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, 2019 and December 31, 2018 (unaudited);
|
F-2
|
Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018 (unaudited);
|
F-3
|
Consolidated Statements of
Stockholders’ Deficit for the three months ended March 31, 2019 and 2018 (unaudited);
|
F-4
|
Consolidated Statements of Cash Flow for the three months ended March 31, 2019 and 2018 (unaudited);
|
F-5
|
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, 2019 are not necessarily indicative of the results that can be expected for the
full year.
SKINVISIBLE,
INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
March
31, 2019
|
|
December
31, 2018
|
ASSETS
|
|
(Unaudited)
|
|
|
Current assets
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,005
|
|
|
$
|
2,482`
|
Accounts
receivable
|
|
|
5,053
|
|
|
|
8,459
|
Inventory
|
|
|
17,088
|
|
|
|
17,417
|
Due
from related party
|
|
|
1,145
|
|
|
|
1,145
|
Prepaid
expense and other current assets
|
|
|
9,000
|
|
|
|
12,000
|
Total
current assets
|
|
|
34,291
|
|
|
|
41,503
|
|
|
|
|
|
|
|
|
Fixed
assets, net of accumulated depreciation of $327,491 and $327,432, respectively
|
|
|
59
|
|
|
|
118
|
Intangible
and other assets:
|
|
|
|
|
|
|
|
Patents
and trademarks, net of accumulated amortization of $503,509 and $493,918, respectively
|
|
|
170,101
|
|
|
|
178,767
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
204,451
|
|
|
$
|
220,388
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
DEFICIT
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
1,015,900
|
|
|
$
|
944,380
|
Accounts
payable related party
|
|
|
22,692
|
|
|
|
10,490
|
Accrued
interest payable
|
|
|
1,252,599
|
|
|
|
1,169,293
|
Loans
from related party
|
|
|
86,400
|
|
|
|
40,000
|
Loans
payable
|
|
|
633,000
|
|
|
|
633,000
|
Convertible
notes payable, net of unamortized debt discount of $0 and $78, respectively
|
|
|
220,000
|
|
|
|
219,922
|
Convertible
notes payable related party, net of unamortized discount of $652,169 and $765,825 respectively
|
|
|
2,036,374
|
|
|
|
1,922,718
|
Total
current liabilities
|
|
|
5,266,965
|
|
|
|
4,939,803
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
5,266,965
|
|
|
|
4,939,803
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit
|
|
|
|
|
|
|
|
Common stock; $0.001
par value; 200,000,000 shares authorized; 2,896,689 and 2,896,689 shares issued and outstanding at March 31, 2019 and December
31, 2018, respectively
|
|
|
2,897
|
|
|
|
2,897
|
Shares payable
|
|
|
2,053,466
|
|
|
|
2,053,466
|
Additional
paid-in capital
|
|
|
24,774,887
|
|
|
|
24,774,887
|
Accumulated
deficit
|
|
|
(31,893,764
|
)
|
|
|
(31,550,665)
|
Total
stockholders' deficit
|
|
|
(5,062,514
|
)
|
|
|
(4,719,415)
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' deficit
|
|
$
|
204,451
|
|
|
$
|
220,388
|
See
Accompanying Notes to Consolidated Financial Statements.
SKINVISIBLE,
INC.
CONDENSED
CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
Three
Months Ended
|
|
|
March
31, 2019
|
|
March 31, 2018
|
|
|
|
|
|
Revenues
|
|
$
|
8,367
|
|
|
$
|
15,632
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
376
|
|
|
|
7,873
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
7,991
|
|
|
|
7,759
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
9,651
|
|
|
|
9,630
|
Selling
general and administrative
|
|
|
144,432
|
|
|
|
172,695
|
Total
operating expenses
|
|
|
154,083
|
|
|
|
182,325
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(146,092
|
)
|
|
|
(174,566)
|
|
|
|
|
|
|
|
|
Other income and (expense)
|
|
|
|
|
|
|
|
Other
income
|
|
|
5,000
|
|
|
|
4,807
|
Interest
expense
|
|
|
(202,007
|
)
|
|
|
(280,230)
|
Gain
on sale of Ovation Science Inc.
