Our consolidated financial statements included in this Form 10-Q
are as follows:
These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions
to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating
results for the interim period ended June 30, 2018 are not necessarily indicative of the results that can be expected for the full
year.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND HISTORY
Description of business
– Skinvisible,
Inc., (referred to as the “Company”) is focused on the development and manufacture and sales of innovative topical,
transdermal and mucosal polymer-based delivery system technologies and formulations incorporating its patent-pending formula/process
for combining hydrophilic and hydrophobic polymer emulsions. The technologies and formulations have broad industry applications
within the pharmaceutical, over-the-counter, personal skincare and cosmetic arenas. Additionally, the Company’s non-dermatological
formulations, offer solutions for a broad spectrum of markets women’s health, pain management, and others. The Company maintains
executive and sales offices in Las Vegas, Nevada.
History
– The Company was incorporated
in Nevada on March 6, 1998, under the name of Microbial Solutions, Inc. The Company underwent a name change on February 26, 1999,
when it changed its name to Skinvisible, Inc. The Company’s subsidiary’s name of Manloe Labs, Inc. was also changed
to Skinvisible Pharmaceuticals, Inc.
On September 9, 2014, the Company formed
Kinatri USA Inc., a wholly-owned subsidiary, to market a premium line of scientifically formulated skincare products powered by
our patented Invisicare® technology. As part of its strategic focus on revenue generation and creating shareholder value, Kintari
USA Inc. products will be sold via network marketing.
The Kintari product portfolio consists
of anti-aging products to help fight the signs of aging. These products have been developed using proven anti-aging ingredients
with scientific evidence of their effectiveness at reducing the look of fine lines and wrinkles resulting in youthful looking skin.
These potent ingredients will be powered by patented Invisicare technology, providing consumers with unique, effective products
which the Company believes cannot be duplicated. Additional products will be added to enhance this product line as the Company
grows and expands.
On September 26, 2017, the Company
purchased 5,750,000 shares of common stock of Ovation Science Inc. (“Ovation”) for $32,286 which at the time of purchase
the Company represented 99.9% of the then issued and outstanding common stock. On March 28, 2018 the Company sold its interest
in Ovation to officers of the Company for $500,000 which represented a 37.80% interest in Ovation. As of June 30, 2018 Skinvisible
Inc. owned 0% of the issued and outstanding Common stock of Ovation.
Skinvisible granted to Ovation, and
has assigned its rights under the Canopy Agreement, the exclusive worldwide right to manufacture, distribute, sell, market, sub-license
and promote the Products made with cannabis or hemp seed oil including the right to use the subject matter of any Skinvisible patents
and trademarks which cover the Products or Polymer.
Skinvisible,
Inc., together with its subsidiaries, shall herein be collectively referred to as the “Company
.”
2. BASIS OF PRESENTATION AND GOING CONCERN
Basis of presentation
– The accompanying
unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted
in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with
the audited financial statements and notes thereto contained in the Company’s most recent Annual Financial Statements filed
with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of financial position and the results of operations for the interim period presented have been reflected
herein. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full
year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial
statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted.
Going concern
– The accompanying
financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has incurred cumulative net losses of $32,009,141 since its inception
and requires capital for its contemplated operational and marketing activities to take place. The Company’s ability to raise
additional capital through the future issuances of common stock is unknown. The obtainment of additional financing, the successful
development of the Company’s contemplated plan of operations, and its transition, ultimately, to the attainment of profitable
operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raise substantial
doubt about the Company’s ability to continue as a going concern. The consolidated financial statements of the Company do
not include any adjustments that may result from the outcome of these aforementioned uncertainties.
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. SUMMARY OF SIGNIFICANT POLICIES
This summary of significant accounting policies
of Skinvisible Inc. is presented to assist in understanding the Company’s consolidated financial statements. The consolidated
financial statements and notes are representations of the Company’s management, who are responsible for their integrity and
objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America, and
have been consistently applied in the preparation of the consolidated financial statements.
Principles of consolidation
–
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances
and transactions have been eliminated.
Use of estimates
–
The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include
estimates used to review the Company’s goodwill, impairments and estimations of long-lived assets, revenue recognition on
percentage of completion type contracts, allowances for uncollectible accounts, inventory valuation, and the valuations of non-cash
capital stock issuances. The Company bases its estimates on historical experience and on various other assumptions that are
believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions.
Cash and cash equivalents
– For
purposes of the statement of cash flows, the Company considers all highly liquid investments and short-term instruments with original
maturities of six months or less to be cash equivalents. There are $2,520 and $23,318 in cash and cash equivalents as of June 30,
2018 and December 31, 2017 respectively.
Fair Value of Financial Instruments
–
The carrying amounts reflected in the balance sheets for cash, accounts payable and accrued expenses approximate the respective
fair values due to the short maturities of these items.
As required by the Fair Value Measurements
and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the
inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2)
inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable
inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The three levels of the fair value hierarchy
are described below:
Level 1: Unadjusted quoted prices
in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets
that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset
or liability;
Level 3: Prices or valuation techniques
that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market
activity).
Revenue recognition
Product sales
– Revenues
from the sale of products (Invisicare® polymers) are recognized when title to the products are transferred to the customer
and only when no further contingencies or material performance obligations are warranted, and thereby have earned the right to
receive reasonably assured payments for products sold and delivered.
Royalty sales
– The Company also recognizes royalty revenue from licensing its patented product formulations only when earned, when no
further contingencies or material performance obligations are warranted, and thereby have earned the right to receive and retain
reasonably assured payments.
Distribution and
license rights sales
– The Company also recognizes revenue from distribution and license rights only when earned, when
no further contingencies or material performance obligations are warranted, and thereby have earned the right to receive and retain
reasonably assured payments.
