Item
1. Financial Statements
Our
consolidated financial statements included in this Form 10-Q are as follows:
F-1
|
Consolidated Balance Sheets
as of June 30, 2016 and December 31, 2015 (unaudited);
|
F-2
|
Consolidated Statements of
Operations for the three and six months ended June 30, 2016 and 2015 (unaudited);
|
F-3
|
Consolidated Statements of
Cash Flow for the six months ended June 30, 2016 and 2015 (unaudited);
|
F-4
|
Notes to Consolidated Financial
Statements.
|
These
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management,
all adjustments considered necessary for a fair presentation have been included. Operating results for the interim
period ended June 30, 2016 are not necessarily indicative of the results that can be expected for the full year.
SKINVISIBLE,
INC.
CONSOLIDATED
BALANCE SHEETS
(UNAUDITED)
|
|
June
30, 2016
|
|
December
31, 2015
|
ASSETS
|
|
|
|
|
Current assets
|
|
|
|
|
Cash
|
|
$
|
—
|
|
|
$
|
—
|
|
Accounts
receivable
|
|
|
7,251
|
|
|
|
5,000
|
|
Inventory
|
|
|
87,771
|
|
|
|
90,972
|
|
Due
from related party
|
|
|
1,145
|
|
|
|
1,145
|
|
Prepaid
expense and other current assets
|
|
|
—
|
|
|
|
—
|
|
Total
current assets
|
|
|
96,167
|
|
|
|
97,117
|
|
|
|
|
|
|
|
|
|
|
Fixed
assets, net of accumulated depreciation of $326,645 and $325,855, respectively
|
|
|
905
|
|
|
|
1,695
|
|
Intangible
and other assets:
|
|
|
|
|
|
|
|
|
Patents
and trademarks, net of accumulated amortization of $372,615 and
$344,451, respectively
|
|
|
273,554
|
|
|
|
301,718
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
370,626
|
|
|
$
|
400,530
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
DEFICIT
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
722,649
|
|
|
$
|
529,245
|
|
Bank
overdraw
|
|
|
2,262
|
|
|
|
1,340
|
|
Accrued
interest payable
|
|
|
659,737
|
|
|
|
539,247
|
|
Loans
from related party
|
|
|
33,515
|
|
|
|
9,769
|
|
Loans
payable
|
|
|
2,178,500
|
|
|
|
1,845,500
|
|
Convertible
notes payable, net of unamortized debt discount of $112,265 and $141,510, respectively
|
|
|
1,270,321
|
|
|
|
1,205,576
|
|
Convertible
notes payable related party, net of unamortized discount of $737,606 and $895,079, respectively
|
|
|
1,882,771
|
|
|
|
1,495,948
|
|
Total
current liabilities
|
|
|
6,749,775
|
|
|
|
5,626,625
|
|
|
|
|
|
|
|
|
|
|
Loans
payable
|
|
|
136,000
|
|
|
|
436,000
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
6,885,755
|
|
|
|
6,062,625
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit
|
|
|
|
|
|
|
|
|
Common stock; $0.001
par value; 200,000,000 shares authorized; 117,073,969 and 115,701,969 shares issued and outstanding
at June 30, 2016 and December 31, 2015, respectively
|
|
|
117,074
|
|
|
|
115,702
|
|
Additional
paid-in capital
|
|
|
22,292,434
|
|
|
|
22,053,555
|
|
Accumulated
deficit
|
|
|
(28,924,637
|
)
|
|
|
(27,831,352
|
)
|
Total
stockholders' deficit
|
|
|
(6,515,129
|
)
|
|
|
(5,662,095
|
)
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' deficit
|
|
$
|
370,626
|
|
|
$
|
400,530
|
|
SKINVISIBLE,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
Three
months ending
|
|
Six
months ending
|
|
|
June
30, 2016
|
|
June
30, 2015
|
|
June
30, 2016
|
|
June
30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
38,114
|
|
|
$
|
54,676
|
|
|
$
|
66,451
|
|
|
$
|
128,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenues
|
|
|
9,385
|
|
|
|
41,235
|
|
|
|
14,012
|
|
|
|
46,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
28,729
|
|
|
|
13,441
|
|
|
|
52,439
|
|
|
|
81,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
14,476
|
|
|
|
14,477
|
|
|
|
28,953
|
|
|
|
28,746
|
|
Selling
general and administrative
|
|
|
187,033
|
|
|
|
292,944
|
|
|
|
510,343
|
|
|
|
645,169
|
|
Total
Operating Expenses
|
|
|
201,509
|
|
|
|
307,421
|
|
|
|
539,296
|
|
|
|
673,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(172,780
|
)
|
|
|
(293,980
|
)
|
|
|
(486,857
|
)
|
|
|
(592,052
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26
|
|
Interest
expense
|
|
|
(291,152
|
)
|
|
|
(212,307
|
)
|
|
|
(609,020
|
)
|
|
|
(417,972
|
)
|
Gain
on extinguishment of debt
|
|
|
—
|
|
|
|
1,440
|
|
|
|
2,592
|
|
|
|
1,440
|
|
Total
other expense
|
|
|
(291,152
|
)
|
|
|
(210,867
|
)
|
|
|
(606,428
|
)
|
|
|
(416,506
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(463,932
|
)
|
|
$
|
(504,847
|
)
|
|
$
|
(1,093,285
|
)
|
|
$
|
(1,008,558
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per
common share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted
average common shares outstanding
|
|
|
116,212,302
|
|
|
|
113,885,969
|
|
|
|
115,929,057
|
|
|
|
113,850,168
|
|
SKINVISIBLE,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Six
Months Ended
|
|
|
June
30, 2016
|
|
June
30, 2015
|
|
|
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,093,285
|
)
|
|
$
|
(1,008,558
|
)
|
Adjustments
to reconcile net loss to net
|
|
|
|
|
|
|
|
|
cash
used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
28,954
|
|
|
|
28,746
|
|
Stock-based
compensation
|
|
|
133,445
|
|
|
|
—
|
|
Book
overdraw
|
|
|
922
|
|
|
|
—
|
|
Amortization
of debt discount
|
|
|
292,516
|
|
|
|
187,218
|
|
Gain
on extinguishment of debt
|
|
|
(2,592
|
)
|
|
|
(1,440
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Increase
in inventory
|
|
|
3,201
|
|
|
|
(9,265
|
)
|
Decrease
in accounts receivable
|
|
|
(2,251
|
)
|
|
|
3,318
|
|
Increase
in accounts payable and accrued liabilities
|
|
|
426,354
|
|
|
|
204,728
|
|
Increase
in accrued interest
|
|
|
120,490
|
|
|
|
97,938
|
|
Net
cash used in operating activities
|
|
|
(92,246
|
)
|
|
|
(497,315
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
Purchase
of fixed and intangible assets
|
|
|
—
|
|
|
|
(5,726
|
)
|
Net
cash used in investing activities
|
|
|
—
|
|
|
|
(5,726
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock
|
|
|
—
|
|
|
|
80,000
|
|
Proceeds
from related party loans, net of payments
|
|
|
23,746
|
|
|
|
—
|
|
Payments
on notes payable
|
|
|
(24,000
|
)
|
|
|
(32,000
|
)
|
Proceeds
from notes payable
|
|
|
57,000
|
|
|
|
300,000
|
|
Proceeds
from convertible notes payable
|
|
|
83,000
|
|
|
|
—
|
|
Payments
on convertible notes payable
|
|
|
(47,500
|
)
|
|
|
—
|
|
Net
cash provided by (used in) financing activities
|
|
|
92,246
|
|
|
|
348,000
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
—
|
|
|
|
(155,041
|
)
|
|
|
|
|
|
|
|
|
|
Cash, beginning
of period
|
|
|
—
|
|
|
|
196,602
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
—
|
|
|
$
|
41,561
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure
of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
17,589
|
|
|
$
|
135,267
|
|
Cash
paid for tax
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
Accrued
expenses converted to notes
|
|
$
|
229,350
|
|
|
$
|
118,126
|
|
Beneficial
conversion feature
|
|
$
|
105,798
|
|
|
$
|
—
|
|
Common
stock issued on extinguishment of debts
|
|
$
|
1,008
|
|
|
$
|
5,760
|
|
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.
DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
Description
of business
– Skinvisible, Inc., (referred to as the “Company”) is focused on the development and manufacture
and sales of innovative topical, transdermal and mucosal polymer-based delivery system technologies and formulations incorporating
its patent-pending formula/process for combining hydrophilic and hydrophobic polymer emulsions. The technologies and formulations
have broad industry applications within the pharmaceutical, over-the-counter, personal skincare and cosmetic arenas. Additionally,
the Company’s non-dermatological formulations, offer solutions for a broad spectrum of markets women’s health, pain
management, and others. The Company maintains executive and sales offices in Las Vegas, Nevada.
History
– The Company was incorporated in Nevada on March 6, 1998, under the name of Microbial Solutions, Inc. The Company underwent
a name change on February 26, 1999, when it changed its name to Skinvisible, Inc. The Company’s subsidiary’s name
of Manloe Labs, Inc. was also changed to Skinvisible Pharmaceuticals, Inc.
On
September 9, 2014, the Company formed Kinatri USA Inc., a wholly-owned subsidiary, to market a premium line of scientifically
formulated skincare products powered by our patented Invisicare® technology. As part of its strategic focus on revenue generation
and creating shareholder value, Kintari USA Inc. products will be sold via network marketing.
The
Kintari product portfolio consists of anti-aging products to help fight the signs of aging. These products have been developed
using proven anti-aging ingredients with scientific evidence of their effectiveness at reducing the look of fine lines and wrinkles
resulting in youthful looking skin. These potent ingredients will be powered by patented Invisicare technology, providing consumers
with unique, effective products which the Company believes cannot be duplicated. Additional products will be added to enhance
this product line as the Company grows and expands.
Skinvisible,
Inc., together with its subsidiaries, shall herein be collectively referred to as the “Company.”
Going
concern
– The accompanying financial statements have been prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred cumulative
net losses of $28,908,308 since its inception and requires capital for its contemplated operational and marketing activities to
take place. The Company’s ability to raise additional capital through the future issuances of common stock is unknown. The
obtainment of additional financing, the successful development of the Company’s contemplated plan of operations, and its
transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. The ability
to successfully resolve these factors raise substantial doubt about the Company’s ability to continue as a going concern.
The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these
aforementioned uncertainties.
Principles
of consolidation
– The consolidated financial statements include the accounts of the Company and its subsidiaries. All
significant intercompany balances and transactions have been eliminated.
Use
of estimates
– The preparation of consolidated financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash
and cash equivalents
For
purposes of the statement of cash flows, the Company considers all highly liquid investments and short-term debt instruments with
original maturities of three months or less to be cash equivalents. There are $0 and $0 in cash and cash equivalents as of June
30, 2016 and December 31, 2015, respectively.
Fair
Value of Financial Instruments
The
carrying amounts reflected in the balance sheets for cash, accounts payable and accrued expenses approximate the respective fair
values due to the short maturities of these items.
As
required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair
value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted
prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly
or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity
to develop its own assumptions.
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
three levels of the fair value hierarchy are described below:
Level
1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or
liabilities;
Level
2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially
the full term of the asset or liability;
Level
3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable
(supported by little or no market activity).
Revenue
recognition
Product
sales
– Revenues from the sale of products (Invisicare® polymers) are recognized when title to the products are
transferred to the customer and only when no further contingencies or material performance obligations are warranted, and thereby
have earned the right to receive reasonably assured payments for products sold and delivered.
Royalty
sales
– The Company also recognizes royalty revenue from licensing its patented product formulations only when earned,
when no further contingencies or material performance obligations are warranted, and thereby have earned the right to receive
and retain reasonably assured payments.
Distribution
and license rights sales
– The Company also recognizes revenue from distribution and license rights only when earned
(and are amortized over a five year period), when no further contingencies or material performance obligations are warranted,
and thereby have earned the right to receive and retain reasonably assured payments.
Costs
of Revenue
– Cost of revenue includes raw materials, component parts, and shipping supplies. Shipping and handling costs
is not a significant portion of the cost of revenue.
Accounts
Receivable
– Accounts receivable is comprised of uncollateralized customer obligations due under normal trade terms
requiring payment within 30 days from the invoice date. The carrying amount of accounts receivable is reviewed periodically for
collectability. If management determines that collection is unlikely, an allowance that reflects management’s best estimate
of the amounts that will not be collected is recorded. Management reviews each accounts receivable balance that exceeds 30 days
from the invoice date and, based on an assessment of creditworthiness, estimates the portion, if any, of the balance that will
not be collected. As of June 30, 2016, the Company had not recorded a reserve for doubtful accounts. The Company has $1,135,000
in convertible notes payable which are secured by the accounts receivable of a license agreement the Company has with Women's
Choice Pharmaceuticals, LLC on its proprietary prescription product, ProCort®.
Inventory
– Substantially all inventory consists of finished goods and are valued based upon first-in first-out ("FIFO")
cost, not in excess of market. The determination of whether the carrying amount of inventory requires a write-down is based on
an evaluation of inventory.
Goodwill
and intangible assets
– The Company follows Financial Accounting Standard Board’s (FASB) Codification Topic 350-10
(“ASC 350-10”), “
Intangibles – Goodwill and Other
”. According to this statement, goodwill
and intangible assets with indefinite lives are no longer subject to amortization, but rather an annual assessment of impairment
by applying a fair-value based test. Fair value for goodwill is based on discounted cash flows, market multiples and/or appraised
values as appropriate. Under ASC 350-10, the carrying value of assets are calculated at the lowest level for which there are identifiable
cash flows.
Income
taxes
– The Company accounts for its income taxes in accordance with FASB Codification Topic ASC 740-10, “
Income
Taxes
”, which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases
and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Stock-based
compensation
– The Company follows the guidelines in FASB Codification Topic ASC 718-10 “
Compensation-Stock
Compensation
”, which requires the measurement and recognition of compensation expense for all share-based payment awards
made to employees and directors including employee stock options and employee stock purchases related to an Employee Stock Purchase
Plan based on the estimated fair values.
Stock
based compensation expense recognized under ASC 718-10 for the six months ended June 30, 2016 and 2015 totaled $133,445 and $0,
respectively.
Earnings
(loss) per share
– The Company reports earnings (loss) per share in accordance with FASB Codification Topic ASC 260-10
“
Earnings Per Share
”, Basic earnings (loss) per share is computed by dividing income (loss) available to common
shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar
to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares
that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.
Diluted earnings (loss) per share has not been presented since the effect of the assumed exercise of options and warrants to purchase
common shares (common stock equivalents) would have an anti-dilutive effect.
2.
FIXED ASSETS
Fixed
assets consist of the following as of June 30, 2016 and December 31, 2015:
|
|
June
30, 2016
|
|
December
31, 2015
|
Machinery
and equipment
|
|
$
|
48,163
|
|
|
$
|
48,163
|
|
Furniture and fixtures
|
|
|
113,635
|
|
|
|
113,635
|
|
Computers, equipment
and software
|
|
|
39,722
|
|
|
|
39,722
|
|
Leasehold improvements
|
|
|
12,569
|
|
|
|
12,569
|
|
Lab
equipment
|
|
|
113,461
|
|
|
|
113,461
|
|
Total
|
|
|
327,550
|
|
|
|
327,550
|
|
Less:
accumulated depreciation
|
|
|
(326,645
|
)
|
|
|
(325,855
|
)
|
Fixed
assets, net of accumulated depreciation
|
|
$
|
905
|
|
|
$
|
1,695
|
|
Depreciation
expense for the three months ended June 30, 2016 and 2015 was $790 and $790, respectively.
3.
INVENTORY
Inventory
consist of the following as of June 30, 2016 and December 31, 2015
|
|
June
30, 2016
|
|
December
31, 2015
|
Shipping
and Packing materials
|
|
$
|
10,155
|
|
|
$
|
11,651
|
|
Marketing Supplies
|
|
|
17,492
|
|
|
|
19,346
|
|
Finished Goods
|
|
|
35,867
|
|
|
|
19,082
|
|
Raw
Materials
|
|
|
24,257
|
|
|
|
40,893
|
|
Total
|
|
$
|
87,771
|
|
|
$
|
90,972
|
|
4.
INTANGIBLE AND OTHER ASSETS
Patents
and trademarks are capitalized at their historical cost and are amortized over their estimated useful lives. As of June 30, 2016,
patents and trademarks total $646,169, net of $372,615 of accumulated amortization. Amortization expense for the six months ended
June 30, 2016 and 2015 was $28,164 and $27,956, respectively.