|
|
|
—
|
|
|
|
595,127
|
Loss
on equity method investment
|
|
|
—
|
|
|
|
(21,810)
|
Gain
(loss) on extinguishment of debt
|
|
|
—
|
|
|
|
(26,798)
|
Total
other income (expense)
|
|
|
(197,007
|
)
|
|
|
271,096
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(343,099
|
)
|
|
$
|
96,530
|
|
|
|
|
|
|
|
|
Basic and fully
diluted earnings (loss) per common share
|
|
$
|
(0.12
|
)
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
Basic weighted
average number of common shares outstanding
|
|
|
2,896,689
|
|
|
|
2,795,785
|
Diluted weighted
average number of common shares outstanding
|
|
|
2,896,689
|
|
|
|
9,303,924
|
See
Accompanying Notes to Consolidated Financial Statements.
SKINVISIBLE,
INC.
CONDENSED
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' DEFICIT
(UNAUDITED)
For
the Three months Ended March 31, 2018
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Additional
Paid-in Capital
|
|
|
Shares
payable
|
|
|
Accumulated
Deficit
|
|
|
Total
Stockholders' Deficit
|
Balance,
December 31, 2017 (audited)
|
|
|
2,737,281
|
|
|
|
2,737
|
|
|
|
24,884,672
|
|
|
|
61,976
|
|
|
|
(31,709,007
|
)
|
|
|
(6,759,622)
|
Shares issued
for accounts payable
|
|
|
82,271
|
|
|
|
82
|
|
|
|
93,060
|
|
|
|
47,949
|
|
|
|
—
|
|
|
|
141,091
|
Loss on debt
modification
|
|
|
—
|
|
|
|
—
|
|
|
|
(320,756
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(320,756)
|
Net
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
96,530
|
|
|
|
96,530
|
Balance,
March 31, 2018 (unaudited)
|
|
|
2,819,552
|
|
|
|
2,819
|
|
|
|
24,656,976
|
|
|
|
109,925
|
|
|
|
(31,612,477
|
)
|
|
|
(6,842,757)
|
For
the Three months Ended March 31, 2019
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Additional
Paid-in Capital
|
|
Shares
payable
|
|
Accumulated
Deficit
|
|
Total
Stockholders’ Deficit
|
Balance,
December 31, 2018 (audited)
|
|
|
2,896,689
|
|
|
|
2,897
|
|
|
|
24,774,887
|
|
|
|
2,053,466
|
|
|
|
(31,550,665
|
)
|
|
|
(4,719,415)
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(343,099
|
)
|
|
|
(343,099)
|
Balance,
March 31, 2019 (unaudited)
|
|
|
2,896,689
|
|
|
|
2,897
|
|
|
|
24,774,887
|
|
|
|
2,053,466
|
|
|
|
(31,893,764
|
)
|
|
|
(5,062,514)
|
See
Accompanying Notes to Consolidated Financial Statements.
SKINVISIBLE,
INC.
CONDENSED
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Three
Months Ended
|
|
|
March
31, 2019
|
|
March
31, 2018
|
|
|
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
Net
Income (loss)
|
|
$
|
(343,099
|
)
|
|
$
|
96,530
|
Adjustments
to reconcile net loss to net
|
|
|
|
|
|
|
|
cash
used in operating activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
9,651
|
|
|
|
9,630
|
Gain
on sale of Ovation Science Inc.
|
|
|
—
|
|
|
|
(595,127)
|
Amortization
of debt discount
|
|
|
113,734
|
|
|
|
131,351
|
Loss
on equity method investment
|
|
|
—
|
|
|
|
21,810
|
Imputed
interest on Ovation Science loan
|
|
|
—
|
|
|
|
4,807
|
Gain
on extinguishment of debt
|
|
|
—
|
|
|
|
26,798
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Decrease
in inventory
|
|
|
329
|
|
|
|
7,348
|
Decrease
in prepaid assets
|
|
|
3,000
|
|
|
|
2,500
|
Decrease
in accounts receivable
|
|
|
3,406
|
|
|
|
206
|
Increase
in accounts payable and accrued liabilities
|
|
|
83,722
|
|
|
|
93,387
|
Decrease
in due from related party
|
|
|
—
|
|
|
|
291
|
Decrease
in promissory note from Ovation Science Inc.