Costs of Revenue
– Cost of revenue includes raw materials, component parts, and shipping supplies. Shipping and handling costs is not a significant
portion of the cost of revenue.
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Accounts Receivable
– Accounts
receivable is comprised of uncollateralized customer obligations due under normal trade terms requiring payment within 30 days
from the invoice date. The carrying amount of accounts receivable is reviewed periodically for collectability. If management determines
that collection is unlikely, an allowance that reflects management’s best estimate of the amounts that will not be collected
is recorded. Management reviews each accounts receivable balance that exceeds 30 days from the invoice date and, based on an assessment
of creditworthiness, estimates the portion, if any, of the balance that will not be collected. As of June 30, 2018, 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 six months ended June 30, 2018 and 2017 totaled $0 and $115,332, 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 2018-06, and believes that none of them
will have a material effect on the Company's financial position, results of operations or cash flows except as discussed below.
Revenue from Contracts with Customers
. In
May 2014, the FASB issued Accounting Standards Update No. 2014-09 (“ASU 2014-09”), which supersedes nearly all existing
revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or
services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for
those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment
and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. Additionally,
the new guidance requires enhanced disclosures about the nature, amount, timing, and uncertainty of revenue and cash flows arising
from customer contracts, including revenue recognition policies to identify performance obligations, assets recognized from costs
incurred to obtain and fulfill a contract, and significant judgments in measurement and recognition.
In July 2015, the FASB made a decision to defer
the effective date of the new standard for one year and permit early adoption as of the original effective date. The
Company is has reviewed its revenue streams and does not believe that the adoption of this standard has a material effect on its
revenue recognition in 2017 or 2018.
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. FIXED ASSETS
Fixed assets consist of the following as of
June 30, 2018 and December 31, 2017:
|
|
June 30, 2018
|
|
December 31, 2017
|
Machinery and equipment
|
|
$
|
48,163
|
|
|
$
|
48,163
|
Furniture and fixtures
|
|
|
113,635
|
|
|
|
113,635
|
Computers, equipment and software
|
|
|
39,722
|
|
|
|
39,722
|
Leasehold improvements
|
|
|
12,569
|
|
|
|
12,569
|
Lab equipment
|
|
|
113,461
|
|
|
|
113,461
|
Total
|
|
|
327,550
|
|
|
|
327,550
|
Less: accumulated depreciation
|
|
|
(327,314
|
)
|
|
|
(327,191)
|
Fixed assets, net of accumulated depreciation
|
|
$
|
236
|
|
|
$
|
359
|
Depreciation expense for the six months ended
June 30, 2018 and 2017 was $123 and $162, respectively.
4. INVENTORY
Inventory consist of the following as of June
30, 2018 and December 31, 2017:
|
|
June 30, 2018
|
|
December 31, 2017
|
Shipping and Packing materials
|
|
$
|
8,651
|
|
|
$
|
8,684
|
Finished Goods
|
|
|
3,129
|
|
|
|
10,433
|
Raw Materials
|
|
|
6,119
|
|
|
|
6,906
|
Total
|
|
$
|
17,899
|
|
|
$
|
26,023
|
5. 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 June 30, 2018, intangible
assets total $671,070, net of $474,228 of accumulated amortization.
Amortization expense for the six months ended
June 30, 2018 and 2017 was $19,041 and $28,117, 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 June 30,
2018.
6. SALE OF EQUITY METHOD INVESTMENT IN OVATION
SCIENCES INC.
On September 26, 2017, the Company
purchased 5,750,000 shares of common stock of Ovation Science Inc. (“Ovation”) for $32,286 which at the time of purchase
the Company represented 99.9% of the then issued and outstanding common stock. Ovation sold shares to investors subsequent to Skinvisible’s’
investment that diluted Skinvisible’s interest to below down to 37.8%.
On March 28, 2018, Skinvisible Inc.
sold all 5,750,000 shares of Ovation Science Inc. to its officers and an employee in exchange for an agreement to forgive $500,000
in debt. $240,115 of the debt was convertible debt owed to related parties, accordingly the Company revalued the repurchase of
the beneficial conversion feature as of the date of the transaction and recorded a corresponding gain. As of March 28, 2018 the
carrying value of the investment in Ovation was $88,158, as a result of the sale the Company recorded a total net gain on sale
of its equity method investment of $595,127 related to the sale of Ovation.
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. STOCK OPTIONS AND WARRANTS
The following is a summary of option activity
during the six months ended June 30, 2018.
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
Balance, December 31, 2017
|
|
|
10,600,000
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
Options granted and assumed
|
|
|
—
|
|
|
|
—
|
Options expired
|
|
|
(500,000
|
)
|
|
|
0.04
|
Options canceled
|
|
|
—
|
|
|
|
—
|
Options exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Balance, June 30, 2018
|
|
|
10,100,000
|
|
|
$
|
0.03
|
As of June 30, 2018, all stock options outstanding
are exercisable.
Stock warrants -
The following is a summary of warrants activity
during the six months ended June 30, 2018.
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
Balance, December 31, 2017
|
|
|
7,022,975
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
Warrants granted and assumed
|
|
|
—
|
|
|
|
—
|
Warrants expired
|
|
|
(661,000
|
)
|
|
|
0.03
|
Warrants canceled
|
|
|
—
|
|
|
|
—
|
Warrants exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Balance, June 30, 2018
|
|
|
6,361,975
|
|
|
$
|
0.03
|
All warrants outstanding as of June 30, 2018
are exercisable.
