Item 1. Financial Statements
Our consolidated financial statements included in this Form 10-Q
are as follows:
F-1
|
Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018 (unaudited);
|
F-2
|
Consolidated Statements of
Operations for the three and six months ended June 30, 2019 and 2018 (unaudited);
|
|
|
F-3
|
Consolidated Statements of Stockholders’ Deficit for the three and six months ended June 30, 2019 and 2018
|
F-4
|
Consolidated Statements of Cash Flow for the six months ended June 30, 2019 and 2018 (unaudited);
|
F-5
|
Notes to Consolidated Financial Statements.
|
These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions
to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating
results for the interim period ended June 30, 2019 are not necessarily indicative of the results that can be expected for the full
year.
SKINVISIBLE, INC.
CONDENSED CONSOLIDATED
BALANCE SHEETS
|
|
June 30, 2019
|
|
December 31, 2018
|
ASSETS
|
|
(Unaudited)
|
|
|
Current assets
|
|
|
|
|
|
|
|
Cash
|
|
$
|
—
|
|
|
$
|
2,482
|
Accounts receivable
|
|
|
9,913
|
|
|
|
8,459
|
Inventory
|
|
|
10,515
|
|
|
|
17,417
|
Due from related party
|
|
|
1,145
|
|
|
|
1,145
|
Prepaid expense and other current assets
|
|
|
6,000
|
|
|
|
12,000
|
Total current assets
|
|
|
27,573
|
|
|
|
41,503
|
|
|
|
|
|
|
|
|
Fixed assets, net of accumulated depreciation of $327,550 and $327,432, respectively
|
|
|
—
|
|
|
|
118
|
Intangible and other assets:
|
|
|
|
|
|
|
|
Patents and trademarks, net of accumulated amortization of $513,236 and $493,918, respectively
|
|
|
183,574
|
|
|
|
178,767
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
211,147
|
|
|
$
|
220,388
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
449,933
|
|
|
$
|
944,380
|
Book overdraft
|
|
|
595
|
|
|
|
—
|
Accounts payable related party
|
|
|
3,565
|
|
|
|
10,490
|
Accrued interest payable
|
|
|
238,837
|
|
|
|
1,169,293
|
Loans from related party
|
|
|
399
|
|
|
|
40,000
|
Loans payable
|
|
|
591,000
|
|
|
|
633,000
|
Convertible notes payable, net of unamortized debt discount of $280,076 and $78, respectively
|
|
|
291,999
|
|
|
|
219,922
|
Convertible notes payable related party, net of unamortized discount of
$3,369,244 and $765,825 respectively
|
|
|
865,965
|
|
|
|
1,922,718
|
Total current liabilities
|
|
|
2,442,293
|
|
|
|
4,939,803
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,442,293
|
|
|
|
4,939,803
|
|
|
|
|
|
|
|
|
Stockholders' deficit
|
|
|
|
|
|
|
|
Common stock; $0.001 par value; 200,000,000 shares authorized; 2,896,689 and 2,896,689 shares
issued and outstanding at June 30, 2019 and December 31, 2018, respectively
|
|
|
2,897
|
|
|
|
2,897
|
Shares payable
|
|
|
2,060,494
|
|
|
|
2,053,466
|
Additional paid-in capital
|
|
|
28,182,238
|
|
|
|
24,774,887
|
Accumulated deficit
|
|
|
(32,476,775
|
)
|
|
|
(31,550,665)
|
Total stockholders' deficit
|
|
|
(2,231,146
|
)
|
|
|
(4,719,415)
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' deficit
|
|
$
|
211,147
|
|
|
$
|
220,388
|
See Accompanying Notes to Consolidated
Financial Statements.
SKINVISIBLE, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
June
30, 2019
|
|
June
30, 2018
|
|
June
30, 2019
|
|
June
30, 2018
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
12,717
|
|
|
$
|
22,284
|
|
|
$
|
21,084
|
|
|
$
|
37,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
6,573
|
|
|
|
9,047
|
|
|
|
6,949
|
|
|
|
16,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
6,144
|
|
|
|
13,237
|
|
|
|
14,135
|
|
|
|
20,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
9,979
|
|
|
|
9,534
|
|
|
|
19,630
|
|
|
|
19,164
|
Selling
general and administrative
|
|
|
135,461
|
|
|
|
135,012
|
|
|
|
279,893
|
|
|
|
307,707
|
Total
operating expenses
|
|
|
145,440
|
|
|
|
144,546
|
|
|
|
299,523
|
|
|
|
326,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(139,296
|
)
|
|
|
(131,309
|
)
|
|
|
(285,388
|
)
|
|
|
(305,875)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
12,500
|
|
|
|
—
|
|
|
|
12,500
|
|
|
|
4,807
|
Interest
expense
|
|
|
(208,217
|
)
|
|
|
(265,355
|
)
|
|
|
(405,224
|
)
|
|
|
(545,585)
|
Gain
on sale of Ovation Science Inc.
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
595,127
|
Loss
on equity method investment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(21,810)
|
Loss
on extinguishment of debt
|
|
|
(247,998
|
)
|
|
|
—
|
|
|
|
(247,998
|
)
|
|
|
(26,798)
|
Total
other income (expense)
|
|
|
(443,715
|
)
|
|
|
(265,355
|
)
|
|
|
(640,722
|
)
|
|
|
5,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(583,011
|
)
|
|
$
|
(396,664
|
)
|
|
$
|
(926,110
|
)
|
|
$
|
(300,134)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per
common share
|
|
$
|
(0.21
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.32
|
)
|
|
$
|
(0.11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted
average common shares outstanding
|
|
|
2,896,689
|
|
|
|
2,896,618
|
|
|
|
2,896,689
|
|
|
|
2,846,054
|
See Accompanying Notes
to Consolidated Financial Statements.
SKINVISIBLE, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
(UNAUDITED)
For
the Three and Six Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Additional
Paid-in Capital
|
|
Shares
payable
|
|
Accumulated
Deficit
|
|
Total
Stockholders’ Deficit
|
Balance,
December 31, 2018 (audited)
|
|
|
2,896,689
|
|
|
|
2,897
|
|
|
|
24,774,887
|
|
|
|
2,053,466
|
|
|
|
(31,550,665
|
)
|
|
|
(4,719,415)
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(343,099
|
)
|
|
|
(343,099)
|
Balance,
March 31, 2019 (unaudited)
|
|
|
2,896,689
|
|
|
|
2,897
|
|
|
|
24,774,887
|
|
|
|
2,053,466
|
|
|
|
(31,893,764
|
)
|
|
|
(5,062,514)
|
Settlement of debts
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,028
|
|
|
|
—
|
|
|
|
7,028
|
Beneficial conversion
feature on convertible notes issued as settlement on existing payables
|
|
|
—
|
|
|
|
—
|
|
|
|
3,649,320
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,649,320
|
Beneficial conversion
feature repurchase
|
|
|
—
|
|
|
|
—
|
|
|
|
(241,969
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(241,969)
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(583,011
|
)
|
|
|
(583,011)
|
Balance,
June 30, 2019 (unaudited)
|
|
|
2,896,689
|
|
|
|
2,897
|
|
|
|
28,182,238
|
|
|
|
2,060,494
|
|
|
|
(32,476,775
|
)
|
|
|
(2,231,146)
|
For
the Three and Six Months Ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Additional
Paid-in Capital
|
|
|
|
Shares
payable
|
|
|
|
Accumulated
Deficit
|
|
|
|
Total
Stockholders' Deficit
|
Balance,
December 31, 2017 (audited)
|
|
|
2,737,281
|
|
|
|
2,737
|
|
|
|
24,884,672
|
|
|
|
61,976
|
|
|
|
(31,709,007
|
)
|
|
|
(6,759,622)
|
Shares issued
for accounts payable
|
|
|
82,271
|
|
|
|
82
|
|
|
|
101,124
|
|
|
|
47,949
|
|
|
|
—
|
|
|
|
149,155
|
Loss on debt
modification
|
|
|
—
|
|
|
|
—
|
|
|
|
(320,756
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(320,756)
|
Net
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
96,530
|
|
|
|
96,530
|
Balance,
March 31, 2018 (unaudited)
|
|
|
2,819,552
|
|
|
|
2,819
|
|
|
|
24,665,040
|
|
|
|
109,925
|
|
|
|
(31,612,477
|
)
|
|
|
(6,834,693)
|
Shares issued
for accounts payable
|
|
|
77,066
|
|
|
|
77
|
|
|
|
109,848
|
|
|
|
(109,925
|
)
|
|
|
—
|
|
|
|
—
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(396,664
|
)
|
|
|
(396,664)
|
Balance,
June 30, 2018 (unaudited)
|
|
|
2,896,618
|
|
|
|
2,896
|
|
|
|
24,774,888
|
|
|
|
—
|
|
|
|
(32,009,141
|
)
|
|
|
(7,231,357)
|
See Accompanying Notes
to Consolidated Financial Statements.
