Item
1. Financial Statements
Our
consolidated financial statements included in this Form 10-Q are as follows:
F-1
|
Consolidated Balance Sheets
as of March 31, 2017 and December 31, 2016 (unaudited);
|
F-2
|
Consolidated Statements of
Operations for the three months ended March 31, 2017 and 2016 (unaudited);
|
F-3
|
Consolidated Statements of
Cash Flow for the three months ended March 31, 2017 and 2016 (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 March 31, 2017 are not necessarily indicative of the results that can be expected for the full year.
SKINVISIBLE,
INC.
CONSOLIDATED
BALANCE SHEETS
(UNAUDITED)
|
|
March
31, 2017
|
|
December
31, 2016
|
ASSETS
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
3,605
|
|
|
$
|
3,019
|
|
Accounts
receivable
|
|
|
6,338
|
|
|
|
9,974
|
|
Inventory
|
|
|
78,989
|
|
|
|
79,694
|
|
Due
from related party
|
|
|
1,145
|
|
|
|
1,145
|
|
Prepaid
expense and other current assets
|
|
|
—
|
|
|
|
—
|
|
Total
current assets
|
|
|
90,077
|
|
|
|
93,832
|
|
|
|
|
|
|
|
|
|
|
Fixed
assets, net of accumulated depreciation of $326, 948 and $326,867, respectively
|
|
|
602
|
|
|
|
683
|
|
Intangible
and other assets:
|
|
|
|
|
|
|
|
|
Patents
and trademarks, net of accumulated amortization of $415,014 and $401,087, respectively
|
|
|
231,155
|
|
|
|
245,082
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
321,834
|
|
|
$
|
339,597
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
DEFICIT
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
961,093
|
|
|
$
|
808,014
|
|
Accounts
payable related party
|
|
|
38,203
|
|
|
|
25,960
|
|
Accrued
interest payable
|
|
|
836,479
|
|
|
|
759,757
|
|
Loans
from related party
|
|
|
73,200
|
|
|
|
70,270
|
|
Loans
payable
|
|
|
2,347,900
|
|
|
|
2,332,900
|
|
Convertible
notes payable, net of unamortized debt discount of $51,687 and $71,827, respectively
|
|
|
1,359,303
|
|
|
|
1,329,163
|
|
Convertible
notes payable related party, net of unamortized discount of $1,545,642 and $1,690,613, respectively
|
|
|
1,266,709
|
|
|
|
1,121,740
|
|
Total
current liabilities
|
|
|
6,882,887
|
|
|
|
6,447,804
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
6,882,887
|
|
|
|
6,447,804
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit
|
|
|
|
|
|
|
|
|
Common
stock; $0.001 par value; 200,000,000 shares authorized; 123,935,319 and 123,835,319 shares issued
and outstanding at March 31, 2017 and December 31, 2016, respectively
|
|
|
123,935
|
|
|
|
123,835
|
|
Shares payable
|
|
|
10,000
|
|
|
|
10,000
|
|
Additional
paid-in capital
|
|
|
23,666,195
|
|
|
|
23,640,157
|
|
Accumulated
deficit
|
|
|
(30,361,183
|
)
|
|
|
(29,882,199
|
)
|
Total
stockholders' deficit
|
|
|
(6,561,053
|
)
|
|
|
(6,108,207
|
)
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' deficit
|
|
$
|
321,834
|
|
|
$
|
339,597
|
|
See
Accompanying Notes to Consolidated Financial Statements.
SKINVISIBLE,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
Three
Months Ending
|
|
|
March
31, 2017
|
|
March
31, 2016
|
|
|
|
|
|
Revenues
|
|
$
|
12,512
|
|
$
|
28,337
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
1,561
|
|
|
4,627
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
10,951
|
|
|
23,710
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
14,008
|
|
|
14,477
|
Selling
general and administrative
|
|
|
151,169
|
|
|
323,310
|
Total
operating expenses
|
|
|
165,177
|
|
|
337,787
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(154,226)
|
|
|
(314,077)
|
|
|
|
|
|
|
|
Other income and (expense)
|
|
|
|
|
|
|
Other
income
|
|
|
3
|
|
|
—
|
Interest
expense
|
|
|
(324,761)
|
|
|
(317,868)
|
Gain
(loss) on extinguishment of debt
|
|
|
—
|
|
|
2,592
|
Total
other expense
|
|
|
(324,758)
|
|
|
(315,276)
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(478,984)
|
|
$
|
(629,353)
|
|
|
|
|
|
|
|
Basic loss per
common share
|
|
$
|
(0.00)
|
|
$
|
(0.01)
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
123,874,879
|
|
|
116,200,121
|
See
Accompanying Notes to Consolidated Financial Statements.
