UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
   
  For the quarterly period ended September 30, 2019
   
[  ] Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
   
  For the transition period from __________  to __________
   
  Commission File Number: 000-25911

 

Skinvisible, Inc.

(Exact name of Registrant as specified in its charter)

 

Nevada 88-0344219
(State or other jurisdiction of incorporation or organization)  (IRS Employer Identification No.)

 

6320 South Sandhill Road, Suite 10, Las Vegas, NV 89120
(Address of principal executive offices)

 

702.433.7154
(Registrant’s telephone number)
 
 _______________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days [X] Yes [ ] No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

[  ] Large accelerated filer [  ] Accelerated filer
[  ] Non-accelerated filer [X] Smaller reporting company
  [  ] Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

 

Securities registered pursuant to Section 12(b) of the Act: None

 

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 2,896,689 common shares as of November 15, 2019.

 

   

 

 

  TABLE OF CONTENTS

 

Page

 

PART I – FINANCIAL INFORMATION

 

Item 1: Financial Statements 3
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 4
Item 3: Quantitative and Qualitative Disclosures About Market Risk 11
Item 4: Controls and Procedures 11

 

PART II – OTHER INFORMATION

 

Item 1: Legal Proceedings 12
Item 1A: Risk Factors 12
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 12
Item 3: Defaults Upon Senior Securities 12
Item 4: Mine Safety Disclosure 12
Item 5: Other Information 12

 

 

  2  

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Our consolidated financial statements included in this Form 10-Q are as follows: 

 

F-1   Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 (unaudited);

 

F-2  

Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018 (unaudited);   

   

F-3

Consolidated Statements of Stockholders’ Deficit for the three and nine months ended September 30, 2019 and 2018 (unaudited)

 

F-4   Consolidated Statements of Cash Flow for the nine months ended September 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 September 30, 2019 are not necessarily indicative of the results that can be expected for the full year.

 

  3  

 

SKINVISIBLE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

    September 30, 2019   December 31, 2018
    (Unaudited)    
ASSETS        
Current assets              
Cash   $ 10,830     $ 2,482
Accounts receivable     9,449       8,459
Inventory     10,265       17,417
Due from related party     1,145       1,145
Prepaid expense and other current assets     3,000       12,000
Total current assets     34,689       41,503
               
Fixed assets, net of accumulated depreciation of $87,574 and $327,432, respectively     —         118
Intangible and other assets:              
Patents and trademarks, net of accumulated amortization of $523,421 and $493,918, respectively     173,389       178,767
               
Total assets   $ 208,078     $ 220,388
               . 
LIABILITIES AND STOCKHOLDERS' DEFICIT              
Current liabilities              
Accounts payable and accrued liabilities   $ 502,061     $ 944,380
Accounts payable related party     3,565       10,490
Accrued interest payable     362,027       1,169,293
Loans from related party     39,399       40,000
Loans payable     556,000       633,000
Convertible notes payable, net of unamortized debt discount of $267,263 and $78, respectively     304,812       219,922
Convertible notes payable related party, net of unamortized discount of $3,215,107 and $765,825 respectively     1,020,102       1,922,718
Total current liabilities     2,787,966       4,939,803
               
Total liabilities     2,787,966       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 September 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     (32,825,517 )     (31,550,665
Total stockholders' deficit     (2,579,888 )     (4,719,415)
               
Total liabilities and stockholders' deficit   $ 208,078     $ 220,388

 

See Accompanying Notes to Consolidated Financial Statements.

 

  F-1  

 

SKINVISIBLE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

    Three Months Ended   Nine Months Ended
    September 30, 2019   September 30, 2018   September 30, 2019   September 30, 2018
                 
Revenues   $ 11,295     $ 18,675     $ 32,379     $ 56,591
                               
Cost of revenues     250       3,550       7,199       20,470
                               
Gross profit     11,045       15,125       25,180       36,121
                               
Operating expenses                              
Depreciation and amortization     10,185       9,983       29,815       29,147
Selling general and administrative     137,785       143,778       417,678       451,485
Total operating expenses     147,970       153,761       447,493       480,632
                               