SKINVISIBLE, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Six
Months Ended
|
|
|
June
30, 2019
|
|
June
30, 2018
|
|
|
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(926,110
|
)
|
|
$
|
(300,134)
|
Adjustments
to reconcile net loss to net
|
|
|
|
|
|
|
|
cash
used in operating activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
19,630
|
|
|
|
19,164
|
Gain
on sale of Ovation Science Inc.
|
|
|
—
|
|
|
|
(595,127)
|
Amortization
of debt discount
|
|
|
227,392
|
|
|
|
249,233
|
Loss
on equity method investment
|
|
|
—
|
|
|
|
21,810
|
Imputed
interest on Ovation Science loan
|
|
|
—
|
|
|
|
4,807
|
Loss
on extinguishment of debt
|
|
|
247,998
|
|
|
|
26,798
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Decrease
in inventory
|
|
|
6,902
|
|
|
|
8,124
|
Decrease
in prepaid assets
|
|
|
6,000
|
|
|
|
5,000
|
Decrease
(increase) in accounts receivable
|
|
|
(1,454
|
)
|
|
|
(2,465)
|
Increase
in accounts payable and accrued liabilities
|
|
|
201,640
|
|
|
|
194,133
|
Decrease
in due from related party
|
|
|
—
|
|
|
|
291
|
Decrease
in promissory note from Ovation Science Inc.
|
|
|
—
|
|
|
|
85,859
|
Increase
in accrued interest
|
|
|
168,600
|
|
|
|
276,605
|
Net
cash used in operating activities
|
|
|
(49,402
|
)
|
|
|
(5,902)
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
Purchase
of fixed and intangible assets
|
|
|
(24,319
|
)
|
|
|
(9,896)
|
Net
cash used in investing activities
|
|
|
(24,319
|
)
|
|
|
(9,896)
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
Book
overdraft
|
|
|
595
|
|
|
|
—
|
Proceeds
from related party loans, net of payments
|
|
|
70,644
|
|
|
|
—
|
Payments
on notes payable
|
|
|
—
|
|
|
|
(5,000)
|
Net
cash provided by (used in) financing activities
|
|
|
71,239
|
|
|
|
(5,000)
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
(2,482
|
)
|
|
|
(20,798)
|
|
|
|
|
|
|
|
|
Cash, beginning
of period
|
|
|
2,482
|
|
|
|
23,318
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
—
|
|
|
$
|
2,520
|
|
|
|
|
|
|
|
|
Supplemental disclosure
of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
2,637
|
|
|
$
|
22,878
|
Cash
paid for tax
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
Beneficial
conversion feature on convertible debts
|
|
$
|
3,649,320
|
|
|
$
|
74,669
|
Stock
payable on extinguishment of debt
|
|
$
|
42,000
|
|
|
$
|
—
|
Common
stock issued on extinguishment of debts
|
|
$
|
—
|
|
|
$
|
74,669
|
See
Accompanying Notes to Consolidated Financial Statements.
1. DESCRIPTION OF BUSINESS
AND HISTORY
Description of business
– Skinvisible, Inc., (referred
to as the “Company”) is focused on the development and manufacture and sales of innovative topical, transdermal and
mucosal polymer-based delivery system technologies and formulations incorporating its patent-pending formula/process for combining
hydrophilic and hydrophobic polymer emulsions. The technologies and formulations have broad industry applications within the pharmaceutical,
over-the-counter, personal skincare and cosmetic arenas. Additionally, the Company’s non-dermatological formulations, offer
solutions for a broad spectrum of markets women’s health, pain management, and others. The Company maintains executive and
sales offices in Las Vegas, Nevada.
History
– The Company was incorporated in Nevada on
March 6, 1998, under the name of Microbial Solutions, Inc. The Company underwent a name change on February 26, 1999, when it changed
its name to Skinvisible, Inc. The Company’s subsidiary’s name of Manloe Labs, Inc. was also changed to Skinvisible
Pharmaceuticals, Inc.
On September 9, 2014, the Company formed Kinatri USA Inc., a wholly-owned
subsidiary, to market a premium line of scientifically formulated skincare products powered by our patented Invisicare® technology.
As part of its strategic focus on revenue generation and creating shareholder value, Kintari USA Inc. products will be sold via
network marketing.
The Kintari product portfolio consists of anti-aging products to
help fight the signs of aging. These products have been developed using proven anti-aging ingredients with scientific evidence
of their effectiveness at reducing the look of fine lines and wrinkles resulting in youthful looking skin. These potent ingredients
will be powered by patented Invisicare technology, providing consumers with unique, effective products which the Company believes
cannot be duplicated. Additional products will be added to enhance this product line as the Company grows and expands.
On September 26, 2017, the Company purchased 5,750,000 shares of
common stock of Ovation Science Inc. (“Ovation”) for $32,286 which at the time of purchase the Company represented
99.9% of the then issued and outstanding common stock. On March 28, 2018 the Company sold its interest in Ovation to officers of
the Company for $500,000 which represented a 37.80% interest in Ovation. As of June 30, 2019, Skinvisible Inc. owned 0% of the
issued and outstanding Common stock of Ovation.
Skinvisible granted to Ovation, and has assigned its rights under
the Canopy Agreement, the exclusive worldwide right to manufacture, distribute, sell, market, sub-license and promote the Products
made with cannabis or hemp seed oil including the right to use the subject matter of any Skinvisible product formulation, patents
and trademarks which cover the Products or Polymer.
Skinvisible, Inc., together with its subsidiaries, shall herein
be collectively referred to as the “Company.”
2. BASIS OF PRESENTATION
AND GOING CONCERN
Basis of presentation
– The accompanying unaudited
interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the
United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited
financial statements and notes thereto contained in the Company’s most recent Annual Financial Statements on Form 10-K filed
with the SEC on April 15, 2019. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of financial position and the results of operations for the interim period presented have been reflected
herein. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full
year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial
statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted.
The condensed consolidated balance sheet at December 31, 2018 has
been derived from the audited financial statements at that date, but does not include all of the information and footnotes required
by generally accepted accounting principles in the U.S. for complete financial statements.
Going concern
– The accompanying financial statements
have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. The Company has incurred cumulative net losses of $32,476,775 since its inception and requires capital
for its contemplated operational and marketing activities to take place. The Company plans to seek additional debt and equity funding
but the Company’s ability to raise additional capital through the future issuances of common stock or debt is unknown. The
obtainment of additional financing, the successful development of the Company’s contemplated plan of operations, and its
transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. The ability
to successfully resolve these factors raise substantial doubt about the Company’s ability to continue as a going concern.
The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned
uncertainties.
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 $0 and $2,482 in cash as of June 30, 2019 and December 31, 2018 respectively.
Fair Value of financial
instruments
–The carrying value of cash, accounts payable and accrued expenses, and debt (See Notes 8 & 10) approximate
their fair values because of the short-term nature of these instruments. Management believes the Company is not exposed to significant
interest or credit risks arising from these financial instruments. The carrying amount of the Company’s related party convertible
debt is also stated at a fair value of $4,235,209 since the stated rate of interest approximates market rates.