SKINVISIBLE,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Three
Months Ended
|
|
|
March
31, 2017
|
|
March
31, 2016
|
|
|
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(478,984)
|
|
$
|
(629,353)
|
Adjustments
to reconcile net loss to net
|
|
|
|
|
|
|
cash
used in operating activities:
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
14,008
|
|
|
14,477
|
Stock-based
compensation
|
|
|
24,000
|
|
|
133,445
|
Bank
overdraft
|
|
|
—
|
|
|
7,020
|
Amortization
of debt discount
|
|
|
167,247
|
|
|
162,890
|
Gain
on extinguishment of debt
|
|
|
—
|
|
|
(2,592)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
Decrease
in inventory
|
|
|
705
|
|
|
3,002
|
Increase
in accounts receivable
|
|
|
3,636
|
|
|
(1,375)
|
Increase
in accounts payable and accrued liabilities
|
|
|
165,322
|
|
|
183,921
|
Increase
in accrued interest
|
|
|
76,722
|
|
|
51,065
|
Net
cash used in operating activities
|
|
|
(27,344)
|
|
|
(77,500)
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
Purchase
of fixed and intangible assets
|
|
|
—
|
|
|
—
|
Net
cash used in investing activities
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
Proceeds
from sale of common stock
|
|
|
—
|
|
|
—
|
Proceeds
from related party loans, net of payments
|
|
|
2,930
|
|
|
9,000
|
Payments
on notes payable
|
|
|
—
|
|
|
(24,000)
|
Proceeds
from notes payable
|
|
|
15,000
|
|
|
57,000
|
Proceeds
from convertible notes payable
|
|
|
10,000
|
|
|
83,000
|
Payments
on convertible notes payable
|
|
|
—
|
|
|
(47,500)
|
Net
cash provided by (used in) financing activities
|
|
|
27,930
|
|
|
77,500
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
586
|
|
|
—
|
|
|
|
|
|
|
|
Cash, beginning
of period
|
|
|
3,019
|
|
|
—
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
3,605
|
|
$
|
—
|
|
|
|
|
|
|
|
Supplemental disclosure
of cash flow information:
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
—
|
|
$
|
17,589
|
Cash
paid for tax
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
Accrued
expenses convereted to notes
|
|
$
|
—
|
|
$
|
3,600
|
Benefitial
conversion feature
|
|
$
|
2,138
|
|
$
|
69,032
|
Common
stock issued on extiguishment of debts
|
|
$
|
—
|
|
$
|
1,008
|
See
Accompanying Notes to Consolidated Financial Statements.
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.
DESCRIPTION OF BUSINESS AND HISTORY
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.”
2.
BASIS OF PRESENTATION AND GOING CONCERN
Basis
of presentation
– The accompanying unaudited interim financial statements of the Company have been prepared in accordance
with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission,
and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s most
recent Annual Financial Statements filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting
of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the
interim period presented have been reflected herein. The results of operations for the interim period are not necessarily indicative
of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures
contained in the audited financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted.
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 $30,361,183 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.
3.
SUMMARY OF SIGNIFICANT POLICIES
This
summary of significant accounting policies of Skinvisible Inc. is presented to assist in understanding the Company’s consolidated
financial statements. The consolidated financial statements and notes are representations of the Company’s management, who
are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted
in the United States of America, and have been consistently applied in the preparation of the consolidated financial statements.
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the
consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. Significant estimates include estimates used to review the Company’s goodwill, impairments
and estimations of long-lived assets, revenue recognition on percentage of completion type contracts, allowances for uncollectible
accounts, inventory valuation, and the valuations of non-cash capital stock issuances. The Company bases its estimates on
historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of
which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different assumptions or conditions.
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 $3,605 and
$3,019 in cash and cash equivalents as of March 31, 2017 and December 31, 2016, 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.
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.
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 March 31, 2017, 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.
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 three months ended March 31, 2017 and 2016 totaled $24,000 and
$133,445, 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.
Recently
issued accounting pronouncements
– The Company has evaluated the all recent accounting pronouncements through ASU 2017-09,
and believes that none of them will have a material effect on the Company's financial position, results of operations or cash
flows.
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4.
FIXED ASSETS
Fixed
assets consist of the following as of March 31, 2017 and December 31, 2016:
|
|
March 31, 2017
|
|
December 31, 2016
|
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
|
|
|
(326,948
|
)
|
|
|
(326,867)
|
Fixed assets, net of accumulated depreciation
|
|
$
|
602
|
|
|
$
|
683
|
Depreciation
expense for the three months ended March 31, 2017 and 2016 was $81 and $395, respectively.