8. NOTES PAYABLE
On May 22, 2013, the Company approved a financing
plan to offer accredited investors up to $1,000,000 in secured promissory notes. During the year ended December 31, 2013, the Company
entered into twenty-four 9% notes payable to investors and received total proceeds of $1,000,000. The notes are due two years from
the anniversary date of execution. The Notes are secured by the US Patent rights granted for the Company's Sunscreen Products:
US patent number #8,128,913: "Sunscreen Composition with Enhanced UV-A Absorber Stability and Methods.” During the six
months ending June 30, 2018 the Company made principal payments of $5,000.
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On May 19, 2014, the Company approved a financing
plan to offer accredited investors up to an additional $1,000,000 in secured promissory notes. During the period from May 19, 2014
to March 31, 2015 the Company entered into twenty-seven 9% notes payable to investors and received total proceeds of $1,000,000.
The notes were due two years from the anniversary date of execution. The Notes are secured by the US Patent rights granted for
the Company's Sunscreen Products: US patent number #8,128,913: "Sunscreen Composition with Enhanced UV-A Absorber Stability
and Methods." $1,000,000 in notes have reached their maturity date.
During the period from April 1, 2015 and September
30, 2015, the Company entered into thirteen additional 9% notes payable to investors and received total proceeds of $326,000. The
notes were due two years from the anniversary date of execution. The Notes are secured by the US Patent rights granted for the
Company's Sunscreen Products: US patent number #8,128,913: "Sunscreen Composition with Enhanced UV-A Absorber Stability and
Methods".
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 June
30, 2018, no payments had been made towards the principal balance.
As of June 30,
2018,
$2,296,875 of the Notes were due in less than 12 months and have been classified as current notes payable.
9. RELATED PARTY TRANSACTIONS
During the six months ended June 30, 2018,$10,000
was paid to officer in settlement of advances provided to the Company in prior years. An additional $7,260 in advances were settled
as part of the purchase of Ovation Science Inc. (see note 6 for additional details.)
As of June 30, 2018, $10,000
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 June 30, 2018 Ovation had paid the initial cash payment of $250,000
to Skinvisible Inc. and $90,666 under the promissory note.
The
note receivable from Ovation did not bear interest per the agreement as a result the Company has imputed interest in accordance
with ASC 835-30. The interest has been recorded as a debt discount and is being amortized over the note term. During the six months
ended June 30, 2018, the Company recorded $4,807 in interest income related to the note receivable.
During
the year ending December 31, 2017, the Company recorded the full $500,000 in license revenue as earned in accordance with ASU
2016-10.
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
10. CONVERTIBLE NOTES PAYABLE
Convertible Notes Payable at consists of the following:
|
June 30,
|
|
December 31,
|
|
2018
|
|
2017
|
$1,000,000 face value 9% secured notes payable
to investors, due in 2015. At the investor’s option until the repayment date, the note and related interest may be converted
to shares of the Company’s common stock a discount of 90% of the current share price after the first anniversary of the note.
The notes are secured by the accounts receivable of a license agreement the Company has with Womens Choice Pharmaceuticals, LLC
on its proprietary prescription product, ProCort®. The Company has determined the value associated with the beneficial conversion
feature in connection with the notes and interest to be $111,110. The aggregate beneficial conversion feature has been accreted
and charged to interest expenses as a financing expense. The beneficial conversion feature is valued under the intrinsic value
method. The notes have reach maturity and are now in default, under the notes default provisions the entire balance is now due
upon demand.
|
|
1,000,000
|
|
|
1,000,000
|
Original issue discount
|
|
-
|
|
|
-
|
Unamortized debt discount
|
|
-
|
|
|
-
|
Total, net of unamortized discount
|
|
1,000,000
|
|
|
1,000,000
|
|
|
|
|
|
|
$135,000 face value 9% unsecured notes payable
to investors, due October 26, 2017. At the investor’s option until the repayment date, the note and related interest may
be converted to shares of the Company’s common stock a discount of 90% of the current share price after the first anniversary
of the note. The notes are secured by the accounts receivable of a license agreement the Company has with Womens Choice Pharmaceuticals,
LLC on its proprietary prescription product, ProCort®. The Company has determined the value associated with the beneficial
conversion feature in connection with the notes and interest to be $117,535. The beneficial conversion feature has been accreted
and charged to interest expenses as a financing expense. The beneficial conversion feature is valued under the intrinsic value
method.
|
|
135,000
|
|
|
135,000
|
Unamortized debt discount
|
|
-
|
|
|
-
|
Total, net of unamortized discount
|
|
135,000
|
|
|
135,000
|
|
|
|
|
|
|
|
|
|
|
|
|
On February 17, 2016, the Company entered into
a convertible promissory note pursuant to which it borrowed $20,000. Interest under the convertible promissory note is 9% per annum,
and the principal and all accrued but unpaid interest is due on February 17, 2018. The note is convertible at any time following
90 days after the issuance date at noteholders option into shares of our common stock at a variable conversion price of 90% of
the average five day market price of our common stock during the 5 trading days prior to the notice of conversion, subject to adjustment
as described in the note. The holder’s ability to convert the note, however, is limited in that it will not be permitted
to convert any portion of the note if the number of shares of our common stock beneficially owned by the holder and its affiliates,
together with the number of shares of our common stock issuable upon any full or partial conversion, would exceed 4.99% of the
Company’s outstanding shares of common stock.
The Company has determined the value associated
with the beneficial conversion feature in connection with the notes negotiated on February 27, 2016 to be $14,049. The aggregate
beneficial conversion feature feature has been accreted and charged to interest expenses as a financing expense in the amount of
$904 during the six months ended June 30, 2018. The beneficial conversion feature is valued under the intrinsic value method
|
|
20,000
|
|
|
20,000
|
Unamortized debt discount
|
|
-
|
|
|
(904)
|
Total, net of unamortized discount
|
|
20,000
|
|
|
19,096
|
On August 11, 2016, the Company entered into
a convertible promissory note pursuant to which it borrowed $15,000. Interest under the convertible promissory note is 9% per annum,
and the principal and all accrued but unpaid interest is due on August 11, 2018. The note is convertible into shares of our common
stock at a variable conversion price of 90% of the average market price of our common stock during the 5 trading days prior to
the notice of conversion, subject to adjustment as described in the note.
