NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
1.
DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
Description
of business
– Skinvisible, Inc., (referred to as the “Company”) is focused on the development and manufacture
and sales of innovative topical, transdermal and mucosal polymer-based delivery system technologies and formulations incorporating
its patent-pending formula/process for combining hydrophilic and hydrophobic polymer emulsions. The technologies and formulations
have broad industry applications within the pharmaceutical, over-the-counter, personal skincare and cosmetic arenas. Additionally,
the Company’s non-dermatological formulations, offer solutions for a broad spectrum of markets women’s health, pain
management, and others. The Company maintains executive and sales offices in Las Vegas, Nevada.
History
– The Company was incorporated in Nevada on March 6, 1998, under the name of Microbial Solutions, Inc. The Company underwent
a name change on February 26, 1999, when it changed its name to Skinvisible, Inc. The Company’s subsidiary’s name
of Manloe Labs, Inc. was also changed to Skinvisible Pharmaceuticals, Inc.
On
September 9, 2014, the Company formed Kinatri USA Inc., a wholly-owned subsidiary, to market a premium line of scientifically
formulated skincare products powered by our patented Invisicare® technology. As part of its strategic focus on revenue generation
and creating shareholder value, Kintari USA Inc. products will be sold via network marketing.
The
Kintari product portfolio consists of anti-aging products to help fight the signs of aging. These products have been developed
using proven anti-aging ingredients with scientific evidence of their effectiveness at reducing the look of fine lines and wrinkles
resulting in youthful looking skin. These potent ingredients will be powered by patented Invisicare technology, providing consumers
with unique, effective products which the Company believes cannot be duplicated. Additional products will be added to enhance
this product line as the Company grows and expands.
Skinvisible,
Inc., together with its subsidiaries, shall herein be collectively referred to as the “Company.”
Going
concern
– The accompanying financial statements have been prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred cumulative
net losses of $29,882,199 since its inception and requires capital for its contemplated operational and marketing activities to
take place. The Company’s ability to raise additional capital through the future issuances of common stock is unknown. The
obtainment of additional financing, the successful development of the Company’s contemplated plan of operations, and its
transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. The ability
to successfully resolve these factors raise substantial doubt about the Company’s ability to continue as a going concern.
The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these
aforementioned uncertainties.
Principles
of consolidation
– The consolidated financial statements include the accounts of the Company and its subsidiaries. All
significant intercompany balances and transactions have been eliminated.
Use
of estimates
– The preparation of consolidated financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash
and cash equivalents
For
purposes of the statement of cash flows, the Company considers all highly liquid investments and short-term debt instruments with
original maturities of three months or less to be cash equivalents. There are $3,019 and $0 in cash and cash equivalents as of
December 31, 2016 and December 31, 2015, respectively.
Fair
Value of Financial Instruments
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
The
carrying amounts reflected in the balance sheets for cash, accounts payable and accrued expenses approximate the respective fair
values due to the short maturities of these items.
As
required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair
value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted
prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly
or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity
to develop its own assumptions.
The
three levels of the fair value hierarchy are described below:
Level
1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or
liabilities;
Level
2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially
the full term of the asset or liability;
Level
3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable
(supported by little or no market activity).
Revenue
recognition
Product
sales
– Revenues from the sale of products (Invisicare® polymers) are recognized when title to the products are
transferred to the customer and only when no further contingencies or material performance obligations are warranted, and thereby
have earned the right to receive reasonably assured payments for products sold and delivered.
Royalty
sales
– The Company also recognizes royalty revenue from licensing its patented product formulations only when earned,
when no further contingencies or material performance obligations are warranted, and thereby have earned the right to receive
and retain reasonably assured payments.
Distribution
and license rights sales
– The Company also recognizes revenue from distribution and license rights only when earned
(and are amortized over a five year period), when no further contingencies or material performance obligations are warranted,
and thereby have earned the right to receive and retain reasonably assured payments.
Costs
of Revenue
– Cost of revenue includes raw materials, component parts, and shipping supplies. Shipping and handling costs
is not a significant portion of the cost of revenue.
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, 2016, the Company had not recorded a reserve for doubtful accounts. The Company has $1,135,000
in convertible notes payable which are secured by the accounts receivable of a license agreement the Company has with Women's
Choice Pharmaceuticals, LLC on its proprietary prescription product, ProCort®.
Inventory
– Substantially all inventory consists of finished goods and are valued based upon first-in first-out ("FIFO")
cost, not in excess of market. The determination of whether the carrying amount of inventory requires a write-down is based on
an evaluation of inventory.
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
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 years ended December 31, 2016 and 2015 totaled $145,746 and $13,800,
respectively.
Earnings
(loss) per share
– The Company reports earnings (loss) per share in accordance with FASB Codification Topic ASC 260-10
“
Earnings Per Share
”, Basic earnings (loss) per share is computed by dividing income (loss) available to common
shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar
to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares
that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.
Diluted earnings (loss) per share has not been presented since the effect of the assumed exercise of options and warrants to purchase
common shares (common stock equivalents) would have an anti-dilutive effect.
Recently
issued accounting pronouncements
The
Company has evaluated the all recent accounting pronouncements through ASU 2017-07, and believes that none of them will have a
material effect on the Company's financial position, results of operations or cash flows.
2.
FIXED ASSETS
Fixed
assets consist of the following as of December 31, 2016 and December 31, 2015:
|
|
December
31, 2016
|
|
December
31, 2015
|
Machinery and equipment
|
$
|
48,163
|
$
|
48,163
|
Furniture and fixtures
|
|
113,635
|
|
113,635
|
Computers, equipment
and software
|
|
39,722
|
|
39,722
|
Leasehold improvements
|
|
12,569
|
|
12,569
|
Lab equipment
|
|
113,461
|
|
113,461
|
Total
|
|
327,550
|
|
327,550
|
Less: accumulated
depreciation
|
|
(326,867)
|
|
(325,855)
|
Fixed assets, net
of accumulated depreciation
|
$
|
683
|
$
|
1,695
|
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
Depreciation
expense for the years ended December 31, 2016 and 2015 was $1,012 and $1,580, respectively.