Fair value is defined as
the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation
techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company
utilizes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last
unobservable.
|
•
|
Level 1 Quoted prices in active markets for
identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets
involving identical assets. The Company uses Level 1 measurements to value the transactions when it issues shares, warrants, options
and debt with beneficial conversion features.
|
|
•
|
Level 2 Quoted prices for similar assets and
liabilities in active markets; quoted prices included for identical or similar assets and liabilities that are not active; and
model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. These
are typically obtained from readily-available pricing sources for comparable instruments. The Company did not rely on any Level
2 measurements for any of its transactions in the periods included in these financial statements.
|
|
•
|
Level 3 Unobservable inputs, where there is
little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own beliefs about the
assumptions that market participants would use in pricing the asset or liability, based on the best information available in the
circumstances. The Company did not rely on any Level 3 measurements for any of its transactions in the periods included in these
financial statements.
|
Revenue recognition
– We recognize revenue in accordance
with generally accepted accounting principles as outlined in the Financial Accounting Standard Board's (“FASB”) Accounting
Standards Codification (“ASC”) 606, Revenue From Contracts with Customers, which requires that five steps be followed
in evaluating revenue recognition: (i) identify the contract with the customer; (ii) identity the performance obligations in the
contract; (iii) determine the transaction price; (iv) allocate the transaction price; and (v) recognize revenue when or as the
entity satisfied a performance obligation.
We did not have a cumulative impact as of January 1, 2018 due to
the adoption of Topic 606 and there was not an impact to our consolidated statements of operations for the six months ended June
30, 2019 and 2018 as a result of applying Topic 606.
As of June 30, 2019 and December 31, 2018, the Company had $9,913
and $8,459, respectively, in receivables related to royalty contracts.
The company has made an accounting policy election to exclude from
the measurement of the transaction price all taxes assessed by governmental authorities that are collected by the company from
its customers (sales and use taxes, value added taxes, some excise taxes).
Accounts Receivable
– Accounts receivable is comprised
of uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. The
carrying amount of accounts receivable is reviewed periodically for collectability. If management determines that collection is
unlikely, an allowance that reflects management’s best estimate of the amounts that will not be collected is recorded. Management
reviews each accounts receivable balance that exceeds 30 days from the invoice date and, based on an assessment of creditworthiness,
estimates the portion, if any, of the balance that will not be collected. As of June 30, 2019, the Company had not recorded a reserve
for doubtful accounts.
Inventory
– Substantially all inventory consists of
finished goods and are valued based upon first-in first-out ("FIFO") cost, not in excess of market. The determination
of whether the carrying amount of inventory requires a write-down is based on an evaluation of inventory.
Goodwill and intangible assets
– The Company follows
Financial Accounting Standard Board’s (FASB) Codification Topic 350-10 (“ASC 350-10”), “Intangibles –
Goodwill and Other”. According to this statement, goodwill and intangible assets with indefinite lives are no longer subject
to amortization, but rather an annual assessment of impairment by applying a fair-value based test. Fair value for goodwill is
based on discounted cash flows, market multiples and/or appraised values as appropriate. Under ASC 350-10, the carrying value of
assets are calculated at the lowest level for which there are identifiable cash flows.
Income taxes
– The Company accounts for its income
taxes in accordance with FASB Codification Topic ASC 740-10, “Income Taxes”, which requires recognition of deferred
tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases and tax credit carry-forwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Stock-based compensation
– The Company follows the
guidelines in FASB Codification Topic ASC 718-10 “Compensation-Stock Compensation”, which requires the measurement
and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock
options and employee stock purchases related to an Employee Stock Purchase Plan based on the estimated fair values.
Stock based compensation expense recognized under ASC 718-10 for
the six months ended June 30, 2019 and 2018 totaled $0 and $0, respectively.
Earnings (loss) per share
– The Company reports earnings
(loss) per share in accordance with FASB Codification Topic ASC 260-10 “Earnings Per Share”, Basic earnings (loss)
per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares
available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator
is increased to include the number of additional common shares that would have been outstanding if the potential common shares
had been issued and if the additional common shares were dilutive. There are 25,931,481 additional shares issuable in connection
with outstanding options, warrants, stock payable and convertible debts would be considered dilutive as of June 30, 2019. Diluted
earnings (loss) per share has not been presented for the three and six months ending June 30, 2019, since the effect of the assumed
exercise of options and warrants to purchase common shares (common stock equivalents) would have an anti-dilutive effect.
Recently issued accounting pronouncements
– In June
2018, the FASB issued ASU 2018-07, "Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment
Accounting," which modifies the accounting for share-based payment awards issued to nonemployees to largely align it with
the accounting for share-based payment awards issued to employees. ASU 2018-07 is effective for us for annual periods beginning
January 1, 2019. The adoption of the standard had no impact on our financial position or results of operations for the three and
six months ending June 30, 2018 and 2019.
In February 2016, the FASB issued ASU 2016-02, “Leases”
(“ASC 842”). The guidance requires lessees to recognize almost all leases on their balance sheet as a right-of-use
asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as
either operating or finance. Lessor accounting is similar to the current model, but updated to align with certain changes to the
lessee model and the new revenue recognition standard. Existing sale-leaseback guidance, including guidance for real estate, is
replaced with a new model applicable to both lessees and lessors. ASC 842 is effective for fiscal years beginning after December
15, 2018.
We adopted ASC 842 effective January 1, 2019 using the optional
transition method of recognizing a cumulative-effect adjustment to the opening balance of retained earnings on January 1, 2019.
Therefore, comparative financial information was not adjusted and continues to be reported under the prior lease accounting guidance
in ASC 840. We elected the transition relief package of practical expedients, and as a result, we did not assess 1) whether existing
or expired contracts contain embedded leases, 2) lease classification for any existing or expired leases, and 3) whether lease
origination costs qualified as initial direct costs. We elected the short-term lease practical expedient by establishing an accounting
policy to exclude leases with a term of 12 months or less.
The Company has evaluated all other recent accounting pronouncements,
and believes that none of them will have a material effect on the Company's financial position, results of operations or cash flows.
4. FIXED ASSETS
Fixed assets consist of the following as of June 30, 2019 and December
31, 2018:
|
|
June 30, 2019
|
|
December 31, 2018
|
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
|
|
|
(327,550
|
)
|
|
|
(327,432)
|
Fixed assets, net of accumulated depreciation
|
|
$
|
—
|
|
|
$
|
118
|
Depreciation expense for the three months ended June 30, 2019 and
2018 was $59 and $59, respectively.
Depreciation expense for the six months ended June 30, 2019 and
2018 was $118 and $123, respectively.
5. INVENTORY
Inventory consist of the following as of June 30, 2019 and December
31, 2018:
|
|
June 30, 2019
|
|
December 31, 2018
|
Shipping and Packing materials
|
|
$
|
8,584
|
|
|
$
|
8,611
|
Finished Goods
|
|
|
1,931
|
|
|
|
2,687
|
Raw Materials
|
|
|
—
|
|
|
|
6,119
|
Total
|
|
$
|
10,515
|
|
|
$
|
17,417
|
6. INTANGIBLE AND OTHER
ASSETS
Patents and trademarks and other intangible assets are capitalized
at their historical cost and are amortized over their estimated useful lives. As of June 30, 2019, intangible assets total $697,003,
net of $513,429 of accumulated amortization.
The Company capitalized $24,318
in patent cost during the 6 months ended June 30, 2019.
Amortization expense for the three months ended June 30, 2019 and
2018 was $9,920 and $9,475, respectively.
Amortization expense for the six months ended June 30, 2019 and
2018 was $19,512 and $19,041, 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, 2019.
7. STOCK OPTIONS AND WARRANTS
The following is a summary of option activity during the six months
ended June 30, 2019.
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
Balance, December 31, 2018
|
|
|
161,000
|
|
|
$
|
1.80
|
|
|
|
|
|
|
|
|
Options granted and assumed
|
|
|
—
|
|
|
|
—
|
Options expired
|
|
|
(26,000
|
)
|
|
|
2.00
|
Options canceled
|
|
|
—
|
|
|
|
—
|
Options exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Balance, June 30, 2019
|
|
|
135,000
|
|
|
$
|
1.76
|
As of June 30, 2019, all stock options outstanding are exercisable.
Stock warrants -
The following is a summary of warrants activity during the six months
ended June 30, 2019.
