Our consolidated financial statements included in this Form 10-Q
are as follows:
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 September 30, 2018 are not necessarily indicative of the results that can be expected for
the full year.
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.
On September
26, 2017, the Company purchased 5,750,000 shares of common stock of Ovation Science Inc. (“Ovation”) for $32,286 which
at the time of purchase the Company represented 99.9% of the then issued and outstanding common stock. On March 28, 2018 the Company
sold its interest in Ovation to officers of the Company for $500,000 which represented a 37.80% interest in Ovation. As of September
30, 2018 Skinvisible Inc. owned 0% of the issued and outstanding Common stock of Ovation.
Skinvisible
granted to Ovation, and has assigned its rights under the Canopy Agreement, the exclusive worldwide right to manufacture, distribute,
sell, market, sub-license and promote the Products made with cannabis or hemp seed oil including the right to use the subject
matter of any Skinvisible patents and trademarks which cover the Products or Polymer.
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 $31,373,038 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.
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
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 instruments with original maturities of three months or less to be cash equivalents. There are $8,285 and $23,318
in cash and cash equivalents as of September 30, 2018 and December 31, 2017 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,
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 September 30, 2018, the Company had not recorded a reserve for doubtful accounts. The Company has $389,500
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 nine months ended September 30, 2018 and 2017 totaled $0 and $162,634,
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 2018-18,
and believes that none of them will have a material effect on the Company's financial position, results of operations or cash
flows except as discussed below.
Revenue from
Contracts with Customers
. In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (“ASU 2014-09”),
which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize
revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an
entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle
and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing
U.S. GAAP. Additionally, the new guidance requires enhanced disclosures about the nature, amount, timing, and uncertainty of revenue
and cash flows arising from customer contracts, including revenue recognition policies to identify performance obligations, assets
recognized from costs incurred to obtain and fulfill a contract, and significant judgments in measurement and recognition.
In July 2015,
the FASB made a decision to defer the effective date of the new standard for one year and permit early adoption as of the original
effective date. The Company is has reviewed its revenue streams and does not believe that the adoption of this standard
has a material effect on its revenue recognition in 2017 or 2018.
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. FIXED ASSETS
Fixed assets
consist of the following as of September 30, 2018 and December 31, 2017:
|
|
September 30, 2018
|
|
December 31, 2017
|
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
|
|
|
(327,373
|
)
|
|
|
(327,191)
|
Fixed assets, net of accumulated depreciation
|
|
$
|
177
|
|
|
$
|
359
|
Depreciation
expense for the nine months ended September 30, 2018 and 2017 was $182 and $243, respectively.
5.
INVENTORY
Inventory consist
of the following as of September 30, 2018 and December 31, 2017:
|
|
September 30, 2018
|
|
December 31, 2017
|
Shipping and Packing materials
|
|
$
|
8,632
|
|
|
$
|
8,684
|
Finished Goods
|
|
|
2,898
|
|
|
|
10,433
|
Raw Materials
|
|
|
6,119
|
|
|
|
6,906
|
Total
|
|
$
|
17,649
|
|
|
$
|
26,023
|
6.
INTANGIBLE AND OTHER ASSETS
Patents and
trademarks and other intangible assets are capitalized at their historical cost and are amortized over their estimated useful
lives. As of September 30, 2018, intangible assets total $671,070, net of $484,151 of accumulated amortization.
Amortization
expense for the nine months ended September 30, 2018 and 2017 was $28,964 and $42,555, 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 September 30, 2018.
7. SALE OF EQUITY
METHOD INVESTMENT IN OVATION SCIENCES INC.
On September
26, 2017, the Company purchased 5,750,000 shares of common stock of Ovation Science Inc. (“Ovation”) for $32,286 which
at the time of purchase the Company represented 99.9% of the then issued and outstanding common stock. Ovation sold shares to
investors subsequent to Skinvisible’s’ investment that diluted Skinvisible’s interest to below down to 37.8%.
