NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
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. As of December 31, 2017
Skinvisible Inc. owned 37.8% of the issued and outstanding Common stock of Ovation. This investment has been accounted for as
an equity method investment. (See Note 16 for additional details)
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 $31,709,007 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
(AUDITED)
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 $23,318 and $3,019 in cash and cash equivalents as of December
31, 2017 and December 31, 2016 respectively.
Fair Value of Financial Instruments
–
The carrying amounts reflected in the balance sheets for cash, accounts payable and accrued expenses approximate the respective
fair values due to the short maturities of these items.
As required by the Fair Value Measurements
and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the
inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2)
inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable
inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The three levels of the fair value hierarchy
are described below:
Level 1: Unadjusted quoted prices
in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets
that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset
or liability;
Level 3: Prices or valuation techniques
that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market
activity).
Revenue recognition
Product sales
– Revenues
from the sale of products (Invisicare® polymers) are recognized when title to the products are transferred to the customer
and only when no further contingencies or material performance obligations are warranted, and thereby have earned the right to
receive reasonably assured payments for products sold and delivered.
Royalty sales
– The Company also recognizes royalty revenue from licensing its patented product formulations only when earned, when no
further contingencies or material performance obligations are warranted, and thereby have earned the right to receive and retain
reasonably assured payments.
Distribution and
license rights sales
– The Company also recognizes revenue from distribution and license rights only when earned, when
no further contingencies or material performance obligations are warranted, and thereby have earned the right to receive and retain
reasonably assured payments.
Costs of Revenue
– Cost of revenue includes raw materials, component parts, and shipping supplies. Shipping and handling costs is not
a significant portion of the cost of revenue.
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
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, 2017, the Company
had not recorded a reserve for doubtful accounts. The Company has $1,135,000 in convertible notes payable which are secured by
the accounts receivable of a license agreement the Company has with Women's Choice Pharmaceuticals, LLC on its proprietary prescription
product, ProCort®.
Inventory
– Substantially all
inventory consists of finished goods and are valued based upon first-in first-out ("FIFO") cost, not in excess of market.
The determination of whether the carrying amount of inventory requires a write-down is based on an evaluation of inventory.
Goodwill and intangible assets
–
The Company follows Financial Accounting Standard Board’s (FASB) Codification Topic 350-10 (“ASC 350-10”), “
Intangibles
– Goodwill and Other
”. According to this statement, goodwill and intangible assets with indefinite lives are no
longer subject to amortization, but rather an annual assessment of impairment by applying a fair-value based test. Fair value for
goodwill is based on discounted cash flows, market multiples and/or appraised values as appropriate. Under ASC 350-10, the carrying
value of assets are calculated at the lowest level for which there are identifiable cash flows.
Income taxes
– The Company accounts
for its income taxes in accordance with FASB Codification Topic ASC 740-10, “
Income Taxes
”, which requires recognition
of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry-forwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
Stock-based compensation
– The
Company follows the guidelines in FASB Codification Topic ASC 718-10 “
Compensation-Stock Compensation
”, which
requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors
including employee stock options and employee stock purchases related to an Employee Stock Purchase Plan based on the estimated
fair values.
Stock based compensation expense recognized
under ASC 718-10 for the year ended December 31, 2017 and 2016 totaled $223,090 and $145,746, respectively.
Earnings (loss) per share
– The
Company reports earnings (loss) per share in accordance with FASB Codification Topic ASC 260-10 “
Earnings Per Share
”,
Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average
number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except
that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive. Diluted earnings (loss) per share has not been
presented since the effect of the assumed exercise of options and warrants to purchase common shares (common stock equivalents)
would have an anti-dilutive effect.
Recently issued accounting pronouncements
– The Company has evaluated the all recent accounting pronouncements through ASU 2018-01, and believes that none of them
will have a material effect on the Company's financial position, results of operations or cash flows except as discussed below.
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
Revenue from Contracts with Customers
. In
May 2014, the FASB issued Accounting Standards Update No. 2014-09 (“ASU 2014-09”), which supersedes nearly all existing
revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or
services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for
those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment
and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. Additionally,
the new guidance requires enhanced disclosures about the nature, amount, timing, and uncertainty of revenue and cash flows arising
from customer contracts, including revenue recognition policies to identify performance obligations, assets recognized from costs
incurred to obtain and fulfill a contract, and significant judgments in measurement and recognition.
In July 2015, the FASB made a decision to defer
the effective date of the new standard for one year and permit early adoption as of the original effective date. The
Company is has reviewed its revenue streams and does not believe that the adoption of this standard has a material effect on its
revenue recognition in 2016 or 2017.
4. RECLASSIFICATION
The Company has reclassified
$333,011 in accrued interest previously included in accounts payable on the Company’s December 31, 2016 balance sheet to
more clearly reflect the nature of the liabilities. The amount is now included in the accrued interest balance. The reclassification
of accrued interest had no impact on the Company’s statements of operations, statement of shareholders deficit or statements
of cash flows.
