Our consolidated financial statements included in this Form 10-Q
are as follows:
These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions
to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating
results for the interim period ended March 31, 2022 are not necessarily indicative of the results that can be expected for the full year.
See
Accompanying Notes to Condensed Consolidated Financial Statements.
See
Accompanying Notes to Condensed Consolidated Financial Statements.
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
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.
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 March 31, 2022. 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, 2021 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. For the three months ended March 31, 2022, the Company
had a net loss of $214,519 The Company has also incurred cumulative net losses of $35,987,680 since its inception and requires capital
for its contemplated operational and marketing activities to take place. These factors, among others, raises substantial doubt about
the Company’s ability to continue as a going concern within one year from the date of filing.
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. However, 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. 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.
Fair Value of financial instruments
The
carrying value of cash, accounts payable and accrued expenses, and debt 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.
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) identify 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.
Product sales –
Revenues from the sale of products (Invisicare® polymers) are recognized when title to the products are transferred to the customer
and only when no further contingencies or material performance obligations are warranted, and thereby have earned the right to receive
reasonably assured payments for products sold and delivered.
Royalty sales –
We also recognize royalty revenue from licensing our patented product formulations only when earned, with no further contingencies or
material performance obligations are warranted, and thereby have earned the right to receive and retain reasonably assured payments.
Distribution and license
rights sales – We also recognize revenue from distribution and license rights when no further contingencies or material
performance obligations are warranted, and thereby have earned the right to receive and retain reasonably assured payments.
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 March 31, 2022 and December 31, 2021, the Company had not recorded
a reserve for doubtful accounts.
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.
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.
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, 2021, 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 23,631,820
additional shares issuable in connection with outstanding options, warrants, stock payable and convertible debts as of March 31, 2022.
The shares issuable under each instrument is as follows; 22,000 shares issuable for options and 23,609,820 shares issuable under convertible
notes.
Recently issued accounting pronouncements
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. 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 March 31, 2022, intangible
assets total $148,462, net of $134,129 of accumulated amortization. As of December 31, 2021, intangible assets total $153,055, net of
$129,536 of accumulated amortization.
mortization expense for the three months ended March 31, 2022
and 2021 was $4,593 and $4,251, 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 March 31, 2022.
5. RELATED PARTY TRANSACTIONS
During the three months ended March 31, 2022 and 2021, $0 and
$0 was advanced by an officer and $0 and $7,116 was repaid, respectively .
As of March 31, 2022 and December 31, 2021, $27,299 and $27,299
in advances remained due to officers of the company, respectively. All other related party notes have been extinguished or re-negotiated
as convertible notes. (See note 9 for additional details.)
Convertible Notes Related Party
|
|
|
|
|
|
|
|
Convertible Notes Payable Related Party consists of the following: |
|
March 31, 2022 |
|
December 31, 2021 |
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 convertible 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 $105,590 during the year ended March 31, 2022 and 2021, respectively. |
|
$ |
4,220,209 |
|
|
$ |
4,220,209 |
Unamortized debt discount |
|
|
(1,685,455 |
) |
|
|
(1,837,918) |
Total, net of unamortized discount |
|
$ |
2,534,754 |
|
|
$ |
2,382,291 |
6. NOTES PAYABLE
Secured debt offering
During the period from May 22, 2013 and December
31, 2018, the Company entered into a 9% notes payable to nineteen investors and received proceeds of $552,000. The notes were due two
years from the anniversary date of execution. The Notes are secured by the US Patent rights granted for the Company's Sunscreen Products:
US patent number #8,128,913: "Sunscreen Composition with Enhanced UV-A Absorber Stability and Methods.”
As of March 31, 2022, $433,600 of the outstanding
notes payable are past due and in default and have been classified as current notes payable.