3.
INVENTORY
Inventory
consist of the following as of December 31, 2016 and December 31, 2015:
|
|
December
31, 2016
|
|
December
31, 2015
|
Shipping and Packing
materials
|
$
|
10,274
|
$
|
11,651
|
Marketing Supplies
|
|
17,139
|
|
19,346
|
Finished Goods
|
|
32,998
|
|
19,082
|
Raw Materials
|
|
19,283
|
|
40,893
|
Total
|
$
|
79,694
|
$
|
90,972
|
4.
INTANGIBLE AND OTHER ASSETS
Patents
and trademarks are capitalized at their historical cost and are amortized over their estimated useful lives. As of December 31,
2016, patents and trademarks total $646,169, net of $401,087 of accumulated amortization. Amortization expense for the years ended
December 31, 2016 and 2015 was $56,636 and $56,428, 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, 2016.
5.
STOCK OPTIONS AND WARRANTS
The
following is a summary of option activity during the year ended December 31, 2016.
|
|
Number
of Shares
|
|
Weighted
Average Exercise Price
|
Balance,
December 31, 2015
|
|
|
8.450.000
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
Options granted
and assumed
|
|
|
4,150,000
|
|
|
$
|
0.02
|
|
Options expired
|
|
|
1,350,000
|
|
|
$
|
0.04
|
|
Options canceled
|
|
|
—
|
|
|
|
—
|
|
Options
exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2016
|
|
|
11,250,000
|
|
|
$
|
0.03
|
|
As
of December 31, 2016, all stock options outstanding are exercisable.
On
February 10, 2016, the Company granted stock options for 4,150,000 options to purchase shares of its common stock to its
officers and directors. The options have a strike price of $0.02. The stock options were exercisable upon grant and have a life
of 5 years. The stock options were valued at $99,167 using the Black-Scholes option pricing model. The
Company recorded an expense of $99,197 for the years ended December 31, 2016.
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
Stock
warrants -
The
following is a summary of warrants activity during the year ended December 31, 2016.
|
|
Number
of Shares
|
|
Weighted
Average Exercise Price
|
Balance,
December 31, 2015
|
|
|
2,969,750
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
Warrants granted
and assumed
|
|
|
3,327,675
|
|
|
|
0.02
|
|
Warrants expired
|
|
|
1,344,750
|
|
|
|
0.06
|
|
Warrants canceled
|
|
|
—
|
|
|
|
—
|
|
Warrants
exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2016
|
|
|
4,952,675
|
|
|
$
|
0.03
|
|
All
warrants outstanding as of December 31, 2016 are exercisable.
6.
NOTES PAYABLE
On
May 22, 2013, the Company approved a financing plan to offer accredited investors up to $1,000,000 in secured promissory notes.
During the year ended December 31, 2013, the Company entered into twenty-four 9% notes payable to investors and received total
proceeds of $1,000,000. The notes are due two years from the anniversary date of execution. The Notes are secured by the US Patent
rights granted for the Company's Sunscreen Products: US patent number #8,128,913: "Sunscreen Composition with Enhanced UV-A
Absorber Stability and Methods.” During the year ending December 31, 2016 the Company made principal payments of $nil.
On
May 19, 2014, the Company approved a financing plan to offer accredited investors up to an additional $1,000,000 in secured promissory
notes. For the period from May 19, 2014 to March 31, 2015 the Company entered into twenty-seven 9% notes payable to investors
and received total proceeds of $1,000,000. The notes are due two years from the anniversary date of execution. The Notes are secured
by the US Patent rights granted for the Company's Sunscreen Products: US patent number #8,128,913: "Sunscreen Composition
with Enhanced UV-A Absorber Stability and Methods." As of December 31, 2016, $980,000 in notes have reached their initial
maturity date. Note holders of $20,000 in debt executed agreements extending their notes for an additional 12 months upon the
same terms. The extended notes fully matured on November 6, 2016.
During
the period from April 1, 2015 and September 30, 2015, the Company entered into thirteen additional 9% notes payable to investors
and received total proceeds of $326,000. The notes are due two years from the anniversary date of execution. The Notes are secured
by the US Patent rights granted for the Company's Sunscreen Products: US patent number #8,128,913: "Sunscreen Composition
with Enhanced UV-A Absorber Stability and Methods".
On
January 27, 2016, the Company entered into a 12% unsecured note payable to an investor and received total proceeds of $33,000.
The note was due on May 30, 2016.
On
January 27, 2016, we entered into a promissory note pursuant to which we borrowed $24,000. Interest under the note is at 10% per
annum, and the principal and all accrued but unpaid interest was due on February 15, 2016.
On
June 28, 2016, we entered into a promissory note pursuant to which we borrowed $10,000. Interest under the note is at 10%
per annum, and the principal and all accrued but unpaid interest was due on December 31, 2016.
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
As
of December 31, 2016, $2,332,900 of the Notes were due in less than 12 months and have been classified as current notes payable.
7. RELATED
PARTY TRANSACTIONS
During
the year ended 2016, officers of the Company advanced $59,700 to support the daily operations of the company. The advance is due
on demand and bears no interest. $5,269 in advances were repaid during the year ending December 31, 2016.
On
October 8, 2016, the Company entered into a 10% unsecured note payable to an employee and received total proceeds of $5,070. The
note is due on December 31, 2016. $4,000 of principal was repaid during the year ending December 31, 2016.
On
October 11, 2016, the Company entered into a 10% unsecured note payable to an employee and received total proceeds of $5,000.
The note is due on December 31, 2016.