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
Balance, December 31, 2018
|
|
|
72,200
|
|
|
$
|
1.18
|
|
|
|
|
|
|
|
|
Warrants granted and assumed
|
|
|
—
|
|
|
|
—
|
Warrants expired
|
|
|
—
|
|
|
|
—
|
Warrants canceled
|
|
|
—
|
|
|
|
—
|
Warrants exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Balance, June 30, 2019
|
|
|
72,200
|
|
|
$
|
1.18
|
As of June 30, 2019, all stock warrants outstanding are exercisable.
8. NOTES PAYABLE
Secured debt offering
During the period from May 22, 2013 and September 30, 2015, the
Company entered into sixty-four 9% notes payable to investors and received total proceeds of $2,326,000. The notes were due two
years from the anniversary date of execution. The notes have not been paid as of maturity date and are in default. The Notes are
secured by the US Patent rights granted for the Company's Sunscreen Products: US patent number #8,128,913: "Sunscreen Composition
with Enhanced UV-A Absorber Stability and Methods.”
During the year ending December 31, 2018 the Company made principal
payments of $5,000 and executed agreements with 41 noteholders that participated in the Company’s debt offerings. In accordance
with the agreements the Company and the investors agreed to settle a total of $1,663,875 in outstanding principal and $385,563
in accrued interest in exchange for the issuance of 1,024,719 shares of the Company’s common stock. The Company fair valued
the shares issuable on the date each investors signed their respective agreement. As a result of the transaction the Company recorded
stock payable of $874,294 and a gain on settlement of debt of $1,175,145.
During the six months ending June 30, 2019, the Company executed
agreements with an additional noteholder that participated in the Company’s debt offerings. In accordance with the agreement
the Company and the investor agreed to settle a total of $42,000 in outstanding principal and $13,574 in accrued interest in exchange
for the issuance of 26,038 shares of the Company’s common stock. The Company fair valued the shares issuable on the date
the investor signed their agreement and recorded a gain of $48,546 as a result of the settlement.
As of the June 30, 2019, the Company had not yet issued the shares
to the investors that executed settlement agreements and has recorded stock payable of $881,322 as a result of the settlement agreements
on the accompanying Balance Sheet.
Unsecured debt offering
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, 2019 and December
31, 2018, the note is in default as no payments had been made towards the principal balance.
As of June 30, 2019, $591,000 of the outstanding notes payable are
past due and in default and have been classified as current notes payable.
9. RELATED PARTY
TRANSACTIONS
During the six months ended June 30, 2019, $70,644 was advanced
by an officer.
As of June 30, 2019, $399 in advances remained due to officers of
the company. All other related party notes have been extinguished or re-negotiated as convertible notes. (See note 11 for additional
details.)
10. CONVERTIBLE NOTES PAYABLE
Convertible
Notes Payable at consists of the following:
|
|
June
30,
|
|
December
31,
|
|
|
2019
|
|
2018
|
$1,000,000 face value 9% secured notes
payable to investors, due in 2015. At the investor’s option until the repayment
date, the note and related interest may be converted to shares of the Company’s
common stock a discount of 90% of the current share price after the first anniversary
of the note. The notes are secured by the accounts receivable of a license agreement
the Company has with Womens Choice Pharmaceuticals, LLC on its proprietary prescription
product, ProCort®. The notes have reach maturity and are now in default, under the
notes default provisions the entire balance is now due upon demand.
During the year ending December 31, 2018, the Company executed agreements with 14 of the noteholders
that participated in the Company’s convertible debt offering. In accordance with the agreements the Company and
the investors agreed to settle a total of $960,000 in outstanding principal and $219,172 in accrued interest in
exchange for the issuance of 589,586 shares of the Company’s common stock.
As of the March 31, 2019 the Company had not yet issued the shares to the investors. The company treated the loan
modification as a debt repurchase and as a result of the transaction has recorded stock payable of $1,179,172 on
the accompanying balance sheet.
|
|
|
40,000
|
|
|
|
40,000
|
Original
issue discount
|
|
|
—
|
|
|
|
—
|
Unamortized
debt discount
|
|
|
—
|
|
|
|
—
|
Total,
net of unamortized discount
|
|
|
40,000
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
On October 26, 2015 the Company issued a $135,000
face value 9% unsecured notes payable to investors, due October 26, 2017. At the investor’s option until the repayment date,
the note and related interest may be converted to shares of the Company’s common stock a discount of 90% of the current
share price after the first anniversary of the note. The notes are secured by the accounts receivable of a license agreement the
Company has with Womens Choice Pharmaceuticals, LLC on its proprietary prescription product, ProCort®. The note has reached
maturity and is in default.
|
|
|
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 note has reached
maturity and is in default
|
|
|
20,000
|
|
|
|
20,000
|
Unamortized
debt discount
|
|
|
—
|
|
|
|
—
|
Total,
net of unamortized discount
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
On
August 11, 2016, the Company entered into a convertible promissory note pursuant to which it borrowed $15,000. Interest under
the convertible promissory note is 9% per annum, and the principal and all accrued but unpaid interest is due on August 11, 2018.
The note is convertible into shares of our common stock at a variable conversion price of 90% of the average market price of our
common stock during the 5 trading days prior to the notice of conversion, subject to adjustment as described in the note. The
note has reached maturity and is in default
|
|
|
15,000
|
|
|
|
15,000
|
Unamortized
debt discount
|
|
|
—
|
|
|
|
—
|
Total,
net of unamortized discount
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
On
January 27, 2017, the Company entered into a convertible promissory note pursuant to which it borrowed $10,000. Interest
under the convertible promissory note is 9% per annum, and the principal and all accrued but unpaid interest is due on
January 27, 2019. The note is convertible into shares of our common stock at a variable conversion price of 90% of the
average market price of our common stock during the 5 trading days prior to the notice of conversion, subject to
adjustment as described in the note. The note has reached maturity and is in default
The
Company has determined the value associated with the beneficial conversion feature in connection with the notes negotiated
on January 27, 2017 to be $2,138. The aggregate beneficial conversion feature has been accreted and charged to interest
expenses as a financing expense in the amount of $78 during the three months ended March 31, 2019. The beneficial
conversion feature is valued under the intrinsic value method
|
|
|
10,000
|
|
|
|
10,000
|
Unamortized
debt discount
|
|
|
—
|
|
|
|
(78)
|
Total,
net of unamortized discount
|
|
|
10,000
|
|
|
|
9,922
|
|
|
|
|
|
|
|
|
On June 30, 2019, the Company renegotiated
accrued salaries and interest and outstanding convertible notes for a former employee. Under the terms of the agreements, all outstanding
notes totaling $224,064, accrued interest of $119,278, accrued salaries of $7,260 and accrued vacation of $1,473 were converted
to a promissory note convertible into common stock with a warrant feature. The promissory note is unsecured, due five years from
issuance, and bears 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 $0.20 per share along with additional warrants to purchase one
share for every two shares issued at the exercise price of $0.30 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 $280,076. The aggregate beneficial conversion feature will be accreted and charged to interest expenses as a financing
expense. The beneficial conversion feature is valued under the intrinsic value method.
|
|
|
352,075
|
|
|
|
—
|
Unamortized
debt discount
|
|
|
(280,076
|
)
|
|
|
(78)
|
Total,
net of unamortized discount
|
|
|
291,999
|
|
|
|
9,922
|
|
|
|
|
|
|
|
|
|
|
$
|
291,999
|
|
|
$
|
219,922
|
11. CONVERTIBLE NOTES PAYABLE
RELATED PARTY
Convertible Notes Payable Related Party consists of the following:
|
|
June 30,
|
|
December 31,
|
|
|
2019
|
|
2018
|
Between December 30, 2012 and July 1, 2017, the Company re-negotiated accrued salaries and interest for its officers and several former employees.
As of December 31, 2018, there were $2,688,544 face value unsecured promissory notes are unsecured, due five years from issuance, bearing an interest rate of 10%. At the investor’s option until the repayment date, the notes were convertible to shares of the Company’s common stock at fixed prices between $0.50 and $2.00 per share along with additional warrants to purchase one share for every two shares issued at the exercise prices between $1.00 and $3.00 per share for three years after the conversion date.
The aggregate beneficial conversion feature associated with these notes has been accreted and charged to interest expenses as a financing expense in the amount of $227,314 during the six months ended June 30, 2019.
