NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 December 31, 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
audited 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. 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 period presented have been reflected herein.
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 $31,550,665 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
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 $2,482 and $23,318 in cash and cash equivalents as of December
31, 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
–
On January 1, 2018, the Company adopted Topic 606 using the modified retrospective method
applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January
1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with
our historic accounting under Topic 605.
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 year
ended December 31, 2018 as a result of applying Topic 606.
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.
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company recognized revenues of
$28,652 and $96,846 during the years ended December 31, 2018 and 2017 related to product sales.
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.
The Company recognized revenues of
$40,695 and $532,181 during the years ended December 31, 2018 and 2017 related to contract related to royalties and license
contracts.
As of December 31, 2018 and 2017,
the Company had $8,459 and $9,905 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 December 31, 2018, 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®.
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.
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock based compensation expense recognized
under ASC 718-10 for the years ended December 31, 2018 and 2017 totaled $0 and $223,090, 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
– 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. We do not expect the adoption of the standard will impact our financial position or results of operations.
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
December 31, 2018 and December 31, 2017:
|
|
December 31, 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
|
|
(327,432)
|
|
|
(327,191)
|
Fixed assets, net of accumulated depreciation
|
$
|
118
|
|
$
|
359
|
Depreciation expense for the years ended December
31, 2018 and 2017 was $241 and $324, respectively.
5. INVENTORY
Inventory consist of the following as of December
31, 2018 and December 31, 2017:
|
|
December 31, 2018
|
|
December 31, 2017
|
Shipping and Packing materials
|
|
$
|
8,611
|
|
|
$
|
8,684
|
Finished Goods
|
|
|
2,687
|
|
|
|
10,433
|
Raw Materials
|
|
|
6,119
|
|
|
|
6,906
|
Total
|
|
$
|
17,417
|
|
|
$
|
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 December 31, 2018, intangible
assets total $672,685, net of $493,918 of accumulated amortization.
Amortization expense for the years ended December
31, 2018 and 2017 was $38,731 and $54,009, 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 December
31, 2018.
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
8. STOCK OPTIONS AND WARRANTS
The following is a summary of option activity
during the year ended December 31, 2018.
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
Balance, December 31, 2017
|
|
|
212,000
|
|
|
$
|
1.50
|
|
|
|
|
|
|
|
|
Options granted and assumed
|
|
|
—
|
|
|
|
—
|
Options expired
|
|
|
(51,000
|
)
|
|
|
2.00
|
Options canceled
|
|
|
—
|
|
|
|
—
|
Options exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
|
161,000
|
|
|
$
|
1.50
|
As of December 31, 2018, all stock options
outstanding are exercisable.
Stock warrants -
The following is a summary of warrants activity
during the year ended December 31, 2018.
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
Balance, December 31, 2017
|
|
|
140,460
|
|
|
$
|
1.50
|
|
|
|
|
|
|
|
|
Warrants granted and assumed
|
|
|
—
|
|
|
|
—
|
Warrants expired
|
|
|
(68,260
|
)
|
|
|
1.50
|
Warrants canceled
|
|
|
—
|
|
|
|
—
|
Warrants exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
|
72,200
|
|
|
$
|
1.00
|
All warrants outstanding as of December 31,
2018 are exercisable.
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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 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. The Company fair valued the shares
issuable on the date each investors signed their respective agreement, as of the December 31, 2018 the Company had not yet issued
the shares to the investors, as a result of the transaction and has recorded stock payable of $874,294 and a gain on settlement
of debt of $1,175,145.
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 December
31, 2018, no payments had been made towards the principal balance.
As of December 31, 2018, $633,000 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 year ended December 31, 2018, $50,000
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 December 31, 2018, $40,000 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.)
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 December 31, 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 years
ended December 31, 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
11. CONVERTIBLE NOTES PAYABLE
Convertible Notes Payable at consists of the following:
|
|
December 31, 2018
|
|
December 31, 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 December 31, 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 $960,000 in outstanding principal and $219,172 in accrued
interest in exchange for the issuance of 589,586
shares.