On March
28, 2018, Skinvisible Inc. sold all 5,750,000 shares of Ovation Science Inc. to its officers and an employee in exchange for an
agreement to forgive $500,000 in debt. $240,115 of the debt was convertible debt owed to related parties, accordingly the Company
revalued the repurchase of the beneficial conversion feature as of the date of the transaction and recorded a corresponding gain.
As of March 28, 2018 the carrying value of the investment in Ovation was $88,158, as a result of the sale the Company recorded
a total net gain on sale of its equity method investment of $595,127 related to the sale of the Company’s interest in Ovation.
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. STOCK OPTIONS
AND WARRANTS
The following
is a summary of option activity during the nine months ended September 30, 2018.
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
Balance, December 31, 2017
|
|
|
10,600,000
|
|
|
$
|
0.03
|
Options granted and assumed
|
|
|
—
|
|
|
|
—
|
Options expired
|
|
|
(800,000
|
)
|
|
|
0.04
|
Options canceled
|
|
|
—
|
|
|
|
—
|
Options exercised
|
|
|
—
|
|
|
|
—
|
Balance, September 30, 2018
|
|
|
9,800,000
|
|
|
$
|
0.03
|
As of September
30, 2018, all stock options outstanding are exercisable.
Stock warrants
-
The following
is a summary of warrants activity during the nine months ended September 30, 2018.
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
Balance, December 31, 2017
|
|
|
7,022,975
|
|
|
$
|
0.03
|
Warrants granted and assumed
|
|
|
—
|
|
|
|
—
|
Warrants expired
|
|
|
(661,000
|
)
|
|
|
0.03
|
Warrants canceled
|
|
|
—
|
|
|
|
—
|
Warrants exercised
|
|
|
—
|
|
|
|
—
|
Balance, September 30, 2018
|
|
|
6,361,975
|
|
|
$
|
0.03
|
All warrants
outstanding as of September 30, 2018 are exercisable.
9. 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 nine months ending September 30, 2018 the Company made principal payments of $5,000.
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 were 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 maturity date.
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 were 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 quarter ending September 30, 2018, the Company executed agreements with 31 noteholders that participated in the Company’s
debt offerings between May 22, 2013 and September 30, 2015. In accordance with the agreements the Company and the investors agreed
settle a total of $1,304,875 in outstanding principal and $297,484 in accrued interest in exchange for the issuance of 40,058,976
shares. The Company fair valued the shares issuable on the date each investors signed their respective agreement, as of the September
30, 2018 the Company had not yet issued the shares to the investors, as a result of the transaction and has recorded stock payable
of $603,478 and a gain on settlement of debt of $1,017,004.
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 September
30, 2018, no payments had been made towards the principal balance.
As of September 30, 2018, $992,000
of
the outstanding notes payable were due in less than 12 months and have been classified as current notes payable.
10. RELATED
PARTY TRANSACTIONS
During the nine
months ended September 30, 2018, $10,000 was advanced by an officer and $20,000 was paid to officer in settlement of advances
provided to the Company in the current and prior years. An additional $7,260 in advances were settled as part of the purchase
of Ovation Science Inc. (see note 6 for additional details.)
As of September
30, 2018, all other related party notes have been extinguished or re-negotiated as convertible notes. (See note 9 for additional
details.)
Ovation license
agreement
Skinvisible
granted to Ovation, and has assigned its rights under the Canopy Agreement, the exclusive worldwide right to manufacture, distribute,
sell, market, sub-license and promote the Products made with cannabis or hemp seed oil including the right to use the subject
matter of any Skinvisible patents and trademarks which cover the Products or Polymer.
As
consideration for the grant of the License and the assignment of the Canopy agreement Ovation agreed to pay Skinvisible Inc. $500,000.
$250,000 is due within 90 days of execution of the Agreement and a promissory note for $250,000 is payable upon the earlier of
the company completing an initial public offering or March 31, 2018. As of September 30, 2018 Ovation has paid the initial cash
payment of $250,000 to Skinvisible Inc. and the $250,000 due under the promissory note.