The Company has determined the value associated
with the beneficial conversion feature in connection with the notes negotiated on August 11, 2016 to be $14,728. The aggregate
beneficial conversion feature has been accreted and charged to interest expenses as a financing expense in the amount of $3,652
during the six months ended June 30, 2018. The beneficial conversion feature is valued under the intrinsic value method
|
|
15,000
|
|
|
15,000
|
Unamortized debt discount
|
|
(847)
|
|
|
(4,499)
|
Total, net of unamortized discount
|
|
14,153
|
|
|
10,501
|
On January 27, 2017, the Company entered into
a convertible promissory note pursuant to which it borrowed $10,000. Interest under the convertible promissory note is 9% per annum,
and the principal and all accrued but unpaid interest is due on January 27, 2019. The note is convertible into shares of our common
stock at a variable conversion price of 90% of the average market price of our common stock during the 5 trading days prior to
the notice of conversion, subject to adjustment as described in the note.
The Company has determined the value associated
with the beneficial conversion feature in connection with the notes negotiated on January 27, 2017 to be $2,138. The aggregate
beneficial conversion feature has been accreted and charged to interest expenses as a financing expense in the amount of $530 during
the six months ended June 30, 2018. The beneficial conversion feature is valued under the intrinsic value method
|
|
10,000
|
|
|
10,000
|
Unamortized debt discount
|
|
(618)
|
|
|
(1,148)
|
Total, net of unamortized discount
|
|
9,382
|
|
|
8,852
|
|
|
|
|
|
|
|
$
|
1,178,535
|
|
$
|
1,173,449
|
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. CONVERTIBLE NOTES PAYABLE RELATED PARTY
Convertible Notes Payable Related Party at consists of the following:
|
June 30,
|
|
December 31,
|
|
2018
|
|
2017
|
On October 20, 2016, the Company re-negotiated
$982,253 of the unsecured notes payable. Under the modified terms the $982,253 face value notes maturity date was extended until
December 31, 2019 and adjusted to the current market prices. At the investor’s option until the repayment date, the note
can be converted to shares of the Company’s common stock at a fixed price of $0.01 per share along with additional warrants
to purchase one share for every two shares issued at the exercise price of $0.02 per share for six years after the conversion date.
In accordance with ASC 470, the Company has determined the value associated with the beneficial conversion feature in connection
with the re-negotiated notes on October 20, 2016 to be $982,253. The aggregate beneficial conversion feature has been accreted
and charged to interest expenses as a financing expense in the amount of $133,166
during
the six months ended June 30, 2018. The beneficial conversion feature is valued under the intrinsic value method.
One March 28, 2018, $238,115 of the notes were
settled as part of the purchase of Ovation Science Inc. (see note 6 for additional details.)
|
|
744,137
|
|
982,253
|
Unamortized debt discount
|
|
(350,070)
|
|
(614,434)
|
|
|
|
|
|
On June 30, 2012, the Company re-negotiated
accrued salaries and interest for six employees. Under the terms of the agreements, the notes dated before July 1, 2011, and all
salaries not previously converted were converted to promissory notes convertible into common stock with a warrant feature. The
promissory notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s option
until the repayment date, the note may be converted to shares of the Company’s common stock at a fixed price of $0.04 per
share along with additional warrants to purchase one share for every two shares issued at the exercise price of $0.06 per share
for six years after the conversion date. The Company has determined the value associated with the beneficial conversion feature
in connection with the notes to be $209,809. The aggregate beneficial conversion feature has been accreted and charged to interest
expenses as a financing expense. The beneficial conversion feature is valued under the intrinsic value method.
On January 18, 2013, the Company made a $3,990
cash payment to reduce the note balance.
On October 19, 2016, the Company settled $21,716
of the outstanding balance through the issuance of a new note.
On July 1, 2017, the Company renewed the outstanding
notes. Under the terms of the agreements, the due date of the notes were extended to July 1, 2022. The promissory notes are unsecured,
and bear an interest rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares
of the Company’s common stock at a fixed price of $0.02 per share along with additional warrants to purchase one share for
every two shares issued at the exercise price of $0.03 per share for six years after the conversion date. The Company has determined
the value associated with the beneficial conversion feature in connection with the modified terms of the notes to be $198,859.
The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense in the amount
of $19,673 during the six months ended June 30, 2018. The beneficial conversion feature is valued under the intrinsic value method.
|
|
299,316
|
|
299,316
|
Unamortized debt discount
|
|
(158,985)
|
|
(178,658)
|
|
|
|
|
|
On December 30 and 31, 2012, the Company re-negotiated accrued salaries and interest for six employees. Under the terms of the agreements, $182,083 of related party notes accrued interest and salaries not previously converted were converted to promissory notes convertible into common stock with a warrant feature. The $182,083 face value promissory notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares of the Company’s common stock at a fixed price of $0.03 per share along with additional warrants to purchase one share for every two shares issued at the exercise price of $0.04 per share for six years after the conversion date. The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be $182,083. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense. The beneficial conversion feature is valued under the intrinsic value method.
|
|
182,083
|
|
182,083
|
Unamortized debt discount
|
|
-
|
|
-
|
|
|
|
|
|
On June 30, 2013, the Company re-negotiated accrued salaries and interest for two employees. Under the terms of the agreements, $106,153 of accrued interest and salaries were converted to promissory notes convertible into common stock with a warrant feature. The $106,153 face value promissory notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares of the Company’s common stock at a fixed price of $0.03 per share along with additional warrants to purchase one share for every two shares issued at the exercise price of $0.04 per share for six years after the conversion date. The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be $70,768. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense in the amount of $7,015 during the six months ended June 30, 2018. The beneficial conversion feature is valued under the intrinsic value method.