As of the December 31, 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 $1,179,172.
|
|
|
40,000
|
|
|
1,000,000
|
Original issue discount
|
|
|
-
|
|
|
-
|
Unamortized debt discount
|
|
|
-
|
|
|
-
|
Total, net of unamortized discount
|
|
|
40,000
|
|
|
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 has been accreted and charged to interest expenses as a financing expense in the amount of $904 during
the years ended December 31, 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 years ended December 31, 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 $1,070
during the year ended December 31, 2018. The beneficial conversion feature is valued under the intrinsic value method
|
|
|
10,000
|
|
|
10,000
|
Unamortized debt discount
|
|
|
(78)
|
|
|
(1,148)
|
Total, net of unamortized discount
|
|
|
9,922
|
|
|
8,852
|
|
|
|
|
|
|
|
|
|
$
|
219,922
|
|
$
|
1,173,449
|
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. CONVERTIBLE NOTES PAYABLE RELATED PARTY
Convertible Notes Payable Related Party at consists of the following:
|
|
December 31, 2018
|
|
December 31, 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 $0.50 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 $379,669 during the years ended December 31, 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
|
|
|
(234,765)
|
|
|
(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 $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 $39,097 during the year ended December 31, 2018. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
299,316
|
|
|
299,316
|
Unamortized debt discount
|
|
|
(139,561)
|
|
|
(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 $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 $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 $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. 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 year ended December 31, 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 $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 $94,909. The aggregate beneficial conversion feature has been accreted and charged to interest
expenses as a financing expense in the amount of $18,971 during the year ended December 31, 2018. The beneficial conversion feature
is valued under the intrinsic value method.
|
|
|
142,501
|
|
|
142,501
|
Unamortized debt discount
|
|
|
-
|
|
|
(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 $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 $23,611 during the year ended December 31, 2018. The beneficial conversion feature is valued under the intrinsic
value method.
|
|
|
118,126
|
|
|
118,126
|
Unamortized debt discount
|
|
|
(11,710)
|
|
|
(35,321)
|
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 $8,089 during the year ended December 31, 2018. The beneficial conversion feature is valued under the intrinsic
value method.
|
|
|
40,558
|
|
|
40,558
|
Unamortized debt discount
|
|
|
(6,050)
|
|
|
(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 $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 $11,476 during the year ended December 31, 2018. The beneficial conversion feature is valued under the intrinsic
value method.
|
|
|
65,295
|
|
|
65,295
|
Unamortized debt discount
|
|
|
(11,486)
|
|
|
(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 $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 $73,230 during the year ended December 31, 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 $1.80 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
|
|
|
(131,754)
|
|
|
(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 $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
$864. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense in
the amount of $490 during the year ended December 31, 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 $1.80 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 $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 $8,401.
The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense in the amount
of $5,927 during the year ended December 31, 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 $1.50 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 $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 $6,135 during the year ended December 31, 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 $1.80 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
|
|
|
(13,702)
|
|
|
(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 $0.50 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
$1,012. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense in
the amount of $738 during the year ended December 31, 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 $0.50 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
$2,080. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense in
the amount of $1,559 during the year ended December 31, 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 $1.80 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 $0.50
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 $8,584 during the year ended December 31, 2018. The beneficial conversion feature
is valued under the intrinsic value method.
|
|
|
111,056
|
|
|
111,056
|
Unamortized debt discount
|
|
|
(24,044)
|
|
|
(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 $0.50 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 $39,413 during the year ended December 31, 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 $1.80 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
|
|
|
(109,605)
|
|
|
(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 $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 $23,748 during the year ended December 31, 2018. The beneficial conversion feature is valued under the intrinsic
value method.