5.
INVENTORY
Inventory
consist of the following as of March 31, 2017 and December 31, 2016:
|
|
March 31, 2017
|
|
December 31, 2016
|
Shipping and Packing materials
|
|
$
|
10,247
|
|
|
$
|
10,274
|
Marketing Supplies
|
|
|
17,135
|
|
|
|
17,139
|
Finished Goods
|
|
|
32,295
|
|
|
|
32,998
|
Raw Materials
|
|
|
19,312
|
|
|
|
19,283
|
Total
|
|
$
|
78,989
|
|
|
$
|
79,694
|
6.
INTANGIBLE AND OTHER ASSETS
Patents
and trademarks are capitalized at their historical cost and are amortized over their estimated useful lives. As of March 31, 2017,
patents and trademarks total $646,169, net of $415,014 of accumulated amortization. Amortization expense for the three months
ended March 31, 2017 and 2016 was $13,927 and $14,082, respectively.
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 March 31, 2017.
7.
STOCK OPTIONS AND WARRANTS
The
following is a summary of option activity during the year ended March 31, 2017.
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
Balance, December 31, 2016
|
|
|
11,250,000
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
Options granted and assumed
|
|
|
600,000
|
|
|
$
|
0.03
|
Options expired
|
|
|
—
|
|
|
|
—
|
Options canceled
|
|
|
—
|
|
|
|
—
|
Options exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Balance, March 31, 2017
|
|
|
11,850,000
|
|
|
$
|
0.03
|
As
of March 31, 2017, all stock options outstanding are exercisable.
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On
March 1, 2017, the Company granted stock options for 400,000 options to purchase shares of its common stock to two consultants.
The options have a strike price of $0.03. The stock options were exercisable upon grant and have a life of 5 years. The stock
options were valued at $14,000 using the Black-Scholes option pricing model. The Company recorded an expense
of $14,000 for the three months ended March 31, 2017.
On
March 22, 2017, the Company granted stock options for 200,000 options to purchase shares of its common stock to a consultant.
The options have a strike price of $0.03. The stock options were exercisable upon grant and have a life of 5 years. The stock
options were valued at $6,000 using the Black-Scholes option pricing model. The Company recorded an expense of
$6,000 for the three months ended March 31, 2017.
Stock
warrants -
The
following is a summary of warrants activity during the year ended March 31, 2017.
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
Balance, December 31, 2016
|
|
|
4,952,675
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
Warrants granted and assumed
|
|
|
—
|
|
|
|
—
|
Warrants expired
|
|
|
1,000,000
|
|
|
$
|
0.07
|
Warrants canceled
|
|
|
—
|
|
|
|
—
|
Warrants exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Balance, March 31, 2017
|
|
|
3,952,675
|
|
|
$
|
0.03
|
All
warrants outstanding as of March 31, 2017 are exercisable.
8.
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 the three months ending March 31, 2017 the Company made principal payments of $0.
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. During 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." $1,000,000 in notes have reached their initial maturity date
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 May 30, 2016. As of March 31, 2017, no payments had been made towards the principal balance.
On
June 28, 2016, the Company entered into a promissory note pursuant to which we borrowed $10,000. Interest under the note is at
10% per annum, and the principal and all accrued but unpaid interest was due on December 31, 2016.
On
March 31, 2017, the Company entered into a promissory note pursuant to which we borrowed $15,000. Interest under the note is at
0% per annum, and the principal is due on Demand.
As
of March 31, 2017, $2,347,900 of the Notes were due in less than 12 months and have been classified as current notes payable.
9. RELATED
PARTY TRANSACTIONS
During
the three months ended March 31, 2017, officers of the Company advanced $4,200 to support the daily operations of the company.
The advance is due on demand and bears no interest. $1,270 in advances were repaid during the three months ending March 31, 2017.
As
of March 31, 2017, $73,200 remained due to related parties as repayment for advanced and loaned monies, all other related party
notes have been extinguished or re-negotiated as convertible notes. See note 9.
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
10.