|
|
106,152
|
|
106,152
|
Unamortized debt discount
|
|
-
|
|
(7,015)
|
On December 31, 2013, the Company re-negotiated
accrued salaries and interest for six employees. Under the terms of the agreements, $142,501 of accrued interest and salaries not
previously converted were converted to promissory notes convertible into common stock with a warrant feature. The $142,501 face
value promissory notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s option
until the repayment date, the note may be converted to shares of the Company’s common stock at a fixed price of $0.03 per
share along with additional warrants to purchase one share for every two shares issued at the exercise price of $0.04 per share
for six years after the conversion date. The Company has determined the value associated with the beneficial conversion feature
in connection with the notes to be $94,909. The aggregate beneficial conversion feature has been accreted and charged to interest
expenses as a financing expense in the amount of $9,408 during the six months ended June 30, 2018. The beneficial conversion feature
is valued under the intrinsic value method.
|
|
142,501
|
|
142,501
|
Unamortized debt discount
|
|
(9,563)
|
|
(18,971)
|
On June 30, 2014, the Company re-negotiated
accrued salaries and interest for six employees. Under the terms of the agreements, $118,126 of accrued salaries not previously
converted were converted to promissory notes convertible into common stock with a warrant feature. The $118,126 face value promissory
notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment
date, the note may be converted to shares of the Company’s common stock at a fixed price of $0.025 per share along with additional
warrants to purchase one share for every two shares issued at the exercise price of $0.03 per share for six years after the conversion
date. The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be
$118,126. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense
in the amount of $11,709 during the six months ended June 30, 2018. The beneficial conversion feature is valued under the intrinsic
value method.
|
|
118,126
|
|
118,126
|
Unamortized debt discount
|
|
(23,612)
|
|
(35,321)
|
On September 30, 2014, the Company re-negotiated
accrued salaries and interest for two employees. Under the terms of the agreements, $40,558 of accrued salaries not previously
converted were converted to promissory notes convertible into common stock with a warrant feature. The $40,558 face value promissory
notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment
date, the note may be converted to shares of the Company’s common stock at a fixed price of $0.04 per share along with additional
warrants to purchase one share for every two shares issued at the exercise price of $0.05 per share for six years after the conversion
date. The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be
$40,466. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense
in the amount of $4,011 during the six months ended June 30, 2018. The beneficial conversion feature is valued under the intrinsic
value method.
|
|
40,558
|
|
40,558
|
Unamortized debt discount
|
|
(10,128)
|
|
(14,139)
|
On December 31, 2014, the Company re-negotiated
accrued salaries and interest for two employees. Under the terms of the agreements, $65,295 of accrued salaries not previously
converted were converted to promissory notes convertible into common stock with a warrant feature. The $65,295 face value promissory
notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment
date, the note may be converted to shares of the Company’s common stock at a fixed price of $0.04 per share along with additional
warrants to purchase one share for every two shares issued at the exercise price of $0.05 per share for six years after the conversion
date. The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be
$57,439. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense
in the amount of $5,692 during the six months ended June 30, 2018. The beneficial conversion feature is valued under the intrinsic
value method.
|
|
65,295
|
|
65,295
|
Unamortized debt discount
|
|
(17,270)
|
|
(22,962)
|
|
|
|
|
|
On December 31, 2015, the Company re-negotiated
accrued salaries and interest for six employees and a director. Under the terms of the agreements, $343,687 of accrued salaries
and director fees not previously converted were converted to promissory notes convertible into common stock with a warrant feature.
The $343,687 face value promissory notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the
investor’s option until the repayment date, the note may be converted to shares of the Company’s common stock at a
fixed price of $0.02 per share along with additional warrants to purchase one share for every two shares issued at the exercise
price of $0.02 per share for six years after the conversion date. The Company has determined the value associated with the beneficial
conversion feature in connection with the notes to be $341,703. The aggregate beneficial conversion feature has been accreted and
charged to interest expenses as a financing expense in the amount of $40,070 during the six months ended June 30, 2018. The beneficial
conversion feature is valued under the intrinsic value method.
On March 30, 2018, $14,400 of debt and the
associated interest of $3,118 was converted into common stock at a price of $0.036 per share. The company treated the loan modification
as a debt repurchase and recorded a corresponding loss on settlement of debt of $8,200.
|
|
329,287
|
|
343,687
|
Unamortized debt discount
|
|
(164,914)
|
|
(204,984)
|
|
|
|
|
|
On March 30, 2016, the Company re-negotiated
accrued directors fees of 3,600. Under the terms of the agreements, $3,600 of accrued director fees not previously converted were
converted to promissory notes convertible into common stock with a warrant feature. The $3,600 face value promissory notes are
unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment date,
the note may be converted to shares of the Company’s common stock at a fixed price of $0.02 per share along with additional
warrants to purchase one share for every two shares issued at the exercise price of $0.02 per share for six years after the conversion
date. The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be
$864. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense in
the amount of $53
during the six months ended June 30, 2018. The beneficial conversion
feature is valued under the intrinsic value method.
On March 30, 2018, $3,600 of debt and the associated
interest of $779 was converted into common stock at a price of $0.036 per share. The company treated the loan modification as a
debt repurchase and recorded a corresponding loss on settlement of debt of $2,050
|
|
-
|
|
3,600
|
Unamortized debt discount
|
|
-
|
|
(490)
|
|
|
|
|
|
On April 30, 2016, the Company re-negotiated
accrued salaries and interest for an employee. Under the terms of the agreements, $33,333 of accrued salaries were converted to
promissory notes convertible into common stock with a warrant feature. The $33,333 face value promissory notes are unsecured, due
five years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment date, the note may
be converted to shares of the Company’s common stock at a fixed price of $0.02 per share along with additional warrants to
purchase one share for every two shares issued at the exercise price of $0.02 per share for six years after the conversion date.