5. FIXED ASSETS
Fixed assets consist of the following as of
December 31, 2017 and December 31, 2016:
|
|
December 31, 2017
|
|
December 31, 2016
|
Machinery and equipment
|
|
$
|
48,163
|
|
|
$
|
48,163
|
Furniture and fixtures
|
|
|
113,635
|
|
|
|
113,635
|
Computers, equipment and software
|
|
|
39,722
|
|
|
|
39,722
|
Leasehold improvements
|
|
|
12,569
|
|
|
|
12,569
|
Lab equipment
|
|
|
113,461
|
|
|
|
113,461
|
Total
|
|
|
327,550
|
|
|
|
327,550
|
Less: accumulated depreciation
|
|
|
(327,191
|
)
|
|
|
(326,867)
|
Fixed assets, net of accumulated depreciation
|
|
$
|
359
|
|
|
$
|
683
|
Depreciation expense for the years ended December
31, 2017 and 2016 was $324 and $1,012, respectively.
6. INVENTORY
Inventory consist of the following as of December
31, 2017 and December 31, 2016:
|
|
December 31, 2017
|
|
December 31, 2016
|
Shipping and Packing materials
|
|
$
|
8,684
|
|
|
$
|
10,274
|
Marketing Supplies
|
|
|
—
|
|
|
|
17,139
|
Finished Goods
|
|
|
10,433
|
|
|
|
32,998
|
Raw Materials
|
|
|
6,906
|
|
|
|
19,283
|
Total
|
|
$
|
26,023
|
|
|
$
|
79,694
|
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
7. 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, 2017, intangible
assets total $661,174, net of $455,187 of accumulated amortization. Amortization expense for the years ended December 31, 2017
and 2016 was $54,009 and $56,636, 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, 2017.
8. 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. As of December 31, 2017 Skinvisible Inc. owned 37.8%
of the issued and outstanding Common stock of Ovation. This investment has been accounted for as an equity method investment as
of December 31, 2017.
Upon the initial acquisition of the
shares of Ovation the Company owned 99.9% of the Company and consolidated the activity of both entities in its financial statements
in accordance with ASC 810. Ovation sold shares to investors subsequent to Skinvisible’s’ investment that diluted Skinvisible’s
interest to below 50% on October 17, 2017. On that date the Company deconsolidated the activity for accounting purposes and recorded
the investment as an equity method investment. In accordance with ASC 810 the Company revalued the investment at fair value and
recorded a gain on deconsolidation of Ovation of $90,189.
The Company fair valued its investment
in Ovation based upon the average price per share invested between inception of Ovation and October 17, 2017 or approximately $0.021
per share.
Ovation will continue to manage its
operations separately from the Company but it is still considered a related party as Skinvisible still owned 37.8% as of December
31, 2017.
Summarized financial statements of
Ovation Science Inc. as of December 31, 2017 have been included below:
Balance sheet
as of December 31, 2017
|
Cash
|
|
|
220,180
|
Accounts receivable
|
|
|
10,872
|
License agreement
|
|
|
500,000
|
|
|
|
731,052
|
|
|
|
|
Accounts payable
|
|
|
419
|
Due to related parties
|
|
|
291
|
Note payable
|
|
|
250,000
|
Liabilities
|
|
|
250,710
|
|
|
|
|
Additional Paid in Capital
|
|
|
503,080
|
Common Stock
|
|
|
15,222
|
Retained earnings
|
|
|
(37,960)
|
Equity
|
|
|
480,342
|
Equity and liabilities
|
|
|
731,052
|
Statement of Operations
From inception to December 31, 2017
|
License income
|
|
|
9,993
|
|
|
|
|
General expenses
|
|
|
4,362
|
Professional fees
|
|
|
6,549
|
Management fees
|
|
|
37,042
|
Total expenses
|
|
|
47,953
|
|
|
|
|
Net income/loss
|
|
|
(37,960)
|
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
9. STOCK OPTIONS AND WARRANTS
The following is a summary of option activity
during year ended December 31, 2017.
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
Balance, December 31, 2016
|
|
|
11,250,000
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
Options granted and assumed
|
|
|
1,700,000
|
|
|
$
|
0.03
|
Options expired
|
|
|
(2,350,000
|
)
|
|
$
|
0.03
|
Options canceled
|
|
|
—
|
|
|
|
—
|
Options exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017
|
|
|
10,600,000
|
|
|
$
|
0.03
|
As of December 31, 2017, all stock options
outstanding are exercisable.
On March 1, 2017, the Company granted stock
options for 400,000 options to purchase shares of its common stock to two consultants. The options have a strike price of
$0.03. The stock options were exercisable upon grant and have a life of 5 years. The stock options were valued at $14,000 using
the Black-Scholes option pricing model. The Company recorded an expense of $14,000 for the year ended December
31, 2017.
On March 22, 2017, the Company granted stock
options for 200,000 options to purchase shares of its common stock to a consultant. The options have a strike price of $0.03.