CONVERTIBLE NOTES PAYABLE
Convertible
Notes Payable at consists of the following:
|
|
|
|
|
|
|
|
March
31, 2017
|
|
|
December
31, 2016
|
$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
|
|
|
|
|
|
|
|
|
$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 $14,491 during the three months ended March 31, 2017. The original
issue discount feature is valued under the intrinsic value method.
|
|
|
135,000
|
|
|
|
135,000
|
Unamortized
debt discount
|
|
|
(33,489)
|
|
|
|
(47,980)
|
Total,
net of unamortized discount
|
|
|
101,511
|
|
|
|
87,020
|
|
|
|
|
|
|
|
|
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 $4,055 during the three months ended March 31, 2017. The beneficial conversion
feature is valued under the intrinsic value method
|
|
|
38,000
|
|
|
|
38,000
|
Unamortized
debt discount
|
|
|
-
|
|
|
|
(4,055)
|
Total,
net of unamortized discount
|
|
|
38,000
|
|
|
|
33,945
|
|
|
|
|
|
|
|
|
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 $1,732 during the three months ended March 31, 2017. The beneficial conversion
feature is valued under the intrinsic value method
|
|
|
20,000
|
|
|
|
20,000
|
Unamortized
debt discount
|
|
|
(6,197)
|
|
|
|
(7,929)
|
Total,
net of unamortized discount
|
|
|
13,803
|
|
|
|
12,071
|
On
August 11, 2016, the Company entered into a convertible promissory note pursuant to which it borrowed $15,000. Interest
under the convertible promissory note is 9% per annum, and the principal and all accrued but unpaid interest is due on
August 11, 2018. The note is convertible into shares of our common stock at a variable conversion price of 90% of the
average 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
Company has determined the value associated with the beneficial conversion feature in connection with the notes negotiated
on August 11, 2016 to be $14,728. The aggregate original issue discount feature has been accreted and charged to interest
expenses as a financing expense in the amount of $1,816 during the three months ended March 31, 2017. The beneficial conversion
feature is valued under the intrinsic value method
|
|
|
15,000
|
|
|
|
15,000
|
Unamortized
debt discount
|
|
|
(10,047)
|
|
|
|
(11,863)
|
Total,
net of unamortized discount
|
|
|
4,953
|
|
|
|
3,137
|
On
August 31, 2016, the Company entered into a convertible promissory note pursuant to which it settled $50,000 in convertible
notes and accrued interest of $3,404. Interest under the convertible promissory note is 10% per annum, and the principal
and all accrued but unpaid interest is due on December 31, 2016. The note is convertible into 5,340,283 shares of the
Company’s common stock at a price of $0.01 per share and 2,670,142 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 August 31, 2016 to be $32,121. The aggregate original issue discount feature has been accreted and charged to interest
expenses as a financing expense in prior years. The beneficial conversion feature is valued under the intrinsic value
method
|
|
|
53,404
|
|
|
|
53,404
|
Unamortized
debt discount
|
|
|
-
|
|
|
|
-
|
Total,
net of unamortized discount
|
|
|
53,404
|
|
|
|
53,404
|
On
January 27, 2017, the Company entered into a convertible promissory note pursuant to which it borrowed $10,000. Interest
under the convertible promissory note is 9% per annum, and the principal and all accrued but unpaid interest is due on
January 27, 2019. The note is convertible into shares of our common stock at a variable conversion price of 90% of the
average 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
Company has determined the value associated with the beneficial conversion feature in connection with the notes negotiated
on January 27, 2017 to be $2,138. The aggregate original issue discount feature has been accreted and charged to interest
expenses as a financing expense in the amount of $184 during the three months ended March 31, 2017. The beneficial conversion
feature is valued under the intrinsic value method
|
|
|
10,000
|
|
|
|
-
|
Unamortized
debt discount
|
|
|
(1,954)
|
|
|
|
-
|
Total,
net of unamortized discount
|
|
|
8,046
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
$
|
1,359,303
|
|
|
$
|
1,329,163
|
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11.
CONVERTIBLE NOTES PAYABLE RELATED PARTY
Convertible
Notes Payable Related Party at consists of the following:
|
|
|
|
|
|
|
|
March
31, 2017
|
|
|
December
31, 2016
|
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 $166,969 during
the year ended December 31, 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. The Company settled $89,340 of the outstanding
balance through the issuance of a new note on October 19, 2016
On
October 20, 2016, the Company re-negotiated $982,253 of the unsecured notes payable. Under the modified terms the $982,253
face value notes maturity date was extended until December 31, 2019 and adjusted to the current market prices. At the
investor’s option until the repayment date, the note can be converted to shares of the Company’s common stock
at a fixed price of $0.01 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. In accordance with ASC 470, the Company
has determined the value associated with the beneficial conversion feature in connection with the re-negotiated notes
on October 20, 2016 to be $982,253. The aggregate beneficial conversion feature has been accreted and charged to interest
expenses as a financing expense in the amount of $76,752 during the three months ended March 31, 2017. The beneficial
conversion feature is valued under the intrinsic value method.
|
|
|
982,253
|
|
|
|
982,253
|
Unamortized
debt discount
|
|
|
(844,899)
|
|
|
|
(921,651)
|
|
|
|
|
|
|
|
|
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 $10,332 during the three
months ended March 31, 2017. 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.