The
note receivable from Ovation did not bear interest per the agreement as a result the Company has imputed interest in accordance
with ASC 835-30. The interest has been recorded as a debt discount and is being amortized over the note term. During the nine
months ended September 30, 2018, the Company recorded $4,807 in interest income related to the note receivable.
During
the year ending December 31, 2017, the Company recorded the full $500,000 in license revenue as earned in accordance with ASU
2016-10.
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. CONVERTIBLE
NOTES PAYABLE
Convertible Notes Payable at consists of
the following:
|
September 30,
|
|
December 31,
|
|
2018
|
|
2017
|
$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 $111,110. The aggregate
beneficial conversion feature has been accreted and charged to interest expenses as a financing expense. The beneficial conversion
feature is valued under the intrinsic value method. The notes have reach maturity and are now in default, under the notes default
provisions the entire balance is now due upon demand.
During
the quarter ending September 30, 2018, the Company executed agreements with 14 noteholders that participated in the Company’s
convertible debt offering. In accordance with the agreements the Company and the investors agreed settle a total of 745,500$ in
outstanding principal and $170,985 in accrued interest in exchange for the issuance of 22,912,124shares.
As of the September 30, 2018 the Company had
not yet issued the shares to the investors The company treated the loan modification as a debt repurchase and as a result of the
transaction has recorded stock payable of $916,485.
|
|
254,500
|
|
|
1,000,000
|
Original issue discount
|
|
-
|
|
|
-
|
Unamortized debt discount
|
|
-
|
|
|
-
|
Total, net of unamortized
discount
|
|
254,500
|
|
|
1,000,000
|
|
|
|
|
|
|
$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 beneficial
conversion feature has been accreted and charged to interest expenses as a financing expense.
The beneficial conversion feature is valued under the intrinsic value method.
|
|
135,000
|
|
|
135,000
|
Unamortized debt discount
|
|
-
|
|
|
-
|
Total, net of unamortized
discount
|
|
135,000
|
|
|
135,000
|
|
|
|
|
|
|
|
|
|
|
|
|
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 beneficial conversion feature feature has been accreted and charged
to interest expenses as a financing expense in the amount of $904 during the nine months ended September 30, 2018. The
beneficial conversion feature is valued under the intrinsic value method
|
|
20,000
|
|
|
20,000
|
Unamortized debt discount
|
|
-
|
|
|
(904)
|
Total, net of unamortized
discount
|
|
20,000
|
|
|
19,096
|
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 beneficial conversion feature has been accreted and charged to interest
expenses as a financing expense in the amount of $4,499 during the nine months ended September 30, 2018. The beneficial
conversion feature is valued under the intrinsic value method
|
|
15,000
|
|
|
15,000
|
Unamortized debt
discount
|
|
-
|
|
|
(4,499)
|
Total, net of unamortized
discount
|
|
15,000
|
|
|
10,501
|
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 beneficial conversion feature has been accreted and charged to interest
expenses as a financing expense in the amount of $800 during the nine months ended September 30, 2018. The beneficial
conversion feature is valued under the intrinsic value method
|
|
10,000
|
|
|
10,000
|
Unamortized debt discount
|
|
(348)
|
|
|
(1,148)
|
Total, net of unamortized
discount
|
|
9,652
|
|
|
8,852
|
|
|
|
|
|
|
|
$
|
434,152
|
|
$
|
1,173,449
|
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
12. CONVERTIBLE
NOTES PAYABLE RELATED PARTY
Convertible Notes Payable Related Party
at consists of the following:
|
September 30,
|
|
December 31,
|
|
2018
|
|
2017
|
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 six 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 190,819 during the nine months ended September 30, 2018. The beneficial conversion feature is
valued under the intrinsic value method.