The stock options were exercisable upon grant and have a life of 5 years. The stock options were valued at $6,000 using the Black-Scholes
option pricing model. The Company recorded an expense of $6,000 for the year ended December 31, 2017.
On May 18, 2017, the Company granted stock
options for 1,000,000 options to purchase shares of its common stock to a consultant. The options have a strike price of $0.03.
The stock options were exercisable upon grant and have a life of 5 years. The stock options were valued at $24,999 using the Black-Scholes
option pricing model. The Company recorded an expense of $24,999 for the year ended December 31, 2017.
On September 22, 2017, the Company granted
stock options for 100,000 options to purchase shares of its common stock to a director. The options have a strike price of
$0.035. The stock options were exercisable upon grant and have a life of 5 years. The stock options were valued at $35,497 using
the Black-Scholes option pricing model. The Company recorded an expense of $35,497 for the year ended December
31, 2017.
Stock warrants -
The following is a summary of warrants activity
during the year ended December 31, 2017.
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
Balance, December 31, 2016
|
|
|
4,952,675
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
Warrants granted and assumed
|
|
|
4,095,300
|
|
|
$
|
0.03
|
Warrants expired
|
|
|
(1,625,000
|
)
|
|
$
|
0.07
|
Warrants canceled
|
|
|
—
|
|
|
|
—
|
Warrants exercised
|
|
|
(400,000
|
)
|
|
|
0.03
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017
|
|
|
7,022,975
|
|
|
$
|
0.03
|
All warrants outstanding as of December 31,
2017 are exercisable.
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
10. 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, 2017 the Company made principal payments of $11,025.
On May 19, 2014, the Company approved a financing
plan to offer accredited investors up to an additional $1,000,000 in secured promissory notes. During the period from May 19, 2014
to March 31, 2015 the Company entered into twenty-seven 9% notes payable to investors and received total proceeds of $1,000,000.
The notes are due two years from the anniversary date of execution. The Notes are secured by the US Patent rights granted for the
Company's Sunscreen Products: US patent number #8,128,913: "Sunscreen Composition with Enhanced UV-A Absorber Stability and
Methods." $1,000,000 in notes have reached their initial maturity date.
During the period from April 1, 2015 and September
30, 2015, the Company entered into thirteen additional 9% notes payable to investors and received total proceeds of $326,000. The
notes are due two years from the anniversary date of execution. The Notes are secured by the US Patent rights granted for the Company's
Sunscreen Products: US patent number #8,128,913: "Sunscreen Composition with Enhanced UV-A Absorber Stability and Methods".
On January 27, 2016, the Company entered into
a 12% unsecured note payable to an investor and received total proceeds of $33,000. The note was due on May 30, 2016. As of December
31, 2017, no payments had been made towards the principal balance.
On March 31, 2017, the Company entered into
a promissory note pursuant to which we borrowed $15,000. Interest under the note is at 0% per annum, and the principal is due on
Demand. The note was paid in full on April, 11, 2017.
As of December 31, 2017, $2,301,875 of the
Notes were due in less than 12 months and have been classified as current notes payable.
11. RELATED PARTY TRANSACTIONS
During the years ended December 31, 2017, officers
of the Company advanced $4,749 to support the daily operations of the company. The advance is due on demand and bears no interest.
$57,759 in advances were repaid during the year ending December 31, 2017.
As of December 31, 2017, $17,260 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.
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, 2017 Ovation had paid $250,000 to Skinvisible Inc.
under this agreement.
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. As of December 31,
2017, the Company has recorded $4,808 in interest income related to the note receivable.
As
of December 31, 2017, the Company had recorded the full $500,000 in license revenue as earned in accordance with ASU 2016-10.
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
12. CONVERTIBLE NOTES PAYABLE
Convertible Notes Payable at consists of the following:
|
|
December 31,
|
|
December 31,
|
|
|
2017
|
|
2016
|
$52,476 face value,10% unsecured note payable to an investor, note interest and principal are due on demand. The note could be converted to option rights for the Company’s shares at ten cents per share ($0.10), these rights expired on January 12, 2010. The note is currently in default, but no penalties occur due to default.
On December 19, 2017, the Company issued to the Purchaser 1,139,021 shares of common stock and 489,512 warrants to purchase shares of the Company’s common stock at $0.04 until December 31, 2018, in connection with the conversion of the note. This issuance of shares to the Purchaser satisfied the note and related accrued interest in full.