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
License
and distributor rights (“agreement”) were acquired by the Company in January 1999 and provide exclusive use distribution
of polymers and polymer based products. The Company has a non-expiring term on the license and distribution rights. Accordingly,
the Company annually assesses this license and distribution rights for impairment and has determined that no impairment write-down
is considered necessary as of June 30, 2016.
5.
STOCK OPTIONS AND WARRANTS
The
following is a summary of option activity during the six months ended June 30, 2016.
|
|
Number
of
Shares
|
|
Weighted
Average Exercise Price
|
Balance,
December 31, 2015
|
|
|
8,450,000
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
Options
granted and assumed
|
|
|
4,150,000
|
|
|
$
|
0.02
|
Options
expired
|
|
|
1,350,000
|
|
|
$
|
0.04
|
Options
canceled
|
|
|
|
|
|
|
|
Options
exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2016
|
|
|
11,250,000
|
|
|
$
|
0.03
|
As
of June 30, 2016, all stock options outstanding are exercisable.
On
February 10, 2016, the Company granted stock options for 4,150,000 options to purchase shares of its common stock to its
officers and directors. The options have a strike price of $0.02. The stock options were exercisable upon grant and have a life
of 3 years. The stock options were valued at $99,167 using the Black-Scholes option pricing model. The Company
recorded an expense of $99,197 for the six months ended June 30, 2016.
Stock
warrants -
The
following is a summary of warrants activity during the three months ended June 30, 2016.
|
|
Number
of Shares
|
|
Weighted
Average Exercise Price
|
Balance,
December 31, 2015
|
|
|
2,969,750
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
Warrants
granted and assumed
|
|
|
|
|
|
|
|
|
Warrants
expired
|
|
|
683,750
|
|
|
|
0.06
|
|
Warrants
canceled
|
|
|
|
|
|
|
|
|
Warrants
exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2016
|
|
|
2,286,000
|
|
|
$
|
0.05
|
|
All
warrants outstanding as of June 30, 2016 are exercisable
6.
NOTES PAYABLE
On May 22, 2013, the Company approved
a financing plan to offer accredited investors up to $1,000,000 in secured promissory notes. During the year ended December 31,
2013, the Company entered into twenty-four 9% notes payable to investors and received total proceeds of $1,000,000. The notes
are due two years from the anniversary date of execution. The Notes are secured by the US Patent rights granted for the Company's
Sunscreen Products: US patent number #8,128,913: "Sunscreen Composition with Enhanced UV-A Absorber Stability and Methods.”
During six months ending June 30, 2016 the Company made principal payments of $nil.
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On
May 19, 2014, the Company approved a financing plan to offer accredited investors up to an additional $1,000,000 in secured promissory
notes. For the period from May 19, 2014 to March 31, 2015 the Company entered into twenty-seven 9% notes payable to investors
and received total proceeds of $1,000,000. The notes are due two years from the anniversary date of execution. The Notes are secured
by the US Patent rights granted for the Company's Sunscreen Products: US patent number #8,128,913: "Sunscreen Composition
with Enhanced UV-A Absorber Stability and Methods." As of June 30, 2016, $935,500 in notes have reached their initial maturity
date. Note holders of $199,400 in debt executed agreements extending their notes for an additional 12 months upon the same terms.
The extended notes will mature between August 1, 2016 and October 6, 2016.
During
the period from April 1, 2015 and September 30, 2015, the Company entered into thirteen additional 9% notes payable to investors
and received total proceeds of $326,000. The notes are due two years from the anniversary date of execution. The Notes are secured
by the US Patent rights granted for the Company's Sunscreen Products: US patent number #8,128,913: "Sunscreen Composition
with Enhanced UV-A Absorber Stability and Methods".
On
January 27, 2016, the Company entered into a 12% unsecured note payable to an investor and received total proceeds of $33,000.
The note was due on April 30, 2016. The maturity has been extended to May 30, 2016.
On
January 27, 2016, we entered into a promissory note pursuant to which we borrowed $24,000. Interest under the note is at 10% per
annum, and the principal and all accrued but unpaid interest was due on February 15, 2016.
As
of June 30, 2016, $2,178,500 of the Notes were due in less than 12 months and have been classified as current notes payable.
7. RELATED
PARTY TRANSACTIONS
During
the six months ended 2016, an officer advanced $16,700 to support the daily operations of the company. The advance is due on demand
and bears no interest.
As
of June 30, 2016, $26,469 remained due to related parties as repayment for advanced monies, all related other party notes have
been extinguished or re-negotiated as convertible notes. See note 10.
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8.
CONVERTIBLE NOTES PAYABLE
Convertible Notes
Payable at consists of the following:
|
|
June
30,
|
|
December
31,
|
|
|
2016
|
|
2015
|
$52,476
face value,10% unsecured note payable to an investor, note interest and principal are due on demand. The note could
be converted to option rights for the Company’s shares at ten cents per share ($0.10), these rights expired on January
12, 2010. The note is currently in default, but no penalties occur due to default.
|
|
$
|
28,476
|
|
|
$
|
28,476
|
|
Unamortized
debt discount
|
|
|
—
|
|
|
|
—
|
|
Total,
net of unamortized discount
|
|
|
28,476
|
|
|
|
28,476
|
|
$1,000,000
face value 9% secured notes payable to investors, due in 2015. At the investor’s option until the repayment date, the
note and related interest may be converted to shares of the Company’s common stock a discount of 90% of the current
share price after the first anniversary of the note. The notes are secured by the accounts receivable of a license agreement
the Company has with Womens Choice Pharmaceuticals, LLC on its proprietary prescription product, ProCort®. The Company
has determined the value associated with the beneficial conversion feature in connection with the notes and interest to be
$111,110. The aggregate original issue discount feature has been accreted and charged to interest expenses as a financing
expense. The original issue discount feature is valued under the intrinsic value method. The notes have reach maturity and
are now in default, under the notes default provisions the entire balance is now due upon demand.
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
Original
issue discount
|
|
|
111,110
|
|
|
|
111,110
|
|
Unamortized
debt discount
|
|
|
—
|
|
|
|
—
|
|
Total,
net of unamortized discount
|
|
|
1,111,110
|
|
|
|
1,111,110
|
|
|
|
|
|
|
|
|
|
|
On
July 28, 2015, the Company entered into a convertible promissory note pursuant to which it borrowed $47,500. Interest under
the convertible promissory note is 8% per annum, and the principal and all accrued but unpaid interest is due on April 30,
2016. The note is convertible at any time following 180 days after the issuance date at noteholders option into shares of
our common stock at a variable conversion price of 58% of the lowest average three day market price of our common stock during
the 10 trading days prior to the notice of conversion, subject to adjustment as described in the note. The holder’s
ability to convert the note, however, is limited in that it will not be permitted to convert any portion of the note if the
number of shares of our common stock beneficially owned by the holder and its affiliates, together with the number of shares
of our common stock issuable upon any full or partial conversion, would exceed 9.99% of the Company’s outstanding shares
of common stock.
The Company has determined the value associated with the beneficial conversion feature in
connection with the notes negotiated on July 28, 2015 to be $44,634. The aggregate beneficial conversion feature has been
accreted and charged to interest expenses as a financing expense in the amount of $19,497 during the quarter ending June 30,
2016. The beneficial conversion feature is valued under the intrinsic value method
During the quarter ending
June 30, 2016, the Company paid $72,458 to the note holder to settle the note in full. The payment included interest and prepayment
penalties of $24,958.
|
|
|
—
|
|
|
|
47,500
|
|
Unamortized
debt discount
|
|
|
—
|
|
|
|
(19,497
|
)
|
Total,
net of unamortized discount
|
|
|
—
|
|
|
|
28,003
|
|
|
|
|
|
|
|
|
|
|
$135,000
face value 9% unsecured notes payable to investors, due October 26, 2017. At the investor’s
option until the repayment date, the note and related interest may be converted to shares
of the Company’s common stock a discount of 90% of the current share price after
the first anniversary of the note. The notes are secured by the accounts receivable of
a license agreement the Company has with Womens Choice Pharmaceuticals, LLC on its proprietary
prescription product, ProCort®. The Company has determined the value associated with
the beneficial conversion feature in connection with the notes and interest to be $117,535.
