SKVI 10-Q
Skinvisible, Inc. (SKVI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
| Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
| For
the quarterly period ended | |
| Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934 | |
| For the transition period from __________ to __________ | |
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(Exact name of Registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
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| _______________________________________________________________ |
| (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
☒
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).
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 |
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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 ☐
State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: common shares as of August 9, 2021.
| 1 |
| 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 | 7 |
| Item 4: | Controls and Procedures | 7 |
PART II – OTHER INFORMATION
| ||
| Item 1: | Legal Proceedings | 8 |
| Item 1A: | Risk Factors | 8 |
| Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds | 8 |
| Item 3: | Defaults Upon Senior Securities | 8 |
| Item 4: | Mine Safety Disclosure | 8 |
| Item 5: | Other Information | 8 |
| Item 6: | Exhibits | 8 |
| 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 June 30, 2021 and December 31, 2020 (unaudited); |
| F-2 | Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020 (unaudited); |
| F-3 | Consolidated Statements of Stockholders’ Equity (Deficit) for the six months ended June 30, 2021 and 2020 (unaudited); |
| F-4 | Consolidated Statements of Cash Flow for the six months ended June 30, 2021 and 2020 (unaudited); |
| F-5 | Notes to Consolidated Financial Statements. |
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended June 30, 2021 are not necessarily indicative of the results that can be expected for the full year.
| 3 |
SKINVISIBLE, INC.
CONSOLIDATED BALANCE SHEETS
| June 30, 2021 | December 31, 2020 | ||||||
| (Unaudited) | |||||||
| ASSETS | . | ||||||
| Current assets | |||||||
| Cash | $ | $ | |||||
| Accounts receivable | |||||||
| Prepaid expense and other current assets | |||||||
| Total current assets | |||||||
| Patents and trademarks, net | |||||||
| Total assets | $ | $ | |||||
| . | |||||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | |||||||
| Current liabilities | |||||||
| Accounts payable and accrued liabilities | $ | $ | |||||
| Accounts payable related party | |||||||
| Accrued interest payable | |||||||
| Loans from related party | |||||||
| Loans payable | |||||||
| Convertible notes payable | |||||||
| Derivative liability | |||||||
| Total current liabilities | |||||||
| Convertible
notes payable related party, net of unamortized discount of $ | |||||||
| Convertible
notes payable, net of unamortized debt discount of $ | |||||||
| Total liabilities | |||||||
| Stockholders' deficit | |||||||
| Common stock; par value; shares authorized; shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively | |||||||
| Additional paid-in capital | |||||||
| Accumulated deficit | ( | ) | ( | ||||
| Total stockholders' deficit | ( | ) | ( | ||||
| Total liabilities and stockholders' deficit | $ | $ | |||||
See Accompanying Notes to Condensed Consolidated Financial Statements.
| F-1 |
SKINVISIBLE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended | Six months ended | ||||||||||||||
| June 30, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | ||||||||||||
| Revenues | $ | $ | $ | $ | |||||||||||
| Revenues related party | |||||||||||||||
| Cost of revenues | |||||||||||||||
| Gross profit | |||||||||||||||
| Operating expenses | |||||||||||||||
| Depreciation and amortization | |||||||||||||||
| Selling general and administrative | |||||||||||||||
| Total operating expenses | |||||||||||||||
| Income (loss) from operations | ( | ) | ( | ||||||||||||
| Other income and (expense) | |||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ||||||||
| Loss on change in derivative liability | ( | ) | ( | ) | |||||||||||
| Gain on settlement of debt | |||||||||||||||
| Total other expense | ( | ) | ( | ) | ( | ) | ( | ||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ||||
| Basic loss per common share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ||||
| Fully diluted loss per common share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ||||
| Basic weighted average common shares outstanding | |||||||||||||||
| Fully diluted weighted average common shares outstanding | |||||||||||||||
‘
See Accompanying Notes to Condensed Consolidated Financial Statements.
| F-2 |
SKINVISIBLE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(UNAUDITED)
| Common Stock | |||||||||||||||||||||||
| Shares | Amount | Additional Paid-in Capital | Shares Payable | Accumulated Deficit | Total Stockholders' Deficit | ||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ||||||||||||||||
| Net loss | ( | ) | ( | ||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ||||||||||||||||
| Derivative liability written off to APIC | |||||||||||||||||||||||
| Net loss | ( | ) | ( | ||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ||||||||||||||||
| Balance, December 31, 2019 | $ | $ | $ | ( | ) | $ | ( | ||||||||||||||||
| Net loss | ( | ) | ( | ||||||||||||||||||||
| Balance, March 31, 2020 | ( | ) | ( | ||||||||||||||||||||
| Net loss | ( | ) | ( | ||||||||||||||||||||
| Balance, June 30, 2020 | $ | $ | $ | ( | ) | $ | ( | ||||||||||||||||
See Accompanying Notes to Condensed Consolidated Financial Statements.