As
of December 31, 2016, $70,270 remained due to related parties as repayment for advanced and loaned monies, all other related party
notes have been extinguished or re-negotiated as convertible notes. See note 9.
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
8.
CONVERTIBLE NOTES PAYABLE
Convertible
Notes Payable at consists of the following:
|
|
December
31,
|
|
|
December
31,
|
|
|
2016
|
|
|
2015
|
$52,476
face value,10% unsecured note payable to an investor, note interest and principal are due on demand. The note could
be converted to option rights for the Company’s shares at ten cents per share ($0.10), these rights expired on January
12, 2010. The note is currently in default, but no penalties occur due to default.
|
|
$
|
28,476
|
|
|
$
|
28,476
|
Unamortized
debt discount
|
|
|
-
|
|
|
|
-
|
Total,
net of unamortized discount
|
|
|
28,476
|
|
|
|
28,476
|
$1,000,000
face value 9% secured notes payable to investors, due in 2015. At the investor’s option until the repayment date,
the note and related interest may be converted to shares of the Company’s common stock a discount of 90% of the
current share price after the first anniversary of the note. The notes are secured by the accounts receivable of a license
agreement the Company has with Womens Choice Pharmaceuticals, LLC on its proprietary prescription product, ProCort®.
The Company has determined the value associated with the beneficial conversion feature in connection with the notes and
interest to be $111,110. The aggregate original issue discount feature has been accreted and charged to interest expenses
as a financing expense. The original issue discount feature is valued under the intrinsic value method. The notes have
reach maturity and are now in default, under the notes default provisions the entire balance is now due upon demand.
|
|
|
1,000,000
|
|
|
|
1,000,000
|
Original
issue discount
|
|
|
111,110
|
|
|
|
111,110
|
Unamortized
debt discount
|
|
|
-
|
|
|
|
-
|
Total,
net of unamortized discount
|
|
|
1,111,110
|
|
|
|
1,111,110
|
|
|
|
|
|
|
|
|
On
July 28, 2015, the Company entered into a convertible promissory note pursuant to which it
borrowed $47,500. Interest under the convertible promissory note is 8% per annum, and the
principal and all accrued but unpaid interest is due on April 30, 2016. The note was convertible
at any time following 180 days after the issuance date at noteholders option into shares of
our common stock at a variable conversion price of 58% of the lowest average three day market
price of our common stock during the 10 trading days prior to the notice of conversion, subject
to adjustment as described in the note. The holder’s ability to convert the note, however,
is limited in that it will not be permitted to convert any portion of the note if the number
of shares of our common stock beneficially owned by the holder and its affiliates, together
with the number of shares of our common stock issuable upon any full or partial conversion,
would exceed 9.99% of the Company’s outstanding shares of common stock.
The
Company determined the value associated with the beneficial conversion feature in connection with the notes negotiated
on July 28, 2015 to be $44,634. The aggregate beneficial conversion feature has been accreted and charged to interest
expenses as a financing expense in the amount of $19,497 during the year ended December 31, 2016. The beneficial conversion
feature is valued under the intrinsic value method
During
the year ended December 31, 2016, the Company paid $72,458 to the note holder to settle the note in full. The payment
included interest and prepayment penalties of $24,958.
|
|
|
-
|
|
|
|
47,500
|
Unamortized
debt discount
|
|
|
-
|
|
|
|
(19,497)
|
Total,
net of unamortized discount
|
|
|
-
|
|
|
|
28,003
|
|
|
|
|
|
|
|
|
$135,000
face value 9% unsecured notes payable to investors, due October 26, 2017. At the investor’s
option until the repayment date, the note and related interest may be converted to shares
of the Company’s common stock a discount of 90% of the current share price after the
first anniversary of the note. The notes are secured by the accounts receivable of a license
agreement the Company has with Womens Choice Pharmaceuticals, LLC on its proprietary prescription
product, ProCort®. The Company has determined the value associated with the beneficial
conversion feature in connection with the notes and interest to be $117,535. The aggregate
original issue discount feature has been accreted and charged to interest expenses as a financing
expense in the amount of $58,928 during the year ended December 31, 2016. The original issue
discount feature is valued under the intrinsic value method.
|
|
|
135,000
|
|
|
|
135,000
|
Unamortized
debt discount
|
|
|
(47,980)
|
|
|
|
(106,908)
|
Total,
net of unamortized discount
|
|
|
87,020
|
|
|
|
28,092
|
|
|
|
|
|
|
|
|
On
December 17, 2015, the Company entered into a convertible promissory note pursuant to which
it borrowed $25,000. Interest under the convertible promissory note is 10% per annum, and
the principal and all accrued but unpaid interest is due on May 17, 2016. The note is convertible
into 1,250,000 shares of the Company’s common stock at a price of $0.02 per share and
625,000 warrants exercisable at $0.04 per share.
The
Company has determined the value associated with the beneficial conversion feature in connection with the notes negotiated
on December 17, 2015 to be $16,648. The aggregate original issue discount feature has been accreted and charged to interest
expenses as a financing expense in the amount of $16,648 during the year ended December 31, 2016. The beneficial conversion
feature is valued under the intrinsic value method
The
Note and all accrued interest was paid in full through the issuance of a new convertible note on August 31, 2016.
|
|
|
-
|
|
|
|
25,000
|
Unamortized
debt discount
|
|
|
-
|
|
|
|
(15,104)
|
Total,
net of unamortized discount
|
|
|
-
|
|
|
|
9,896
|
|
|
|
|
|
|
|
|
On
February 1, 2016, the Company entered into a convertible promissory note pursuant to which
it borrowed $25,000. Interest under the convertible promissory note is 10% per annum, and
the principal and all accrued but unpaid interest is due on July 25, 2016. The note is convertible
into 1,250,000 shares of the Company’s common stock at a price of $0.02 per share and
625,000 warrants exercisable at $0.02 per share.