On
October 19, 2016, the Company settled $21,716 of the outstanding balance through the issuance of a new note.
|
|
|
299,316
|
|
|
|
299,316
|
Unamortized
debt discount
|
|
|
(10,286)
|
|
|
|
(20,618)
|
|
|
|
|
|
|
|
|
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 $8,974 during the three months ended March 31, 2017. The beneficial conversion feature
is valued under the intrinsic value method.
|
|
|
182,083
|
|
|
|
182,083
|
Unamortized
debt discount
|
|
|
(27,410)
|
|
|
|
(36,384)
|
|
|
|
|
|
|
|
|
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 $3,487 during the three months
ended March 31, 2017. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
106,152
|
|
|
|
106,152
|
Unamortized
debt discount
|
|
|
(17,673)
|
|
|
|
(21,160)
|
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 $4,680 during the three months ended March 31, 2017. The beneficial conversion feature is valued
under the intrinsic value method.
|
|
|
142,501
|
|
|
|
142,501
|
Unamortized
debt discount
|
|
|
(33,264)
|
|
|
|
(37,944)
|
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 $5,823 during the three months ended March 31, 2017. The beneficial conversion feature is valued
under the intrinsic value method.
|
|
|
118,126
|
|
|
|
118,126
|
Unamortized
debt discount
|
|
|
(53,111)
|
|
|
|
(58,934)
|
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 $1,994 during the three months ended March 31, 2017. The beneficial conversion feature is valued
under the intrinsic value method.
|
|
|
40,558
|
|
|
|
40,558
|
Unamortized
debt discount
|
|
|
(20,233)
|
|
|
|
(22,227)
|
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 $2,830 during the three months ended March 31, 2017. The beneficial conversion feature is valued
under the intrinsic value method.
|
|
|
65,295
|
|
|
|
65,295
|
Unamortized
debt discount
|
|
|
(31,613)
|
|
|
|
(34,443)
|
|
|
|
|
|
|
|
|
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
$16,831 during the three months ended March 31, 2017. The beneficial conversion feature is
valued under the intrinsic value method.
|
|
|
343,687
|
|
|
|
343,687
|
Unamortized
debt discount
|
|
|
(256,417)
|
|
|
|
(273,248)
|
|
|
|
|
|
|
|
|
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
$864. The aggregate beneficial conversion feature has been accreted and charged to interest
expenses as a financing expense in the amount of $54 during the three months ended March 31,
2017. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
3,600
|
|
|
|
3,600
|
Unamortized
debt discount
|
|
|
(655)
|
|
|
|
(709)
|
|
|
|
|
|
|
|
|
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 $366 during the three months ended March 31, 2017. The beneficial conversion feature is
valued under the intrinsic value method.
|
|
|
33,333
|
|
|
|
33,333
|
Unamortized
debt discount
|
|
|
(7,042)
|
|
|
|
(7,408)
|
|
|
|
|
|
|
|
|
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 has been accreted and charged to interest expenses as a financing expense in the amount of $1,398 during
the three months ended March 31, 2017. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
192,417
|
|
|
|
192,417
|
Unamortized
debt discount
|
|
|
(24,109)
|
|
|
|
(25,507)
|
|
|
|
|
|
|
|
|
On
July 8, 2016, the Company re-negotiated accrued salaries and interest for one employee. Under
the terms of the agreement, $2,000 of accrued salaries not previously converted were converted
to promissory notes convertible into common stock with a warrant feature. The $2,000 face
value promissory notes are unsecured, due on December 31, 2021, 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 $0.01 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
$1,012. The aggregate beneficial conversion feature has been accreted and charged to interest
expenses as a financing expense in the amount of $46 during the three months ended March 31,
2017. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
2000
|
|
|
|
2000
|
Unamortized
debt discount
|
|
|
(877)
|
|
|
|
(923)
|
|
|
|
|
|
|
|
|
On
September 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 $0.01 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 $2,080. The aggregate beneficial
conversion feature has been accreted and charged to interest expenses as a financing expense in the amount of $103 during
the three months ended March 31, 2017. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
3,600
|
|
|
|
3,600
|
Unamortized
debt discount
|
|
|
(1,872)
|
|
|
|
(1,975)
|
|
|
|
|
|
|
|
|
On
October 19, 2016, the Company re-negotiated two notes with an employee of the Company. Under the terms of the agreements,
$111,056 of convertible promissory notes due on December 31, 2016 and June 30, 2017 were converted to promissory notes
convertible into common stock with a warrant feature. The $111,056 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 $0.01 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 $42,924. The aggregate beneficial conversion feature has been accreted and charged to interest expenses
as a financing expense in the amount of $2,115 during the year ended March 31, 2017. The beneficial conversion feature
is valued under the intrinsic value method.
|
|
|
111,056
|
|
|
|
111,056
|
Unamortized
debt discount
|
|
|
(39,093)
|
|
|
|
(41,208)
|
|
|
|
|
|
|
|
|
On
December 30, 2016, the Company re-negotiated accrued salaries and interest for three employees.