| F-3 |
SKINVISIBLE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Six months ended | |||||||
| June 30, 2021 | June 30, 2020 | ||||||
| Cash flows from operating activities: | |||||||
| Net loss | $ | ( | ) | $ | ( | ||
| Adjustments to reconcile net loss to net cash provided (used) by operating activities: | |||||||
| Depreciation and amortization | |||||||
| Amortization of debt discount | |||||||
| Gain on settlement of debt | |||||||
| Loss on change in derivative liability | |||||||
| Changes in operating assets and liabilities: | |||||||
| Decrease (Increase) in prepaid assets | ( | ) | ( | ||||
| Decrease (Increase) in accounts receivable | ( | ||||||
| Increase in accounts payable and accrued liabilities | |||||||
| Decrease in due from related party | ( | ) | |||||
| Increase in accrued interest | |||||||
| Net cash provided by operating activities | |||||||
| Cash flows from investing activities: | |||||||
| Purchase of fixed and intangible assets | ( | ) | ( | ||||
| Net cash used in investing activities | ( | ) | ( | ||||
| Cash flows from financing activities: | |||||||
| Payments on related party loans | ( | ) | ( | ||||
| Proceeds from related party loans | |||||||
| Payments on loans payable | ( | ) | |||||
| Payments on convertible notes payable | ( | ) | |||||
| Net cash provided by (used in) financing activities | ( | ) | |||||
| Net change in cash | |||||||
| Cash, beginning of period | |||||||
| Cash, end of period | $ | $ | |||||
| Supplemental disclosure of cash flow information: | |||||||
| Cash paid for interest | $ | $ | |||||
| Cash paid for tax | $ | $ | |||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |||||||
| Non-cash investing and financing activities: | |||||||
See Accompanying Notes to Condensed Consolidated Financial Statements.
| F-4 |
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
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
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, 2021. 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, 2020 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 six months ended June 30, 2021, the Company had a net loss of $
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.
COVID-19 Pandemic
In December 2019, an outbreak of a novel strain of coronavirus originated in Wuhan, China (“COVID-19”) and has since spread worldwide, including to the Unites States, posing public health risks that have reached pandemic proportions (the “COVID-19 Pandemic”). The COVID-19 Pandemic poses a threat to the health and economic wellbeing of our employees, customers and vendors. Like most businesses world-wide, the COVID-19 Pandemic has impacted the Company financially; however, management cannot presently predict the scope and severity with which COVID-19 will impact our business, financial condition, results of operations and cash flows.
| 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 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. The carrying amount of the Company’s convertible debt is also stated at a fair value of $
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. |
Financial assets and liabilities measured at fair value on a recurring basis are summarized below as of June 30, 2021:
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Liabilities | |||||||||||||||
| Derivative Financial Instruments | $ | $ | $ | $ | |||||||||||
As of June 30, 2021, the Company’s used the following assumptions to value the derivative liabilities using the for Binomial-Lattice valuation model. Stock price was $0.16, term 0.25 years, risk-free discount rate of 0.25% and volatility of 363.08%
The following table provides a summary of the changes in fair value, including net transfers in and/or out, of the derivative financial instruments, measured at fair value on a recurring basis using significant unobservable inputs:
| Amount | |||
| Balance December 31, 2020 | $ | ||
| Derivative reclassed to additional paid in capital | ( | ||
| Change in fair market value of derivative liabilities | |||
| Balance June 30, 2021 | $ | ||
| F-6 |
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. Revenue from royalty sales is recognized at the point of time in which sales occur which is determined by the receipt of royalty statements.
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. Revenue from distribution and license rights is recognized immediately meeting milestones and once the Company is reasonably assured of payment.
The Company has made an accounting policy election to exclude from the measurement of the transaction price all taxes assessed by governmental authorities that are collected by the Company from its customers (sales and use taxes, value added taxes, some excise taxes).
Accounts Receivable
Accounts receivable is comprised of uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. The carrying amount of accounts receivable is reviewed periodically for collectability. If management determines that collection is unlikely, an allowance that reflects management’s best estimate of the amounts that will not be collected is recorded. Management reviews each accounts receivable balance that exceeds 30 days from the invoice date and, based on an assessment of creditworthiness, estimates the portion, if any, of the balance that will not be collected. As of June 30, 2021 and December 31, 2020, 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.