The aggregate original issue discount feature has been accreted and charged to interest
expenses as a financing expense in the amount of $29,303 during the six months ended
June 30, 2016. The original issue discount feature is valued under the intrinsic value
method.
|
|
|
135,000
|
|
|
|
135,000
|
|
Unamortized
debt discount
|
|
|
(77,605
|
)
|
|
|
(106,908
|
)
|
Total,
net of unamortized discount
|
|
|
57,395
|
|
|
|
28,092
|
|
|
|
|
|
|
|
|
|
|
On
December 17, 2015, the Company entered into a convertible promissory note pursuant to which it borrowed $25,000. Interest
under the convertible promissory note is 10% per annum, and the principal and all accrued but unpaid interest is due on May
17, 2016. The note is convertible into 1,250,000 shares of the Company’s common stock at a price of $0.02 per share
and 625,000 warrants exercisable at $0.04 per share.
The
Company has determined the value associated with the beneficial conversion feature in
connection with the notes negotiated on December 17, 2015 to be $16,648. The aggregate
original issue discount feature has been accreted and charged to interest expenses as
a financing expense in the amount of $15,104 during the six months ended June 30, 2016.
The beneficial conversion feature is valued under the intrinsic value method
|
|
|
25,000
|
|
|
|
25,000
|
|
Unamortized
debt discount
|
|
|
|
|
|
|
(15,104
|
)
|
Total,
net of unamortized discount
|
|
|
25,000
|
|
|
|
9,896
|
|
|
|
|
|
|
|
|
|
|
On
February 1, 2016, the Company entered into a convertible promissory note pursuant to
which it borrowed $25,000. Interest under the convertible promissory note is 10% per
annum, and the principal and all accrued but unpaid interest is due on July 25, 2016.
The note is convertible into 1,250,000 shares of the Company’s common stock at
a price of $0.02 per share and 625,000 warrants exercisable at $0.02 per share.
The
Company has determined the value associated with the beneficial conversion feature in connection with the notes negotiated on
February 1, 2016 to be $21,819. The aggregate original issue discount feature has been accreted and charged to interest expenses
as a financing expense in the amount of $18,702 during the six months ended June 30, 2016. The beneficial conversion feature is
valued under the intrinsic value method
|
|
|
25,000
|
|
|
|
—
|
|
Unamortized
debt discount
|
|
|
(3,117
|
)
|
|
|
—
|
|
Total,
net of unamortized discount
|
|
|
21,833
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
On
February 1, 2016, the Company entered into a convertible promissory note pursuant to
which it borrowed $38,000. Interest under the convertible promissory note is 10% per
annum, and the principal and all accrued but unpaid interest is due on February 15, 2017.
The note is convertible into 1,900,000 shares of the Company’s common stock at
a price of $0.02 per share and 950,000 warrants exercisable at $0.02 per share.
The
Company has determined the value associated with the beneficial conversion feature in connection with the notes negotiated on
February 1, 2016 to be $33,164. The aggregate original issue discount feature has been accreted and charged to interest expenses
as a financing expense in the amount of $13,091 during the six months ended June 30, 2016. The beneficial conversion feature is
valued under the intrinsic value method
|
|
|
38,000
|
|
|
|
—
|
|
Unamortized
debt discount
|
|
|
(20,037
|
)
|
|
|
—
|
|
Total,
net of unamortized discount
|
|
|
17,927
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
On
February 17, 2016, the Company entered into a convertible promissory note pursuant to
which it borrowed $20,000. Interest under the convertible promissory note is 9% per annum,
and the principal and all accrued but unpaid interest is due on February 17, 2018. The
note is convertible at any time following 90 days after the issuance date at noteholders
option into shares of our common stock at a variable conversion price of 90% of the average
five day market price of our common stock during the 5 trading days prior to the notice
of conversion, subject to adjustment as described in the note. The holder’s ability
to convert the note, however, is limited in that it will not be permitted to convert
any portion of the note if the number of shares of our common stock beneficially owned
by the holder and its affiliates, together with the number of shares of our common stock
issuable upon any full or partial conversion, would exceed 4.99% of the Company’s
outstanding shares of common stock.
The
Company has determined the value associated with the beneficial conversion feature in connection with the notes negotiated on
February 27, 2016 to be $14,049. The aggregate original issue discount feature has been accreted and charged to interest expenses
as a financing expense in the amount of $2,579 during the six months ended June 30, 2016. The beneficial conversion feature is
valued under the intrinsic value method
|
|
|
20,000
|
|
|
|
—
|
|
Unamortized
debt discount
|
|
|
(11,470
|
)
|
|
|
—
|
|
Total,
net of unamortized discount
|
|
|
8,530
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,270,321
|
|
|
$
|
1,205,576
|
|
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
10.
CONVERTIBLE NOTES PAYABLE RELATED PARTY
Convertible
Notes Payable Related Party at consists of the following:
|
|
June
30,
|
|
December
31,
|
|
|
2016
|
|
2015
|
On
December 31, 2011, the Company re-negotiated accrued salaries and interest for three employees. Under the terms of the agreements,
the notes dated before December 31, 2010, and all salaries not previously converted were converted to promissory notes convertible
into common stock with a warrant feature. The promissory notes are unsecured, due five years from issuance, and bear an interest
rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares of the Company’s
common stock at a fixed price of $0.04 per share along with additional warrants to purchase one share for every two shares
issued at the exercise price of $0.06 per share for three years after the conversion date. The Company has determined the
value associated with the beneficial conversion feature in connection with the notes negotiated on December 31, 2011 to be
$1,123,078. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing
expense in the amount of $83,028 during the six months ending June 30, 2016. The beneficial conversion feature
is valued under the intrinsic value method. In the year ending December 2013, the Company made $51,485
in cash payments to reduce the note balance.
|
|
|
1,071,593
|
|
|
|
1,071,593
|
|
Unamortized
debt discount
|
|
|
(83,941
|
)
|
|
|
(166,969
|
)
|
|
|
|
|
|
|
|
|
|
On
June 30, 2012, the Company re-negotiated accrued salaries and interest for three employees. Under the terms of the agreements,
the notes dated before July 1, 2011, and all salaries not previously converted were converted to promissory notes convertible
into common stock with a warrant feature. The promissory notes are unsecured, due five years from issuance, and bear an interest
rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares of the Company’s
common stock at a fixed price of $0.04 per share along with additional warrants to purchase one share for every two shares
issued at the exercise price of $0.06 per share for three years after the conversion date. The Company has determined the
value associated with the beneficial conversion feature in connection with the notes to be $209,809. The aggregate
beneficial conversion feature has been accreted and charged to interest expenses as a financing expense in the amount of $20,732
during the six months ending June 30, 2016. The beneficial conversion feature is valued under the intrinsic value
method. On January 18, 2013, the Company made a $3,990 cash payment to reduce the note balance.
|
|
|
321,032
|
|
|
|
321,032
|
|
Unamortized
debt discount
|
|
|
(41,578
|
)
|
|
|
(62,310
|
)
|
|
|
|
|
|
|
|
|
|
On
December 30 and 31, 2012, the Company re-negotiated accrued salaries and interest for three employees. Under the terms of
the agreements, $182,083 of related party notes accrued interest and salaries not previously converted were converted to promissory
notes convertible into common stock with a warrant feature. The $182,083 face value promissory notes are unsecured, due five
years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment date, the note may
be converted to shares of the Company’s common stock at a fixed price of $0.03 per share along with additional warrants
to purchase one share for every two shares issued at the exercise price of $0.04 per share for three years after the conversion
date. The Company has determined the value associated with the beneficial conversion feature in connection with the notes
to be $182,083. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing
expense in the amount of $18,149 during the six months ending June 30, 2016. The beneficial conversion feature
is valued under the intrinsic value method.