Under the terms of the agreements, $186,375 of accrued salaries not previously converted were
converted to promissory notes convertible into common stock with a warrant feature. The $186,375
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 $0.01 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
$186,375. The aggregate beneficial conversion feature has been accreted and charged to interest
expenses as a financing expense in the amount of $9,185 during the three months ended March
31, 2017. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
186,375
|
|
|
|
186,375
|
Unamortized
debt discount
|
|
|
(177,088)
|
|
|
|
(186,273)
|
|
|
|
|
|
|
|
|
|
|
$
|
1,266,710
|
|
|
$
|
1,121,740
|
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
12.
STOCKHOLDERS’ DEFICIT
The
Company is authorized to issue 200,000,000 shares of $0.001 par value common stock. The Company had 123,935,319 and 123,835,319
issued and outstanding shares of common stock as of March 31, 2017 and December 31, 2017, respectively.
On
February 23, 2017, 100,000 shares of the Company’s common stock were issued to a consultant for services. The shares were
fair valued at $4,000 or $0.04 per share.
13.
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 March 31, 2017, are as follows:
Rental
expense, resulting from operating lease agreements, approximated $12,557 and $10,786 for the three months ended March 31, 2017
and 2016, 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.
|
Kintari
USA Inc. commenced business in January 2015 in the U.S. and Kintari Canada Inc. in September 2016. Kintari Int. Inc. is the parent
company to Kintari USA Inc. and Kintari Canada 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.
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
14.
SUBSEQUENT EVENTS
Securities
purchase agreement
On
April 7, 2017, Skinvisible, Inc. (the “Company” ), entered into a Securities Purchase Agreement (the “Securities
Purchase Agreement”) with Labrys Fund, LP (the “Purchaser”), pursuant to which the Company issued to the Purchaser
a Convertible Promissory Note (the “Note”) in the aggregate principal amount of $160,000. The Note has a maturity
date of January 7, 2018 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of
ten percent (10%) per annum from the date on which the Note is issued (the “Issue Date”) until the same becomes due
and payable, whether at maturity or upon acceleration or by prepayment or otherwise.
The
Company has the right to prepay the Note, provided it makes a payment to the Purchaser as set forth in the Note within 180 days
of its Issue Date. The transactions described above closed on April 19, 2017. In connection with the issuance of the Note, the
Company issued to the Purchaser, as a commitment fee, 5,772,006 shares of its common stock (the “Returnable Shares”)
as well as 400,000 shares of its common stock (the “Non-Returnable Shares”), as further provided in the Note. The
Returnable Shares shall be returned to the Company’s treasury if no Event of Default (as defined in the Note) has occurred
on or prior to the date that the Note is fully repaid and satisfied. The Non-Returnable Shares are earned on the Initial Date.
In connection with the issuance of the Note, the Company shall also issue warrants to purchase 400,000 shares of the Company’s
common stock (the “Warrants”).
The
outstanding principal amount of the Note (if any) is convertible at any time and from time to time at the election of the Purchaser
during the period beginning on the date that is 180 days following the Issue Date into shares of the Company’s common stock,
par value $0.001 per share (the “Common Stock”) at a conversion price set forth in the Note, subject to adjustment
as set forth in the Note. In addition, upon the occurrence and during the continuation of an Event of Default (as defined in the
Note), the Note will become immediately due and payable and the Company has agreed to pay to the Purchaser, in full satisfaction
of its obligations thereunder, additional amounts as set forth in the Note.
The
Note contains certain covenants, such as restrictions on: (i) distributions on capital stock, (ii) stock repurchases, (iii) certain
loans, and (iii) sales and the transfer of assets. The Note also contains certain anti-dilution provisions that apply in connection
with any stock split, stock dividend, stock combination, recapitalization or similar transactions. In addition, subject to limited
exceptions, the Purchaser will not have the right to convert any portion of the Note if the Purchaser, together with its affiliates,
would beneficially own in excess of 4.99% of the number of shares of the Company’s Common Stock outstanding immediately
after giving effect to its conversion.
Consulting
agreement
On
May 1. 2017, the Company entered into a consulting agreement and agreed to issue 1,154,000 shares of the Company’s common
stock in exchange for three months of services. The shares were valued at $0.0325 or $37,500.