|
|
|
—
|
|
|
|
81,052
|
Increase
in accrued interest
|
|
|
83,306
|
|
|
|
144,056
|
Net
cash provided by (used in) operating activities
|
|
|
(45,951
|
)
|
|
|
24,639
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
Purchase
of fixed and intangible assets
|
|
|
(926
|
)
|
|
|
—
|
Net
cash used in investing activities
|
|
|
(926
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
Proceeds
from related party loans
|
|
|
46,400
|
|
|
|
—
|
Payments
on related party loans
|
|
|
—
|
|
|
|
(10,000)
|
Payments
on notes payable
|
|
|
—
|
|
|
|
(5,000)
|
Net
cash provided by (used in) financing activities
|
|
|
46,400
|
|
|
|
(15,000)
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
(477
|
)
|
|
|
9,639
|
|
|
|
|
|
|
|
|
Cash, beginning
of period
|
|
|
2,482
|
|
|
|
23,318
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
2,005
|
|
|
$
|
32,957
|
|
|
|
|
|
|
|
|
Supplemental disclosure
of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
1,192
|
|
|
$
|
7,932
|
Cash
paid for tax
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
Common
stock issued on extinguishment of debts
|
|
$
|
—
|
|
|
$
|
74,449
|
See
Accompanying Notes to Consolidated Financial Statements.
SKINVISIBLE,
INC.
NOTES
TO CONDENSED 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 March 31, 2019 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 product formulation, 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 on Form 10-K filed with the SEC on April 15, 2019. 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.
The
condensed consolidated balance sheet at December 31, 2018 has been derived from the audited financial statements at that date,
but does not include all of the information and footnotes required by generally accepted accounting principals in the U.S. for
complete financial statements.
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 $31,893,764 since its inception and requires capital for its contemplated operational and marketing activities to
take place. The Company plans to seek additional debt and equity funding but the Company’s ability to raise additional
capital through the future issuances of common stock or debt 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
$2,005 and $2,482 in cash as of March 31, 2019 and December 31, 2018 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
– We recognize revenue in accordance with generally accepted accounting principles as outlined in the
Financial Accounting Standard Board's (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue
From Contracts with Customers, which requires that five steps be followed in evaluating revenue recognition: (i) identify the
contract with the customer; (ii) identity the performance obligations in the contract; (iii) determine the transaction price;
(iv) allocate the transaction price; and (v) recognize revenue when or as the entity satisfied a
performance obligation.
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
We
did not have a cumulative impact as of January 1, 2018 due to the adoption of Topic 606 and there was not an impact to our consolidated
statements of operations for the three months ended March 31, 2019 and 2018 as a result of applying Topic 606.
As of March 31, 2019
and December 31, 2018, the Company had $5,053 and $8,459, respectively, in receivables related to royalty contracts.
The
company has made an accounting policy election to exclude from the measurement of the transaction price all taxes assessed by
governmental authorities that are collected by the company from its customers (sales and use taxes, value added taxes, some excise
taxes).
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, 2019, the Company had not recorded a reserve for doubtful accounts.
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, 2019 and March 31, 2018 totaled $0
and $0, respectively.
Earnings
(loss) per share
–
The Company reports earnings (loss) per share in accordance with FASB Codification Topic ASC
260-10 “
Earnings Per Share
”, Basic earnings (loss) per share is computed by dividing income (loss) available
to common shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed
similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common
shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were
dilutive. There are 7,506,688 additional shares issuable in connection with outstanding options, warrants, stock payable and
convertible debts would be considered dilutive as of March 31, 2019. Diluted earnings (loss) per share has not been presented
for the three months ending March 31, 2019
,
since the effect of the assumed exercise of options and warrants to purchase common shares (common stock equivalents) would
have an anti-dilutive effect.
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Recently
issued accounting pronouncements
– In June 2018, the FASB issued ASU 2018-07, "Compensation-Stock Compensation
(Topic 718): Improvements to Nonemployee Share-Based Payment Accounting," which modifies the accounting for share-based payment
awards issued to nonemployees to largely align it with the accounting for share-based payment awards issued to employees. ASU
2018-07 is effective for us for annual periods beginning January 1, 2019. The adoption of the standard had no impact on our financial
position or results of operations for the three months ending March 31, 2018 and 2019.
In February 2016, the FASB issued ASU 2016-02,
“Leases” (“ASC 842”). The guidance requires lessees to recognize almost all leases on their balance sheet
as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases
to be classified as either operating or finance. Lessor accounting is similar to the current model, but updated to align with
certain changes to the lessee model and the new revenue recognition standard. Existing sale-leaseback guidance, including guidance
for real estate, is replaced with a new model applicable to both lessees and lessors. ASC 842 is effective for fiscal years beginning
after December 15, 2018.