Loss from operations     (136,925 )     (138,636 )     (422,313 )     (444,511)
                               
Other income and (expense)                              
Other income - related party     93,192       —         105,692       4,807
Interest expense     (305,009 )     (251,417 )     (710,233 )     (797,002)
Gain on sale of Ovation Science Inc.     —         —         —         595,127
Loss on equity method investment     —         —         —         (21,810)
Net gain (loss) on extinguishment of debt     —         1,026,156       (247,998 )     999,358
Total other income (expense)     (211,817 )     774,739       (852,539 )     780,480
                               
Net income (loss)   $ (348,742 )   $ 636,103     $ (1,274,852 )   $ 335,969
                               
Basic income (loss) per common share   $ (0.12 )   $ 0.22     $ (0.44 )   $ 0.12
                               
Fully diluted income (loss) per common share   $ (0.12 )   $ 0.02     $ (0.44 )   $ 0.01
                               
Basic weighted average common shares outstanding      2,896,689       2,896,618       2,896,689       2,863,094
                               
Fully diluted weighted average common shares outstanding     2,896,689       30,125,025       2,896,689       30,091,501

  

See Accompanying Notes to Consolidated Financial Statements.

 

  F-2  

  

SKINVISIBLE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(UNAUDITED)

 

For the Three and Nine months Ended September 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
 Discount on convertible notes     —         —         3,649,320       —         —         3,649,320
 Debt modification     —         —         (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)
 Net loss     —         —         —         —         (348,742 )     (348,742)
 Balance, September 30, 2019 (unaudited)     2,896,689       2,897       28,182,238       2,060,494       (32,825,517 )     (2,579,888)

 

 

 

 

 

For the Three and Nine months Ended September 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
 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 income     —         —         —         —         (396,664 )     (396,664)
 Balance, June 30, 2018 (unaudited)     2,896,618       2,896       24,774,888       —         (32,009,141 )     (7,231,357)
 Settlement of debts     —         —         —         1,519,963       —         1,519,963
 Net income     —         —         —         —         636,103       636,103
 Balance, September 30, 2018 (unaudited)     2,896,618       2,896       24,774,888       1,519,963       (31,373,038 )     (5,075,291)

 

 

See Accompanying Notes to Consolidated Financial Statements.

 

  F-3  

 

SKINVISIBLE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

    Nine Months Ended
    September 30, 2019   September 30, 2018
         
Cash flows from operating activities:              
Net Income (loss)   (1,274,852 )   $ 335,969
Adjustments to reconcile net income (loss) to net cash provided by operating activities:              
Depreciation and amortization     29,816       29,146
Gain on sale of Ovation Science Inc.     —         (595,127)
Amortization of debt discount     690,886       368,696
Loss on equity method investment     —         21,810
Imputed interest on Ovation Science loan     —         4,807
(Gain) loss on extinguishment of debt     (48,546 )      (999,358)
Changes in operating assets and liabilities:              
Decrease in inventory     7,152       8,374
Decrease in prepaid assets     9,000       7,500
Increase in accounts receivable     (990 )     (1,496)
Increase in accounts payable and accrued liabilities     253,768       267,411
Decrease in due from related party     —         291
Decrease in promissory note from Ovation Science Inc.     —         245,193
Increase in accrued interest     278,216       316,647
Net cash provided by (used in) operating activities     (41,976 )      9,863
               
Cash flows from investing activities:              
Purchase of fixed and intangible assets     (24,320 )     (9,896)
Net cash used in investing activities     (24,320 )     (9,896)
               
Cash flows from financing activities:              
Proceeds from related party loans, net of payments     109,644       (10,000)
Payments on notes payable     (35,000 )     (5,000)
Net cash provided by (used in) financing activities     74,644       (15,000)
               
Net change in cash     8,348       (15,033)
               
Cash, beginning of period     2,482       23,318
               
Cash, end of period   $ 10,830     $ 8,285
               
Supplemental disclosure of cash flow information:              
Cash paid for interest   $ 17,088     $ 102,187
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     $ —  
Common stock issued on extinguishment of debts   $ —       $ 1,519,963
Common stock payable on extinguishment of debts   $ 42,000     $ 74,486

 

See Accompanying Notes to Consolidated Financial Statements.