On June 30, 2019 all of the convertible notes payable were settled through the issuance of new convertible debts as described below and in Note 10.
|
|
|
—
|
|
|
|
2,688,544
|
Unamortized debt discount
|
|
|
—
|
|
|
|
(765,825)
|
Total, net of unamortized discount
|
|
|
—
|
|
|
|
1,922,718
|
|
|
|
|
|
|
|
|
On June 30, 2019, the Company renegotiated accrued salaries, accrued interest, unpaid reimbursements, cash advances, and outstanding convertible notes for its two officers. Under the terms of the agreements, all outstanding notes totaling $2,464,480, accrued interest of $966,203, accrued salaries of $617,915, accrued vacation of $64,423, unpaid reimbursements of $11,942 and cash advances of 110,245 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 $0.20 per share along with additional warrants to purchase one share for every two shares issued at the exercise price of $0.30 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 $3,369,244. The aggregate beneficial conversion feature will be accreted and charged to interest expenses as a financing expense. The beneficial conversion feature is valued under the intrinsic value method.
The Company treated the loan settlement as a debt extinguishment per ASC 470 and recorded a corresponding loss on settlement of debt of $241,969
|
|
|
4,235,209
|
|
|
|
—
|
Unamortized debt discount
|
|
|
(3,369,244
|
)
|
|
|
—
|
Total, net of unamortized discount
|
|
$
|
865,965
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
12. STOCKHOLDERS’
DEFICIT
The Company is authorized to issue 200,000,000 shares of $0.001
par value common stock. The Company had 2,896,689 and 2,896,689 issued and outstanding shares of common stock as of June 30, 2019
and December 31, 2018, respectively.
During the year ending December 31, 2018, the Company executed agreements
with 45 noteholders that participated in the Company’s debt offerings between May 22, 2013 and December 31, 2015. In accordance
with the agreements the Company and the investors agreed to settle a total of $2,623,875 in outstanding principal and $604,736
in accrued interest in exchange for the issuance of 1,614,305 shares. The Company fair valued the shares issuable on the date each
investors signed their respective agreement.
During the six months ending June 30, 2019, the Company executed
agreements with an additional noteholder that participated in the Company’s debt offerings between May 22, 2013 and September
30, 2015. In accordance with the agreement the Company and the investor agreed to settle a total of $42,000 in outstanding principal
and $13,574 in accrued interest in exchange for the issuance of 26,038 shares of the Company’s common stock. The Company
fair valued the shares issuable on the date the investor signed their agreement and recorded a gain of $48,546 as a result of the
settlement.
As of the June 30, 2019, the Company had not yet issued the shares
to the investors that executed settlement agreements and has recorded stock payable of $2,060,494 as a result of the settlement
agreements on the accompanying Balance Sheet.
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, 2019, are as follows:
2019
|
$
|
25,011
|
2020
|
$
|
12,863
|
Rental expense, resulting from operating lease agreements, approximated
$15,672 and $13,720 for the three months ended June 30, 2019 and 2018, respectively.
Rental expense, resulting from operating lease agreements, approximated
$29,709 and $27,101 for the six months ended June 30, 2019 and 2018, respectively.
Kintari Inc
. - Previously on April 1, 2016, Skinvisible licensed
to Kintari Int. Inc. the exclusive rights to our existing line of cosmeceutical products plus the exclusive rights to any future
cosmeceutical products developed by Skinvisible plus the right-of-first-refusal on our existing OTC products plus the right-of-first-refusal
to any future OTC products developed by us in exchange for a 100% equity position in Kintari Int. Inc. This inter-company agreement
has now been dissolved and all rights still remain with Skinvisible Pharmaceuticals, Inc., as the original intent was for Kintari
to operate as its own company; however, this did not transpire. There is no change to the ownership as Skinvisible continues to
own 100% of Kintari Int. Inc. and all rights thereof. Kintari USA Inc. continues to sell Kintari branded products through online
sales.
14. MERGER AGREEMENT
On March 26, 2018, Skinvisible, Inc. (“Parent”) entered
into an Agreement and Plan of Merger (the “Merger Agreement”) with Quoin Pharmaceuticals, Inc., a Delaware corporation
(the “Quoin”), and Quoin Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Parent (“Merger
Sub”).
The Merger Agreement provides that, subject to the terms and conditions
set forth in the Merger Agreement, Merger Sub will merge with and into Quoin (the “Merger”), with Quoin surviving the
Merger as a wholly-owned subsidiary of Parent. At the effective time of the Merger, the issued and outstanding common shares of
Quoin (“Company Common Shares”) will automatically be converted into the right to receive approximately 72.5% of the
outstanding equity of Parent (the “Merger Consideration”). Existing Parent shareholders will have a right to the remaining
27.5% of the outstanding equity of Parent, which is subject to diminution if certain indebtedness of Parent is not converted into
Parent Common Stock.
Each of Quoin, Parent, and Merger Sub has made various representations
and warranties and agreed to certain covenants in the Merger Agreement. Parent also has agreed to other covenants in the Merger
Agreement, including, without limitation, to cause a special meeting of Parent’s shareholders to be held as promptly as practicable
to consider and approve the Merger Agreement and the Merger, along with the issuance of the shares of Parent Common Stock in connection
with the Merger and a Charter Amendment, including a name change and reverse stock split, and to file a proxy statement with the
Securities and Exchange Commission (“SEC”) relating to such special meeting.
The Merger Agreement contains customary no-solicitation covenants
restricting Parent and Quoin from soliciting, encouraging, or discussing alternative acquisition proposals from third parties.
Consummation of the Merger is subject to
the satisfaction or, if permitted by applicable law, waiver, by Parent, Quoin, or both of various conditions, including,
without limitation, (i) approval of the Merger Agreement and the Merger by both the Quoin’s and Parent’s
respective shareholders; (ii) a definitive agreement shall have been executed that provides that Parent shall receive an
aggregate of at least $10,000,000 of gross proceeds within five (5) days of the closing of the Merger; (iii) the accuracy of
the parties’ respective representations and warranties and the performance of their respective obligations under the
Merger Agreement; (iv) the absence of the occurrence of a material adverse effect with respect to Quoin between the date of
the Merger Agreement and closing; (v) the Parent’s shareholders shall have approved the Charter Amendment ; (vi) the
absence of any law, order, or legal injunction which prohibits the consummation of the Merger or any of the transactions
contemplated by the Merger Agreement; and (vii) certain other customary conditions.
The Merger Agreement contains certain termination rights in favor
of the parties, as set forth therein, including, among other things, the right of either party, subject to specified limitations,
to terminate the Merger Agreement if the Merger is not consummated by June 30, 2018. As of the date of this filing the termination
rights have not been exercised by either party. Upon the termination of the Merger Agreement under specified circumstances, including
the termination of the Merger Agreement by Parent to enter into an acquisition proposal in accordance with the terms of the Merger
Agreement made by a third party, Parent may be required to pay the Company a termination fee of up to $300,000.
The Merger Agreement, the Merger, and the transactions contemplated
thereby were unanimously approved by the board of directors of the Parent, and unanimously approved by the board of directors of
the Company and by a majority of the shareholders of the parent.
The Merger is expected to close as soon as practicable after the
satisfaction or waiver of all the conditions to the closing in the Merger Agreement, which is currently expected to be in the third
quarter of calendar year 2019.
Support Agreements
Concurrently with the entry into the Merger Agreement on March 26,
2018, Terry Howlett (Chief Executive Officer of Parent) and Doreen McMorran (Vice President, Business Development & Marketing
of Parent) along with Michael Meyers (Chief Executive Officer of the Company) and Denise Carter (Chief Operating Officer of the
Company) have executed lock-up agreements (the “Lock-Up Agreements”) relating to sales and certain other dispositions
of shares of Parent Common Stock or certain other securities for a period of 180 days after the Closing of the Merger.
In addition, Parent will execute an agreement with Mr. Howlett,
Ms. McMorran and Dr. Roszell (the “Parent Related Party Agreement”) which will provide that within 180 days after the
Closing Date the remaining Parent Related Party Indebtedness shall be converted, at the sole election of Parent, into cash or shares
of Parent Common Stock which are not subject to any contractual restrictions or vesting requirements.