|
|
$
|
—
|
|
|
$
|
28,476
|
|
Unamortized debt discount
|
|
|
—
|
|
|
|
—
|
|
Total, net of unamortized discount
|
|
|
—
|
|
|
|
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
|
|
Unamortized debt discount
|
|
|
—
|
|
|
|
—
|
|
Total, net of unamortized discount
|
|
|
1,000,000
|
|
|
|
1,111,110
|
|
$135,000 face value 9% unsecured notes payable to investors, due October 26, 2017. At the investor’s option until the repayment date, the note and related interest may be converted to shares of the Company’s common stock a discount of 90% of the current share price after the first anniversary of the note. The notes are secured by the accounts receivable of a license agreement the Company has with Womens Choice Pharmaceuticals, LLC on its proprietary prescription product, ProCort®. The Company has determined the value associated with the beneficial conversion feature in connection with the notes and interest to be $117,535. The aggregate original issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $47,980 during the year ended December 31, 2017. The original issue discount feature is valued under the intrinsic value method.
|
|
|
135,000
|
|
|
|
135,000
|
|
Unamortized debt discount
|
|
|
(-
|
|
|
|
(47,980
|
)
|
Total, net of unamortized discount
|
|
|
135,000
|
|
|
|
87,020
|
|
On February 1, 2016, the Company entered into a convertible promissory note pursuant to which it borrowed $38,000. Interest under the convertible promissory note is 10% per annum, and the principal and all accrued but unpaid interest is due on February 15, 2017. The note is convertible into 1,900,000 shares of the Company’s common stock at a price of $0.02 per share and 950,000 warrants exercisable at $0.02 per share.
The Company has determined the value associated with the beneficial conversion feature in connection with the notes negotiated on February 1, 2016 to be $33,164. The aggregate original issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $4,055 during the year ended December 31, 2017. The beneficial conversion feature is valued under the intrinsic value method
On December 19, 2017, the Company issued to the Purchaser 1,339,979 shares of common stock and 669,989 warrants to purchase shares of the Company’s common stock at $0.04 until December 31, 2018, in connection with the conversion of the note. This issuance of shares to the Purchaser satisfied the note and related accrued interest in full.
|
|
|
—
|
|
|
|
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 $7,025 during the year ended December 31, 2017. The beneficial conversion feature is valued under the intrinsic value method
|
|
|
20,000
|
|
|
|
20,000
|
|
Unamortized debt discount
|
|
|
(904
|
)
|
|
|
(7,929
|
)
|
Total, net of unamortized discount
|
|
|
19,096
|
|
|
|
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 $7,364 during the year ended December 31, 2017. The beneficial conversion feature is valued under the intrinsic value method
|
|
|
15,000
|
|
|
|
15,000
|
|
Unamortized debt discount
|
|
|
(4,499
|
)
|
|
|
(11,863
|
)
|
Total, net of unamortized discount
|
|
|
10,501
|
|
|
|
3,137
|
|
On August 31, 2016, the Company entered into a convertible promissory note pursuant to which it settled $50,000 in convertible notes and accrued interest of $3,404. Interest under the convertible promissory note is 10% per annum, and the principal and all accrued but unpaid interest is due on December 31, 2016. The note is convertible into 5,340,283 shares of the Company’s common stock at a price of $0.01 per share and 2,670,142 warrants exercisable at $0.02 per share.
The Company has determined the value associated with the beneficial conversion feature in connection with the notes negotiated on August 31, 2016 to be $32,121. The aggregate original issue discount feature has been accreted and charged to interest expenses as a financing expense in prior years. The beneficial conversion feature is valued under the intrinsic value method
The Note and all accrued interest was paid in full through the issuance of a new convertible note on August 31, 2017.
|
|
|
—
|
|
|
|
53,404
|
|
Unamortized debt discount
|
|
|
—
|
|
|
|
—
|
|
Total, net of unamortized discount
|
|
|
—
|
|
|
|
53,404
|
|
On January 27, 2017, the Company entered into a convertible promissory note pursuant to which it borrowed $10,000. Interest under the convertible promissory note is 9% per annum, and the principal and all accrued but unpaid interest is due on January 27, 2019. The note is convertible into shares of our common stock at a variable conversion price of 90% of the average market price of our common stock during the 5 trading days prior to the notice of conversion, subject to adjustment as described in the note.
The Company has determined the value associated with the beneficial conversion feature in connection with the notes negotiated on January 27, 2017 to be $2,138. The aggregate original issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $990 during the year ended December 31, 2017. The beneficial conversion feature is valued under the intrinsic value method
|
|
|
10,000
|
|
|
|
—
|
|
Unamortized debt discount
|
|
|
(1,148
|
)
|
|
|
—
|
|
Total, net of unamortized discount
|
|
|
8,852
|
|
|
|
—
|
|
On April 7, 2017, the Company entered into a convertible promissory note pursuant to which it borrowed $160,000 and issued 400,000 warrants exercisable at $0.03. Interest under the convertible promissory note is 10% per annum, and the principal and all accrued but unpaid interest is due on January 7, 2018. The note is convertible into shares of our common stock at the lower of a) $0.03 or b) a variable conversion price of 55% of the lowest market price of our common stock during the 15 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 and warrants issued in connection with the notes negotiated on April 7, 2017 to be $160,000. The aggregate original issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $160,000 during the year ended December 31, 2017. The beneficial conversion feature is valued under the intrinsic value method.