 

  F-4  

 

SKINVISIBLE, INC.

NOTES TO CONDENSED 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 Kintari 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 are sold via network marketing.

 

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.

 

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 for interim financial information and with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X , 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 $32,825,517 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.

 

  F-5  

 

 

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, impairments and estimations of long-lived assets, 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 $10,830 and $2,482 in cash as of September 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  convertible debt is also stated at a fair value of $4,807,284 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.

 

  F-6  

 

 As of September 30, 2019 and December 31, 2018, the Company had $9,449 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 September 30, 2019, the Company had not recorded a reserve for doubtful accounts.

 

Inventory – Substantially all inventory consists of packing materials  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.

 

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, 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.  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 nine months ended September 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.. Diluted earnings (loss) per share has not been presented for the three and nine months ending September 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. There are 27,228,407 additional shares issuable in connection with outstanding options, warrants, stock payable and convertible debts as of September 30, 2019.

 

  F-7  

 

 

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 nine months ending September 30, 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 September 30, 2019 and December 31, 2018:

 

    September 30, 2019   December 31, 2018
      (Unaudited)        
Machinery and equipment   $ 48,163     $ 48,163
Furniture and fixtures     535       113,635
Computers, equipment and software     14,818       39,722
Leasehold improvements     12,569       12,569
Lab equipment     11,489       113,461
 Total     87,574       327,550
Less: accumulated depreciation     (87,574 )     (327,432)
Fixed assets, net of accumulated depreciation   $ —       $ 118

 

 

Depreciation expense for the three months ended September 30, 2019 and 2018 was $0 and $59, respectively.

 

Depreciation expense for the nine months ended September 30, 2019 and 2018 was $118 and $182, respectively.

 

During the nine months ended September 30, 2019, the Company sold furniture, fixtures and equipment to Ovation Science for $75,000, the assets had been fully depreciated by the Company in prior years and the Company recorded a gain from related party of $75,000 as a result of the sale.

 

5.       INVENTORY

 

Inventory consist of the following as of September 30, 2019 and December 31, 2018:

 

    September 30, 2019   December 31, 2018
      (Unaudited)        
Shipping and Packing materials   $ 8,584     $ 8,611
Finished Goods     1,682       2,687
Raw Materials     —         6,119
 Total   $ 10,265     $ 17,417

 

  F-8  

 

 

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 September 30, 2019, intangible assets total $697,003, net of $523,614 of accumulated amortization.

 

The Company capitalized $24,318 in patent cost during the nine months ended September 30, 2019.

 

Amortization expense for the three months ended September 30, 2019 and 2018 was $10,186 and $9,923, respectively.

 

Amortization expense for the nine months ended September 30, 2019 and 2018 was $29,698 and $28,964, respectively.

 

License and distributor rights 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 September 30, 2019.

 

7.       STOCK OPTIONS

 

The following is a summary of option activity during the nine months ended September 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, September 30, 2019     135,000     $ 1.76

 

 

As of September 30, 2019, all stock options outstanding are exercisable.

 

As of September 30, 2019, there were 72,000 stock warrants outstanding and exercisable with a weighted average exercise price of $1.18.

  F-9  

 

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 nine months ending September 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 September 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. The note was paid in full on September 20, 2019.

 

As of September 30, 2019, $556,000 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 nine months ended September 30, 2019, $109,644 was advanced by an officer.

 

As of September 30, 2019, $39,399 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.)

 

Ovation Science Inc. is a Company 16.5% owned by Terry Howlett our CEO and 16.5% owned by Doreen McMorran our Vice President. Mr. Howlett and Mrs. McMorran also serve as officers to Ovation Science Inc.

 

During the nine months ended September 30, 2019, the Company sold its polymer laboratory facility furniture, fixtures and equipment to Ovation Science for $75,000, the assets had been fully depreciated by the Company in prior years and the Company recorded a gain from related party of $75,000 as a result of the sale. The sale was approved by the board of directors and Mr. Howlett abstained from voting due to his relationship with Ovation science.