|
|
|
182,083
|
|
|
|
182,083
|
|
Unamortized
debt discount
|
|
|
(54,732
|
)
|
|
|
(72,881
|
)
|
|
|
|
|
|
|
|
|
|
On
June 30, 2013, the Company re-negotiated accrued salaries and interest for two employees. Under the terms of the agreements,
$106,153 of accrued interest and salaries were converted to promissory notes convertible into common stock with a warrant
feature. The $106,153 face value promissory notes are unsecured, due five years from issuance, and bear an interest rate of
10%. At the investor’s option until the repayment date, the note may be converted to shares of the Company’s common
stock at a fixed price of $0.03 per share along with additional warrants to purchase one share for every two shares issued
at the exercise price of $0.04 per share for three years after the conversion date. The Company has determined the value associated
with the beneficial conversion feature in connection with the notes to be $70,768. The aggregate beneficial conversion feature
has been accreted and charged to interest expenses as a financing expense in the amount of $7,053 during the six months ending
June 30, 2016. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
106,152
|
|
|
|
106,152
|
|
Unamortized
debt discount
|
|
|
(28,292
|
)
|
|
|
(35,345
|
)
|
On
December 31, 2013, the Company re-negotiated accrued salaries and interest for three employees. Under the terms of the agreements,
$142,501 of accrued interest and salaries not previously converted were converted to promissory notes convertible into common
stock with a warrant feature. The $142,501 face value promissory notes are unsecured, due five years from issuance, and bear
an interest rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares of the
Company’s common stock at a fixed price of $0.03 per share along with additional warrants to purchase one share for
every two shares issued at the exercise price of $0.04 per share for three years after the conversion date. The Company has
determined the value associated with the beneficial conversion feature in connection with the notes to be $94,909. The aggregate
beneficial conversion feature has been accreted and charged to interest expenses as a financing expense in the amount of $9,460
during six months ending June 30, 2016. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
142,501
|
|
|
|
142,501
|
|
Unamortized
debt discount
|
|
|
(47,506
|
)
|
|
|
(56,966
|
)
|
On
June 30, 2014, the Company re-negotiated accrued salaries and interest for three employees. Under the terms of the agreements,
$118,126 of accrued salaries not previously converted were converted to promissory notes convertible into common stock with
a warrant feature. The $118,126 face value promissory notes are unsecured, due five years from issuance, and bear an interest
rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares of the Company’s
common stock at a fixed price of $0.025 per share along with additional warrants to purchase one share for every two shares
issued at the exercise price of $0.03 per share for three years after the conversion date. The Company has determined the
value associated with the beneficial conversion feature in connection with the notes to be $118,126. The aggregate beneficial
conversion feature has been accreted and charged to interest expenses as a financing expense in the amount of $11,774 during
the six months ending June 30, 2016. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
118,126
|
|
|
|
118,126
|
|
Unamortized
debt discount
|
|
|
(70,836
|
)
|
|
|
(82,610
|
)
|
On
September 30, 2014, the Company re-negotiated accrued salaries and interest for two employees. Under the terms of the agreements,
$40,558 of accrued salaries not previously converted were converted to promissory notes convertible into common stock with
a warrant feature. The $40,558 face value promissory notes are unsecured, due five years from issuance, and bear an interest
rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares of the Company’s
common stock at a fixed price of $0.04 per share along with additional warrants to purchase one share for every two shares
issued at the exercise price of $0.05 per share for three years after the conversion date. The Company has determined the
value associated with the beneficial conversion feature in connection with the notes to be $40,466. The aggregate beneficial
conversion feature has been accreted and charged to interest expenses as a financing expense in the amount of $4,033 during
six months ending June 30, 2016. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
40,558
|
|
|
|
40,558
|
|
Unamortized
debt discount
|
|
|
(26,305
|
)
|
|
|
(30,338
|
)
|
On
December 31, 2014, the Company re-negotiated accrued salaries and interest for two employees. Under the terms of the agreements,
$65,295 of accrued salaries not previously converted were converted to promissory notes convertible into common stock with
a warrant feature. The $65,295 face value promissory notes are unsecured, due five years from issuance, and bear an interest
rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares of the Company’s
common stock at a fixed price of $0.04 per share along with additional warrants to purchase one share for every two shares
issued at the exercise price of $0.05 per share for three years after the conversion date. The Company has determined the
value associated with the beneficial conversion feature in connection with the notes to be $57,439. The aggregate beneficial
conversion feature has been accreted and charged to interest expenses as a financing expense in the amount of $5,724 during
the six months ending June 30, 2016. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
65,295
|
|
|
|
65,295
|
|
Unamortized
debt discount
|
|
|
(40,233
|
)
|
|
|
(45,957
|
)
|
|
|
|
|
|
|
|
|
|
On
December 31, 2015, the Company re-negotiated accrued salaries and interest for three employees and a director. Under the terms
of the agreements, $343,687 of accrued salaries and director fees not previously converted were converted to promissory notes
convertible into common stock with a warrant feature. The $343,687 face value promissory notes are unsecured, due five years
from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment date, the note may be
converted to shares of the Company’s common stock at a fixed price of $0.02 per share along with additional warrants
to purchase one share for every two shares issued at the exercise price of $0.02 per share for three years after the conversion
date. The Company has determined the value associated with the beneficial conversion feature in connection with the notes
to be $341,703. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing
expense in the amount of $34,039 during the six months ending June 30, 2016. The beneficial conversion feature is valued under
the intrinsic value method.
|
|
|
343,687
|
|
|
|
343,687
|
|
Unamortized
debt discount
|
|
|
(307,664
|
)
|
|
|
(341,703
|
)
|
|
|
|
|
|
|
|
|
|
On
March 30, 2016, the Company re-negotiated accrued directors fees of 3,600. Under the terms of the agreements, $3,600 of accrued
director fees not previously converted were converted to promissory notes convertible into common stock with a warrant feature.
The $3,600 face value promissory notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the
investor’s option until the repayment date, the note may be converted to shares of the Company’s common stock
at a fixed price of $0.02 per share along with additional warrants to purchase one share for every two shares issued at the
exercise price of $0.02 per share for three years after the conversion date. The Company has determined the value associated
with the beneficial conversion feature in connection with the notes to be $nil under the intrinsic value method.
|
|
|
3,600
|
|
|
|
—
|
|
Unamortized
debt discount
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
On
April 30, 2016, the Company re-negotiated accrued salaries and interest for an employee. Under the terms of the agreements,
$33,333 of accrued salaries were converted to promissory notes convertible into common stock with a warrant feature. The $33,333
face value promissory notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s
option until the repayment date, the note may be converted to shares of the Company’s common stock at a fixed price
of $0.02 per share along with additional warrants to purchase one share for every two shares issued at the exercise price
of $0.02 per share for three years after the conversion date. The Company has determined the value associated with the beneficial
conversion feature in connection with the notes to be $8,401. The aggregate beneficial conversion feature has been accreted
and charged to interest expenses as a financing expense in the amount of $247 during the six months ending June 30, 2016.
The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
33,333
|
|
|
|
—
|
|
Unamortized
debt discount
|
|
|
(8,154
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
On
June 30, 2016, the Company re-negotiated accrued salaries and interest for three employees. Under the terms of the agreements,
$192,417 of accrued salaries not previously converted were converted to promissory notes convertible into common stock with
a warrant feature. The $192,417 face value promissory notes are unsecured, due five years from issuance, and bear an interest
rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares of the Company’s
common stock at a fixed price of $0.02 per share along with additional warrants to purchase one share for every two shares
issued at the exercise price of $0.02 per share for three years after the conversion date. The Company has determined the
value associated with the beneficial conversion feature in connection with the notes to be $28,365. The aggregate beneficial
conversion feature will be accreted and charged to interest expenses as a financing expense. The beneficial conversion
feature is valued under the intrinsic value method.
|
|
|
192,417
|
|
|
|
—
|
|
Unamortized
debt discount
|
|
|
(28,365
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,882,771
|
|
|
$
|
1,495,948
|
|
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11.
STOCKHOLDERS’ DEFICIT
The
Company is authorized to issue 200,000,000 shares of $0.001 par value common stock. The Company had 117,073,969 and 115,701,969
issued and outstanding shares of common stock as of June 30, 2016 and December 31, 2015, respectively.
On
March 30, 2016, 72,000 shares of the Company’s common stock were issued to settle $3,600 of accrued expenses due to a director
of the Company. A gain of $2.592 was recognized as a result of this settlement.
On
January 27, 2016, the Company entered into a promissory note and pursuant to its terms the Company issued the holder 100,000 shares
of its common stock valued at $0.02 per share. The shares were fair valued at $2,000 or $0.02 per share.
On
January 27, 2016, the Company entered into a promissory note and pursuant to its terms the Company issued the holder 200,000 shares
of its common stock valued at $0.02 per share. The shares were fair valued at $4,980 or $0.0249 per share.
On
February 1, 2016, the Company entered into a promissory note and pursuant to its terms the Company issued the holder 400,000 shares
of its common stock valued at $0.02 per share. The shares were fair valued at $9,960 or $0.0249 per share.
On
February 1, 2016, the Company entered into a promissory note and pursuant to its terms the Company issued the holder 250,000 shares
of its common stock valued at $0.02 per share. The shares were fair valued at $6,225 or $0.0249 per share.
On
February 2, 2016, the Company issued of 400,000 shares of the Company’s common stock to five consultants for services related
to the Company’s financing. The shares were fair valued at $9,960 or $0.0249 per share.
12.