We adopted ASC 842 effective January 1,
2019 using the optional transition method of recognizing a cumulative-effect adjustment to the opening balance of retained earnings
on January 1, 2019. Therefore, comparative financial information was not adjusted and continues to be reported under the prior
lease accounting guidance in ASC 840. We elected the transition relief package of practical expedients, and as a result, we did
not assess 1) whether existing or expired contracts contain embedded leases, 2) lease classification for any existing or expired
leases, and 3) whether lease origination costs qualified as initial direct costs. We elected the short-term lease practical expedient
by establishing an accounting policy to exclude leases with a term of 12 months or less.
The
Company has evaluated all other recent accounting pronouncements, and believes that none of them will have a material effect on
the Company's financial position, results of operations or cash flows.
4.
FIXED ASSETS
Fixed
assets consist of the following as of March 31, 2019 and December 31, 2018:
|
|
March
31, 2019
|
|
December
31, 2018
|
|
|
|
(Unaudited)
|
|
|
|
|
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
|
|
|
(327,491
|
)
|
|
|
(327,432)
|
Fixed
assets, net of accumulated depreciation
|
|
$
|
59
|
|
|
$
|
118
|
Depreciation
expense for the three months ended March 31, 2019 and March 31, 2018 was $59 and $64, respectively.
5.
INVENTORY
Inventory
consist of the following as of March 31, 2019 and December 31, 2018:
|
|
March
31, 2019
|
|
December
31, 2018
|
|
|
|
(Unaudited)
|
|
|
|
|
Shipping
and Packing materials
|
|
$
|
8,599
|
|
|
$
|
8,611
|
Finished Goods
|
|
|
2,370
|
|
|
|
2,687
|
Raw
Materials
|
|
|
6,119
|
|
|
|
6,119
|
Total
|
|
$
|
17,088
|
|
|
$
|
17,417
|
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 March 31, 2019, intangible assets total $673,610, net of $503,509 of accumulated amortization.
Amortization
expense for the three months ended March 31, 2019 and March 31, 2018 was $9,592 and $9,566, 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, 2019.
7.
STOCK OPTIONS AND WARRANTS
The
following is a summary of option activity during the three months ended March 31, 2019.
|
|
Number
of Shares
|
|
Weighted
Average Exercise Price
|
Balance,
December 31, 2018
|
|
|
161,000
|
|
|
$
|
1.80
|
|
|
|
|
|
|
|
|
Options granted
and assumed
|
|
|
—
|
|
|
|
—
|
Options expired
|
|
|
(26,000
|
)
|
|
|
2.00-
|
Options canceled
|
|
|
—
|
|
|
|
—
|
Options
exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2019
|
|
|
135,000
|
|
|
$
|
1.76
|
As
of March 31, 2019, all stock options outstanding are exercisable.
Stock
warrants -
The
following is a summary of warrants activity during the three months ended March 31, 2019.
|
|
Number
of Shares
|
|
Weighted
Average Exercise Price
|
Balance,
December 31, 2018
|
|
|
72,200
|
|
|
$
|
1.18
|
|
|
|
|
|
|
|
|
Warrants granted
and assumed
|
|
|
—
|
|
|
|
—
|
Warrants expired
|
|
|
—
|
|
|
|
—
|
Warrants canceled
|
|
|
—
|
|
|
|
—
|
Warrants
exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2019
|
|
|
72,200
|
|
|
$
|
1.18
|
As
of March 31, 2019, all stock warrants outstanding are exercisable.
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 year ending December 31, 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.
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 year ending December 31, 2018,
the Company executed agreements with 41 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 $1,663,875
in outstanding principal and $385,563 in accrued interest in exchange for the issuance of 1,024,719 shares of the Company’s
common stock. The Company fair valued the shares issuable on the date each investors signed their respective agreement. As of
the March 31, 2019, the Company had not yet issued the shares to the investors and has recorded stock payable of $874,294 as a
result of the transaction on the accompanying Balance Sheet.
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, 2019 and December 31, 2018, the note is in default as no payments had been made towards the principal balance.