 

Ovation Science Inc. subleases office space from the Company on a month to month basis. The agreement terms subject to adjustment on a month to month basis. During the nine months ended September 30, 2019 Ovation Science Inc. paid the Company $30,692 in rent.

  F-10  

10.       CONVERTIBLE NOTES PAYABLE

 

Convertible Notes Payable consists of the following:   September 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. 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.

 

As of September 30, 2019 the Company had not yet issued the shares to the investors.

    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 nine months ended September 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 September 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 noteholder’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 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     (267,263 )     —  
Total, net of unamortized discount     84,812       —  
               
    $ 304,812     $ 219,922

  F-11  

 

 11.       CONVERTIBLE NOTES PAYABLE RELATED PARTY 

 

Convertible Notes Payable Related Party consists of the following:   September 30, 2019   December 31, 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 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 nine months ended September 30, 2019.
 
On September 30, 2019 all of the convertible notes payable were settled through the issuance of new convertible debts as described below and in Note 9. 		  $ —       $ 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 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     (3,215,107 )     —  
Total, net of unamortized discount   $ 1,020,102     $ —  

 

  F-12  

 

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 September 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 fair valued at $2,053,466. The Company fair valued the shares issuable on the date each investors signed their respective agreement. 

 

During the nine months ending September 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 fair valued at $7,028. 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 September 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 September 30, 2019, are as follows:

 

2019 $12,506

2020 $12,863

 

Rental expense, resulting from operating lease agreements, approximated $15,293 and $13,720 for the three months ended September 30, 2019 and 2018, respectively.

 

Rental expense, resulting from operating lease agreements, approximated $45,002 and $40,821 for the nine months ended September 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

  

As previously reported, on or about March 26, 2018, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Quoin Pharmaceuticals, Inc., a Delaware corporation (“Quoin”), and Quoin Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Parent (“Merger Sub”).

 

The Merger Agreement provided 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 Skinvisible.

 

On October 17, 2019, Skinvisible entered into a Termination and Release Agreement with Quoin to terminate the Merger Agreement and the aforementioned ancillary agreements and to release each other from liability. The Merger Agreement had a break-up fee of $300,000 payable by Skinvisible upon certain events. The parties decided to be responsible for their own costs and the Termination Agreement specifically voids the break-up fee.

 

  F-13  

 

 

15.       SUBSEQUENT EVENTS

 

In accordance with ASC Topic 855-10, the Company has analyzed its operations subsequent to September 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 other than disclosed below.

 

License agreement

 

On October 17, 2019, Skinvisible entered an Exclusive License Agreement in the ordinary course of business with Quoin pursuant to which Skinvisible granted to Quoin a license to certain patents for the development of products for commercial sale. In exchange for the license, Quoin agreed to pay to Skinvisible a license fee of $1,000,000 (the “License Fee”) and a single digit royalty interest of all net sales on the licensed products subject to adjustment in certain situations. The agreement also requires that Quoin make certain milestone payments to Skinvisible upon achieving regulatory approval milestones for certain drug products.

 

The agreement will terminate, if among other things, 50% of the license fee is not paid by December 31, 2019 and if the full License Fee is not paid by March 31, 2020.

 

  F-14  

 

 

Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

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

 

As previously reported, on or about March 26, 2018, Skinvisible, Inc. (“Parent” or “Skinvisible”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Quoin Pharmaceuticals, Inc., a Delaware corporation (“Quoin”), and Quoin Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Parent (“Merger Sub”).

 

The Merger Agreement provided 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 Skinvisible.

 

Concurrently with the entry into the Merger Agreement, Terry Howlett (Chief Executive Officer of Parent) and Doreen McMorran (Vice President, Business Development & Marketing of Parent) along with Michael Myers (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 Common Stock or certain other securities for a period of 180 days after the Closing of the Merger.

 

In addition, the Merger Agreement also provided that Quoin 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 Quoin, into cash or shares of Quoin Common Stock which are not subject to any contractual restrictions or vesting requirements.