In accordance with the terms of the agreement the Company issued 400,000 share as a commitment fee, the shares were valued at $14,600 and expensed as stock based compensation.
On October 5, 2017, the Company issued to the Purchaser 5,598,580 shares of common stock in connection with the conversion of the note. This issuance of shares to the Purchaser satisfied the note in full.
|
|
|
—
|
|
|
|
—
|
|
Unamortized debt discount
|
|
|
—
|
|
|
|
—
|
|
Total, net of unamortized discount
|
|
|
—
|
|
|
|
—
|
|
On August 31, 2017, the Company entered into a convertible promissory note pursuant to which it settled $53,404 in convertible notes and accrued interest of $5,339. Interest under the convertible promissory note is 10% per annum, and the principal and all accrued but unpaid interest is due on August 31, 2018. The note is convertible into 2,937,150 shares of the Company’s common stock at a price of $0.02 per share and 1,468,575 warrants exercisable at $0.03 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 $58,743. The aggregate original issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $58,743 during the year ended December 31, 2017. The beneficial conversion feature is valued under the intrinsic value method.
On December 19, 2017, the Company issued to the Purchaser 3,025,000 shares of common stock and 1,512,500 warrants to purchase shares of the Company’s common stock at $0.03 until December 31, 2018, in connection with the conversion of the note and related interest. This issuance of shares to the Purchaser satisfied the note and related accrued interest in full.
|
|
|
—
|
|
|
|
—
|
|
Unamortized debt discount
|
|
|
—
|
|
|
|
—
|
|
Total, net of unamortized discount
|
|
|
—
|
|
|
|
—
|
|
On August 4, 2017, the Company entered into a convertible promissory note pursuant to which it borrowed $35,000. Interest under the convertible promissory note is 10% per annum, and the principal and all accrued but unpaid interest is due on February 4, 2018. The note is convertible into shares of our common stock at a variable conversion price of 55% of the lowest market price of our common stock during the 15 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 issued in connection with the notes negotiated on August 4, 2017 to be $35,000. The aggregate original issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $10,842 during the year ended December 31, 2017. The beneficial conversion feature is valued under the intrinsic value method.
In accordance with the terms of the agreement the Company issued 87,500 share as a commitment fee, the shares were valued at $2,188 and expensed as stock based compensation.
On October 5, 2017 the Company exercised its right to prepay the Note, and paid the Purchaser a total of $ $35,508 under the terms of the Note satisfying the debt in full.
|
|
|
—
|
|
|
|
—
|
|
Unamortized debt discount
|
|
|
—
|
|
|
|
—
|
|
Total, net of unamortized discount
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,173,449
|
|
|
$
|
1,329,163
|
|
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
13. CONVERTIBLE NOTES PAYABLE RELATED PARTY
Convertible Notes Payable Related Party at consists of the following:
|
|
December 31,
|
|
December 31,
|
|
|
2017
|
|
2016
|
On December 31, 2011, the Company re-negotiated accrued salaries and interest for three employees. Under the terms of the agreements, the notes dated before December 31, 2010, and all salaries not previously converted were converted to promissory notes convertible into common stock with a warrant feature. The promissory notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares of the Company’s common stock at a fixed price of $0.04 per share along with additional warrants to purchase one share for every two shares issued at the exercise price of $0.06 per share for three years after the conversion date. The Company has determined the value associated with the beneficial conversion feature in connection with the notes negotiated on December 31, 2011 to be $1,123,078. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense in the amount of $166,969 during the year ended December 31, 2016. The beneficial conversion feature is valued under the intrinsic value method. In the year ending December 2013, the Company made $51,485 in cash payments to reduce the note balance. The Company settled $89,340 of the outstanding balance through the issuance of a new note on October 19, 2016
On October 20, 2016, the Company re-negotiated $982,253 of the unsecured notes payable. Under the modified terms the $982,253 face value notes maturity date was extended until December 31, 2019 and adjusted to the current market prices. At the investor’s option until the repayment date, the note can be converted to shares of the Company’s common stock at a fixed price of $0.01 per share along with additional warrants to purchase one share for every two shares issued at the exercise price of $0.02 per share for three years after the conversion date. In accordance with ASC 470, the Company has determined the value associated with the beneficial conversion feature in connection with the re-negotiated notes on October 20, 2016 to be $982,253. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense in the amount of $307,217 during the year ended December 31, 2017. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
982,253
|
|
|
|
982,253
|
|
Unamortized debt discount
|
|
|
(614,434
|
)
|
|
|
(921,651
|
)
|
|
|
|
|
|
|
|
|
|
On June 30, 2012, the Company re-negotiated accrued salaries and interest for three employees. Under the terms of the agreements, the notes dated before July 1, 2011, and all salaries not previously converted were converted to promissory notes convertible into common stock with a warrant feature. The promissory notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares of the Company’s common stock at a fixed price of $0.04 per share along with additional warrants to purchase one share for every two shares issued at the exercise price of $0.06 per share for three years after the conversion date. The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be $209,809. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense in the amount of $20,618 during the year ended December 31, 2017. The beneficial conversion feature is valued under the intrinsic value method.