15. SUBSEQUENT EVENTS
In accordance with ASC Topic 855-10, the Company has analyzed its
operations subsequent to June 30, 2019 to the date these financial statements were issued and has determined that it does not have
any material subsequent events to disclose in these financial statements.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Certain statements, other than purely historical information, including
estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions
upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. These forward-looking statements generally are identified by the words “believes,” “project,”
“expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,”
“may,” “will,” “would,” “will be,” “will continue,” “will likely
result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions
for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement
for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations
and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking
statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors
which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not
limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition,
and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise
publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further
information concerning our business, including additional factors that could materially affect our financial results, is included
herein and in our other filings with the SEC.
Recent Developments
Merger with Quoin Pharmaceuticals, Inc.
On March 26, 2018, we entered into an Agreement and Plan of Merger
(the “Merger Agreement”) with Quoin Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and
Quoin Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Parent (“Merger Sub”).
The Merger Agreement provides that, subject to the terms and conditions
set forth in the Merger Agreement, Merger Sub will merge with and into the Company (the “Merger”), with the Company
surviving the Merger as a wholly-owned subsidiary of our company. At the effective time of the Merger, the issued and outstanding
common shares of the Company will automatically be converted into the right to receive approximately 72.5% of the outstanding equity
of our company (the “Merger Consideration”). Our existing shareholders will have a right to the remaining 27.5% of
the outstanding equity in our company, which is subject to diminution if certain indebtedness is not converted into our common
stock.
We also have agreed to other covenants in the Merger Agreement,
including, without limitation, to cause a special meeting of our shareholders to be held as promptly as practicable to consider
and approve the Merger Agreement and the Merger, along with the issuance of the Merger Consideration in connection with the Merger
and a Charter Amendment, including a name change and reverse stock split, and to file a proxy statement with the Securities and
Exchange Commission (“SEC”) relating to such special meeting. We have set the meeting date for November 26, 2018.
As such, we recently filed a proxy statement with the SEC to approve
the Merger, to conduct a reverse split of not less than one-for-ten and not more than one-for-one hundred, with the exact ratio
to be set at a whole number within this range, as determined by our board of directors in its sole discretion, and to change our
name to Quoin Pharmaceuticals, Inc.
Consummation of the Merger is subject to the satisfaction or, if
permitted by applicable law, waiver, by us, the Company, or both of various conditions, including, without limitation, (i) approval
of the Merger Agreement and the Merger by both the Company’s and our respective shareholders; (ii) a definitive agreement
shall have been executed that provides that we shall receive an aggregate of at least $10,000,000 of gross proceeds within five
(5) days of the closing of the Merger; (iii) the accuracy of the parties’ respective representations and warranties and the
performance of their respective obligations under the Merger Agreement; (iv) the absence of the occurrence of a material adverse
effect with respect to the Company between the date of the Merger Agreement and closing; (v) our shareholders shall have approved
the reverse split and name change ; (vi) the absence of any law, order, or legal injunction which prohibits the consummation of
the Merger or any of the transactions contemplated by the Merger Agreement; and (vii) certain other customary conditions.
The Merger Agreement, as amended, contains certain termination rights
in favor of the parties, as set forth therein, including, among other things, the right of either party, subject to specified limitations,
to terminate the Merger Agreement if the Merger is not consummated by June 30, 2018. Upon the termination of the Merger Agreement
under specified circumstances, including the termination of the Merger Agreement by Parent to enter into an acquisition proposal
in accordance with the terms of the Merger Agreement made by a third party, Parent may be required to pay the Company a termination
fee of up to $300,000.
The Merger Agreement, the Merger, and the transactions contemplated
thereby were unanimously approved by our board of directors and unanimously approved by the board of directors of the Company.
Both the board of directors of the Company and our company have recommended that their respective shareholders approve the Merger
Agreement and the Merger. The Merger is expected to close as soon as practicable after the satisfaction or waiver of all the conditions
to the closing in the Merger Agreement, which is currently expected to be in the third quarter of calendar year 2019.
Support Agreements
Concurrently with the entry into the Merger Agreement on March 26,
2018, Terry Howlett (Chief Executive Officer of Parent) and Doreen McMorran (Vice President, Business Development & Marketing
of Parent) along with Michael Meyers (Chief Executive Officer of the Company) and Denise Carter (Chief Operating Officer of the
Company) have executed lock-up agreements (the
“Lock-Up Agreements”) relating to sales and certain
other dispositions of shares of our common stock or certain other securities for a period of 180 days after the Closing of the
Merger.
In addition, our wholly owned subsidiary, Skinvisible Pharmaceuticals,
Inc., executed agreements with Mr. Howlett, Ms. McMorran and Dr. James A. Roszell (the “Share Transfer Agreements”).
The Share Transfer Agreements provide that in exchange for the immediate cancellation of $500,000 of the Parent Related Indebtedness,
simultaneously with entry into the Merger Agreement, Skinvisible Pharmaceuticals, Inc. will transfer 100% of the shares in Ovation
Science Inc. (“Ovation”) to these related parties. We will execute an agreement with Mr. Howlett, Ms. McMorran and
Dr. Roszell (the “Parent Related Party Agreement”) which will provide that within 180 days after the Closing Date the
remaining Parent Related Party Indebtedness shall be converted, at the sole election of our company, into cash or shares of our
common stock, which are not subject to any contractual restrictions or vesting requirements.
Finally, Mr. Howlett and Ms. McMorran have entered into a Voting
and Support Agreement (the “Voting Agreement”), pursuant to which such shareholders have agreed, among other things,
to vote all of their common shares in our company in favor of the approval of the Merger Agreement at the special meeting of our
shareholders called to approve the Merger Agreement. The Voting Agreement will automatically terminate upon the termination of
the Merger Agreement in accordance with its terms, including upon a termination of the Merger Agreement by the Company pursuant
to the Company’s termination rights in the Merger Agreement, or upon any material modification or amendment to the Merger
Agreement that materially reduces the Merger Consideration payable to the Company’s shareholders (other than in connection
with a Company material adverse effect).
Company Overview
We, through our wholly owned subsidiary Skinvisible Pharmaceuticals
Inc., are a pharmaceutical research and development (“R&D”) company that has developed and patented an innovative
polymer delivery system, Invisicare® and formulated over forty topical skin products, which we out-license globally. We were
incorporated in 1998, and target an estimated $80 billion global skincare and dermatology market and a $30 billion global over-the-counter
market as well as other healthcare / medical and consumer goods markets.
With the research and development complete on forty products and
numerous patents issued (technology and product patents), we are ready to monetize our investment. Our business model will continue
to be to out-license our patented prescription and over-the-counter (“OTC”) products featuring Invisicare to established
manufacturers and marketers of brands internationally and to maximize profits from the products we have already out-licensed. We
have also formed a commercial subsidiary, Kintari Int. Inc. with subsidiaries Kintari USA Inc. and Kintari Canada Inc., in order
to take our cosmeceutical and select OTC products with Invisicare to market.
The opportunity for us to license our products continues to be a
viable model as the need for pharmaceutical companies to access external R&D companies for new products due to their own down-sizing
or elimination of internal R&D departments. The demand for our products is enhanced due to the granting of key US and international
patents and the completed development of a number of unique products.
Strategic Growth Opportunities
Our growth strategy is to:
|
1.
|
Generate revenue from direct sales of our cosmeceutical/OTC product line;
|
|
2.
|
Generate revenue from online sales and private label / bulk orders of our Kintari branded products;
|
|
3.
|
Capitalize on the success of current licensees;
|
|
4.
|
Increase the value of our current pipeline; and
|
|
5.
|
Boost licensing revenues by securing additional licensees globally and develop a robust royalty
revenue stream that will finance our future growth.
|
Our Cosmeceutical/OTC Product Line
Kintari Int. Inc.
Kintari Int. Inc. was incorporated in the Province of Alberta, Canada.
The company was formed to develop, market and sell Skinvisible Pharmaceuticals, Inc.’s patented skincare products initially
in the United States. Kintari Int. Inc. is our wholly-owned subsidiary.
DermSafe®, our hand sanitizer formulated with Invisicare®
and chlorhexidine gluconate has been launched in Canada by our subsidiary Kintari Canada Inc. where it has Health Canada approval.