COMMITMENTS AND CONTINGENCIES
Lease
obligations
– The Company has operating leases for its offices. Future minimum lease payments under the operating leases
for the facilities as of June 30, 2016, are as follows:
Rental
expense, resulting from operating lease agreements, approximated $21,572 and $21,832 for the six months ended June 30, 2016 and
2015, respectively.
On
April 1, 2016, the Company licensed to Kintari Int. Inc. the following : the exclusive rights to its existing line of cosmeceutical
products; the exclusive rights to any future cosmeceutical products developed by the Company; the right-of-first-refusal on its
existing OTC products; and the right-of-first-refusal to any future OTC products developed by the Company. In exchange, the Company
acquired 8,000,000 shares of Kintari Int. Inc.’s common stock. Kintari Int. Inc. is the Company’s wholly owned subsidiary.
The material terms of the license with Skinvisible are as follows:
|
§
|
Kintari
acquired the right to appoint sub-licensees provided that Skinvisible approves in advance.
|
|
§
|
If
Skinvisible desires to sell an OTC product, it must first notify Kintari. If Kintari
desires to exercise the right-of-first-refusal on that OTC product, Kintari must launch
the product within 6 months or lose it to Skinvisible.
|
|
§
|
Kintari
agreed to purchase the existing product inventory, raw ingredients, packaging materials
plus all Kintari marketing materials for a total of $87,720.14. Kintari has not yet paid
this amount and the parties are waiting for fundraising in connection with an offering
to do so.
|
|
§
|
Skinvisible
agreed to sell its polymers to Kintari and Kintari will manufacture the products using
those polymers.
|
|
§
|
Kintari
may use any of Skinvisible’s existing trademarks.
|
|
§
|
Kintari
agreed to pay to Skinvisible an on-going royalty of 5% on revenue generated from the
products.
|
|
§
|
Kintari
agreed to pay to Skinvisible a minimum annual royalty equal to $50,000 for the first
year after launch, $100,000 for the second year after launch and $150,000 for the third
year after launch and each subsequent year for the term of the agreement.
|
|
§
|
Kintari
agreed to pay to Skinvisible a royalty of 25% of any non-royalty payments received by
Kintari from sub-licensees, including fees received in consideration for sublicensing
the products.
|
|
§
|
The
agreement may be terminated by, among other things, a mutual consent of the parties or
a breach and failure to cure by one of the parties.
|
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Kintari
Int. Inc. commenced business in April 2016 in the U.S. and expects to begin operations in Canada in September 2016. Kintari Int.
Inc. is the parent company to Kintari USA Inc. and Kintai Canana Inc. These companies will be used as operating entities to market
and sell the products. Kintari Int. Inc. will need to raise capital of at least $2 million to assist with its development and
payments to the Company. Kintari Int. Inc. plans to seek a TSX Venture Exchange listing upon completion of this financing.
13.
SUBSEQUENT EVENTS
In
accordance with SFAS 165 (ASC 855-10) the Company has analyzed its operations subsequent to June 30, 2016 to the date these financial
statements were issued, and has determined that it does not have any material subsequent events to disclose in these financial
statements
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking
Statements
Certain
statements, other than purely historical information, including estimates, projections, statements relating to our business plans,
objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally
are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,”
“intends,” “strategy,” “plan,” “may,” “will,” “would,”
“will be,” “will continue,” “will likely result,” and similar expressions. We intend
such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking
statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual
results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future
plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and
future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory
changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties
should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We
undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future
events or otherwise. Further information concerning our business, including additional factors that could materially
affect our financial results, is included herein and in our other filings with the SEC.
Company
Overview
We,
through our wholly owned subsidiary Skinvisible Pharmaceuticals Inc., are a pharmaceutical research and development (“R&D”)
company that has developed and patented an innovative polymer delivery system, Invisicare® and formulated over forty topical
skin products, which we out-license globally. We were incorporated in 1998, and target an estimated $80 billion global skincare
and dermatology market and a $30 billion global over-the-counter market as well as other healthcare / medical and consumer goods
markets.
With
the research and development complete on forty products and numerous patents issued (technology and product patents), we are ready
to monetize our investment. Our business model will continue to be to out-license our patented prescription and over-the-counter
(“OTC”) products featuring Invisicare to established manufacturers and marketers of brands internationally and to
maximize profits from the products we have already out-licensed. We have also formed a commercial subsidiary, Kintari Int. Inc.
with subsidiaries Kintari USA Inc. and Kintari Canada Inc., in order to take our cosmeceutical and select OTC products with Invisicare
to market.
The
opportunity for us to license our products continues to be a viable model as the need for pharmaceutical companies to access external
R&D companies for new products due to their own down-sizing or elimination of internal R&D departments. The demand for
our products is enhanced due to the granting of key US and international patents and the completed development of a number of
unique products.
Our
Plan for the Next Twelve Months
Our
growth strategy is to:
|
1.
|
Generate
revenue from direct sales of our cosmeceutical/OTC product line;
|
|
2.
|
Capitalize
on the success of current licensees;
|
|
3.
|
Increase
the value of our current pipeline; and
|
|
4.
|
Boost
licensing revenues by securing additional licensees globally and develop a robust royalty
revenue stream that will finance our future growth.
|
On
September 9, 2014, we formed Kintari USA Inc., a new wholly-owned subsidiary of Kintari International Inc., wholly-owned subsidiary
of Skinvisible, Inc., to market a premium line of scientifically formulated skincare products powered by our patented Invisicare®
technology. We launched Kintari USA Inc. on January 15, 2015. As part of our strategic focus on revenue generation and creating
shareholder value, our products will be sold via network marketing. We expect that products will be sold in the US and in Canada
in September, 2016. In addition, we launched DermSafe in August, 2016 in Canada through our Kintari Canadian website for retail
customers only. Also in July, 2016, we announced that Kintari Canada made a donation of DermSafe to the Canadian Olympic Foundation
offering protection for Canada’s athletes during the upcoming Olympic Games in Rio.
The
Kintari product portfolio consists of 2 anti-aging products to help fight the signs of aging and a broad spectrum sunscreen along
with our newest product: Kintari’s Hand & Body lotion. All products are made with our patented Invisicare technology.
Our
anti-aging products have been developed using proven anti-aging ingredients with scientific evidence of their effectiveness at
reducing the look of fine lines and wrinkles resulting in youthful looking skin. These potent ingredients will be powered by patented
Invisicare technology, providing consumers with unique, effective products which we believe cannot be duplicated.
Additionally,
we sell a broad spectrum SPF 30 sunscreen known as Skinbrella®. We completed independent testing in early 2014 to validate
our broad spectrum sunscreen claims according to the labeling guidelines of the FDA, which are designed to help reduce the incidents
of skin cancer in the U.S. Our claims are as follows:
-
Claim # 1 –
Broad-Spectrum: According to the FDA, in order for a sunscreen to be labeled “broad spectrum” it must prove it protects
against both UVA and UVB rays by having an SPF (Sun Protection Factor) of at least 15 and a critical wave length of at least 370
nm. Our sunscreen has surpassed both of these criteria, allowing our broad spectrum sunscreen label to also state “prevents
sunburn, skin cancer and aging due to the sun.”
-
Claim # 2 –
Water-Resistant 80 Minutes: The FDA sunscreen water resistant claim requires that a sunscreen must have the same SPF after being
in water or sweating for 40 or 80 minutes. Our testing was conducted at an independent laboratory specializing in sunscreen testing.
The test involved human subjects that applied sunscreen to their arm, followed by the immersion of the arm into a Jacuzzi for
80 minutes (10 minutes in / 10 minutes out). Our sunscreen successfully completed this testing and is allowed to use “Water-resistant
for 80 Minutes” on its sunscreen label, the longest length of time allowed by the FDA.
-
Claim # 3 –
Unique Patented Technology / Eight-Hour Photostability: As previously announced, we were granted a patent from the United States
Patent and Trademark Office entitled “Sunscreen Composition with Enhanced UVA Absorber Stability and Methods”, which
provides protection until November 2029. Skinvisible successfully formulated a unique Invisicare® delivery system specifically
for stabilizing avobenzone; the key sunscreen used in the USA. Data submitted to the US patent office proved that our sunscreen
provides a minimum of eight hours of photostability.
Our
Hand & Body Lotion is formulated with five moisturizers including aloe, shea butter, glycerin, coconut oil and jojoba oil,
and to help smooth your skin the powerful antioxidant Vitamin E. These ingredients restore and nourish your skin from head to
toe.