One
March 28, 2018, $238,115 of the notes were settled as part of the purchase of Ovation Science Inc. (see note 6 for additional
details.)
|
|
744,137
|
|
|
982,253
|
Unamortized debt discount
|
|
(292,417)
|
|
|
(614,434)
|
|
|
|
|
|
|
On
June 30, 2012, the Company re-negotiated accrued salaries and interest for six 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 six 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. 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.
On July
1, 2017, the Company renewed the outstanding notes. Under the terms of the agreements, the due date of the notes were
extended to July 1, 2022. The promissory notes are unsecured, 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 $0.03 per share for six years after the conversion date. The Company has determined the value associated with the beneficial
conversion feature in connection with the modified terms of the notes to be $198,859. The aggregate beneficial conversion
feature has been accreted and charged to interest expenses as a financing expense in the amount of $29,385 during the
nine months ended September 30, 2018. The beneficial conversion feature is valued under the intrinsic value method.
|
|
299,316
|
|
|
299,316
|
Unamortized debt discount
|
|
(149,273)
|
|
|
(178,658)
|
|
|
|
|
|
|
On December 30 and 31, 2012, the Company
re-negotiated accrued salaries and interest for six 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 six 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. The beneficial
conversion feature is valued under the intrinsic value method.
|
|
182,083
|
|
|
182,083
|
Unamortized debt discount
|
|
-
|
|
|
-
|
|
|
|
|
|
|
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 six 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 $7,015 during the nine months ended September 30, 2018. The
beneficial conversion feature is valued under the intrinsic value method.
|
|
106,152
|
|
|
106,152
|
Unamortized debt discount
|
|
-
|
|
|
(7,015)
|
On December
31, 2013, the Company re-negotiated accrued salaries and interest for six 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 six 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 $14,187 during the nine months ended September 30, 2018. The beneficial conversion feature is
valued under the intrinsic value method.
|
|
142,501
|
|
|
142,501
|
Unamortized debt discount
|
|
(4,784)
|
|
|
(18,971)
|
On June
30, 2014, the Company re-negotiated accrued salaries and interest for six 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 six 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 $17,660 during the nine months ended September 30, 2018. The beneficial conversion feature is
valued under the intrinsic value method.
|
|
118,126
|
|
|
118,126
|
Unamortized debt discount
|
|
(17,661)
|
|
|
(35,321)
|
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 six 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 $6,050 during the nine months ended September 30, 2018. The beneficial conversion feature is
valued under the intrinsic value method.
|
|
40,558
|
|
|
40,558
|
Unamortized debt discount
|
|
(8,089)
|
|
|
(14,139)
|
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 six 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 $8,584 during the nine months ended September 30, 2018. The beneficial conversion feature is
valued under the intrinsic value method.
|
|
65,295
|
|
|
65,295
|
Unamortized debt discount
|
|
(14,378)
|
|
|
(22,962)
|
|
|
|
|
|
|
On
December 31, 2015, the Company re-negotiated accrued salaries and interest for six 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 six 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 $56,650
during the nine months ended September 30, 2018. The beneficial conversion feature is valued
under the intrinsic value method.
On March
30, 2018, $14,400 of debt and the associated interest of $3,118 was converted into common stock at a price of $0.036 per
share. The company treated the loan modification as a debt repurchase and recorded a corresponding loss on settlement
of debt of $8,200.
|
|
329,287
|
|
|
343,687
|
Unamortized debt
discount
|
|
(148,334)
|
|
|
(204,984)
|
|
|
|
|
|
|
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 six 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 $53 during the nine months ended September
30, 2018. The beneficial conversion feature is valued under the intrinsic value method.
On March
30, 2018, $3,600 of debt and the associated interest of $779 was converted into common stock at a price of $0.036 per
share. The company treated the loan modification as a debt repurchase and recorded a corresponding loss on settlement
of debt of $2,050
|
|
-
|
|
|
3,600
|
Unamortized debt discount
|
|
-
|
|
|
(490)
|
|
|
|
|
|
|
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 six 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 $292 during the nine months ended September 30, 2018. The beneficial conversion feature
is valued under the intrinsic value method.