The
Company has determined the value associated with the beneficial conversion feature in connection with the notes negotiated
on February 1, 2016 to be $21,819. The aggregate original issue discount feature has been accreted and charged to interest
expenses as a financing expense in the amount of $21,819 during the year ended December 31, 2016. The beneficial conversion
feature is valued under the intrinsic value method
The
Note and all accrued interest was paid in full through the issuance of a new convertible note on August 31, 2016.
|
|
|
-
|
|
|
|
-
|
Unamortized
debt discount
|
|
|
-
|
|
|
|
-
|
Total,
net of unamortized discount
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
On
February 1, 2016, the Company entered into a convertible promissory note pursuant to which
it borrowed $38,000. Interest under the convertible promissory note is 10% per annum, and
the principal and all accrued but unpaid interest is due on February 15, 2017. The note is
convertible into 1,900,000 shares of the Company’s common stock at a price of $0.02
per share and 950,000 warrants exercisable at $0.02 per share.
The
Company has determined the value associated with the beneficial conversion feature in connection with the notes negotiated
on February 1, 2016 to be $33,164. The aggregate original issue discount feature has been accreted and charged to interest
expenses as a financing expense in the amount of $29,109 during the year ended December 31, 2016. The beneficial conversion
feature is valued under the intrinsic value method
|
|
|
38,000
|
|
|
|
-
|
Unamortized
debt discount
|
|
|
(4,055)
|
|
|
|
-
|
Total,
net of unamortized discount
|
|
|
33,945
|
|
|
|
-
|
|
|
|
|
|
|
|
|
On
February 17, 2016, the Company entered into a convertible promissory note pursuant to which
it borrowed $20,000. Interest under the convertible promissory note is 9% per annum, and the
principal and all accrued but unpaid interest is due on February 17, 2018. The note is convertible
at any time following 90 days after the issuance date at noteholders option into shares of
our common stock at a variable conversion price of 90% of the average five day market price
of our common stock during the 5 trading days prior to the notice of conversion, subject to
adjustment as described in the note. The holder’s ability to convert the note, however,
is limited in that it will not be permitted to convert any portion of the note if the number
of shares of our common stock beneficially owned by the holder and its affiliates, together
with the number of shares of our common stock issuable upon any full or partial conversion,
would exceed 4.99% of the Company’s outstanding shares of common stock.
The
Company has determined the value associated with the beneficial conversion feature in connection with the notes negotiated
on February 27, 2016 to be $14,049. The aggregate original issue discount feature has been accreted and charged to interest
expenses as a financing expense in the amount of $6,120 during the year ended December 31, 2016. The beneficial conversion
feature is valued under the intrinsic value method
|
|
|
20,000
|
|
|
|
-
|
Unamortized
debt discount
|
|
|
(7,929)
|
|
|
|
-
|
Total,
net of unamortized discount
|
|
|
12,071
|
|
|
|
-
|
On
August 11, 2016, the Company entered into a convertible promissory note pursuant to which it borrowed $15,000. Interest
under the convertible promissory note is 9% per annum, and the principal and all accrued but unpaid interest is due on
August 11, 2018. The note is convertible into shares of our common stock at a variable conversion price of 90% of the
average market price of our common stock during the 5 trading days prior to the notice of conversion, subject to adjustment
as described in the note.
The
Company has determined the value associated with the beneficial conversion feature in connection with the notes negotiated
on August 11, 2016 to be $14,728. The aggregate original issue discount feature has been accreted and charged to interest
expenses as a financing expense in the amount of $2,865 during the year ended December 31, 2016. The beneficial conversion
feature is valued under the intrinsic value method
|
|
|
15,000
|
|
|
|
-
|
Unamortized
debt discount
|
|
|
(11,863)
|
|
|
|
-
|
Total,
net of unamortized discount
|
|
|
3,137
|
|
|
|
-
|
On
August 31, 2016, the Company entered into a convertible promissory note pursuant to which it settled $50,000 in convertible
notes and accrued interest of $3,404. Interest under the convertible promissory note is 10% per annum, and the principal
and all accrued but unpaid interest is due on December 31, 2016. The note is convertible into 5,340,283 shares of the
Company’s common stock at a price of $0.01 per share and 2,670,142 warrants exercisable at $0.02 per share.
The
Company has determined the value associated with the beneficial conversion feature in connection with the notes negotiated
on August 31, 2016 to be $32,121. The aggregate original issue discount feature has been accreted and charged to interest
expenses as a financing expense in the amount of $32,121 during the year ended December 31, 2016. The beneficial conversion
feature is valued under the intrinsic value method
|
|
|
53,404
|
|
|
|
-
|
Unamortized
debt discount
|
|
|
-
|
|
|
|
-
|
Total,
net of unamortized discount
|
|
|
53,404
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
$
|
1,329,163
|
|
|
$
|
1,205,576
|
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
9.
CONVERTIBLE NOTES PAYABLE RELATED PARTY
Convertible
Notes Payable Related Party at consists of the following:
|
|
December
31,
|
|
|
December
31,
|
|
|
2016
|
|
|
2015
|
On
December 31, 2011, the Company re-negotiated accrued salaries and interest for three
employees. Under the terms of the agreements, the notes dated before December 31, 2010,
and all salaries not previously converted were converted to promissory notes convertible
into common stock with a warrant feature. The promissory notes are unsecured, due five
years from issuance, and bear an interest rate of 10%. At the investor’s option
until the repayment date, the note may be converted to shares of the Company’s
common stock at a fixed price of $0.04 per share along with additional warrants to purchase
one share for every two shares issued at the exercise price of $0.06 per share for three
years after the conversion date. The Company has determined the value associated with
the beneficial conversion feature in connection with the notes negotiated on December
31, 2011 to be $1,123,078. The aggregate beneficial conversion feature has been accreted
and charged to interest expenses as a financing expense in the amount of $166,969 during
the year ended December 31, 2016. The beneficial conversion feature is valued under the
intrinsic value method. In the year ending December 2013, the Company made $51,485 in
cash payments to reduce the note balance. The Company settled $89,340 of the outstanding
balance through the issuance of a new note on October 19, 2016
On
October 20, 2016, the Company re-negotiated $982,253 of the unsecured notes payable. Under the modified terms the $982,253 face
value notes maturity date was extended until December 31, 2019 and adjusted to the current market prices. At the investor’s
option until the repayment date, the note can be converted to shares of the Company’s common stock at a fixed price of $0.01
per share along with additional warrants to purchase one share for every two shares issued at the exercise price of $0.02 per
share for three years after the conversion date.