7. CONVERTIBLE
NOTES PAYABLE
|
|
|
|
|
|
|
|
Convertible Notes Payable consists of the following: |
|
March 31, |
|
December 31, |
|
|
2022 |
|
2021 |
$40,000 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 Women’s Choice Pharmaceuticals, LLC on its proprietary prescription product, ProCort®. The notes have reached maturity and are now in default, under the notes default provisions the entire balance is now due upon demand. |
|
|
40,000 |
|
|
|
40,000 |
Original issue discount |
|
|
— |
|
|
|
— |
Unamortized debt discount |
|
|
— |
|
|
|
— |
Total, net of unamortized discount |
|
|
40,000 |
|
|
|
40,000 |
|
|
|
|
|
|
|
|
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 convertible 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 as valued under the intrinsic value method. The aggregate beneficial conversion
feature has been accreted and charged to interest expenses in the amount of $12,534 and $12,534 for the three months ended March 31, 2022
and 2011, respectively. |
|
|
352,075 |
|
|
|
352,075 |
Unamortized debt discount |
|
|
(140,102 |
) |
|
|
(152,642) |
Total, net of unamortized discount |
|
|
251,967 |
|
|
|
239,433 |
Current portion: |
|
|
40,000 |
|
|
|
40,000 |
Total long-term convertible notes |
|
$ |
211,967 |
|
|
$ |
199,433 |
8. STOCK OPTIONS AND
WARRANTS
The following is a summary of option activity during the three
months ended March 31, 2022.
| |
Number of Shares | |
Weighted Average Exercise Price |
Balance, December 31, 2021 | |
| 30,000 | | |
| 1.51 |
| |
| | | |
| |
Options granted and assumed | |
| — | | |
| — |
Options expired | |
| — | | |
| — |
Options canceled | |
| (8,000 | ) | |
| — |
Options exercised | |
| — | | |
| — |
| |
| | | |
| |
Balance, March 31, 2022 | |
| 22,000 | | |
| 1.52 |
As of March 31, 2022, all stock options outstanding are exercisable.
9. COMMITMENTS AND CONTINGENCIES
License Agreement
On
October 17, 2019, Skinvisible entered an 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 royalty percentage on 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 is subject to termination, 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 on December 31, 2019.
Both Parties subsequently determined that they continue to see the value in a partnership and therefore on May 8, 2020 and again on July
31, 2020 the companies agreed to extend the Exclusive License Agreement, as amended under the same terms to expire on September 30, 2020 and
on January 27, 2021 the companies agreed to revise the milestone payments due under the agreement and to extend the agreement indefinitely.
On
June 14, 2021, the Company entered into an amendment to change the terms of the license Fee as shown below.
As
partial consideration for the rights conveyed by Skinvisible under this Agreement, Licensee agrees to pay to Skinvisible a one-time, non-refundable,
non-creditable license issue fee of one million USD dollars (USO $1,000,000) (''License Fee''). To date, Licensee has paid three hundred
ninety-two thousand five hundred US dollars (USD $392,500) of this fee as part of the First Half Payment of the License Fee, $125,000
of which was paid in the year ending December 31, 2020 and $375,000 in the nine months ended September 30, 2021. The balance due of the
First Half Payment is one hundred seven thousand five hundred US dollars (USD $107,500) which was received on July 7, 2021. A further
payment of two hundred and fifty thousand dollars ($250,000) is due no later than ten (10) business days after receipt by Licensee of
additional funding from Altium Capital which coincides with the approval from the SEC on Quoin’s merger with a NASDAQ listed company.
On October 28, 2021 Quoin completed a merger with Cellect Biotechnology, Ltd. And completed a securities purchase agreement with Altium
Capital. The remaining balance of two hundred and fifty thousand dollars ($200,000) is still outstanding as of March 31, 2022.
As
of March 31, 2022, the Company has recognized $800,000 under the agreement including $50,000 during the quarter ended
March 31, 2022. The balance of licensing fee was paid on May 10, 2022 ( See note 11)
On
February 3, 2020, we entered into a License Agreement with Ovation Science Inc. 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 royalty percentage 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. On June 10, 2020, the agreement
was further amended to provide additional assignment rights for its hand sanitizer products in exchange for $100,000.
10. STOCKHOLDERS’
DEFICIT
The Company is authorized to issue 200,000,000 shares
of $0.001 par value common stock. The Company had 4,539,843 and 4,539,843 issued and outstanding shares of common stock as of March 31,
2022 and December 31, 2021, respectively.
11. SUBSEQUENT EVENTS
On May 10, 2022, the Company received the final payment of $200,000
due under the Exclusive License Agreement with Quoin.