On January 18, 2013, the Company made a $3,990 cash payment to reduce the note balance.
On October 19, 2016, the Company settled $21,716 of the outstanding balance through the issuance of a new note.
On July 1, 2017, the Company renewed the outstanding notes. Under the terms of the agreements, the due date of the notes were extended to July 1, 2022. The promissory notes are unsecured, and bear an interest rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares of the Company’s common stock at a fixed price of $0.02 per share along with additional warrants to purchase one share for every two shares issued at the exercise price of $0.03 per share for three 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 $20,201 during the year ended December 31, 2017. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
299,316
|
|
|
|
299,316
|
|
Unamortized debt discount
|
|
|
(178,658
|
)
|
|
|
(20,618
|
)
|
|
|
|
|
|
|
|
|
|
On December 30 and 31, 2012, the Company re-negotiated accrued salaries and interest for three employees. Under the terms of the agreements, $182,083 of related party notes accrued interest and salaries not previously converted were converted to promissory notes convertible into common stock with a warrant feature. The $182,083 face value promissory notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares of the Company’s common stock at a fixed price of $0.03 per share along with additional warrants to purchase one share for every two shares issued at the exercise price of $0.04 per share for three years after the conversion date. The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be $182,083. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense in the amount of $36,384 during the year ended December 31, 2017. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
182,083
|
|
|
|
182,083
|
|
Unamortized debt discount
|
|
|
—
|
|
|
|
(36,384
|
)
|
|
|
|
|
|
|
|
|
|
On June 30, 2013, the Company re-negotiated accrued salaries and interest for two employees. Under the terms of the agreements, $106,153 of accrued interest and salaries were converted to promissory notes convertible into common stock with a warrant feature. The $106,153 face value promissory notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares of the Company’s common stock at a fixed price of $0.03 per share along with additional warrants to purchase one share for every two shares issued at the exercise price of $0.04 per share for three years after the conversion date. The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be $70,768. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense in the amount of $14,145 during the year ended December 31, 2017. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
106,152
|
|
|
|
106,152
|
|
Unamortized debt discount
|
|
|
(7,015
|
)
|
|
|
(21,160
|
)
|
On December 31, 2013, the Company re-negotiated accrued salaries and interest for three employees. Under the terms of the agreements, $142,501 of accrued interest and salaries not previously converted were converted to promissory notes convertible into common stock with a warrant feature. The $142,501 face value promissory notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares of the Company’s common stock at a fixed price of $0.03 per share along with additional warrants to purchase one share for every two shares issued at the exercise price of $0.04 per share for three years after the conversion date. The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be $94,909. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense in the amount of $18,973 during the year ended December 31, 2017. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
142,501
|
|
|
|
142,501
|
|
Unamortized debt discount
|
|
|
(18,971
|
)
|
|
|
(37,944
|
)
|
On June 30, 2014, the Company re-negotiated accrued salaries and interest for three employees. Under the terms of the agreements, $118,126 of accrued salaries not previously converted were converted to promissory notes convertible into common stock with a warrant feature. The $118,126 face value promissory notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares of the Company’s common stock at a fixed price of $0.025 per share along with additional warrants to purchase one share for every two shares issued at the exercise price of $0.03 per share for three years after the conversion date. The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be $118,126. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense in the amount of $23,616 during the year ended December 31, 2017. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
118,126
|
|
|
|
118,126
|
|
Unamortized debt discount
|
|
|
(35,321
|
)
|
|
|
(58,934
|
)
|
On September 30, 2014, the Company re-negotiated accrued salaries and interest for two employees. Under the terms of the agreements, $40,558 of accrued salaries not previously converted were converted to promissory notes convertible into common stock with a warrant feature. The $40,558 face value promissory notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares of the Company’s common stock at a fixed price of $0.04 per share along with additional warrants to purchase one share for every two shares issued at the exercise price of $0.05 per share for three years after the conversion date. The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be $40,466. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense in the amount of $8,088 during the year ended December 31, 2017. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
40,558
|
|
|
|
40,558
|
|
Unamortized debt discount
|
|
|
(14,139
|
)
|
|
|
(22,227
|
)
|
On December 31, 2014, the Company re-negotiated accrued salaries and interest for two employees. Under the terms of the agreements, $65,295 of accrued salaries not previously converted were converted to promissory notes convertible into common stock with a warrant feature. The $65,295 face value promissory notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares of the Company’s common stock at a fixed price of $0.04 per share along with additional warrants to purchase one share for every two shares issued at the exercise price of $0.05 per share for three years after the conversion date. The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be $57,439. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense in the amount of $11,481 during the year ended December 31, 2017. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