On March
30, 2018, $33,333 of debt and the associated interest of $6,301 was converted into common stock at a price of $0.03 per
share. The company treated the loan modification as a debt repurchase and recorded a corresponding loss on settlement
of debt of $7,603.
|
|
-
|
|
|
33,333
|
Unamortized debt discount
|
|
-
|
|
|
(5,927)
|
|
|
|
|
|
|
On
June 30, 2016, the Company re-negotiated accrued salaries and interest for six 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 six 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 $4,753 during the nine months ended September
30, 2018. The beneficial conversion feature is valued under the intrinsic value method.
On March
30, 2018, $3,600 of debt and the associated interest of $779 was converted into common stock at a price of $0.036 per
share. The company treated the loan modification as a debt repurchase and recorded a corresponding loss on settlement
of debt of $2,050
|
|
188,817
|
|
|
192,417
|
Unamortized debt discount
|
|
(15,084)
|
|
|
(19,837)
|
|
|
|
|
|
|
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 six 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 $44 during the nine months ended September
30, 2018. The beneficial conversion feature is valued under the intrinsic value method.
One
March 28, 2018, $2,000 of the notes were settled as part of the purchase of Ovation Science Inc. (see note 6 for additional
details.)
|
|
-
|
|
|
2,000
|
Unamortized debt discount
|
|
-
|
|
|
(738)
|
|
|
|
|
|
|
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 six 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 $102 during
the nine months ended September 30, 2018. The beneficial conversion feature is valued under the intrinsic value method.
On March
30, 2018, $3,600 of debt and the associated interest of $779 was converted into common stock at a price of $0.036 per
share. The company treated the loan modification as a debt repurchase and recorded a corresponding loss on settlement
of debt of $2,050
|
|
-
|
|
|
3,600
|
Unamortized debt discount
|
|
-
|
|
|
(1,559)
|
|
|
|
|
|
|
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 six 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 $6,419 during the nine months ended September 30, 2018. The beneficial conversion feature is
valued under the intrinsic value method.
|
|
111,056
|
|
|
111,056
|
Unamortized debt discount
|
|
(26,209)
|
|
|
(32,628)
|
|
|
|
|
|
|
On
December 30, 2016, the Company re-negotiated accrued salaries and interest for six 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 six 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 $30,204 during the nine months ended September
30, 2018. The beneficial conversion feature is valued under the intrinsic value method.
On March
30, 2018, $3,600 of debt and the associated interest of $779 was converted into common stock at a price of $0.036 per
share. The company treated the loan modification as a debt repurchase and recorded a corresponding loss on settlement
of debt of $2,050
|
|
182,775
|
|
|
186,375
|
Unamortized debt discount
|
|
(118,814)
|
|
|
(149,018)
|
|
|
|
|
|
|
On
July 1, 2017, the Company re-negotiated accrued salaries and interest for six employees. Under
the terms of the agreements, $178,439 of accrued salaries not previously converted were converted
to promissory notes convertible into common stock with a warrant feature. The $178,439 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 $0.03 per share for six years after the conversion date. The Company has determined the
value associated with the beneficial conversion feature in connection with the notes to be
$118,800. The aggregate beneficial conversion feature has been accreted and charged to interest
expenses as a financing expense in the amount of 17,762 during the nine months ended September
30, 2018. The beneficial conversion feature is valued under the intrinsic value method.
|
|
178,439
|
|
|
178,439
|
Unamortized debt discount
|
|
(89,133)
|
|
|
(106,895)
|
|
|
|
|
|
|
|
$
|
1,804,366
|
|
$
|
1,577,215
|
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
13. STOCKHOLDERS’
DEFICIT
The Company
is authorized to issue 200,000,000 shares of $0.001 par value common stock. The Company had 144,830,920 and 136,864,035 issued
and outstanding shares of common stock as of September 30, 2018 and December 31, 2017, respectively.