The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be $8,401.
The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense in the amount
of $292
during the six months ended June 30, 2018. The beneficial conversion feature
is valued under the intrinsic value method.
On March 30, 2018, $33,333 of debt and the
associated interest of $6,301 was converted into common stock at a price of $0.03 per share. The company treated the loan modification
as a debt repurchase and recorded a corresponding loss on settlement of debt of $7,603.
|
|
-
|
|
33,333
|
Unamortized debt discount
|
|
-
|
|
(5,927)
|
|
|
|
|
|
On June 30, 2016, the Company re-negotiated
accrued salaries and interest for six employees. Under the terms of the agreements, $192,417 of accrued salaries not previously
converted were converted to promissory notes convertible into common stock with a warrant feature. The $192,417 face value promissory
notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment
date, the note may be converted to shares of the Company’s common stock at a fixed price of $0.02 per share along with additional
warrants to purchase one share for every two shares issued at the exercise price of $0.02 per share for six years after the conversion
date. The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be
$28,365. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense
in the amount of $2,765
during the six months ended June 30, 2018. The beneficial conversion
feature is valued under the intrinsic value method.
On March 30, 2018, $3,600 of debt and the associated
interest of $779 was converted into common stock at a price of $0.036 per share. The company treated the loan modification as a
debt repurchase and recorded a corresponding loss on settlement of debt of $2,050
|
|
188,817
|
|
192,417
|
Unamortized debt discount
|
|
(16,466)
|
|
(19,837)
|
|
|
|
|
|
On July 8, 2016, the Company re-negotiated
accrued salaries and interest for one employee. Under the terms of the agreement, $2,000 of accrued salaries not previously converted
were converted to promissory notes convertible into common stock with a warrant feature. The $2,000 face value promissory notes
are unsecured, due on December 31, 2021, and bear an interest rate of 10%. At the investor’s option until the repayment date,
the note may be converted to shares of the Company’s common stock at a fixed price of $0.01 per share along with additional
warrants to purchase one share for every two shares issued at the exercise price of $0.02 per share for six years after the conversion
date. The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be
$1,012. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense in
the amount of $44
during the six months ended June 30, 2018. The beneficial conversion
feature is valued under the intrinsic value method.
One March 28, 2018, $2,000 of the notes were
settled as part of the purchase of Ovation Science Inc. (see note 6 for additional details.)
|
|
-
|
|
2,000
|
Unamortized debt discount
|
|
-
|
|
(738)
|
|
|
|
|
|
On September 30, 2016, the Company re-negotiated
accrued directors fees of 3,600. Under the terms of the agreements, $3,600 of accrued director fees not previously converted were
converted to promissory notes convertible into common stock with a warrant feature. The $3,600 face value promissory notes are
unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment date,
the note may be converted to shares of the Company’s common stock at a fixed price of $0.01 per share along with additional
warrants to purchase one share for every two shares issued at the exercise price of $0.02 per share for six years after the conversion
date. The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be
$2,080. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense in
the amount of $102
during the six months ended June 30, 2018. The beneficial conversion
feature is valued under the intrinsic value method.
On March 30, 2018, $3,600 of debt and the associated
interest of $779 was converted into common stock at a price of $0.036 per share. The company treated the loan modification as a
debt repurchase and recorded a corresponding loss on settlement of debt of $2,050
|
|
-
|
|
3,600
|
Unamortized debt discount
|
|
-
|
|
(1,559)
|
|
|
|
|
|
On October 19, 2016, the Company re-negotiated
two notes with an employee of the Company. Under the terms of the agreements, $111,056 of convertible promissory notes due on December
31, 2016 and June 30, 2017 were converted to promissory notes convertible into common stock with a warrant feature. The $111,056
face value promissory notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s
option until the repayment date, the note may be converted to shares of the Company’s common stock at a fixed price of $0.01
per share along with additional warrants to purchase one share for every two shares issued at the exercise price of $0.02 per share
for six years after the conversion date. The Company has determined the value associated with the beneficial conversion feature
in connection with the notes to be $42,924. The aggregate beneficial conversion feature has been accreted and charged to interest
expenses as a financing expense in the amount of $4,255 during the six months ended June 30, 2018. The beneficial conversion feature
is valued under the intrinsic value method.
|
|
111,056
|
|
111,056
|
Unamortized debt discount
|
|
(28,373)
|
|
(32,628)
|
|
|
|
|
|
On December 30, 2016, the Company re-negotiated
accrued salaries and interest for six employees. Under the terms of the agreements, $186,375 of accrued salaries not previously
converted were converted to promissory notes convertible into common stock with a warrant feature. The $186,375 face value promissory
notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment
date, the note may be converted to shares of the Company’s common stock at a fixed price of $0.01 per share along with additional
warrants to purchase one share for every two shares issued at the exercise price of $0.02 per share for six years after the conversion
date. The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be
$186,375. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense
in the amount of $18,294
during the six months ended June 30, 2018. The beneficial conversion
feature is valued under the intrinsic value method.
