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 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 at the time 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
audited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the
United States of America and with the instructions to Annual Report on Form 10-K and Article 10 of Regulation S-X.. In the opinion
of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position
and the results of operations for the period presented have been reflected herein.
Going
concern – The
accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business. The Company has incurred cumulative net losses of $33,252,796
since its inception and requires capital for its contemplated operational and marketing activities to take place. Managements plans
for the Company are to generate the necessary funding through licensing of its core products
and to seek additional debt and equity funding but the Company’s ability to generate the necessary funds through licensing
or 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. These factors, among others, raises 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 subsidiary Skinvisible Pharmaceuticals Inc.
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 $1,298 and $2,482 in cash as of December 31, 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.
As of December 31, 2019 and December 31, 2018,
the Company had $10,204 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 December 31, 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 years ended December 31, 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 year ending December 31, 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 25,317,929 additional shares issuable in connection
with outstanding options, warrants, stock payable and convertible debts as of December 31, 2019. The shares issuable under each
instrument is as follows; 100,000 shares issuable for options, 72,000 shares issuable for warrants, 59,602 shares issuable for
shares payable and 25,086,327 shares issuable under convertible notes.
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
year ending December 31, 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
December 31, 2019 and December 31, 2018:
|
|
December 31, 2019
|
|
December 31, 2018
|
|
|
|
|
|
Machinery and equipment
|
|
$
|
—
|
|
|
$
|
48,163
|
Furniture and fixtures
|
|
|
—
|
|
|
|
113,635
|
Computers, equipment and software
|
|
|
—
|
|
|
|
39,722
|
Leasehold improvements
|
|
|
—
|
|
|
|
12,569
|
Lab equipment
|
|
|
—
|
|
|
|
113,461
|
Total
|
|
|
—
|
|
|
|
327,550
|
Less: accumulated depreciation
|
|
|
—
|
|
|
|
(327,432
|
Fixed assets, net of accumulated depreciation
|
|
$
|
—
|
|
|
$
|
118
|
Depreciation expense for the years ended December
31, 2019 and 2018 was $118 and $241, respectively.
During the year ended December 31, 2019, the
Company sold furniture, fixtures and lab equipment to Ovation Science, a related party, 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.
All other fixed assets were disposed of prior to December 31, 2019
5. INVENTORY
Inventory consists of the following as of December 31,
2019 and December 31, 2018:
|
|
December 31, 2019
|
|
December 31, 2018
|
|
|
|
|
|
Shipping and Packing materials
|
|
$
|
—
|
|
|
$
|
8,611
|
Finished Goods
|
|
|
—
|
|
|
|
2,687
|
Raw Materials
|
|
|
—
|
|
|
|
6,119
|
Total
|
|
$
|
—
|
|
|
$
|
17,417
|
The Company wrote off $10,265 in inventory during the
year ending December 31, 2019.
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 December 31, 2019, intangible
assets total $698,800, net of $533,415 of accumulated amortization. As of December 31, 2018, intangible assets total $672,685,
net of $493,918 of accumulated amortization.
The Company capitalized $25,190 in patent cost during the
year ended December 31, 2019.
Amortization expense for the years ended December 31, 2019
and 2018 was $39,497 and $38,731, 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 December 31, 2019.
7. STOCK OPTIONS
AND WARRANTS
The following is a summary of option activity during the
nine months ended December 31, 2019.
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
Balance, December 31, 2018
|
|
|
161,000
|
|
|
$
|
1.50
|
|
|
|
|
|
|
|
|
Options granted and assumed
|
|
|
—
|
|
|
|
—
|
Options expired
|
|
|
(61,000
|
)
|
|
|
2.25
|
Options canceled
|
|
|
—
|
|
|
|
—
|
Options exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019
|
|
|
100,000
|
|
|
|
1. 51
|
As of December 31, 2019, all stock options outstanding
are exercisable.
Stock warrants -
The following is a summary of warrants activity
during the year ended December 31, 2018.
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
Balance, December 31, 2018
|
|
|
72,200
|
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
Warrants granted and assumed
|
|
|
—
|
|
|
|
—
|
Warrants expired
|
|
|
—
|
|
|
|
—
|
Warrants canceled
|
|
|
—
|
|
|
|
—
|
Warrants exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019
|
|
|
72,200
|
|
|
$
|
1.00
|
All warrants outstanding as of December 31,
2019 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. As of December 31, 2019 the Company
had issued 982,660 shares and had 42,059 shares remaining to be issued to the investors as a result of the transaction and has
a remaining stock payable of $52,574.
During the year ending December 31, 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 December 31, 2019 the Company had not yet issued
the shares and as a result of the transaction recorded a stock payable of $7,028.
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 December 31, 2019, $552,000 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 year ended December 31, 2019, $117,144 was advanced
by an officer.
As of December 31, 2019, $46,899 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.)
During the year ended December 31, 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. subleased office space from the Company
from February 2019 through July 2019.. During the year ended December 31, 2019 Ovation Science Inc. paid the Company $15,400 in
rent.
