014, 1,650,000 of the warrants included in the warrant liability were exercised. For the three months ended June 30, 2014 and 2013, there was a gain recognized from the revaluation of the warrant liability of $42,970 and $289,000, respectively. During the three months ended June 30, 2014, 200,000 of the warrants included in the warrant liability were exercised. The Company determined the fair value of the warrants exercised on the date of exercise and adjusted the related warrant liability accordingly. The adjusted fair value of the warrants exercised in 2014 of $4,047,116 was reclassified into additional paid-in capital.

 

Dividends on the Series A 8% Convertible Preferred Stock accrued at an annual rate of 8% of the original issue price and were payable in either cash or common stock. If the dividend was paid in common stock, the number of shares of common stock equaled the quotient of the amount of cash dividends divided by the market price of the stock on the dividend payment date. The dividends were payable quarterly on the 15th day after the quarter-end. The Company paid the dividends in common stock although was required to pay the initial dividends due in cash. The Company had a deficit and, as a result, the dividends were recorded against additional paid-in capital. At March 31, 2013, the Company recognized dividends of $29,063 which are included in dividends on preferred stock on the consolidated statement of operations and were paid in April 2013. At June 30, 2013, the Company recognized dividends of $50,860 which are included in dividends on preferred stock on the consolidated statement of operations. In 2014, the Company recognized no dividends because of the full conversion of preferred stock to common stock as of January 15, 2014.

(f) In January 2014 there were 33,334 shares of the Company’s Series A 8% Convertible Preferred Stock that converted into 33,334 shares of the Company’s common stock. As of January 15, 2014, there were no shares of Series A 8% Convertible Preferred Stock outstanding.

(g) During the three months ended June 30, 2014 the Company completed a private offering of common stock and warrants to accredited investors for gross proceeds of $5,000,000. The Company accepted subscriptions, in the aggregate, for 2,000,000 shares of common stock and five year warrants to purchase 2,000,000 shares of common stock. Investors received five year fully vested warrants to purchase up to 100% of the number of shares purchased by the investors in the offering. The warrants have an exercise price of $3.00 per share. The purchase price for each share of common stock together with the warrants was $2.50. The Company used the proceeds for working capital and other general corporate purposes. Network 1 Financial Securities, Inc. served as placement agent for the offering. In connection with the offering, the Company paid $650,000 and issued five year fully vested warrants to purchase 300,000 shares of common stock with an exercise price of $2.50 to Network 1 Financial Securities, Inc., which represents 15% of the total number of shares of common stock sold to investors solicited by Network 1 Financial Securities, Inc.

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Stock-Based Compensation - Additional Information (Detail) (USD $)
0 Months Ended 3 Months Ended
Feb. 26, 2014
May 27, 2014
Employee One [Member]
Jun. 30, 2014
Employee One [Member]
Mar. 31, 2014
Options Exercised Price One [Member]
Employee One [Member]
Mar. 31, 2014
Options Exercised Price One [Member]
Employee Two [Member]
Jun. 30, 2014
Options Exercised Price One [Member]
Employee Three [Member]
Mar. 31, 2014
Options Exercised Price One [Member]
Employee Three [Member]
Jun. 30, 2014
Options Exercised Price One [Member]
Non Employee [Member]
Mar. 31, 2014
Options Exercised Price Two [Member]
Employee One [Member]
Mar. 31, 2014
Options Exercised Price Three [Member]
Employee One [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                    
Number of options exercised at an exercise price     25,000 25,000 300,000 100,000 189,624 25,000 14,248 600,000
Exercise price/share     $ 0.95 $ 0.95 $ 1.10 $ 1.25 $ 1.10 $ 0.95 $ 0.75 $ 0.93
Common stock value     $ 23,750 $ 23,750 $ 330,000 $ 125,000 $ 208,586 $ 23,750 $ 10,686 $ 558,000
Number of Shares forfeited 300,000 25,000