On February
5, 2018 the Company executed an agreement to issue 1,634,565 shares of common stock with a fair value of $39,230 or $0.024 per
share to a note holder in settlement of $32,691 in accrued interest. A loss on settlement of debt of $6,540 as a result of the
transaction.
On March 13,
2018 the Company executed an agreement to issue 1,560,000 shares of common stock to an individual in settlement of $39,000 in
accounts payable. The shares were fair valued on the date of issuance at $35,256 or $0.0226 per share, as a result, a gain on
settlement of debt of $3,744 was recorded.
On March 22,
2018 the Company executed an agreement to issue 1,333,320 shares of common stock to a former employee of the Company related to
the conversion of debt.
On March 13,
2018 the Company executed an agreement to issue 960,000 shares of common stock to an former director of the Company in settlement
of a total of $35,035 in convertible notes.
During the quarter
ending September 30, 2018, the Company executed agreements with 45 noteholders that participated in the Company’s debt offerings
between May 22, 2013 and September 30, 2015. In accordance with the agreements the Company and the investors agreed to settle
a total of $2,050,375 in outstanding principal and $468,469 in accrued interest in exchange for the issuance of 62,971,100 shares.
The Company fair valued the shares issuable on the date each investors signed their respective agreement, as of the September
30, 2018 the Company had not yet issued the shares to the investors, as a result of the transaction and has recorded stock payable
of $1,519,963 and a gain on settlement of debt of $1,026,156.
14. 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 September 30, 2018, are as follows:
2018
- $11,434
2019
- $11,434
Rental expense,
resulting from operating lease agreements, approximated $40,821 and $34,351 for the nine months ended September 30, 2018 and 2017,
respectively.
Kintari Inc.
- 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. continues to sell Kintari branded products through online sales.
Canopy license
agreement
- On September 15, 2017 Canopy Growth Corporation ("Canopy Growth") and Skinvisible Pharmaceuticals, Inc.
("Skinvisible"), signed a definitive license agreement for Skinvisible's patented topical formulations. Per the agreement,
Canopy Growth is exclusively licensed to distribute Skinvisible's topical products in Canada, and shall have a first right of
refusal for all other countries, excluding China and the United States.
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
agreement covers two distinct product lines made with Skinvisible's Invisicare® technology. Skinvisible will first develop
unique topical hemp-based products that will be launched by Canopy Hemp Corporation in Canada and the United States. The agreement
also includes potential cannabis-based topical products using the Invisicare® technology when and if federal regulations permit
CBD or THC infused topical products for sale in Canada.
Ovation
license agreement
– On September 29, 2017, the Company entered into a licensing agreement with Ovation Science Inc.
Payment
due under the agreement
- As consideration for the grant of the License and the assignment of the Canopy agreement Ovation
agreed to pay Skinvisible Inc. $500,000. $250,000 is due within 90 days of execution of the Agreement and a promissory note for
$250,000 is payable upon the earlier of the company completing an initial public offering or March 31, 2018.
As
of September 30, 2018 Ovation had paid the initial cash payment of $250,000 to Skinvisible Inc. and $250,000 in accordance with
the promissory note agreement.
Rights
of Ovation under the agreement
- Skinvisible granted to Ovation, subject to its rights granted under the Canopy Agreement,
the exclusive worldwide right to manufacture, distribute, sell, market, sub-license and promote the Products including the right
to use the subject matter of any Skinvisible patents and trademarks which cover the Products or Polymer.
Skinvisible
further assigned to Ovation its interest in the Canopy Agreement. Under the terms of the agreement Ovation is entitled to keep
100% of the royalties, license fees, development fees or any other fees associated with the Products and keep 100% of any future
revenues generated under the Canopy Agreement. Ovation assumed and agreed to perform all the remaining and executory obligations
of Skinvisible under Ovation’s License.