On March 30, 2018, $3,600 of debt and the associated
interest of $779 was converted into common stock at a price of $0.036 per share. The company treated the loan modification as a
debt repurchase and recorded a corresponding loss on settlement of debt of $2,050
|
|
182,775
|
|
186,375
|
Unamortized debt discount
|
|
(128,023)
|
|
(149,018)
|
|
|
|
|
|
On July 1, 2017, the Company re-negotiated
accrued salaries and interest for six employees. Under the terms of the agreements, $178,439 of accrued salaries not previously
converted were converted to promissory notes convertible into common stock with a warrant feature. The $178,439 face value promissory
notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment
date, the note may be converted to shares of the Company’s common stock at a fixed price of $0.02 per share along with additional
warrants to purchase one share for every two shares issued at the exercise price of $0.03 per share for six years after the conversion
date. The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be
$118,800. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense
in the amount of $11,776
during the six months ended June 30, 2018. The beneficial conversion
feature is valued under the intrinsic value method.
|
|
178,439
|
|
178,439
|
Unamortized debt discount
|
|
(95,119)
|
|
(106,895)
|
|
|
|
|
|
|
$
|
1,686,021
|
|
1,577,215
|
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
12. STOCKHOLDERS’ DEFICIT
The Company is authorized to issue 200,000,000
shares of $0.001 par value common stock. The Company had 144,830,920 and 136,864,035 issued and outstanding shares of common stock
as of June 30, 2018 and December 31, 2017, respectively.
On February 5, 2018 the Company executed an
agreement to issue 1,634,565 shares of common stock with a fair value of $39,230 or $0.024 per share to a note holder in settlement
of $32,691 in accrued interest. A loss on settlement of debt of $6,540 as a result of the transaction.
On March 13, 2018 the Company executed an agreement
to issue 1,560,000 shares of common stock to an individual in settlement of $39,000 in accounts payable. The shares were fair valued
on the date of issuance at $35,256 or $0.0226 per share, as a result, a gain on settlement of debt of $3,744 was recorded.
On March 22, 2018 the Company executed an agreement
to issue 1,333,320 shares of common stock to a former employee of the Company related to the conversion of debt.
On March 13, 2018 the Company executed an agreement
to issue 960,000 shares of common stock to an former director of the Company in settlement of a total of $35,035 in convertible
notes.
13. COMMITMENTS AND CONTINGENCIES
Lease obligations
– The Company
has operating leases for its offices. Future minimum lease payments under the operating leases for the facilities as of June 30,
2018, are as follows:
2018 - $22,867
2019 - $11,434
Rental expense, resulting from operating lease
agreements, approximated $27,101 and $21,275 for the six months ended June 30, 2018 and 2017, respectively.
Kintari Inc.
- Previously on April 1,
2016, Skinvisible licensed to Kintari Int. Inc. the exclusive rights to our existing line of cosmeceutical products plus the exclusive
rights to any future cosmeceutical products developed by Skinvisible plus the right-of-first-refusal on our existing OTC products
plus the right-of-first-refusal to any future OTC products developed by us in exchange for a 100% equity position in Kintari Int.
Inc. This inter-company agreement has now been dissolved and all rights still remain with Skinvisible Pharmaceuticals, Inc., as
the original intent was for Kintari to operate as its own company; however, this did not transpire. There is no change to the ownership
as Skinvisible continues to own 100% of Kintari Int. Inc. and all rights thereof. Kintari USA Inc. continues to sell Kintari branded
products through online sales.
Canopy license agreement
- On September
15, 2017 Canopy Growth Corporation ("Canopy Growth") and Skinvisible Pharmaceuticals, Inc. ("Skinvisible"),
signed a definitive license agreement for Skinvisible's patented topical formulations. Per the agreement, Canopy Growth is exclusively
licensed to distribute Skinvisible's topical products in Canada, and shall have a first right of refusal for all other countries,
excluding China and the United States.
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The agreement covers two distinct
product lines made with Skinvisible's Invisicare® technology. Skinvisible will first develop unique topical hemp-based products
that will be launched by Canopy Hemp Corporation in Canada and the United States. The agreement also includes potential cannabis-based
topical products using the Invisicare® technology when and if federal regulations permit CBD or THC infused topical products
for sale in Canada.
Ovation license agreement
– On September 29, 2017, the Company entered into a licensing agreement with Ovation Science Inc.
Payment
due under the agreement
- As consideration for the grant of the License and the assignment of the Canopy agreement Ovation
agreed to pay Skinvisible Inc. $500,000. $250,000 is due within 90 days of execution of the Agreement and a promissory note for
$250,000 is payable upon the earlier of the company completing an initial public offering or March 31, 2018.
As
of June 30, 2018 Ovation had paid the initial cash payment of $250,000 to Skinvisible Inc. and $90,666 under the promissory note.
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.
16. MERGER AGREEMENT
On March 26, 2018, Skinvisible, Inc. (“
Parent
”)
entered into an Agreement and Plan of Merger (the “
Merger Agreement
”) with Quoin Pharmaceuticals, Inc.,
a Delaware corporation (the “
Company
”), and Quoin Merger Sub, Inc., a Delaware corporation and wholly-owned
subsidiary of Parent (“
Merger Sub
”).
The Merger Agreement provides that,
subject to the terms and conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company (the “
Merger
”),
with the Company surviving the Merger as a wholly-owned subsidiary of Parent. At the effective time of the Merger, the issued
and outstanding common shares of the Company (“
Company Common Shares
”) will automatically be converted
into the right to receive approximately 72.5% of the outstanding equity of Parent (the “
Merger Consideration
”).
Existing Parent shareholders will have a right to the remaining 27.5% of the outstanding equity of Parent, which is subject to
diminution if certain indebtedness of Parent is not converted into Parent Common Stock.
Each of the Company, Parent, and Merger
Sub has made various representations and warranties and agreed to certain covenants in the Merger Agreement. Parent also has agreed
to other covenants in the Merger Agreement, including, without limitation, to cause a special meeting of Parent’s shareholders
to be held as promptly as practicable to consider and approve the Merger Agreement and the Merger, along with the issuance of
the shares of Parent Common Stock in connection with the Merger and a Charter Amendment, including a name change and reverse stock
split, and to file a proxy statement with the Securities and Exchange Commission (“
SEC
”) relating to
such special meeting.