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.
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, 2020, 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 additional shares issuable in connection with outstanding options, warrants, stock payable and convertible debts as of June 30, 2021. The shares issuable under each instrument is as follows; shares issuable for options, shares issuable for warrants, and shares issuable under convertible notes.
Recently issued accounting pronouncements
On Aug. 5, 2020, the FASB issued ASU 2020-06, “Debt – Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) which eliminated several legacy accounting models to simplify the accounting for convertible instruments. In addition, the ASU modified the derivative scope exception guidance to remove certain criteria and clarify others, which likely will result in more instruments being equity classified or having more embedded features remain embedded. ASU 2020-06 is effective for public companies during interim and annual reporting periods beginning after December 15, 2021.
| F-7 |
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 June 30, 2021,
intangible assets total $
Amortization expense for the six months ended
June 30, 2021 and 2020 was $
5. RELATED PARTY TRANSACTIONS
During the six months ended June 30, 2021
and 2020, $
As of June 30, 2021 and December 31, 2020,
$
Convertible Notes Related Party
| Convertible Notes Payable Related Party consists of the following: | June 30, 2021 | December 31, 2020 | |||||
| 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 $ The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be $ |
$ | $ | |||||
| Unamortized debt discount | ( |
) | ( | ||||
| Total, net of unamortized discount | $ | $ | |||||
| F-8 |
6. NOTES PAYABLE
Secured debt offering
During the period from May 22, 2013 and December
31, 2018, the Company entered into a
During the three months ended June 30, 2021,
the Company entered to settlement agreements to settle various notes. As part of the settlement the principal balance of the note was
settled for cash and all interest due through the date of settlement was forgiven. As of June 30, 2021, the Company has recorded a gain
on settlement of the debt of $
7. CONVERTIBLE NOTES PAYABLE
| Convertible Notes Payable consists of the following: | June 30, | December 31, | |||||
| 2021 | 2020 | ||||||
| $ |
|||||||
| Original issue discount | |||||||
| Unamortized debt discount | |||||||
| Total, net of unamortized discount | |||||||
| On October 26, 2015 the Company issued a $ |
|||||||
| Unamortized debt discount | |||||||
| Total, net of unamortized discount | |||||||
| On February 17, 2016, the Company entered into a convertible promissory note pursuant to which it borrowed $ |
|||||||
| Unamortized debt discount | |||||||
| Total, net of unamortized discount | |||||||
| F-9 |
| On August 11, 2016, the Company entered into a convertible promissory note pursuant to which it borrowed $ |
|||||||
| Unamortized debt discount | |||||||
| Total, net of unamortized discount | |||||||
| On January 27, 2017, the Company entered into a convertible promissory note pursuant to which it borrowed $ |
|||||||
| Unamortized debt discount | |||||||
| Total, net of unamortized discount | |||||||
| 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 $ The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be $ |
|||||||
| Unamortized debt discount | ( |
) | ( | ||||
| Total, net of unamortized discount |
| Total Convertible Notes | $ | $ | |||||
| Current portion: | |||||||
| Total long-term convertible notes | $ | $ |
| F-10 |
8. 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 $267,500 in the six months ended June 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, expected in September. The remaining balance of two hundred and fifty thousand dollars ($250,000) will be paid on December 31, 2021.
As of June 30, 2021the Company has recognized $392,500 under the agreement including $267,500 during the six months ended June 30, 2021. The balance of licensing fee has not yet been recognized as it is not yet probable that substantially all of the consideration will be collected.
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.
The following is a summary of option activity during the six months ended June 30, 2021.
| Number of Shares | Weighted Average Exercise Price | ||||||
| Balance, December 31, 2020 | |||||||
| Options granted and assumed | |||||||
| Options expired | ( | ) | |||||
| Options canceled | |||||||
| Options exercised | |||||||
| Balance, June 30, 2021 | |||||||
As of June 30, 2021, all stock options outstanding are exercisable.
Stock warrants -
The following is a summary of warrants activity during the year ended June 30, 2021.
| Number of Shares | Weighted Average Exercise Price | ||||||
| Balance, December 31, 2020 | $ | ||||||
| Warrants granted and assumed | |||||||
| Warrants expired | |||||||
| Warrants canceled | |||||||
| Warrants exercised | |||||||
| Balance, June 30, 2021 | $ | ||||||
As of June 30, 2021, all stock warrants outstanding are exercisable.