As
of March 31, 2019, $633,000 of the outstanding notes payable 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, 2019, $46,400 was advanced by an officer.
As
of March 31, 2019, $86,400 in advances remained due to officers of the company. All other related party notes have been extinguished
or re-negotiated as convertible notes. (See note 12 for additional details.)
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
10.
CONVERTIBLE NOTES PAYABLE
Convertible
Notes Payable at consists of the following:
|
|
March
31,
|
|
December
31,
|
|
|
2019
|
|
2018
|
$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 notes have reach maturity and are now in default, under the
notes default provisions the entire balance is now due upon demand.
During the year ending December 31, 2018, the Company executed agreements with 14 of the noteholders
that participated in the Company’s convertible debt offering. In accordance with the agreements the Company and
the investors agreed to settle a total of $960,000 in outstanding principal and $219,172 in accrued interest in
exchange for the issuance of 589,586 shares of the Company’s common stock.
As of the March 31, 2019 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 $1,179,172 on
the accompanying balance sheet.
|
|
|
40,000
|
|
|
|
40,000
|
Original
issue discount
|
|
|
—
|
|
|
|
—
|
Unamortized
debt discount
|
|
|
—
|
|
|
|
—
|
Total,
net of unamortized discount
|
|
|
40,000
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
On October 26, 2015 the Company issued a $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®.
|
|
|
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.
|
|
|
20,000
|
|
|
|
20,000
|
Unamortized
debt discount
|
|
|
—
|
|
|
|
—
|
Total,
net of unamortized discount
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
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.
|
|
|
15,000
|
|
|
|
15,000
|
Unamortized
debt discount
|
|
|
—
|
|
|
|
—
|
Total,
net of unamortized discount
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
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 $78 during the three months ended March 31, 2019. The beneficial conversion feature
is valued under the intrinsic value method
|
|
|
10,000
|
|
|
|
10,000
|
Unamortized
debt discount
|
|
|
—
|
|
|
|
(78)
|
Total,
net of unamortized discount
|
|
|
10,000
|
|
|
|
9,922
|
|
|
|
|
|
|
|
|
|
|
$
|
220,000
|
|
|
$
|
219,922
|
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,
|
|
December
31,
|
|
|
2019
|
|
2018
|
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 $0.50 per share along with additional warrants to purchase one share for every two shares issued at the exercise price
of $1.00 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 $58,389 during the three months ended March 31, 2019. The beneficial conversion feature is valued under the intrinsic
value method.
On March 28, 2018, $238,115 of the notes were settled as part of the purchase of Ovation Science
Inc.
|
|
|
744,137
|
|
|
|
744,137
|
Unamortized
debt discount
|
|
|
(176,376
|
)
|
|
|
(234,765)
|
|
|
|
|
|
|
|
|
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 $2.00 per share along with additional warrants to purchase one share for every two shares
issued at the exercise price of $3.00 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 $1.00 per share along with additional warrants to purchase one share for every two shares issued
at the exercise price of $1.50 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 $10,067 during
the three months ended March 31, 2019. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
299,316
|
|
|
|
299,316
|
Unamortized
debt discount
|
|
|
(129,494
|
)
|
|
|
(139,561)
|
|
|
|
|
|
|
|
|
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 $1.50 per share along with additional warrants to purchase one share
for every two shares issued at the exercise price of $2.00 per share for six years after the conversion date. As of March
31, 2019 and December 31, 2018, the notes are in default as no payments had been made towards the principal balance.
|
|
|
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 $1.50 per share along with additional warrants to purchase one share for every two shares issued at the
exercise price of $2.00 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. As of March 31, 2019 and December 31,
2018, the notes are in default as no payments had been made towards the principal balance.
|
|
|
106,152
|
|
|
|
106,152
|
Unamortized
debt discount
|
|
|
—
|
|
|
|
—
|
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 $1.50 per share along with additional warrants to purchase one share for
every two shares issued at the exercise price of $2.00 per share for six years after the conversion date. As of March 31,
2019 and December 31, 2018, the notes are in default as no payments had been made towards the principal balance.