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.
Strategic
Growth Opportunities
Our
growth strategy is to:
|
1.
|
Generate
revenue from direct sales of our cosmeceutical/OTC product line;
|
|
2.
|
Generate
revenue from online sales and private label / bulk orders of our Kintari branded products;
|
|
3.
|
Capitalize
on the success of current licensees;
|
|
4.
|
Increase
the value of our current pipeline; and
|
|
5.
|
Boost
licensing revenues by securing additional licensees globally and develop a robust royalty
revenue stream that will finance our future growth.
|
Our
Cosmeceutical/OTC Product Line
Kintari
Int. Inc.
Kintari
Int. Inc. was incorporated in the Province of Alberta, Canada. The company was formed to develop, market and sell Skinvisible
Pharmaceuticals, Inc.’s patented skincare products initially in the United States. Kintari Int. Inc. is our wholly-owned
subsidiary.
Previously
on April 1, 2016, Skinvisible licensed to Kintari Int. Inc. the exclusive rights to our existing line of cosmeceutical products
plus the exclusive rights to any future cosmeceutical products developed by Skinvisible plus the right-of-first-refusal on our
existing OTC products plus the right-of-first-refusal to any future OTC products developed by us in exchange for a 100% equity
position in Kintari Int. Inc. This inter-company agreement has now been dissolved and all rights still remain with Skinvisible
Pharmaceuticals, Inc., as the original intent was for Kintari to operate as its own company; however, this did not transpire.
There is no change to the ownership as Skinvisible continues to own 100% of Kintari Int. Inc. and all rights thereof. Kintari
USA Inc. and Kintari Canada Inc. both continue to sell Kintari branded products through direct sales and online.
DermSafe®,
our hand sanitizer formulated with Invisicare® and chlorhexidine gluconate has been launched in Canada by our subsidiary Kintari
Canada Inc. where it has Health Canada approval. We launched DermSafe in August, 2016 in Canada through our Kintari Canadian website
for retail customers only. DermSafe is an alcohol free hand sanitizer that products against 99% of all germs. We are currently
seeking licensees and/or distributors to begin the sale of DermSafe in South America and in the EU.
Kintari
Products in China:
In
the thrid quarter of 2016, Kintari Int. Inc. signed an exclusive distribution agreement with InterSpace Global Inc. InterSpace
Global Inc. is an exporter of “Made in USA” products and has offices in Salt Lake City, Utah and Shenzhen, China.
This new agreement provides for a more efficient export of Skinvisible’s products from the USA and Canada into Greater China
(Includes China, Hong Kong, Macau, Taiwan, Singapore, Malaysia and Thailand). It also includes Korea.
According
to the agreement, InterSpace Global Inc. will sell Kintari products to Chinese consumers through a network of online shopping
malls and other channels.
In
addition to DermSafe, Skinvisible will supply its Kintari –branded portfolio of globally patented skincare products made
with its Invisicare® delivery technology.
The
Kintari product portfolio consists of two anti-aging products to help fight the signs of aging, a broad spectrum sunscreen along
with our latest Hand & Body Lotion products. 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.
Our
sunscreen is a broad spectrum SPF 30 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.
Topical
and Transdermal Cannabis:
On
September 15, 2016, we licensed the exclusive world rights to our topical and transdermal cannabis products formulated with Invisicare
to CannaSkin, LLC, a cannabis product licensing company with international contacts in the medical marijuana industry. Skinvisible
will be an ancillary business to this industry, providing Invisicare polymers and formulations to licensed producers.
CannaSkin
has the exclusive license to manufacture, market and sub-license our new cannabis products. Their targets will initially include
facilities in the 29 United States jurisdictions currently approved for medical marijuana. Skinvisible has successfully formulated
high-quality topical and transdermal cannabinoid products containing CBD and in the near future will add THC. CBD has proven to
have many therapeutic effects and it does not produce the "high" associated with THC. Cannabinoids have been used for
pain management and to treat many skin conditions, from acne, eczema, psoriasis, skin cancer, to anti-aging, due to their anti-oxidant
and anti-inflammatory properties. Our Invisicare technology allows for the superior binding of these products to the skin, a controlled
release of the cannabinoids both topically and transdermally, as well as providing patent protection. Cannabis is being touted
as a groundbreaking health solution and Skinvisible plans to bring science-based, patent protected products into this emerging
market.
Capitalize
On Current Licensees:
We
have: 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 continued increased growth
in 2017. 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
Additional
Skinvisible Products
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:
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 either under Kintari or a licensee. 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.