 

Mr. Howlett and Ms. McMorran have also 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 favor of the approval of the Merger Agreement at the special meeting of the Parent’s shareholders called to approve the Merger Agreement.

 

On October 17, 2019, Skinvisible entered into a Termination and Release Agreement with Quoin to terminate the Merger Agreement and the aforementioned ancillary agreements and to release each other from liability. The Merger Agreement had a break-up fee of $300,000 payable by Skinvisible upon certain events. The parties decided to be responsible for their own costs and the Termination Agreement specifically voids the break-up fee.

 

On October 17, 2019, Skinvisible entered an Exclusive License Agreement in the ordinary course of business with Quoin pursuant to which Skinvisible granted to Quoin a license to certain patents for the development of products for commercial sale. In exchange for the license, Quoin agreed to pay to Skinvisible a license fee of $1,000,000 (the “License Fee”) and a single digit royalty interest of all net sales on the licensed products subject to adjustment in certain situations. The agreement also requires that Quoin make certain milestone payments to Skinvisible upon achieving regulatory approval milestones for certain drug products.

 

The agreement will terminate, among other things, 50% of the license fee is not paid by December 31, 2019 and if the full License Fee is not paid by March 31, 2020.

 

  4  

 

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 subsidiary Kintari USA 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

 

1. DermSafe®, our hand sanitizer formulated with Invisicare® and chlorhexidine gluconate (CHG) has been l has been approved for sale in Canada by Health Canada. DermSafe is an alcohol free hand sanitizer that protects against 99% of all germs. We are currently seeking licensees and/or distributors to begin the sale of DermSafe in Canada and internationally where approved.

  5  

 

2. Our sunscreen is a broad spectrum SPF 30. 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.

 

Capitalize On Current Licensees:

 

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.

 

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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 September 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 September 30, 2019 was $11,295, a decrease from $18,675 for the same period ended September 30, 2018.

 

The decrease in revenue for the three months ended September 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 License Agreement with Quoin Pharmaceuticals, Inc.

 

Cost of Revenues

 

Our cost of revenues for the three months ended September 30, 2019 decreased to $250 from the prior year period when cost of revenues was $3,550.

 

Our cost of revenues decreased for the three months ended September 30, 2019 over the prior year period because the revenues in 2019 were mainly royalty payments without significant costs associated.

 

Gross Profit

 

Gross profit for the three months ended September 30, 2019 was $11,045, as compared with gross profit of $15,125 for the three months ended September 30, 2018.

 

Operating Expenses

 

Operating expenses increased to $147,970 for the three months ended September 30, 2019 from $153,761 for the same period ended September 30, 2018.

 

Our operating expenses for the three months ended September 30, 2019 consisted mainly of salaries and wages of $87,942, audit and accounting of $9,610, rent of $15,292 and amortization of $10,185. In comparison, our operating expenses for the three months ended September 30, 2018 consisted mainly of salaries and wages of $86,442, accounting and audit fees of $14,185, rent of $13,720, and amortization expenses of $9,924.

 

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Other Income/Expenses

 

We had other expenses of $211,817 for the three months ended September 30, 2019, compared with other income of $774,739 for the three months ended September 30, 2018.

 

Our other expenses for the three months ended September 30, 2019 consisting primarily of $305,009 in interest expense, offset by other income from related party of $93,192, compared with the three months ended September 30, 2018 which consisted primarily of $251,417 in interest expense offset by a gain on extinguishment of debts of $1,026,156.

 

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 $766,000 that have matured. In addition, we also have a number of unsecured promissory notes with an aggregate principal amount of $10,000 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 $348,742 for the three months ended September 30, 2019, as compared with net income of $636,103 for the three months ended September 30, 2018.

 

Results of Operations for the Nine months Ended September 30, 2019 and 2018

 

Revenues

 

Our revenue from product sales, royalties on patent licenses and license fees (product development fees) for the nine months ended September 30, 2019 was $32,379, a decrease from $56,591 for the same period ended September 30, 2018.

 

The decrease in revenue for the nine months ended September 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 License Agreement with Quoin Pharmaceuticals, Inc.