|
|
|
178,439
|
|
|
178,439
|
Unamortized debt discount
|
|
|
(83,147)
|
|
|
(106,895)
|
|
|
|
|
|
|
|
|
|
$
|
1,922,718
|
|
$
|
1,577,215
|
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. STOCKHOLDERS’ DEFICIT
On November 26, 2018, our majority shareholders
approved a reverse split of one to fifty in which each shareholder will be issued one common shares in exchange for every 50 common
shares of their currently issued common stock. A record date of January 2, 2019 was established and FINRA was provided ten days’
notice prior to the effective date pursuant to Rule 10b-17 of the Securities and Exchange Act of 1934, as amended. New stock certificates
will be issued upon surrender of the shareholders’ old certificates. In accordance with ASC 505-20 all stock-related information
presented in these financial statements and accompanying footnotes has been retroactively adjusted to reflect the number of shares
resulting from this action.
The Company is authorized to issue 200,000,000
shares of $0.001 par value common stock. The Company had 2,896,631 and 2,737,281 issued and outstanding shares of common stock
as of December 31, 2018 and December 31, 2017, respectively.
On February 5, 2018 the Company executed an
agreement to issue 32,698 shares of common stock with a fair value of $39,230 or $1.20 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 31,200 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 $1.13 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 26,672 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 19,200 shares of common stock to an former director of the Company in settlement of a total of $35,035 in convertible
notes.
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 December 31, 2018 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.
14. INCOME TAXES
The Company provides for income taxes under
FASB ASC 740, Accounting for Income Taxes. FASB ASC 740 requires the use of an asset and liability approach in accounting
for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and
tax bases of assets and liabilities and the tax rates in effect currently.
FASB ASC 740 requires the reduction of deferred
tax assets by a valuation allowance, if, based on the weight of available evidence, it is more likely than not that some or all
of the deferred tax assets will not be realized. In the Company’s opinion, it is uncertain whether they will generate sufficient
taxable income in the future to fully utilize the net deferred tax asset. Accordingly, a valuation allowance equal to the deferred
tax asset has been recorded. The total deferred tax asset is approximately $2.7 million as of December 31, 2018 which is calculated
by multiplying a 21% estimated tax rate by the cumulative net operating loss (NOL) of approximately $12.7 million.
Due to the enactment of the Tax Reform Act
of 2017, we have calculated our deferred tax assets using an estimated corporate tax rate of 21%. US Tax codes and laws may be
subject to further reform or adjustment which may have a material impact to the Company’s deferred tax assets and liabilities.
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The significant components
of the Company's deferred tax assets and liabilities as of December 31, 2018 and 2017 are as follows:
As of December 31,
|
|
2018
|
|
2017
|
Cumulative tax net operating losses (in millions)
|
|
$
|
12.7
|
|
|
$
|
13.7
|
|
|
|
|
|
|
|
|
Deferred tax asset (in millions)
|
|
$
|
2.7
|
|
|
$
|
2.9
|
Valuation allowance (in millions)
|
|
|
(2.7
|
)
|
|
|
(2.9)
|
Current taxes payable
|
|
|
—
|
|
|
|
—
|
Income tax expense
|
|
$
|
—
|
|
|
$
|
—
|
As of December 31,
2018, and 2017, the Company had gross federal net operating loss carryforwards of approximately $12.7 million and $13.7 million,
respectively.
The Company plans
to file its U.S. federal return for the year ended December 31, 2018 upon the issuance of this filing. Upon filing of the tax return
for the year ended December 31, 2018 the actual deferred tax asset and associated valuation allowance available to the Company
may differ from management’s estimates. The tax years 2015-2017 remained open to examination for federal income tax purposes
by the major tax jurisdictions to which the Company is subject. No tax returns are currently under examination by any tax authorities.
15. 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
|
$
|
50,022
|
2020
|
$
|
12,863
|
Rental expense, resulting from operating lease
agreements, approximated $54,688 and $51,886 for the years ended December 31, 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. This agreement was assigned to Ovation Science Inc. on September 29, 2017.
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 December 31, 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, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 to 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.
16. 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, 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.
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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.
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.
17. SUBSEQUENT EVENTS
In accordance with ASC Topic 855-10, the Company has analyzed its
operations subsequent to December 31, 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.