We launched DermSafe in August, 2016 in Canada through our Kintari Canadian website for retail customers only. DermSafe is an alcohol
free hand sanitizer that products against 99% of all germs. We are currently seeking licensees and/or distributors to begin the
sale of DermSafe in South America and in the EU.
Kintari Products in China:
Skinvisible has an agreement in place with InterSpace Global, Inc.
InterSpace Global Inc. is an exporter of “Made in USA” products and has offices in Salt Lake City, Utah and Shenzhen,
China. This agreement provides for an efficient export of Skinvisible’s products from the USA and Canada into Greater China
(Includes China, Hong Kong, Macau, Taiwan, Singapore, Malaysia, Korea and Thailand).
According to the agreement, InterSpace Global Inc. will sell Kintari
products to Chinese consumers through a network of online shopping malls and other channels.
In addition to DermSafe, Skinvisible will supply its Kintari –branded
portfolio of globally patented skincare products made with its Invisicare® delivery technology.
The Kintari product portfolio consists of two anti-aging products
to help fight the signs of aging, a broad spectrum sunscreen along with our latest Hand & Body Lotion products. All products
are made with our patented Invisicare technology.
Our anti-aging products have been developed using proven anti-aging
ingredients with scientific evidence of their effectiveness at reducing the look of fine lines and wrinkles resulting in youthful
looking skin. These potent ingredients will be powered by patented Invisicare technology, providing consumers with unique, effective
products, which we believe cannot be duplicated.
Our sunscreen is a broad spectrum SPF 30 known as Skinbrella®.
We completed independent testing to validate our broad spectrum sunscreen claims according to the labeling guidelines of the FDA,
which are designed to help reduce the incidents of skin cancer in the U.S. Our claims are as follows:
-
Claim # 1 – Broad-Spectrum: According to the FDA, in order for a sunscreen to be labeled
“broad spectrum” it must prove it protects against both UVA and UVB rays by having an SPF (Sun Protection Factor) of
at least 15 and a critical wave length of at least 370 nm. Our sunscreen has surpassed both of these criteria, allowing our broad
spectrum sunscreen label to also state “prevents sunburn, skin cancer and aging due to the sun.”
-
Claim # 2 – Water-Resistant 80 Minutes: The FDA sunscreen water resistant claim requires
that a sunscreen must have the same SPF after being in water or sweating for 40 or 80 minutes. Our testing was conducted at an
independent laboratory specializing in sunscreen testing. The test involved human subjects that applied sunscreen to their arm,
followed by the immersion of the arm into a Jacuzzi for 80 minutes (10 minutes in / 10 minutes out). Our sunscreen successfully
completed this testing and is allowed to use “Water-resistant for 80 Minutes” on its sunscreen label, the longest length
of time allowed by the FDA.
-
Claim # 3 – Unique Patented Technology / Eight-Hour Photostability: As previously
announced, we were granted a patent from the United States Patent and Trademark Office entitled “Sunscreen Composition with
Enhanced UVA Absorber Stability and Methods”, which provides protection until November 2029. Skinvisible successfully formulated
a unique Invisicare® delivery system specifically for stabilizing avobenzone; the key sunscreen used in the USA. Data submitted
to the US patent office proved that our sunscreen provides a minimum of eight hours of photostability.
Cannabis Products
On September 15, 2016, we licensed the exclusive world rights to
our topical and transdermal cannabis products formulated with Invisicare to CannaSkin, LLC, a cannabis product licensing company
with international contacts in the medical marijuana industry. This agreement was canceled on June 28, 2017 and all rights reverted
back to Skinvisible.
In September 2017 Skinvisible formed a wholly-owned Canadian subsidiary
called Ovation Science Inc. (“Ovation”). Ovation was subsequently granted worldwide rights to Invisicare products formulated
with cannabis or hemp seed oil. A license agreement with Canopy Growth Inc. for the Canadian rights was also assigned to Ovation.
This was followed by a license agreement with Lighthouse Strategies, LLC for the US rights in dispensaries and the non-exclusive
rights outside of dispensaries in the USA. A term of the potential merger agreement with Quoin Pharmaceuticals, Inc. involves Skinvisible
Related Parties to assume Skinvisible’s ownership in Ovation in lieu of payment of a portion of outstanding debt.
Capitalize On Current Licensees:
We have: Avon Products globally and Women’s Choice Pharmaceuticals
in the United States.
We continue to work diligently with our licensees to ensure they
have a smooth manufacturing process, ongoing R&D support and marketing feedback.
Avon Products, Inc.
Product: We have a long-term contract with Avon globally for over
ten years to provide Invisicare polymer for their long-lasting lipsticks.
Sales: Invisicare polymers are purchased directly from Skinvisible.
Women’s Choice Pharmaceuticals
Product: ProCort®, long lasting prescription hemorrhoid cream
launched in the United States August 2011.
Sales and Royalties: Skinvisible receives a royalty based on net
sales of ProCort. Women’s Choice has been successfully growing their sales of ProCort®
Additional Skinvisible Products
Sunless Tanning Products
We have developed a new sunless tanning mousse / foam which uses
a unique foam with Invisicare®, developed specifically for its foaming properties. This adds to Skinvisible’s line of
sunless tanning products which includes sunless tanning lotions (light, medium and dark), pre-sun moisturizer and after-sun moisturizer
along with sunless tanning spray products for commercial use. The addition of a sunless tanning mousse enhances this line of products.
Sunscreen Products
We have developed 3 broad spectrum sunscreens, with SPF 15, 30 and
50 (the highest SPF allowed by the FDA). All are formulated with Avobenzone, the only UVA sun filter allowed under the US FDA monograph.
This UVA/UVB sunscreen was granted a patent from the United States patent office in 2013. Avobenzone is known for breaking down
in the sun after only two hours – thus the requirement to reapply every 2 hours. Skinvisible’s patent was granted based
on Invisicare's® minimum 8 hour photo stability. For countries outside the United States, Skinvisible has additionally patented
UVA/UVB sunscreens formulated with Tinosorb S.
Increasing The Value of Skinvisible’s Pipeline:
We have a pipeline of over forty products which are available for
licensing. Testing is conducted in-house generating proof of concept including release of the active ingredient as well as long
term shelf life (stability). Additional studies conducted on specific products including skin sensitivity, toxicity and product
efficacy are outsourced to FDA compliant laboratories. These studies are critical in attracting potential licensees. Our clinical
strategy is to:
-
Our clinical strategy is to find a partner for our prescription product portfolio. This
would allow for a partner to seek FDA approval using the 505b2 pathway for one or more of our products.
-
Expand the availability of our DermSafe® hand sanitizer in China and other countries
internationally. A strategy is being developed along with a larger global strategy to bring DermSafe to the EU and Asia.
Secure Additional Licensees:
We are in discussions and undergoing internal
discussions with various pharmaceutical companies for licenses.
To facilitate further expansion, we are seeking an exclusive license
with a proven US or global based Pharmaceutical Company for our existing Rx product formulations. The licensee would be expected
to pay all costs in getting FDA approval. The licensee would pay Skinvisible for the license in milestone payments as Clinical
Phases are proven.
Results of Operations for the Three Months Ended June 30, 2019
and 2018
Revenues
Our revenue from product sales, royalties on patent licenses and
license fees (product development fees) for the three months ended June 30, 2019 was $12,717, a decrease from $22,284 for the same
period ended June 30, 2018.
The decrease in revenue for the three months ended June 30, 2019
was mainly due to decreased product sales. We hope to achieve increased revenues for the balance of 2019 and into 2020, as a result
of our planned Merger Agreement with Quoin Pharmaceuticals, Inc.
Cost of Revenues
Our cost of revenues for the three months ended June 30, 2019 decreased
to $6,573 from the prior year period when cost of revenues was $9,047.
Our cost of revenues decreased for the three months ended June 30,
2019 over the prior year period because the revenues in 2019 were mainly royalty payments without significant costs associated.
We expect our cost of revenues to increase, especially if the Merger is consummated, and as we continue to push sales from Kintari
USA and Canada.
Gross Profit
Gross profit for the three months ended June 30, 2019 was $6,144,
as compared with gross profit of $13,237 for the three months ended June 30, 2018.
Operating Expenses
Operating expenses increased to $145,440 for the three months ended
June 30, 2019 from $144,546 for the same period ended June 30, 2018.