|
|
|
142,501
|
|
|
|
142,501
|
Unamortized
debt discount
|
|
|
—
|
|
|
|
—
|
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 $1.25 per share along with additional warrants to purchase one share for every two shares issued
at the exercise price of $1.50 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 $5,823 during the three months
ended March 31, 2019. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
118,126
|
|
|
|
118,126
|
Unamortized
debt discount
|
|
|
(5,887
|
)
|
|
|
(11,710)
|
On December
31, 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 $2.00 per share along with additional warrants to purchase one share for every two shares issued
at the exercise price of $2.50 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 $1,994 during the three months
ended March 31, 2019. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
40,558
|
|
|
|
40,558
|
Unamortized
debt discount
|
|
|
(4,056
|
)
|
|
|
(6,050)
|
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 $2.00 per share along with additional warrants to purchase one share for every two shares issued
at the exercise price of $2.50 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 $2,831 during the three months
ended March 31, 2019. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
65,295
|
|
|
|
65,295
|
Unamortized
debt discount
|
|
|
(8,655
|
)
|
|
|
(11,486)
|
|
|
|
|
|
|
|
|
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 $1.00 per share along with additional warrants to purchase one share
for every two shares issued at the exercise price of $1.00 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 $16,222 during the three months ended March 31, 2019. 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 $1.80 per share.
|
|
|
329,287
|
|
|
|
329,287
|
Unamortized
debt discount
|
|
|
(115,532
|
)
|
|
|
(131,754)
|
|
|
|
|
|
|
|
|
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 $1.00 per share along with additional warrants to purchase one share for every two shares issued
at the exercise price of $1.00 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 $1,352 during the three months
ended March 31, 2019. 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 $1.80 per share.
|
|
|
188,817
|
|
|
|
188,817
|
Unamortized
debt discount
|
|
|
(12,350
|
)
|
|
|
(13,702)
|
|
|
|
|
|
|
|
|
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 $0.50 per share along with additional warrants to purchase one share
for every two shares issued at the exercise price of $1.00 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 $2,115 during the three months ended March 31, 2019. The beneficial conversion feature is valued under the intrinsic value
method.
|
|
|
111,056
|
|
|
|
111,056
|
Unamortized
debt discount
|
|
|
(21,930
|
)
|
|
|
(24,044)
|
|
|
|
|
|
|
|
|
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 $0.50 per share along with additional warrants to purchase one share for every two shares
issued at the exercise price of $1.00 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 $9,008 during the three
months ended March 31, 2019. 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 $1.80 per
share.
|
|
|
182,775
|
|
|
|
182,775
|
Unamortized
debt discount
|
|
|
(100,597
|
)
|
|
|
(109,605)
|
|
|
|
|
|
|
|
|
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 $1.00 per share along with additional warrants to purchase one share for every two shares
issued at the exercise price of $1.50 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 $5,855 during the three
months ended March 31, 2019. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
178,439
|
|
|
|
178,439
|
Unamortized
debt discount
|
|
|
(77,292
|
)
|
|
|
(83,147)
|
|
|
|
|
|
|
|
|
|
|
$
|
2,036,374
|
|
|
$
|
1,922,718
|
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 2,896,689 and 2,896,689 issued and outstanding shares of common stock
as of March 31, 2019 and December 31, 2018, respectively.
During the year ending December 31, 2018, the Company executed agreements
with 45 noteholders that participated in the Company’s debt offerings between May 22, 2013 and December 31, 2015. In accordance
with the agreements the Company and the investors agreed to settle a total of $2,623,875 in outstanding principal and $604,736
in accrued interest in exchange for the issuance of 1,614,305 shares. The Company fair valued the shares issuable on the date each
investors signed their respective agreement, as of the March 31, 2019 the Company had not yet issued the shares to the investors,
as a result of the transaction and has recorded stock payable of $2,053,466.
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 December 31, 2018, are as follows:
2019
|
$
|
37,517
|
2020
|
$
|
12,863
|
Rental
expense, resulting from operating lease agreements, approximated $14,037 and $13,381 for the three months ended March 31, 2019
and March 31, 2018, 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.
14.
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
“
Quoin
”), 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
Quoin
(the “
Merger
”), with
Quoin
surviving
the Merger as a wholly-owned subsidiary of Parent. At the effective time of the Merger, the issued and outstanding common shares
of
Quoin
(“
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
Quoin
, 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
Quoin
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,
Quoin
, or both of various conditions, including, without limitation, (i) approval of the Merger Agreement
and the Merger by both the
Quoin
’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
Quoin
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.
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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. As of the date of this
filing the termination rights have not been exercised by either party. 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.