In accordance with ASC 470, the Company has determined the value associated
with the beneficial conversion feature in connection with the re-negotiated notes on October 20, 2016 to be $982,253. The aggregate
beneficial conversion feature has been accreted and charged to interest expenses as a financing expense in the amount of $60,602
during the year ended December 31, 2016. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
982,253
|
|
|
|
1,071,593
|
Unamortized
debt discount
|
|
|
(921,651)
|
|
|
|
(166,969)
|
|
|
|
|
|
|
|
|
On
June 30, 2012, the Company re-negotiated accrued salaries and interest for three employees.
Under the terms of the agreements, the notes dated before July 1, 2011, and all salaries not
previously converted were converted to promissory notes convertible into common stock with
a warrant feature. The promissory notes are unsecured, due five years from issuance, and bear
an interest rate of 10%. At the investor’s option until the repayment date, the note
may be converted to shares of the Company’s common stock at a fixed price of $0.04 per
share along with additional warrants to purchase one share for every two shares issued at
the exercise price of $0.06 per share for three years after the conversion date. The Company
has determined the value associated with the beneficial conversion feature in connection with
the notes to be $209,809. The aggregate beneficial conversion feature has been accreted and
charged to interest expenses as a financing expense in the amount of $41,692 during the year
ended December 31, 2016. The beneficial conversion feature is valued under the intrinsic value
method. On January 18, 2013, the Company made a $3,990 cash payment to reduce the note balance.
The Company settled $21,716 of the outstanding balance through the issuance of a new note
on October 19, 2016
|
|
|
299,316
|
|
|
|
321,032
|
Unamortized
debt discount
|
|
|
(20,618)
|
|
|
|
(62,310)
|
|
|
|
|
|
|
|
|
On
December 30 and 31, 2012, the Company re-negotiated accrued salaries and interest for three employees. Under the terms of
the agreements, $182,083 of related party notes accrued interest and salaries not previously converted were converted to promissory
notes convertible into common stock with a warrant feature. The $182,083 face value promissory notes are unsecured, due five
years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment date, the note may
be converted to shares of the Company’s common stock at a fixed price of $0.03 per share along with additional warrants
to purchase one share for every two shares issued at the exercise price of $0.04 per share for three years after the conversion
date. The Company has determined the value associated with the beneficial conversion feature in connection with the notes
to be $182,083. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing
expense in the amount of $36,497 during the year ended December 31, 2016. The beneficial conversion feature is
valued under the intrinsic value method.
|
|
|
182,083
|
|
|
|
182,083
|
Unamortized
debt discount
|
|
|
(36,384)
|
|
|
|
(72,881)
|
|
|
|
|
|
|
|
|
On
June 30, 2013, the Company re-negotiated accrued salaries and interest for two employees. Under the terms of the agreements,
$106,153 of accrued interest and salaries were converted to promissory notes convertible into common stock with a warrant
feature. The $106,153 face value promissory notes are unsecured, due five years from issuance, and bear an interest rate of
10%. At the investor’s option until the repayment date, the note may be converted to shares of the Company’s common
stock at a fixed price of $0.03 per share along with additional warrants to purchase one share for every two shares issued
at the exercise price of $0.04 per share for three years after the conversion date. The Company has determined the value associated
with the beneficial conversion feature in connection with the notes to be $70,768. The aggregate beneficial conversion feature
has been accreted and charged to interest expenses as a financing expense in the amount of $14,185 during the year ended December
31, 2016. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
106,152
|
|
|
|
106,152
|
Unamortized
debt discount
|
|
|
(21,160)
|
|
|
|
(35,345)
|
On
December 31, 2013, the Company re-negotiated accrued salaries and interest for three employees. Under the terms of the
agreements, $142,501 of accrued interest and salaries not previously converted were converted to promissory notes convertible
into common stock with a warrant feature. The $142,501 face value promissory notes are unsecured, due five years from
issuance, and bear an interest rate of 10%. At the investor’s option until the repayment date, the note may be converted
to shares of the Company’s common stock at a fixed price of $0.03 per share along with additional warrants to purchase
one share for every two shares issued at the exercise price of $0.04 per share for three years after the conversion date.
The Company has determined the value associated with the beneficial conversion feature in connection with the notes to
be $94,909. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing
expense in the amount of $19,022 during the year ended December 31, 2016. The beneficial conversion feature is valued
under the intrinsic value method.
|
|
|
142,501
|
|
|
|
142,501
|
Unamortized
debt discount
|
|
|
(37,944)
|
|
|
|
(56,966)
|
On
June 30, 2014, the Company re-negotiated accrued salaries and interest for three employees. Under the terms of the agreements,
$118,126 of accrued salaries not previously converted were converted to promissory notes convertible into common stock
with a warrant feature. The $118,126 face value promissory notes are unsecured, due five years from issuance, and bear
an interest rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares
of the Company’s common stock at a fixed price of $0.025 per share along with additional warrants to purchase one
share for every two shares issued at the exercise price of $0.03 per share for three years after the conversion date.