Our operating expenses for the three months ended June 30, 2019
consisted mainly of salaries and wages of $87,942, audit and accounting of $9,610, rent of $15,673 and amortization of $9,727.
In comparison, our operating expenses for the three months ended June 30, 2018 consisted mainly of salaries and wages of $86,442,
accounting and audit fees of $8,260, rent of $13,720, and amortization expenses of $9,474 and legal fees of $6,255.
Other Income/Expenses
We had other expenses of $456,215 for the three months ended June
30, 2019, compared with other income of $265,355 for the three months ended June 30, 2018.
Our other expenses for the three months ended June 30, 2019 consisting
primarily of $203,217 in interest expense, and loss on extinguishment of debts of $247,998, compared with the three months ended
June 30, 2018 which consisted primarily of $265,355 in interest expense.
We expect to continue to experience high interest payments in the
future as a result of our outstanding liabilities. Moreover, as of the date of this report, there are a number of secured promissory
notes with an aggregate principal amount of approximately $796,000 that have matured. In addition, we also have a number of unsecured
promissory notes with an aggregate principal amount of $43,000 that have matured. If we are unable to generate sufficient revenues
and/or additional financing to service this debt, there is a risk the lenders will call the notes, secure our assets, as to those
applicable secured notes, and demand payment. If this happens, we could go out of business.
Net Income/Net Loss
We recorded a net loss of $595,511 for the three months ended June
30, 2019, as compared with net loss of $396,664 for the three months ended June 30, 2018.
Results of Operations for the Six Months Ended June 30, 2019
and 2018
Revenues
Our revenue from product sales, royalties on patent licenses and
license fees (product development fees) for the six months ended June 30, 2019 was $21,084, a decrease from $37,916 for the same
period ended June 30, 2018.
The decrease in revenue for the six months ended June 30, 2019 was
mainly due to decreased product sales. We hope to achieve increased revenues for the balance of 2019 and into 2020, as a result
of our planned Merger Agreement with Quoin Pharmaceuticals, Inc.
Cost of Revenues
Our cost of revenues for the six months ended June 30, 2019 decreased
to $6,949 from the prior year period when cost of revenues was $16,920.
Our cost of revenues decreased for the six months ended June 30,
2019 over the prior year period because the revenues in 2019 were mainly royalty payments without significant costs associated.
We expect our cost of revenues to increase, especially if the Merger is consummated, and as we continue to push sales from Kintari
USA and Canada.
Gross Profit
Gross profit for the six months ended June 30, 2019 was $14,135,
as compared with gross profit of $20,996 for the six months ended June 30, 2018.
Operating Expenses
Operating expenses increased to $299,523 for the six months ended
June 30, 2019 from $326,871 for the same period ended June 30, 2018.
Our operating expenses for the six months ended June 30, 2019 consisted
mainly of salaries and wages of $175,885, audit and accounting of $32,242, rent of $29,709, insurance of $9,236 and amortization
and depreciation of $19,630. In comparison, our operating expenses for the six months ended June 30, 2018 consisted mainly of salaries
and wages of $162,984, accounting and audit fees of $41,141, rent of $21,275, and amortization and depreciation expenses of $28,278,
insurance of $10,332 and legal fees of $14,746.
Other Income/Expenses
We had other expenses of $640,722 for the six months ended June
30, 2019, compared with other income of $5,741 for the six months ended June 30, 2018.
Our other expenses for the six months ended June 30, 2019 consisting
primarily of $405,224 in interest expense, and loss on extinguishment of debts of $247,998, compared with the six months ended
June 30, 2018 which consisted primarily of $595,127 as a result of a gain on the sale of Ovation Science, offset mainly by $545,585
in interest expense and loss on extinguishment of debts of $26,798.
Net Income/Net Loss
We recorded a net loss of $926,110 for the six months ended June
30, 2019, as compared with a net loss of $300,134 for the six months ended June 30, 2018.
Liquidity and Capital Resources
As of June 30, 2019, we had total current assets of $27,573 and
total assets in the amount of $211,147. Our total current liabilities as of June 30, 2019 were $2,442,293. We had a working capital
deficit of $2,414,720 as of June 30, 2019, compared with a working capital deficit of $4,898,300 as of June 30, 2018.
Operating activities used $49,402 in cash for the six months ended
June 30, 2019, as compared with $5,902 of cash used for the six months ended June 30, 2018. Our negative operating cash flow for
the six months ended June 30, 2019 is mainly the result of our net loss for the period, offset by amortization of debt discount
and an increase in accrued interest and accounts payable and accrued liabilities.
We used cash of $24,319 and $9,896 in investing activities for the
six months ended June 30, 2019 and 2018, respectively.
Cash flows provided by financing activities during the six months
ended June 30, 2019 amounted to $71,239, as compared with cash used of $5,000 for the six months ended June 30, 2019. Our cash
flows for the six months ended June 30, 2019 consisted of proceeds from related party loans.
The features of the debt instruments and payables concerning our
financing activities are detailed in the footnotes to our financial statements.
Based upon our current financial condition, we do not have sufficient
cash to operate our business at the current level for the next twelve months. We intend to fund operations through increased sales
and debt and/or equity financing arrangements, which may be insufficient to fund expenditures or other cash requirements. We plan
to seek additional financing in a private equity offering to secure funding for operations. There can be no assurance that we will
be successful in raising additional funding. If we are not able to secure additional funding, the implementation of our business
plan will be impaired. There can be no assurance that such additional financing will be available to us on acceptable terms or
at all.
Going concern
– The accompanying financial statements
have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. We have incurred cumulative net losses of $32,476,775 since our inception and require capital for
our contemplated operational and marketing activities to take place. Our ability to raise additional capital through the future
issuances of common stock is unknown. The obtainment of additional financing, the successful development of our contemplated plan
of operations, and our transition, ultimately, to the attainment of profitable operations are necessary for us to continue operations.
The ability to successfully resolve these factors raise substantial doubt about our ability to continue as a going concern. These
consolidated financial statements do not include any adjustments that may result from the outcome of these aforementioned uncertainties.
Off Balance Sheet Arrangements
As of June 30, 2019, there were no off balance sheet arrangements.
Critical Accounting Policies
In December 2001, the SEC requested that all registrants list their
most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical
accounting policy” is one which is both important to the portrayal of a company’s financial condition and results,
and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain.
Product sales –
The Company recognizes revenue related
to product sales (Invisicare® polymers) when (i) the seller’s price is substantially fixed, (ii) shipment has occurred
causing the buyer to be obligated to pay for product, (iii) the buyer has economic substance apart from the seller, and (iv) there
is no significant obligation for future performance to directly bring about the resale of the product by the buyer as required
by ASC 605 – Revenue Recognition. Cost of sales, rebates and discounts are recorded at the time of revenue recognition or
at each financial reporting date.
Royalty, Distribution and license rights sales -
The Company
receives revenue from license payments based on net sales from licensees related to the Company’s patented intellectual property.
These license agreements are held with third parties that are responsible for remitting payment to the Company based upon a percentage
of sales revenues they collect on products that utilize the Company’s patented products. Revenue from licensed products is
recognized when realized or realizable based on royalty reporting received from licensees.
Distribution and license rights sales –
We also recognize
revenue from distribution and license rights only when earned (and are amortized over a five year period), with no further contingencies
or material performance obligations are warranted, and thereby have earned the right to receive and retain reasonably assured payments.
Costs of Revenue –
Cost of revenue includes raw materials,
component parts, and shipping supplies. Shipping and handling costs is not a significant portion of the cost of revenue.
Accounts Receivable –
Accounts receivable is comprised
of uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. The
carrying amount of accounts receivable is reviewed periodically for collectability. If management determines that collection is
unlikely, an allowance that reflects management’s best estimate of the amounts that will not be collected is recorded. Management
reviews each accounts receivable balance that exceeds 30 days from the invoice date and, based on an assessment of creditworthiness,
estimates the portion, if any, of the balance that will not be collected. As of June 30, 2019, the Company had not recorded a reserve
for doubtful accounts.
Recently Issued Accounting Pronouncements
We do not expect the adoption of recently issued accounting pronouncements
to have a significant impact on our results of operations, financial position or cash flow.