The Merger Agreement contains customary
no-solicitation covenants restricting Parent and the Company from soliciting, encouraging, or discussing alternative acquisition
proposals from third parties.
Consummation of the Merger is subject
to the satisfaction or, if permitted by applicable law, waiver, by Parent, the Company, or both of various conditions, including,
without limitation, (i) approval of the Merger Agreement and the Merger by both the Company’s and Parent’s respective
shareholders; (ii) a definitive agreement shall have been executed that provides that Parent shall receive an aggregate of
at least $10,000,000 of gross proceeds within five (5) days of the closing of the Merger; (iii) the accuracy of the parties’
respective representations and warranties and the performance of their respective obligations under the Merger Agreement; (iv) the
absence of the occurrence of a material adverse effect with respect to the Company between the date of the Merger Agreement and
closing; (v) the Parent’s shareholders shall have approved the Charter Amendment ; (vi) the absence of any law,
order, or legal injunction which prohibits the consummation of the Merger or any of the transactions contemplated by the Merger
Agreement; and (vii) certain other customary conditions.
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Merger Agreement contains certain
termination rights in favor of the parties, as set forth therein, including, among other things, the right of either party, subject
to specified limitations, to terminate the Merger Agreement if the Merger is not consummated by June 30, 2018. Upon the termination
of the Merger Agreement under specified circumstances, including the termination of the Merger Agreement by Parent to enter into
an acquisition proposal in accordance with the terms of the Merger Agreement made by a third party, Parent may be required to
pay the Company a termination fee of up to $300,000.
The Merger Agreement, the Merger, and
the transactions contemplated thereby were unanimously approved by the board of directors of the Parent, and unanimously approved
by the board of directors of the Company. Both the board of directors of the Company and Parent have recommended that their respective
shareholders approve the Merger Agreement and the Merger.
The
Merger is expected to close as soon as practicable after the satisfaction or waiver of all the conditions to the closing in
the Merger Agreement, which is currently expected to be in the third quarter
of
calendar year 2018.
Support Agreements
Concurrently with the entry into the
Merger Agreement on March 26, 2018, Terry Howlett (Chief Executive Officer of Parent) and Doreen McMorran (Vice President,
Business Development & Marketing of Parent) along with Michael Meyers (Chief Executive Officer of the Company) and Denise Carter
(Chief Operating Officer of the Company) have executed lock-up agreements (the “
Lock-Up Agreements
”)
relating to sales and certain other dispositions of shares of Parent Common Stock or certain other securities for a period of 180
days after the Closing of the Merger.
In addition, Parent will execute an
agreement with Mr. Howlett, Ms. McMorran and Dr. Roszell (the “
Parent Related Party Agreement
”) which
will provide that within 180 days after the Closing Date the remaining Parent Related Party Indebtedness shall be converted, at
the sole election of Parent, into cash or shares of Parent Common Stock which are not subject to any contractual restrictions or
vesting requirements.
Finally, Mr. Howlett and Ms. McMorran
have entered into a Voting and Support Agreement (the “
Voting Agreement
”), pursuant to which such shareholders
have agreed, among other things, to vote all of their Parent Common Shares in favor of the approval of the Merger Agreement at
the special meeting of the Parent’s shareholders called to approve the Merger Agreement. The Voting Agreement will automatically
terminate upon the termination of the Merger Agreement in accordance with its terms, including upon a termination of the Merger
Agreement by the Company pursuant to the Company’s termination rights in the Merger Agreement, or upon any material modification
or amendment to the Merger Agreement that materially reduces the Merger Consideration payable to the Company’s shareholders
(other than in connection with a Company material adverse effect).
Additional Information for Shareholders
This report relates to the proposed
Merger transaction between the Company, Parent, and Merger Sub. The proposed Merger will be submitted to the Company’s and
Parent’s shareholders for their consideration and approval. In connection with the proposed Merger, the Parent will file
relevant materials with the SEC, including a proxy statement of the Parent. When completed, a definitive proxy statement and
a form of proxy will be mailed to the shareholders of the Parent. This report is not a substitute for the proxy statement, circular,
or other document(s) that the Company and/or Parent may file with the SEC in connection with the proposed transaction.
The
Parent’s shareholders are urged to read the proxy statement and other documents filed with the SEC regarding the proposed
Merger transaction when they become available because they will contain important information about the Company, Parent, and the
proposed Merger transaction itself.
The Parent’s shareholders will be able to obtain, without charge, a copy of
the proxy statement (when available) and other relevant documents filed with the SEC from the SEC’s website at www.sec.gov.
The information available through the Parent’s website is not and shall not be deemed part of this document or incorporated
by reference into other filings the Company makes with the SEC. This communication does not constitute an offer to sell or the
solicitation of an offer to buy any securities.
The Parent, and its management may be
deemed to be participants in the solicitation of proxies from the Parent’s shareholders with respect to the special meeting
of shareholders that will be held to consider the matters to be approved by the Parent’s shareholders in connection with
the Merger transaction. Information about the Parent’s directors and executive officers and their ownership of the Parent
Common Shares will be set forth in the proxy statement for special shareholder meeting, which will be filed with the SEC on Schedule
14A in the near future. Shareholders may obtain additional information regarding the interests of the Parent and its directors
and executive officers in the proposed Merger, which may be different than those of the Parent’s shareholders generally,
by reading the proxy statement and other relevant documents regarding the proposed merger, when filed with the SEC.
17. SUBSEQUENT EVENTS
In accordance with ASC Topic 855-10,
the Company has analyzed its operations subsequent to June 30, 2018 to the date these financial statements were available to be
issued and has determined that it does not have any material subsequent events to disclose in these financial statements.