The Company has determined the value associated with the beneficial conversion feature in connection with the notes to
be $118,126. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing
expense in the amount of $23,676 during the year ended December 31, 2016. The beneficial conversion feature is valued
under the intrinsic value method.
|
|
|
118,126
|
|
|
|
118,126
|
Unamortized
debt discount
|
|
|
(58,934)
|
|
|
|
(82,610)
|
On
September 30, 2014, the Company re-negotiated accrued salaries and interest for two employees. Under the terms of the
agreements, $40,558 of accrued salaries not previously converted were converted to promissory notes convertible into common
stock with a warrant feature. The $40,558 face value promissory notes are unsecured, due five years from issuance, and
bear an interest rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares
of the Company’s common stock at a fixed price of $0.04 per share along with additional warrants to purchase one
share for every two shares issued at the exercise price of $0.05 per share for three years after the conversion date.
The Company has determined the value associated with the beneficial conversion feature in connection with the notes to
be $40,466. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing
expense in the amount of $8,111 during the year ended December 31, 2016. The beneficial conversion feature is valued under
the intrinsic value method.
|
|
|
40,558
|
|
|
|
40,558
|
Unamortized
debt discount
|
|
|
(22,227)
|
|
|
|
(30,338)
|
On
December 31, 2014, the Company re-negotiated accrued salaries and interest for two employees. Under the terms of the agreements,
$65,295 of accrued salaries not previously converted were converted to promissory notes convertible into common stock
with a warrant feature. The $65,295 face value promissory notes are unsecured, due five years from issuance, and bear
an interest rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares
of the Company’s common stock at a fixed price of $0.04 per share along with additional warrants to purchase one
share for every two shares issued at the exercise price of $0.05 per share for three years after the conversion date.
The Company has determined the value associated with the beneficial conversion feature in connection with the notes to
be $57,439. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing
expense in the amount of $11,514 during the year ended December 31, 2016. The beneficial conversion feature is valued
under the intrinsic value method.
|
|
|
65,295
|
|
|
|
65,295
|
Unamortized
debt discount
|
|
|
(34,443)
|
|
|
|
(45,957)
|
|
|
|
|
|
|
|
|
On
December 31, 2015, the Company re-negotiated accrued salaries and interest for three employees
and a director. Under the terms of the agreements, $343,687 of accrued salaries and director
fees not previously converted were converted to promissory notes convertible into common stock
with a warrant feature. The $343,687 face value promissory notes are unsecured, due five years
from issuance, and bear an interest rate of 10%. At the investor’s option until the
repayment date, the note may be converted to shares of the Company’s common stock at
a fixed price of $0.02 per share along with additional warrants to purchase one share for
every two shares issued at the exercise price of $0.02 per share for three years after the
conversion date. The Company has determined the value associated with the beneficial conversion
feature in connection with the notes to be $341,703. The aggregate beneficial conversion feature
has been accreted and charged to interest expenses as a financing expense in the amount of
$68,455 during the year ended December 31, 2016. The beneficial conversion feature is valued
under the intrinsic value method.
|
|
|
343,687
|
|
|
|
343,687
|
Unamortized
debt discount
|
|
|
(273,248)
|
|
|
|
(341,703)
|
|
|
|
|
|
|
|
|
On
March 30, 2016, the Company re-negotiated accrued directors fees of 3,600. Under the terms
of the agreements, $3,600 of accrued director fees not previously converted were converted
to promissory notes convertible into common stock with a warrant feature. The $3,600 face
value promissory notes are unsecured, due five years from issuance, and bear an interest rate
of 10%. At the investor’s option until the repayment date, the note may be converted
to shares of the Company’s common stock at a fixed price of $0.02 per share along with
additional warrants to purchase one share for every two shares issued at the exercise price
of $0.02 per share for three years after the conversion date. The Company has determined the
value associated with the beneficial conversion feature in connection with the notes to be
$864. The aggregate beneficial conversion feature has been accreted and charged to interest
expenses as a financing expense in the amount of $165 during the year ended December 31, 2016.
The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
3,600
|
|
|
|
-
|
Unamortized
debt discount
|
|
|
(709)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
On
April 30, 2016, the Company re-negotiated accrued salaries and interest for an employee. Under
the terms of the agreements, $33,333 of accrued salaries were converted to promissory notes
convertible into common stock with a warrant feature. The $33,333 face value promissory notes
are unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s
option until the repayment date, the note may be converted to shares of the Company’s
common stock at a fixed price of $0.02 per share along with additional warrants to purchase
one share for every two shares issued at the exercise price of $0.02 per share for three years
after the conversion date. The Company has determined the value associated with the beneficial
conversion feature in connection with the notes to be $8,401. The aggregate beneficial conversion
feature has been accreted and charged to interest expenses as a financing expense in the amount
of $993 during the year ended December 31, 2016. The beneficial conversion feature is valued
under the intrinsic value method.
|
|
|
33,333
|
|
|
|
-
|
Unamortized
debt discount
|
|
|
(7,408)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
On
June 30, 2016, the Company re-negotiated accrued salaries and interest for three employees. Under the terms of the agreements,
$192,417 of accrued salaries not previously converted were converted to promissory notes convertible into common stock with
a warrant feature. The $192,417 face value promissory notes are unsecured, due five years from issuance, and bear an interest
rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares of the Company’s
common stock at a fixed price of $0.02 per share along with additional warrants to purchase one share for every two shares
issued at the exercise price of $0.02 per share for three years after the conversion date. The Company has determined the
value associated with the beneficial conversion feature in connection with the notes to be $28,365. The aggregate beneficial
conversion feature has been accreted and charged to interest expenses as a financing expense in the amount of $2,858 during
the year ended December 31, 2016. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
192,417
|
|
|
|
-
|
Unamortized
debt discount
|
|
|
(25,507)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
On
July 8, 2016, the Company re-negotiated accrued salaries and interest for one employee. Under
the terms of the agreement, $2,000 of accrued salaries not previously converted were converted
to promissory notes convertible into common stock with a warrant feature. The $2,000 face
value promissory notes are unsecured, due on December 31, 2021, and bear an interest rate
of 10%. At the investor’s option until the repayment date, the note may be converted
to shares of the Company’s common stock at a fixed price of $0.01 per share along with
additional warrants to purchase one share for every two shares issued at the exercise price
of $0.02 per share for three years after the conversion date. The Company has determined the
value associated with the beneficial conversion feature in connection with the notes to be
$1,012. The aggregate beneficial conversion feature has been accreted and charged to interest
expenses as a financing expense in the amount of $89 during the year ended December 31, 2016.