10. CONVERTIBLE NOTES PAYABLE
Convertible Notes Payable consists of the following:
|
|
December 31,
|
|
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 ivestors 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.
|
|
|
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 year ended ended December 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 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
|
|
|
(254,450
|
)
|
|
|
—
|
Total, net of unamortized discount
|
|
|
97,625
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
$
|
317,625
|
|
|
$
|
219,922
|
11. CONVERTIBLE
NOTES PAYABLE RELATED PARTY
Convertible Notes Payable Related Party consists of the following:
|
|
December 31, 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 year ended December 31, 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 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 associated with these notes has been accreted and charged to interest expenses as a financing expense in the amount of $308,274 during the year ended December 31, 2019.
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
|
|
|
(3,060,970
|
)
|
|
|
—
|
Total, net of unamortized discount
|
|
$
|
1,174,239
|
|
|
$
|
—
|
12. STOCKHOLDERS’
DEFICIT
The Company is authorized to issue 200,000,000
shares of $0.001 par value common stock. The Company had 4,471,746 and 2,896,689 issued and outstanding shares of common stock
as of December 31, 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 investor signed their respective agreement.
During the year
ending December 31, 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 December 31, 2019 the Company had issued
1,575,057 shares and had 68,097 shares remaining to be issued to the investors as a result of the settlement agreements and has
a remaining stock payable of $59,602.
13.
INCOME TAXES
The Company provides for income
taxes under FASB ASC 740, Accounting for Income Taxes. FASB ASC 740 requires the use of an asset and liability approach in
accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement
and tax bases of assets and liabilities and the tax rates in effect currently.
FASB ASC 740 requires the reduction
of deferred tax assets by a valuation allowance, if, based on the weight of available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized. In the Company’s opinion, it is uncertain whether they will
generate sufficient taxable income in the future to fully utilize the net deferred tax asset. Accordingly, a valuation allowance
equal to the deferred tax asset has been recorded. The total deferred tax asset is approximately $2.8 million as of December 31,
2019 which is calculated by multiplying a 21% estimated tax rate by the cumulative net operating loss (NOL) of approximately $13.2
million.
Due to the enactment of the Tax
Reform Act of 2017, we have calculated our deferred tax assets using an estimated corporate tax rate of 21%. US Tax codes and
laws may be subject to further reform or adjustment which may have a material impact to the Company’s deferred tax assets
and liabilities.
The Company will recognize
interest and penalties related to uncertain tax positions as a component of income tax expense. As of December 31, 2019, the
Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the
Company’s statement of operations.
The significant components of the
Company's deferred tax assets and liabilities as of December 31, 2019 and 2018 are as follows:
As of December
31,
|
|
2019
|
|
2018
|
Cumulative tax net operating losses (in millions)
|
|
$
|
13.2
|
|
|
$
|
12.7
|
|
|
|
|
|
|
|
|
Deferred tax asset (in millions)
|
|
$
|
2.8
|
|
|
$
|
2.7
|
Valuation allowance (in millions)
|
|
|
(2.8
|
)
|
|
|
(2.7)
|
Current taxes payable
|
|
|
—
|
|
|
|
—
|
Income tax expense
|
|
$
|
—
|
|
|
$
|
—
|
As of
December 31, 2019, and 2018, the Company had gross federal net operating loss carryforwards of approximately $13.2 million and
$12.7 million, respectively.
The Company
plans to file its U.S. federal return for the year ended December 31, 2019 upon the issuance of this filing. Upon filing of the
tax return for the year ended December 31, 2019 the actual deferred tax asset and associated valuation allowance available to
the Company may differ from management’s estimates. The tax years 2016-2018 remained open to examination for federal income
tax purposes by the major tax jurisdictions to which the Company is subject. No tax returns are currently under examination by
any tax authorities.
14. COMMITMENTS
AND CONTINGENCIES
Lease obligations – The Company
has satisfied all lease obligations and has no future lease obligations.
Rental expense, resulting from operating lease
agreements, approximated $29,810 and $54,688 for the years ended December 31, 2019 and 2018, respectively.
COVID-19
Due to the COVID-19 pandemic, there has been
uncertainty and disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstance
that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as
of the date of issuance of this Annual Report on Form 10-K. These estimates could change in the future, as new events occur, or
additional information is obtained.
15. 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 parties decided to be responsible for their own costs and the Termination Agreement
specifically voids any break-up fee.
On October 17, 2019, Skinvisible entered a
Exclusive License Agreement 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 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 terminated, 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. No payments were made by Quoin
and the agreement was terminated. Both Parties subsequently determined that they continue to see the value in a partnership and
therefore on May 8, 2020 the companies agreed to extend the Exclusive License Agreement under the same terms to expire now on July
31, 2020.
16. SUBSEQUENT
EVENTS
License
Agreement with Ovation Science for DermSafe hand
sanitizer
On February 3, 2020, we entered into a License
Agreement with Ovation Science Inc., a related party, pursuant to which Skinvisible granted to Ovation Science Inc. a license for
the manufacture and distribution rights to its hand sanitizer product, DermSafe. In exchange for the license, Ovation Science Inc.
agreed to pay to Skinvisible a single digit royalty interest on all net sales on the licensed products subject to adjustment in
certain situations plus a license fee payable in year
3 of the agreement if it chooses to continue the license.