65,295
|
|
|
|
65,295
|
|
Unamortized debt discount
|
|
|
(22,962
|
)
|
|
|
(34,443
|
)
|
|
|
|
|
|
|
|
|
|
On December 31, 2015, the Company re-negotiated accrued salaries and interest for three employees and a director. Under the terms of the agreements, $343,687 of accrued salaries and director fees not previously converted were converted to promissory notes convertible into common stock with a warrant feature. The $343,687 face value promissory notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares of the Company’s common stock at a fixed price of $0.02 per share along with additional warrants to purchase one share for every two shares issued at the exercise price of $0.02 per share for three years after the conversion date. The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be $341,703. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense in the amount of $68,264 during the year ended December 31, 2017. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
343,687
|
|
|
|
343,687
|
|
Unamortized debt discount
|
|
|
(204,984
|
)
|
|
|
(273,248
|
)
|
|
|
|
|
|
|
|
|
|
On March 30, 2016, the Company re-negotiated accrued directors fees of 3,600. Under the terms of the agreements, $3,600 of accrued director fees not previously converted were converted to promissory notes convertible into common stock with a warrant feature. The $3,600 face value promissory notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares of the Company’s common stock at a fixed price of $0.02 per share along with additional warrants to purchase one share for every two shares issued at the exercise price of $0.02 per share for three years after the conversion date. The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be $864. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense in the amount of $219 during the year ended December 31, 2017. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
3,600
|
|
|
|
3,600
|
|
Unamortized debt discount
|
|
|
(490
|
)
|
|
|
(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 $1,481 during the year ended December 31, 2017. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
33,333
|
|
|
|
33,333
|
|
Unamortized debt discount
|
|
|
(5,927
|
)
|
|
|
(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 $5,670 during the year ended December 31, 2017. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
192,417
|
|
|
|
192,417
|
|
Unamortized debt discount
|
|
|
(19,837
|
)
|
|
|
(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 $185 during the year ended December 31, 2017. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
2,000
|
|
|
|
2,000
|
|
Unamortized debt discount
|
|
|
(738
|
)
|
|
|
(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 $416 during the year ended December 31, 2017. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
3,600
|
|
|
|
3,600
|
|
Unamortized debt discount
|
|
|
(1,559
|
)
|
|
|
(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 $8,580 during the nine month ended December 31, 2017. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
111,056
|
|
|
|
111,056
|
|
Unamortized debt discount
|
|
|
(32,628
|
)
|
|
|
(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 $37,255 during the year ended December 31, 2017. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
186,375
|
|
|
|
186,375
|
|
Unamortized debt discount
|
|
|
(149,018
|
)
|
|
|
(186,273
|
)
|
|
|
|
|
|
|
|
|
|
On July 1, 2017, the Company re-negotiated accrued salaries and interest for three employees. Under the terms of the agreements, $178,439 of accrued salaries not previously converted were converted to promissory notes convertible into common stock with a warrant feature. The $178,439 face value promissory notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares of the Company’s common stock at a fixed price of $0.02 per share along with additional warrants to purchase one share for every two shares issued at the exercise price of $0.03 per share for 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 $118,800. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense in the amount of $11,905 during the year ended December 31, 2017. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
178,439
|
|
|
|
—
|
|
Unamortized debt discount
|
|
|
(106,895
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,577,215
|
|
|
$
|
1,121,740
|
|
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
14. STOCKHOLDERS’ DEFICIT
The Company is authorized to issue 200,000,000
shares of $0.001 par value common stock. The Company had 136,864,035 and 123,835,319 issued and outstanding shares of common stock
as of December 31, 2017 and December 31, 2016, respectively.
On February 23, 2017, 100,000 shares of the Company’s common
stock were issued to a consultant for services. The shares were fair valued at $4,000 or $0.04 per share.
On May 1. 2017, the Company entered into a
consulting agreement and agreed to issue 1,154,000 shares of the Company’s common stock in exchange for three months of services.
The shares were valued at $0.025 or $28,850.
On April 7, 2017, the Company entered into
a convertible promissory note pursuant to which it borrowed $160,000. In accordance with the terms of the agreement the Company
issued 400,000 share as a commitment fee, the shares were valued at $14,600 and expenses as stock based compensation. An additional
5,772,006 shares were issued as refundable shares, the shares will only be returned if the Company pays the note and accrued interest
in full within 180 days of April 7, 2017. These shares were valued at $210,678 and recorded as collateral deposit. On October 5,
2017 5,772,006 shares were returned to the treasury and cancelled when the Company issued to the Purchaser 5,598,580 shares of
common stock in connection with the conversion of the note. This issuance of shares to the Purchaser satisfied the note in full.
(See Note 12 for additional details)
On June 19. 2017, the Company entered into
a termination agreement with CannaSkin. Per the agreement the Company issued 1,300,000 shares of the Company’s as a termination
fee. The shares were valued at $0.025 or $32,500.