The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
2000
|
|
|
|
-
|
Unamortized
debt discount
|
|
|
(923)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
On
September 30, 2016, the Company re-negotiated accrued directors fees of 3,600. Under the terms of the agreements, $3,600
of accrued director fees not previously converted were converted to promissory notes convertible into common stock with
a warrant feature. The $3,600 face value promissory notes are unsecured, due five years from issuance, and bear an interest
rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares of the Company’s
common stock at a fixed price of $0.01 per share along with additional warrants to purchase one share for every two shares
issued at the exercise price of $0.02 per share for three years after the conversion date. The Company has determined
the value associated with the beneficial conversion feature in connection with the notes to be $2,080. The aggregate beneficial
conversion feature has been accreted and charged to interest expenses as a financing expense in the amount of $105 during
the year ended December 31, 2016. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
3,600
|
|
|
|
-
|
Unamortized
debt discount
|
|
|
(1,975)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
On
October 19, 2016, the Company re-negotiated two notes with an employee of the Company. Under the terms of the agreements,
$111,056 of convertible promissory notes due on December 31, 2016 and June 30, 2017 were converted to promissory notes
convertible into common stock with a warrant feature. The $111,056 face value promissory notes are unsecured, due five
years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment date, the note
may be converted to shares of the Company’s common stock at a fixed price of $0.01 per share along with additional
warrants to purchase one share for every two shares issued at the exercise price of $0.02 per share for three years after
the conversion date. The Company has determined the value associated with the beneficial conversion feature in connection
with the notes to be $42,924. The aggregate beneficial conversion feature has been accreted and charged to interest expenses
as a financing expense in the amount of $1,716 during the year ended December 31, 2016. The beneficial conversion feature
is valued under the intrinsic value method.
|
|
|
111,056
|
|
|
|
-
|
Unamortized
debt discount
|
|
|
(41,208)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
On
December 30, 2016, the Company re-negotiated accrued salaries and interest for three employees.
Under the terms of the agreements, $186,375 of accrued salaries not previously converted were
converted to promissory notes convertible into common stock with a warrant feature. The $186,375
face value promissory notes are unsecured, due five years from issuance, and bear an interest
rate of 10%. At the investor’s option until the repayment date, the note may be converted
to shares of the Company’s common stock at a fixed price of $0.01 per share along with
additional warrants to purchase one share for every two shares issued at the exercise price
of $0.02 per share for three years after the conversion date. The Company has determined the
value associated with the beneficial conversion feature in connection with the notes to be
$186,375. The aggregate beneficial conversion feature has been accreted and charged to interest
expenses as a financing expense in the amount of $102 during the year ended December 31, 2016.
The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
186,375
|
|
|
|
-
|
Unamortized
debt discount
|
|
|
(186,273)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
$
|
1,121,740
|
|
|
$
|
1,495,948
|
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
10.
STOCKHOLDERS’ DEFICIT
The
Company is authorized to issue 200,000,000 shares of $0.001 par value common stock. The Company had 123,835,319 and 115,701,969
issued and outstanding shares of common stock as of December 31, 2016 and December 31, 2015, respectively.
On November 29, 2016, 1,000,000 shares of the Company’s common stock were authorized to be issued per
a conversion agreement to settle $10,000 in outstanding convertible debt. As of the date December 31, 2016 the shares had not been
issued and are reflected as shares payable on the Company’s balance sheet at year end.
On
October 31, 2016, 3,333,350 shares of the Company’s common stock and 1,666,675 warrants exercisable at $0.025 were issued
for a cash investment of $50,000.
On
October 21, 2016, 1,000,000 shares of the Company’s common stock were issued to two consultants for services. The shares
were fair valued at $6,150 or $0.123 per share.
On
September 13, 2016, 2,500,000 shares of the Company’s common stock and 1,000,000 warrants exercisable at $0.02 were issued
for a cash investment of $25,000.
On
January 27, 2016, the Company entered into a promissory note and pursuant to its terms the Company issued the holder 100,000 shares
of its common stock valued at $0.02 per share. The shares were fair valued at $2,000 or $0.02 per share.
On
January 27, 2016, the Company entered into a promissory note and pursuant to its terms the Company issued the holder 200,000 shares
of its common stock valued at $0.02 per share. The shares were fair valued at $4,980 or $0.0249 per share.
On
February 1, 2016, the Company entered into a promissory note and pursuant to its terms the Company issued the holder 400,000 shares
of its common stock valued at $0.02 per share. The shares were fair valued at $9,960 or $0.0249 per share.
On
February 1, 2016, the Company entered into a promissory note and pursuant to its terms the Company issued the holder 250,000 shares
of its common stock valued at $0.02 per share. The shares were fair valued at $6,225 or $0.0249 per share.
On
February 2, 2016, the Company issued of 400,000 shares of the Company’s common stock to five consultants for services related
to the Company’s financing. The shares were fair valued at $9,960 or $0.0249 per share.
11.
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, 2016, are as follows:
2017
- 41,684
2018
- 10,790
Rental
expense, resulting from operating lease agreements, approximated $43,245 and $43,478 for the years ended December 31, 2016 and
2015, respectively.