Skinvisible
agreed at allow Ovation to manufacture any of the Invisicare® Polymers required only for the Products and will provide the
information and all relevant documentation and instructions necessary to manufacture Invisicare and Products. Ovation shall bear
all costs incurred in connection to duties, taxes, importation documentation and costs arising from regulatory requirements in
the Territory. Ovation also has the right to hire Skinvisible R&D staff for development of new Products. Ovation shall be
entitled to modify, alter, improve, or change (collectively "modify" or "modification") any or all of the
Products covered by this Agreement at any time during the term of this Agreement.
15.
MERGER AGREEMENT
On March 26,
2018, Skinvisible, Inc. (“
Parent
”) entered into an Agreement and Plan of Merger (the “
Merger
Agreement
”) with Quoin Pharmaceuticals, Inc., a Delaware corporation (the “
Company
”),
and Quoin Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Parent (“
Merger Sub
”).
The Merger
Agreement provides that, subject to the terms and conditions set forth in the Merger Agreement, Merger Sub will merge with and
into the Company (the “
Merger
”), with the Company surviving the Merger as a wholly-owned subsidiary
of Parent. At the effective time of the Merger, the issued and outstanding common shares of the Company (“
Company
Common Shares
”) will automatically be converted into the right to receive approximately 72.5% of the outstanding
equity of Parent (the “
Merger Consideration
”). Existing Parent shareholders will have a right to the
remaining 27.5% of the outstanding equity of Parent, which is subject to diminution if certain indebtedness of Parent is not converted
into Parent Common Stock.
Each
of the Company, Parent, and Merger Sub has made various representations and warranties and agreed to certain covenants in the
Merger Agreement. Parent also has agreed to other covenants in the Merger Agreement, including, without limitation, to cause a
special meeting of Parent’s shareholders to be held as promptly as practicable to consider and approve the Merger Agreement
and the Merger, along with the issuance of the shares of Parent Common Stock in connection with the Merger and a Charter Amendment,
including a name change and reverse stock split, and to file a proxy statement with the Securities and Exchange Commission (“
SEC
”)
relating to such special meeting.
The Merger
Agreement contains customary no-solicitation covenants restricting Parent and the Company from soliciting, encouraging, or discussing
alternative acquisition proposals from third parties.
Consummation
of the Merger is subject to the satisfaction or, if permitted by applicable law, waiver, by Parent, the Company, or both of various
conditions, including, without limitation, (i) approval of the Merger Agreement and the Merger by both the Company’s
and Parent’s respective shareholders; (ii) a definitive agreement shall have been executed that provides that Parent
shall receive an aggregate of at least $10,000,000 of gross proceeds within five (5) days of the closing of the Merger; (iii) the
accuracy of the parties’ respective representations and warranties and the performance of their respective obligations under
the Merger Agreement; (iv) the absence of the occurrence of a material adverse effect with respect to the Company between
the date of the Merger Agreement and closing; (v) the Parent’s shareholders shall have approved the Charter Amendment
; (vi) the absence of any law, order, or legal injunction which prohibits the consummation of the Merger or any of the transactions
contemplated by the Merger Agreement; and (vii) certain other customary conditions.
The Merger
Agreement contains certain termination rights in favor of the parties, as set forth therein, including, among other things, the
right of either party, subject to specified limitations, to terminate the Merger Agreement if the Merger is not consummated by
June 30, 2018. Upon the termination of the Merger Agreement under specified circumstances, including the termination of the Merger
Agreement by Parent to enter into an acquisition proposal in accordance with the terms of the Merger Agreement made by a third
party, Parent may be required to pay the Company a termination fee of up to $300,000.
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Merger
Agreement, the Merger, and the transactions contemplated thereby were unanimously approved by the board of directors of the Parent,
and unanimously approved by the board of directors of the Company. Both the board of directors of the Company and Parent have
recommended that their respective shareholders approve the Merger Agreement and the Merger.