On August 7, 2017, the Company entered into
a convertible promissory note pursuant to which it borrowed $35,000. In accordance with the terms of the agreement the Company
issued 87,500 shares as a commitment fee, the shares were valued at $2,188 and expenses as stock based compensation. This loan
was repaid in full on October 5, 2017.. (See Note 12 for additional details).
On October 11, 2017, the Company issued
363,636 shares of common stock due to the cashless exercise of 400,000 warrants.
On December 19, 2017 the Company issued 4,025,000
shares of common stock to two note holder in settlement of outstanding debts totaling $70,520.
On December 19, 2017 the Company executed an
agreement to issue 2,479,000 shares of common stock to a note holder in settlement of $61,976 in debts. As of December 31, 2017
the shares had not been issued and were reported as stock payable.
15. 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 $4,695,634 which is calculated by multiplying a 34.5% estimated tax
rate by the cumulative net operating loss (NOL) adjusted for the following items:
The components
of the Company's deferred tax asset as of December 31, 2017 and 2016 are as follows:
For the period ended December 31,
|
|
2017
|
|
2016
|
Book loss for the year
|
|
$
|
(1,826,808
|
)
|
|
$
|
(2,050,847)
|
Adjustments:
|
|
|
|
|
|
|
|
Book to tax depreciation expense
|
|
|
14,009
|
|
|
|
14,669
|
Prior period adjustment
|
|
|
—
|
|
|
|
—
|
Non-deductible portion of travel and entertainment
|
|
|
2,496
|
|
|
|
1,584
|
Non-deductible amortization of debt discount
|
|
|
914,482
|
|
|
|
648,139
|
Non-deductible portion of stock compensation
|
|
|
223,090
|
|
|
|
145,746
|
Non-deductible accrued salaries and wages
|
|
|
349,497
|
|
|
|
368,323
|
Non-deductible penalties
|
|
|
|
|
|
|
|
Tax loss for the year
|
|
|
(323,234
|
)
|
|
|
(872,386)
|
Estimated effective tax rate
|
|
|
34.5
|
%
|
|
|
34.5%
|
Deferred tax asset
|
|
$
|
(111,516
|
)
|
|
$
|
(300,973)
|
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
As of December 31,
|
|
2017
|
|
2016
|
Deferred tax asset
|
|
$
|
4,695,634
|
|
$
|
4,584,118
|
Valuation allowance
|
|
|
(4,695,634)
|
|
|
(4,584,118)
|
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
|
|
2017
|
|
|
$
|
323,234
|
|
|
|
2037
|
|
|
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
|
|
|
$
|
13,610,532
|
|
|
|
|
|
The Company
will file its U.S. federal return for the year ended December 31, 2017 upon the issuance of this filing. The tax years 2014-2016
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.
16. 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, 2017, are as follows:
2018 10,790
Rental expense, resulting from operating lease
agreements, approximated $51,886 and $43,245 for the year ended December 31, 2017 and 2016, 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.
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
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.
The agreement covers two distinct
product lines made with Skinvisible's Invisicare® technology. Skinvisible will first develop unique topical hemp-based products
that will be launched by Canopy Hemp Corporation in Canada and the United States. The agreement also includes potential cannabis-based
topical products using the Invisicare® technology when and if federal regulations permit CBD or THC infused topical products
for sale in Canada.
Ovation license agreement
– On September 29, 2017, the Company entered into a licensing agreement with Ovation Science Inc. which is 37.8% owned by
the Company as of December 31, 2017
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, 2017 Ovation had paid $250,000
to Skinvisible Inc. under this agreement.
Rights of Ovation under the agreement
- Skinvisible granted to Ovation, subject to its rights granted under the Canopy Agreement, the exclusive worldwide right to manufacture,
distribute, sell, market, sub-license and promote the Products including the right to use the subject matter of any Skinvisible
patents and trademarks which cover the Products or Polymer.
Skinvisible further assigned to Ovation its
interest in the Canopy Agreement. Under the terms of the agreement Ovation is entitled to keep 100% of the royalties, license fees,
development fees or any other fees associated with the Products and keep 100% of any future revenues generated under the Canopy
Agreement. Ovation assumed and agreed to perform all the remaining and executory obligations of Skinvisible under Ovation’s
License.
Skinvisible agreed at allow Ovation to manufacture
any of the Invisicare® Polymers required only for the Products and will provide the information and all relevant documentation
and instructions necessary to manufacture Invisicare and Products. Ovation shall bear all costs incurred in connection to duties,
taxes, importation documentation and costs arising from regulatory requirements in the Territory. Ovation also has the right to
hire Skinvisible R&D staff for development of new Products. Ovation shall be entitled to modify, alter, improve, or change
(collectively "modify" or "modification") any or all of the Products covered by this Agreement at any time
during the term of this Agreement.
17. SUBSEQUENT EVENTS
On February 5, 2018 the Company executed an
agreement to issue 1,634,565 shares of common stock with a fair value of $40,864 or $0.025 per share to a note holder in settlement
of $32,691 in accrued interest.