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 and by a majority of the shareholders of the parent.
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 second quarter of calendar year 2019.
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.
15.
SUBSEQUENT EVENTS
In
accordance with ASC Topic 855-10, the Company has analyzed its operations subsequent to March 31, 2019 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.
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.
Recent Developments
Merger with Quoin Pharmaceuticals, Inc.
On March 26, 2018, we 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 our company. At the effective time of the Merger, the issued and outstanding
common shares of the Company will automatically be converted into the right to receive approximately 72.5% of the outstanding equity
of our company (the “Merger Consideration”). Our existing shareholders will have a right to the remaining 27.5% of
the outstanding equity in our company, which is subject to diminution if certain indebtedness is not converted into our common
stock.
We also have agreed to other covenants in the Merger Agreement,
including, without limitation, to cause a special meeting of our shareholders to be held as promptly as practicable to consider
and approve the Merger Agreement and the Merger, along with the issuance of the Merger Consideration 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. We have set the meeting date for November 26, 2018.
As such, we recently filed a proxy statement with the SEC to approve
the Merger, to conduct a reverse split of not less than one-for-ten and not more than one-for-one hundred, with the exact ratio
to be set at a whole number within this range, as determined by our board of directors in its sole discretion, and to change our
name to Quoin Pharmaceuticals, Inc.
Consummation of the Merger is subject to the satisfaction or, if
permitted by applicable law, waiver, by us, 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 our respective shareholders; (ii) a definitive agreement
shall have been executed that provides that we 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) our shareholders shall have approved
the reverse split and name change ; (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, as amended, 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.
The Merger Agreement, the Merger, and the transactions contemplated
thereby were unanimously approved by our board of directors and unanimously approved by the board of directors of the Company.
Both the board of directors of the Company and our company 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 second quarter of calendar year 2019.
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 our common stock or certain other securities for a period of 180 days after the Closing of the Merger.
In addition, our wholly owned subsidiary, Skinvisible Pharmaceuticals,
Inc., executed agreements with Mr. Howlett, Ms. McMorran and Dr. James A. Roszell (the “Share Transfer Agreements”).
The Share Transfer Agreements provide that in exchange for the immediate cancellation of $500,000 of the Parent Related Indebtedness,
simultaneously with entry into the Merger Agreement, Skinvisible Pharmaceuticals, Inc. will transfer 100% of the shares in Ovation
Science Inc. (“Ovation”) to these related parties. We 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 our company, into cash or shares of our
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 common shares in our company in favor of the approval of the Merger Agreement at the special meeting of our
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).
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.
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:
Skinvisible has an agreement in place 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 agreement provides for an efficient export of Skinvisible’s products from the USA and Canada into Greater China
(Includes China, Hong Kong, Macau, Taiwan, Singapore, Malaysia, Korea and Thailand).
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 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:
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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.”
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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.
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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.
Cannabis Products
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. This agreement was canceled on June 28, 2017 and all rights reverted
back to Skinvisible.
In September 2017 Skinvisible formed a wholly-owned Canadian subsidiary
called Ovation Science Inc. (“Ovation”). Ovation was subsequently granted worldwide rights to Invisicare products formulated
with cannabis or hemp seed oil. A license agreement with Canopy Growth Inc. for the Canadian rights was also assigned to Ovation.
This was followed by a license agreement with Lighthouse Strategies, LLC for the US rights in dispensaries and the non-exclusive
rights outside of dispensaries in the USA. A term of the potential merger agreement with Quoin Pharmaceuticals, Inc. involves Skinvisible
Related Parties to assume Skinvisible’s ownership in Ovation in lieu of payment of a portion of outstanding debt.
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. Women’s Choice has been successfully growing their sales of ProCort®
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:
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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.
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Expand the availability of our DermSafe® hand sanitizer in China and other countries
internationally. A strategy is being developed along with a larger global strategy to bring DermSafe to the EU and Asia.
Secure Additional Licensees:
We are in discussions and undergoing internal
discussions with various pharmaceutical companies for licenses.
To facilitate further expansion, we are seeking an exclusive license
with a proven US or global based Pharmaceutical Company for our existing Rx product formulations. The licensee would be expected
to pay all costs in getting FDA approval. The licensee would pay Skinvisible for the license in milestone payments as Clinical
Phases are proven.