 

Cost of Revenues

 

Our cost of revenues for the nine months ended September 30, 2019 decreased to $7,199 from the prior year period when cost of revenues was $20,470.

 

Our cost of revenues decreased for the nine months ended September 30, 2019 over the prior year period because the revenues in 2019 were mainly royalty payments without significant costs associated.

 

Gross Profit

 

Gross profit for the nine months ended September 30, 2019 was $25,180, as compared with gross profit of $36,121 for the nine months ended September 30, 2018.

 

Operating Expenses

 

Operating expenses decreased to $447,493 for the nine months ended September 30, 2019 from $480,632 for the same period ended September 30, 2018.

 

Our operating expenses for the nine months ended September 30, 2019 consisted mainly of salaries and wages of $263,827, audit and accounting of $41,852, rent of $45,002, insurance of $11,471 and amortization and depreciation of $29,815. In comparison, our operating expenses for the nine months ended September 30, 2018 consisted mainly of salaries and wages of $249,427, accounting and audit fees of $55,326, rent of $40,821, and amortization and depreciation expenses of $29,147, insurance of $11,843 and legal fees of $16,627.

 

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Other Income/Expenses

 

We had other expenses of $852,539 for the nine months ended September 30, 2019, compared with other income of $780,480 for the nine months ended September 30, 2018.

 

Our other expenses for the nine months ended September 30, 2019 consisting primarily of $710,233 in interest expense, and loss on extinguishment of debts of $247,998, offset by income related party of $105,692, compared with the nine months ended September 30, 2018 which consisted primarily of $595,127 as a result of a gain on the sale of Ovation Science Inc., gain on extinguishment of debts of $999,358 offset mainly by $797,002 in interest expense.

 

Net Income/Net Loss

 

We recorded a net loss of $1,274,852 for the nine months ended September 30, 2019, as compared with a net income of $335,969 for the nine months ended September 30, 2018.

Liquidity and Capital Resources

 

As of September 30, 2019, we had total current assets of $34,689 and total assets in the amount of $208,078. Our total current liabilities as of September 30, 2019 were $2,787,966. We had a working capital deficit of $2,753,277 as of September 30, 2019, compared with a working capital deficit of $5,262,387 as of September 30, 2018.

 

Operating activities provided $24 in cash for the nine months ended September 30, 2019, as compared with $9,863 of cash for the nine months ended September 30, 2018. Our operating cash flow for the nine months ended September 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 $24,320 and $9,896 in investing activities for the nine months ended September 30, 2019 and 2018, respectively.

 

Cash flows provided by financing activities during the nine months ended September 30, 2019 amounted to $32,644, as compared with cash used of $15,000 for the nine months ended September 30, 2019. Our cash flows for the nine months ended September 30, 2019 consisted of proceeds from related party loans offset by repayments on notes payable.

 

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.

 

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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 $32,825,517 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 September 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 September 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.

 

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Item 3.     Quantitative and Qualitative Disclosures About Market Risk

 

A smaller reporting company is not required to provide the information required by this Item.

 

Item 4.     Controls and Procedures

 

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2019. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2019, our disclosure controls and procedures were not effective due to the presence of material weaknesses in internal control over financial reporting.

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses which have caused management to conclude that, as of September 30, 2019, our disclosure controls and procedures were not effective: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.

 

Remediation Plan to Address the Material Weaknesses in Internal Control over Financial Reporting

 

Our company plans to take steps to enhance and improve the design of our internal controls over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes during our fiscal year ending December 31, 2020: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting during the nine months ended September 30, 2019 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.

 

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PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.

 

Item 1A. Risk Factors

 

See risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2018 filed on April 15, 2019.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None

 

Item 3. Defaults upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None

 

Item 6. Exhibits

 

Exhibit Number Description of Exhibit
31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101** The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 formatted in Extensible Business Reporting Language (XBRL).
**Provided herewith  

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  Skinvisible, Inc.
   
Date:  December 2,, 2019
   
 

By: /s/ Terry Howlett

Terry Howlett

Title:   Chief Executive Officer, Chief Financial Officer and Director

 

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