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
On
April 1, 2016, the Company licensed to Kintari Int. Inc. the following: the exclusive rights to its existing line of cosmeceutical
products; the exclusive rights to any future cosmeceutical products developed by the Company; the right-of-first-refusal on its
existing OTC products; and the right-of-first-refusal to any future OTC products developed by the Company. In exchange, the Company
acquired 8,000,000 shares of Kintari Int. Inc.’s common stock. Kintari Int. Inc. is the Company’s wholly owned subsidiary.
The material terms of the license with Skinvisible are as follows:
•
Kintari acquired the right to appoint sub-licensees provided that Skinvisible approves in advance.
•
If Skinvisible desires to sell an OTC product, it must first notify Kintari. If Kintari desires to exercise the right-of-first-refusal
on that OTC product, Kintari must launch the product within 6 months or lose it to Skinvisible.
•
Kintari agreed to purchase the existing product inventory, raw ingredients, packaging materials plus all Kintari marketing materials
for a total of $87,720.14. Kintari has not yet paid this amount and the parties are waiting for fundraising in connection with
an offering to do so.
•
Skinvisible agreed to sell its polymers to Kintari and Kintari will manufacture the products using those polymers.
•
Kintari may use any of Skinvisible’s existing trademarks.
•
Kintari agreed to pay to Skinvisible an on-going royalty of 5% on revenue generated from the products.
•
Kintari agreed to pay to Skinvisible a minimum annual royalty equal to $50,000 for the first year after launch, $100,000 for the
second year after launch and $150,000 for the third year after launch and each subsequent year for the term of the agreement.
•
Kintari agreed to pay to Skinvisible a royalty of 25% of any non-royalty payments received by Kintari from sub-licensees, including
fees received in consideration for sublicensing the products.
•
The agreement may be terminated by, among other things, a mutual consent of the parties or a breach and failure to cure by one
of the parties.
Kintari
USA Inc. commenced business in January 2015 in the U.S. and Kintari Canada Inc. in September 2016. Kintari Int. Inc. is
the parent company to Kintari USA Inc. and Kintari Canada Inc. These companies will be used as operating entities to market and
sell the products. Kintari Int. Inc. will need to raise capital of at least $2 million to assist with its development and payments
to the Company.
12.
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 $4,584,118 which is calculated
by multiplying a 34.5% estimated tax rate by the cumulative net operating loss (NOL) adjusted for the following items:
SKINVISIBLE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
The
components of the Company's deferred tax asset as of December 31, 2016 and 2015 are as follows:
For the
period ended December 31,
|
|
2016
|
|
2015
|
Book loss
for the year
|
|
$
|
(2,050,847
|
)
|
|
$
|
(1,990,211
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
Book to tax depreciation
expense
|
|
|
14,669
|
|
|
|
14,817
|
|
Prior period adjustment
|
|
|
—
|
|
|
|
442
|
|
Non-deductible portion
of travel and entertainment
|
|
|
1,584
|
|
|
|
5,137
|
|
Non-deductible amortization
of debt discount
|
|
|
648,139
|
|
|
|
412,006
|
|
Non-deductible portion
of stock compensation
|
|
|
145,746
|
|
|
|
13,800
|
|
Non-deductible accrued
salaries and wages
|
|
|
368,323
|
|
|
|
328,931
|
|
Non-deductible
penalties
|
|
|
|
|
|
|
|
|
Tax loss for the year
|
|
|
(872,386
|
)
|
|
|
(1,215,078
|
)
|
Estimated
effective tax rate
|
|
|
34.5
|
%
|
|
|
34.5
|
%
|
Deferred
tax asset
|
|
$
|
(300,973
|
)
|
|
$
|
(419,202
|
)
|
As of December
31,
|
|
2016
|
|
2015
|
Deferred tax asset
|
|
$
|
4,584,118
|
|
$
|
4,283,145
|
Valuation allowance
|
|
|
(4,584,118)
|
|
|
(4,283,145)
|
Current taxes payable
|
|
|
-
|
|
|
-
|
Income tax expense
|
|
$
|
-
|
|
$
|
-
|
Below
is a chart showing the total estimated corporate federal net operating loss (NOL) and the year in which it will expire.
Year
|
|
Amount
|
|
Expiration
|
|
2016
|
|
|
$
|
872,386
|
|
|
|
2036
|
|
|
2015
|
|
|
$
|
1,215,078
|
|
|
|
2035
|
|
|
2014
|
|
|
$
|
1,300,779
|
|
|
|
2034
|
|
|
2013
|
|
|
$
|
830,584
|
|
|
|
2033
|
|
|
2012
|
|
|
$
|
581,538
|
|
|
|
2032
|
|
|
2011
|
|
|
$
|
197,306
|
|
|
|
2026
|
|
|
2010
|
|
|
$
|
617,306
|
|
|
|
2025
|
|
|
2009
|
|
|
$
|
1,153,315
|
|
|
|
2024
|
|
|
2008
|
|
|
$
|
1,131,018
|
|
|
|
2023
|
|
|
2007
|
|
|
$
|
907,491
|
|
|
|
2022
|
|
|
2006
|
|
|
$
|
1,191,128
|
|
|
|
2021
|
|
|
2005
|
|
|
$
|
763,406
|
|
|
|
2020
|
|
|
2004
|
|
|
$
|
2,525,963
|
|
|
|
2019
|
|
|
Total
|
|
|
$
|
13,287,298
|
|
|
|
|
|
The
Company will file its U.S. federal return for the year ended December 31, 2016 upon the issuance of this filing. The tax years
2012-2015 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.
13.
SUBSEQUENT EVENTS
On
March 2, 2017, the Company granted stock options for 200,000 options to purchase shares of its common stock to a
consultant. The options have a strike price of $0.03. The stock options were exercisable upon grant and have a life of 5
years.