The Merger
is expected to close as soon as practicable after the satisfaction or waiver of all the conditions to the closing in the Merger
Agreement, which is currently expected to be in the fourth quarter of calendar year 2018.
Support
Agreements
Concurrently
with the entry into the Merger Agreement on March 26, 2018, Terry Howlett (Chief Executive Officer of Parent) and Doreen
McMorran (Vice President, Business Development & Marketing of Parent) along with Michael Meyers (Chief Executive Officer of
the Company) and Denise Carter (Chief Operating Officer of the Company) have executed lock-up agreements (the “
Lock-Up
Agreements
”) relating to sales and certain other dispositions of shares of Parent Common Stock or certain other
securities for a period of 180 days after the Closing of the Merger.
In addition,
Parent will execute an agreement with Mr. Howlett, Ms. McMorran and Dr. Roszell (the “
Parent Related Party Agreement
”)
which will provide that within 180 days after the Closing Date the remaining Parent Related Party Indebtedness shall be converted,
at the sole election of Parent, into cash or shares of Parent Common Stock which are not subject to any contractual restrictions
or vesting requirements.
Finally,
Mr. Howlett and Ms. McMorran have entered into a Voting and Support Agreement (the “
Voting Agreement
”),
pursuant to which such shareholders have agreed, among other things, to vote all of their Parent Common Shares in favor of the
approval of the Merger Agreement at the special meeting of the Parent’s shareholders called to approve the Merger Agreement.
The Voting Agreement will automatically terminate upon the termination of the Merger Agreement in accordance with its terms, including
upon a termination of the Merger Agreement by the Company pursuant to the Company’s termination rights in the Merger Agreement,
or upon any material modification or amendment to the Merger Agreement that materially reduces the Merger Consideration payable
to the Company’s shareholders (other than in connection with a Company material adverse effect).
Additional
Information for Shareholders
The proposed
Merger was submitted to the Company’s and Parent’s shareholders for their consideration and approval. In connection
with the proposed Merger, the Parent filed relevant materials with the SEC, including a proxy statement of the Parent. A
definitive proxy statement and a form of proxy were be mailed to the shareholders of the Parent. This report is not a substitute
for the proxy statement, circular, or other document(s) that the Company and/or Parent may file with the SEC in connection with
the proposed transaction.
The Parent’s shareholders are urged to read the proxy statement and other documents filed
with the SEC regarding the proposed Merger transaction because they contain important information about the Company, Parent, and
the proposed Merger transaction itself.
The Parent’s shareholders may obtain, without charge, a copy of the proxy
statement and other relevant documents filed with the SEC from the SEC’s website at www.sec.gov.
The Parent,
and its management may be deemed to be participants in the solicitation of proxies from the Parent’s shareholders with respect
to the special meeting of shareholders that will be held to consider the matters to be approved by the Parent’s shareholders
in connection with the Merger transaction. Information about the Parent’s directors and executive officers and their ownership
of the Parent Common Shares is set forth in the proxy statement for special shareholder meeting, which has been filed with the
SEC on Schedule 14A. Shareholders may obtain additional information regarding the interests of the Parent and its directors and
executive officers in the proposed Merger, which may be different than those of the Parent’s shareholders generally, by
reading the proxy statement and other relevant documents regarding the proposed merger, filed with the SEC.
16.
SUBSEQUENT EVENTS
In accordance with ASC Topic 855-10,
the Company has analyzed its operations subsequent to September 30, 2018 to the date these financial statements were available
to be issued and has determined that it does not have any material subsequent events to disclose in these financial statements
other than the items disclosed below.
Subsequent to
the quarter ending September 30, 2018, the Company executed agreements with 8 noteholders that participated in the Company’s
debt offerings between May 22, 2013 and September 30, 2015. In accordance with the agreements the Company and the investors agreed
to settle a total of $301,000 in outstanding principal and $82,195 in accrued interest in exchange for the issuance of 9,579,882
shares.