Kintari
Canada Inc. launched Skinvisible’s product DermSafe, its non-alcohol hand sanitizer, in conjunction with the Olympic Games
in Rio. Kintari Canada supplied the product to all Canadian Olympic athletes, trainers and support staff. This coincided with
the launch of the Kintari Canada website where DermSafe is available for purchase. Kintari Canada will officially launch in Q3
/ Q4 of this year and offer other products and distributor opportunities. (See below under Product Updates for more information).
|
§
|
Capitalize On Current Licensees
:
|
We
have licensees around the globe. Two of these licensees are currently in the marketplace: Avon Products globally and Women’s
Choice Pharmaceuticals in the United States.
We
continue to work diligently with our licensees to ensure they have a smooth manufacturing process, ongoing R&D support and
marketing feedback.
Avon
Products, Inc:
Product
:
We have a long-term contract with Avon globally for over ten years to provide Invisicare polymer for their long-lasting
lipsticks.
Sales:
Invisicare polymers are purchased directly from Skinvisible.
|
|
Women’s
Choice Pharmaceuticals:
Product
:
ProCort®, long lasting prescription hemorrhoid cream launched in the United States August 2011.
Sales
and Royalties
: Skinvisible receives a royalty based on net sales of ProCort. This past year Women's Choice Pharmaceuticals
LLC partnered with Advanced Medical Enterprises, LLC to market ProCort® in Puerto Rico. With over thirty pharmaceutical
sales reps calling on OBGYNs in the US, Women’s Choice has been successfully growing their sales of ProCort®
and we look forward to increased growth in 2016. Women’s Choice is seeking to form other strategic alliances in
order to increase its sales efforts by targeting new territories and targeting medical specialists which previously were
not called upon.
|
|
Product
Updates:
We
have additional information on specific products which add value to Skinvisible’s product pipeline.
|
|
DermSafe®
Hand Sanitizer
Skinvisible’s
hand sanitizer formulated with Invisicare® and chlorhexidine gluconate has been launched in Canada by subsidiary Kintari
Canada Inc. where it has Health Canada approval.. We are currently seeking licensees and/or distributors to begin the
sale of DermSafe in Asia and in the EU. This registration has recently been granted for a ten year term to expire in 2024.
|
|
|
|
Sunless
Tanning Products
: We have developed a new sunless tanning mousse / foam which uses a unique foam with Invisicare®, developed
specifically for its foaming properties. This adds to Skinvisible’s line of sunless tanning products which includes sunless
tanning lotions (light, medium and dark), pre-sun moisturizer and after-sun moisturizer along with sunless tanning spray products
for commercial use. The addition of a sunless tanning mousse enhances this line of products.
Sunscreen
Products
: We have developed 3 broad spectrum sunscreens, with SPF 15, 30 and 50 (the highest SPF allowed by the FDA). All
are formulated with Avobenzone, the only UVA sun filter allowed under the US FDA monograph. This UVA/UVB sunscreen was granted
a patent from the United States patent office in 2013. Avobenzone is known for breaking down in the sun after only two hours –
thus the requirement to reapply every 2 hours. Skinvisible’s patent was granted based on Invisicare's® minimum 8 hour
photo stability. For countries outside the United States, Skinvisible has additionally patented UVA/UVB sunscreens formulated
with Tinosorb S.
|
§
|
Increasing The Value Of Skinvisible’s Pipeline:
Clinical Enhancement Of
Pipeline
|
We
have a pipeline of over forty products which are available for licensing. Testing is conducted in-house generating proof of concept
including release of the active ingredient as well as long term shelf life (stability). Additional studies conducted on specific
products including skin sensitivity, toxicity and product efficacy are outsourced to FDA compliant laboratories. These studies
are critical in attracting potential licensees. Our clinical strategy is to:
-
Our clinical
strategy is to find a partner for our prescription product portfolio. This would allow for a partner to seek FDA approval using
the 505b2 pathway for one or more of our products.
-
Launch of our
DermSafe® hand sanitizer in Canada under Kintari. In 2013, we commissioned an independent laboratory to further analyze the
long-term effectiveness of DermSafe® when put in contact with two bacteria; the “super bug” MRSA and E. coli,
the “restaurant bug” since it is often transmitted by food and food handlers. The long-term effectiveness of two bacteria;
Methicillin-resistant Staphylococcus aureus or MRSA (ATCC #33591) and Escherichia coli or E. coli (ATCC #43888") were tested
up to four hours after application. The results showed that the individual arms of subjects which had DermSafe® applied and
were even rinsed prior to each bacteria challenge, showed a 95.83% reduction at the 4 hour time point for MRSA and 99.38% for
E. coli. In 2013, we obtained the registration rights for DermSafe® in Belgium. This designation allows for the sale and/
or registration of DermSafe in most EU countries. A strategy is being developed along with a larger global strategy to bring DermSafe
to the EU and. Skinvisible has also commissioned further testing of DermSafe against the (Middle East Respiratory Syndrome Coronavirus
(MERS-CoV); a SARS-like virus and the avian influenza A virus, H7N9.
-
We continue to
enhance our product developed for Netherton syndrome t. Netherton syndrome is a disease caused by a genetic defect which causes
the skin to continually exfoliate, never forming a skin bond. This leaves the patient highly susceptible to infection and dealing
with a life-long condition that has no cure. Our product has shown excellent results in lab studies blocking the enzyme that breaks
down the skin and we are seeking “Orphan Drug” designation in both the US (FDA) and Europe (EMA). We continue to investigate
means to reformulate our product to better meet the demands of this very debilitating disease and are undergoing preliminary proof-of-concept
investigations on Netherton syndrome.
The
advantages of obtaining Orphan Drug designation is that it provides various incentives including a reduction or elimination of
registration and market authorization fees, protocol assistance, and seven years of market exclusivity for the product in the
US and ten years in Europe. There can be no assurances that our project will be successful.
|
§
|
Secure Additional Licensees:
|
We
are in discussions and undergoing internal discussions with various pharmaceutical companies for licenses.
To
facilitate further expansion, we are seeking an exclusive license with a proven US or global based Pharmaceutical Company for
our existing Rx product formulations. The licensee would be expected to pay all costs in getting FDA approval. The licensee would
pay Skinvisible for the license in milestone payments as Clinical Phases are proven.
Results
of Operations for the Three and Six Months Ended June 30, 2016 and 2015
Revenues
Our
revenue from product sales, royalties on patent licenses and license fees for the three months ended June 30, 2016 was $38,114,
a decrease from $54,676 for the same period ended June 30, 2015. Our revenue from product sales, royalties on patent licenses
and license fees for the six months ended June 30, 2016 was $66,451, a decrease from $128,051 for the same period ended June 30,
2015.
The
decrease in revenue for the three and six months ended June 30, 2016 was mainly due to a reduction in product sales. Our initial
foray into network marketing was the main reasons for the decrease in sales. Several distributors were not successful in selling
product and much of the product actually sold by these individuals was returned. Moreover, we ultimately terminated several of
these distributorships, which resulted in repurchasing product. We are currently in the process of revamping our network marketing
program. We expect to sign new distributors in the coming months.
We
launched Kintari USA Inc. on January 15, 2015. As part of our strategic focus on revenue generation and creating shareholder value,
as explained above, our products will be sold via network marketing. We expect that products will be sold in the US and in Canada
using this method in Q3 2016. In addition, we launched the sale of DermSafe in August, 2016 in Canada through our Kintari Canadian
website for retail customers only.
Cost
of Revenues
Our
cost of revenues for the three months ended June 30, 2016 decreased to $9,385 from the prior year period when cost of revenues
was $41,235. Our cost of revenues for the six months ended June 30, 2016 decreased to $14,012 from the prior year period when
cost of revenues was $46,188. Our cost of revenues decreased for the three and six months ended June 30, 2016 over the prior year
periods as a result of decreased product sales. We expect our cost of revenues to increase as we continue to push sales from Kintari
USA and Canada.
Gross
Profit
Gross
profit for the three months ended June 30, 2016 was $28,729, or approximately 75% of sales. Gross profit for the three months
ended June 30, 2015 was $13,441, or approximately 25% of sales. Gross profit for the six months ended June 30, 2016 was $52,439,
or approximately 79% of sales. Gross profit for the six months ended June 30, 2015 was $81,863, or approximately 64% of sales.
Our gross profit margin increased in 2016 as compared with 2015 as a result of scaling our manufacturing and packaging. We expect
this trend to continue into 2016.