Results of Operations for the Three Months Ended March 31, 2019
and 2018
Revenues
Our revenue from product sales, royalties on patent licenses and
license fees (product development fees) for the three months ended March 31, 2019 was $8,367, a decrease from $15,632 for the same
period ended March 31, 2018.
The decrease in revenue for the three months ended March 31, 2019
was mainly due to product sales. We hope to achieve increased revenues for the balance of 2018 and into 2019, as a result of our
Merger Agreement with Quoin Pharmaceuticals, Inc.
Cost of Revenues
Our cost of revenues for the three months ended March 31, 2019 decreased
to $376 from the prior year period when cost of revenues was $7,873.
Our cost of revenues significantly decreased for the three months
ended March 31, 2019 over the prior year period because the revenues in 2019 were mainly royalty payments without significant costs
associated. We expect our cost of revenues to increase, especially if the Merger is consummated, and as we continue to push sales
from Kintari USA and Canada.
Gross Profit
Gross profit for the three months ended March 31, 2019 was $7,991,
as compared with gross profit of $7,759 for the three months ended March 31, 2018.
Operating Expenses
Operating expenses decreased to $154,083 for the three months ended
March 31, 2019 from $182,325 for the same period ended March 31, 2018.
Our operating expenses for the three months ended March 31, 2019
consisted mainly of accrued salaries and wages of $87,942, audit and accounting of $22,633, rent of $14,037 and depreciation and
amortization of $9,651. In comparison, our operating expenses for the three months ended March 31, 2018 consisted mainly of accrued
salaries and wages of $86,542, accounting and audit fees of $32,882, rent of $13,381, depreciation and amortization expenses of
$9,630 and legal fees of $8,491.
Other Income/Expenses
We had other expenses of $197,007 for the three months ended March
31, 2019, compared with other income of $271,096 for the three months ended March 31, 2018.
Our other expenses for the three months ended March 31, 2019 consisting
primarily of $202,007 in interest expense, and our other income for same period ended 2018 was largely the result of $595,127 on
the sale of Ovation Sciences Inc., offset mainly by $280,230 in interest expense.
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
$838,000 that have matured. In addition, we also have a number of unsecured promissory notes with an aggregate principal amount
of $43,000 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 Income/Net Loss
We recorded a net loss of $343,099 for the three months ended March
31, 2019, as compared with net income of $96,530 for the three months ended March 31, 2018.
Liquidity and Capital Resources
As of March 31, 2019, we had total current assets of $34,291 and
total assets in the amount of $204,451. Our total current liabilities as of March 31, 2019 were $5,266,965. We had a working capital
deficit of $5,232,674 as of March 31, 2019, compared with a working capital deficit of $7,031,409 as of March 31, 2018.
Operating activities used $45,951 in cash for the three months ended
March 31, 2019, as compared with cash provided of $24,639 for the three months ended March 31, 2018. Our negative operating cash
flow for the three months ended March 31, 2019 is mainly the result of our net loss for the period, offset by amortization of debt
discount and an increase in accrued interest and accounts payable and accrued liabilities.
We used cash of $926 and $0 in investing activities for the three
months ended March 31, 2019 and 2018, respectively.
Cash flows used by financing activities during the three months
ended March 31, 2019 amounted to $46,400, as compared with cash used of $15,000 for the three months ended March 31, 2019. Our
cash flows for the three months ended March 31, 2019 consisted of proceeds from related party loans.
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, 2019, 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 $31,893,764 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
– The Company recognizes revenue related
to product sales (Invisicare® polymers) when (i) the seller’s price is substantially fixed, (ii) shipment has occurred
causing the buyer to be obligated to pay for product, (iii) the buyer has economic substance apart from the seller, and (iv) there
is no significant obligation for future performance to directly bring about the resale of the product by the buyer as required
by ASC 605 – Revenue Recognition. Cost of sales, rebates and discounts are recorded at the time of revenue recognition or
at each financial reporting date.
Royalty, Distribution and license rights sales
- The Company
receives revenue from license payments based on net sales from licensees related to the Company’s patented intellectual property.
These license agreements are held with third parties that are responsible for remitting payment to the Company based upon a percentage
of sales revenues they collect on products that utilize the Company’s patented products. Revenue from licensed products is
recognized when realized or realizable based on royalty reporting received from licensees.
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, 2019, the Company had not recorded a
reserve for doubtful accounts. The Company has $175,000 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.