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We
have developed two cannabis-based products with CBD from imported hemp (non-psychoactive)
and will continue to develop an entire line of cannabis-based products which will include
CBD and THC from marijuana. The cannabis market that Skinvisible has entered is vast
and one of the fastest growing markets. There is a growing positive public opinion regarding
the cannabis industry due to the increasing amount of encouraging scientific research
proving the benefits and the increasingly supportive cannabis laws. The legal marijuana
industry (medical and recreational) in the USA has reached over $6 billion in annual
sales and is expected to increase to over $20 billion by 2020. In Canada, where the entire
country is primed to add recreational marijuana nationally next year, the market is projected
to reach $2.5 billion, with some future estimates at a staggering $10 to $22 billion
annually. Skinvisible is poised to be a part of this expanding market by providing ancillary
products (Invisicare) and services. It is part of the ancillary cannabis market as Skinvisible
does not sell or touch cannabis; it sells its proprietary Invisicare polymers coupled
with proven product formulations and services to its licensees. Skinvisible will help
bring science-based, patent protected products into this emerging industry.
S
ecure
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 Months Ended March 31, 2017 and 2016
Revenues
Our
revenue from product sales, royalties on patent licenses and license fees for the three months ended March 31, 2017 was $12,512,
a decrease from $28,337 for the same period ended March 31, 2016.
The
decrease in revenue for the three months ended March 31, 2017 was mainly due to a reduction in product sales. We hope to achieve
increased revenues for the rest of 2017, as a result of our distribution agreement with Interspace Global and our license agreement
in the cannabis industry, along with our direct and online sales of Kintari products.
Cost
of Revenues
Our
cost of revenues for the three months ended March 31, 2017 decreased to $1,561 from the prior year period when cost of revenues
was $4,627. Our cost of revenues decreased for the three months ended March 31, 2017 over the prior year period 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 March 31, 2017 was $10,951, or approximately 88% of sales. Gross profit for the three months
ended March 31, 2016 was $23,710, or approximately 83% of sales.
Operating
Expenses
Operating
expenses decreased to $165,177 for the three months ended March 31, 2017 from $337,787 for the same period ended March 31, 2016.
Our
operating expenses for the three months ended March 31, 2017 consisted mainly of accrued salaries and wages of $95,240, consulting
fees of $28,585, depreciation and amortization expenses of $14,008, rent of $12,557 and insurance of $7,301. In comparison, our
operating expenses for the three months ended March 31, 2016 consisted mainly of consulting fees of $145,952, accrued salaries
and wages of $93,240, accounting and audit expenses of $17,046, depreciation and amortization expenses of $14,477, salaries and
wages of $11,250, rent of $10,786, travel fees of $6,245 and legal fees of $6,228.
Interest
Expense
We
had interest expense of $324,758 for the three months ended March 31, 2017, compared with other expenses of $315,276 for the three
months ended March 31, 2016.
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
$3,444,010 that have matured. In addition, we also have a number of unsecured promissory notes with an aggregate principal amount
of $144,880 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 $478,984 for the three months ended March 31, 2017, as compared with a net loss of $629,353 for the three
months ended March 31, 2016.
Liquidity
and Capital Resources
As
of March 31, 2017, we had total current assets of $90,077 and total assets in the amount of $321,834. Our total current liabilities
as of March 31, 2017 were $6,882,887. We had a working capital deficit of $6,792,810 as of March 31, 2017.
Operating
activities used $27,344 in cash for the three months ended March 31, 2017, as compared with $77,500 for the three months ended
March 31, 2016. Our net loss of $478,984 was the main component of our negative operating cash flow for the three months ended
March 31, 2017, offset mainly by an increase in accounts payable and accrued liabilities of $165,322, amortization of debt discount
of $167,247, an increase in accrued interest of $76,722 and stock based compensation of $24,000. Our net loss of $629,353 was
the main component of our negative operating cash flow for the three months ended March 31, 2016, offset mainly by amortization
of debt discount of $162,890, an increase in accounts payable and accrued liabilities of $183,921 and stock based compensation
of $133,445.
Cash
flows provided by financing activities during the three months ended March 31, 2017 amounted to $27,930, as compared with $77,500
for the three months ended March 31, 2017. Our cash flows for the three months ended March 31, 2017 consisted of $15,000 in proceeds
from convertible notes payable and $2,930 in related party debt. Our cash flows for the three months ended March 31, 2016 consisted
of $83,000 in proceeds from convertible notes payable, $57,000 in proceeds from notes payable and $9,000 in related party loans,
offset by $47,500 in payments on convertible notes payable and $24,000 on notes payable.
The
features of the debt instruments and payables concerning our financing activities are detailed in the footnotes to our financial
statements.
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 March 31, 2017, 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 $30,361,183 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 March 31, 2017, 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.