Operating
Expenses
Operating
expenses decreased to $201,509 for the three months ended June 30, 2016 from $307,421 for the same period ended June 30, 2015.
Operating expenses decreased to $539, 296 for the six months ended June 30, 2016 from $673,915 for the same period ended June
30, 2015.
Our
operating expenses for the six months ended June 30, 2016 consisted mainly of accrued salaries and wages of $187,352, consulting
fees of $195,143, depreciation and amortization expenses of $28,953, accounting and audit expenses of $24,046, salaries and wages
of $14,333 and rent of $21,572. In comparison, our operating expenses for the six months ended June 30, 2015 consisted mainly
of salaries and wages of $121,790, accrued salaries and wages of $143,869, commissions of $91,090, consulting fees of $88,206,
research and development of $30,217, depreciation and amortization expenses of $28,746, accounting and audit expenses of $21,092
and rent of $21,832.
Other
Expenses
We had other expenses of $291,152 for the three months ended June
30, 2016, compared with other expenses of $210,867 for the three months ended June 30, 2015. Other expenses was the result of interest
expenses for the three months ended June 30, 2016 from $212,307 in interest expenses from prior period ended June 30, 2015.
We had other expenses of $606,428 for the six months ended June
30, 2016, compared with other expenses of $416,506 for the three months ended June 30, 2015. This was largely the result of $609,020
in interest expenses for the six months ended June 30, 2016 from $417,972 in the prior period ended June 30, 2015.
We expect to continue to experience high interest payments in the
future as a result of our outstanding liabilities. Moreover, as of the date of this report, there are a number of secured promissory
notes with an aggregate principal amount of approximately $1,779,100 that have matured. In addition, we also have a number of unsecured
promissory notes with an aggregate principal amount of $86,479 that have matured. If we are unable to generate sufficient revenues
and/or additional financing to service this debt, there is a risk the lenders will call the notes, secure our assets, as to those
applicable secured notes, and demand payment. If this happens, we could go out of business.
Net
Loss
We recorded a net loss of $463,932 for the three months ended June
30, 2016, as compared with a net loss of $504,847 for the three months ended June 30, 2015. We recorded a net loss of $1,093,285
for the six months ended June 30, 2016, as compared with a net loss of $1,008,558 for the six months ended June 30, 2015.
Liquidity and Capital Resources
As of June 30, 2016, we had total current assets of $96,167 and
total assets in the amount of $370,626. Our total current liabilities as of June 30, 2016 were $6,749,755. We had a working capital
deficit of $6,653,588 as of June 30, 2016.
Operating activities used $92,246 in cash for the six months ended
June 30, 2016. Our net loss of $1,093,285 was the main component of our negative operating cash flow, offset mainly by an increase
in accounts payable and accrued liabilities of $426,354, amortization of debt discount of $292,516 and stock based compensation
of $133,445.
Cash flows provided by financing activities during the six months
ended June 30, 2016 amounted to $92,246 and consisted of $83,000 in proceeds from convertible notes payable, $57,000 in proceeds
from notes payable and $23,746 in related party debt, offset by $47,500 in payments on convertible debt and $24,000 in payments
on notes payable.
On
January 27, 2016, we entered into a promissory note pursuant to which we borrowed $33,000. Interest under the note is at 12% per
annum, and the principal and all accrued but unpaid interest is due on April 30, 2016. The note also grants the holder 100,000
shares of our common stock valued at $0.02 per share. The maturity has been extended to May 30, 2016.
On
January 27, 2016, we entered into a promissory note pursuant to which we borrowed $24,000. Interest under the note is at 10% per
annum, and the principal and all accrued but unpaid interest was due on February 15, 2016. The note also grants the holder 200,000
shares of our common stock valued at $0.02 per share.
On
February 1, 2016, we entered into a convertible promissory note pursuant to which we borrowed $38,000. Interest under the note
is at 10% per annum, and the principal and all accrued but unpaid interest is due on February 15, 2017. The note also grants the
holder 400,000 shares of our common stock valued at $0.02 per share. Also, upon written request by the holder, the principal of
the loan may be converted into common shares at the price of $0.02 per share plus ½ warrant at any time up until February
1, 2017. Warrants shall be issued at $0.02 per share and may be converted equal to 1 share for every 2 warrants issued and shall
expire 1 year from conversion of the loan conversion date.
On
February 1, 2016, we entered into a convertible promissory note pursuant to which we borrowed $25,000. Interest under the note
is at 10% per annum, and the principal and all accrued but unpaid interest is due on May 17, 2016. The note also grants the holder
250,000 shares of our common stock valued at $0.02 per share. Also, upon written request by the holder, the principal of the loan
may be converted into common shares at the price of $0.02 per share plus ½ warrant at any time up until July 25, 2016.
Warrants shall be issued at $0.02 per share and may be converted equal to 1 share for every 2 warrants issued and shall expire
1 year from conversion of the loan conversion date.
On
February 17, 2016, we entered into a convertible promissory note pursuant to which we borrowed $20,000. Interest under the convertible
promissory note is 9% per annum, and the principal and all accrued but unpaid interest is due on February 17, 2018. The note is
convertible at any time following 90 days after the issuance date at noteholders option into shares of our common stock at a variable
conversion price of 90% of the average five day market price of our common stock during the 5 trading days prior to the notice
of conversion, subject to adjustment as described in the note. The holder’s ability to convert the note, however, is limited
in that it will not be permitted to convert any portion of the note if the number of shares of our common stock beneficially owned
by the holder and its affiliates, together with the number of shares of our common stock issuable upon any full or partial conversion,
would exceed 4.99% of our outstanding shares of common stock.
Based
upon our current financial condition, we do not have sufficient cash to operate our business at the current level for the next
twelve months. We intend to fund operations through increased sales and debt and/or equity financing arrangements, which may be
insufficient to fund expenditures or other cash requirements. We plan to seek additional financing in a private equity offering
to secure funding for operations. There can be no assurance that we will be successful in raising additional funding. If we are
not able to secure additional funding, the implementation of our business plan will be impaired. There can be no assurance that
such additional financing will be available to us on acceptable terms or at all.
Off
Balance Sheet Arrangements
As
of June 30, 2016, there were no off balance sheet arrangements.
Critical
Accounting Policies
In
December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management
Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the
portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Going concern
– The accompanying financial statements
have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. We have incurred cumulative net losses of $28,924,637 since our inception and require capital for
our contemplated operational and marketing activities to take place. Our ability to raise additional capital through the future
issuances of common stock is unknown. The obtainment of additional financing, the successful development of our contemplated plan
of operations, and our transition, ultimately, to the attainment of profitable operations are necessary for us to continue operations.
The ability to successfully resolve these factors raise substantial doubt about our ability to continue as a going concern. These
consolidated financial statements do not include any adjustments that may result from the outcome of these aforementioned uncertainties.
Product
sales
– Revenues from the sale of products (Invisicare® polymers) are recognized when title to the products are
transferred to the customer and only when no further contingencies or material performance obligations are warranted, and thereby
have earned the right to receive reasonably assured payments for products sold and delivered.
Royalty
sales
– We also recognize royalty revenue from licensing our patented product formulations only when earned, with no
further contingencies or material performance obligations are warranted, and thereby have earned the right to receive and retain
reasonably assured payments.
Distribution
and license rights sales
– We also recognize revenue from distribution and license rights only when earned (and are
amortized over a five year period), with no further contingencies or material performance obligations are warranted, and thereby
have earned the right to receive and retain reasonably assured payments.
Costs
of Revenue
– Cost of revenue includes raw materials, component parts, and shipping supplies. Shipping and handling costs
is not a significant portion of the cost of revenue.
Accounts
Receivable
– Accounts receivable is comprised of uncollateralized customer obligations due under normal trade terms
requiring payment within 30 days from the invoice date. The carrying amount of accounts receivable is reviewed periodically for
collectability. If management determines that collection is unlikely, an allowance that reflects management’s best estimate
of the amounts that will not be collected is recorded. Management reviews each accounts receivable balance that exceeds 30 days
from the invoice date and, based on an assessment of creditworthiness, estimates the portion, if any, of the balance that will
not be collected. As of June 30, 2016, the Company had not recorded a reserve for doubtful accounts. The Company has $1,000,000
in convertible notes payable which are secured by the accounts receivable of a license agreement the Company has with Women's
Choice Pharmaceuticals, LLC on its proprietary prescription product, ProCort®.
Recently
Issued Accounting Pronouncements
We
do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations,
financial position or cash flow.