10. STOCKHOLDERS’ DEFICIT
The Company is authorized to issue shares of par value common stock. The Company had and issued and outstanding shares of common stock as of June 30, 2021 and December 31, 2020, respectively.
11. SUBSEQUENT EVENTS
In accordance with ASC Topic 855-10, the Company has analyzed its operations subsequent to June 30, 2021 to the date these financial statements were available to be issued and has determined that it does not have any material subsequent events to disclose in these financial statements.
| F-11 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements |
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
Overview
COVID-19
The full extent of the impact of the COVID-19 pandemic on our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict at the present time. In an effort to contain COVID-19 or slow its spread, governments around the world have enacted various measures, including orders to close all businesses not deemed “essential,” isolate residents to their homes or places of residence, and practice social distancing when engaging in essential activities. We anticipate that these actions and the global health crisis caused by COVID-19 will negatively impact business activity across the globe. While we have not observed any noticeable impact on our revenue related to these conditions in the past fiscal year, or through the date of this filing, we cannot estimate the impact COVID-19 will have in the future as business and consumer activity decelerates across the globe.
We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, customers, partners and stockholders. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, partners, or vendors, or on our financial results.
Recent Developments
On October 17, 2019, we entered an Exclusive License Agreement with Quoin Pharmaceuticals, Inc., a Delaware corporation (“Quoin”) pursuant to which we 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 us 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 us upon achieving regulatory approval milestones for certain drug products.
The agreement was 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. 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 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. 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. 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, expected in September. The remaining balance of two hundred and fifty thousand dollars ($250,000) will be paid on December 31, 2021.
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Additionally, the milestones in the initial agreement were changed as shown below:
(i) Successful completion of Phase 2 testing: $0
(ii) Successful completion of Phase 3 testing: $0
(iii) Regulatory approval in either 1· the US or EU, whichever happens first: $5,000,000
Results of Operations for the Three and Six Months Ended June 30, 2021 and 2020
Revenues
Our revenue, which we combine from product sales, royalties on patent licenses and license fees (product development fees), was $287,099 for the three months ended June 30, 2021, an increase from $119,970 for the same period ended June 30, 2020. Our revenue was $299,150 for the six months ended June 30, 2021, an increase from $136,022 for the same period ended June 30, 2020.
The revenue for both periods in 2021 was mainly from license fees with Quoin and the revenue for both periods in 2020 was mainly from license fees with Ovation. We hope to generate more revenues from our licenses with Quoin and Ovation for the rest of the year.
Gross Profit
We had $3,300 in cost of revenues for the six months ended June 30, 2021, no cost of revenues for the three months ended June 30, 2021, and no cost of revenues for the three and six months ended June 30, 2020, so our gross profit was $287,099 and $295,850 for the three and six months ended June 30, 2021, respectively, as compared with gross profit of $119,970 and $136,022 for the three and six months ended June 30, 2020, respectively.
We had some product sales resulting in a reduced gross profit for 2021 as compared with 2020. We hope that our gross profit increases in 2021 with more revenues from our licenses with Quoin and Ovation expected for the rest of the year, which do not have a cost of revenue component.
Operating Expenses
Operating expenses decreased to $127,579 for the three months ended June 30, 2021 from $132,732 for the same period ended June 30, 2020. Operating expenses decreased to $247,457 for the six months ended June 30, 2021 from $278,776 for the same period ended June 30, 2020.
Our operating expenses for all periods consisted mainly of selling, general and administrative expenses.
Our selling, general and administrative expenses for the six months ended June 30, 2021 consisted mainly of accrued salaries and wages of $165,845, audit and accounting of $32,993. In comparison, our selling general and administrative expenses for the six months ended June 30, 2020 consisted mainly of accrued salaries and wages of $87,942 and audit and accounting of $16,610.
Other Expenses
We had other expenses of $428,034 for the three months ended June 30, 2021, as compared with other expenses of $300,031 for the three months ended June 30, 2020. We had other expenses of $752,412 for the six months ended June 30, 2021, as compared with other expenses of $600,123 for the six months ended June 30, 2020.
Our other expenses for the three months ended June 30, 2021 consisted mainly of interest expense and a loss on the changes in derivative liability, offset by a gain on the settlement of debt. Our other expenses for the six months ended June 30, 2021 consisted mainly of interest expense and a loss on the changes in derivative liability, offset by a gain on the settlement of debt. Our other expenses for the six months ended June 30, 2020 consisted mainly of interest expense.
Net Loss
We recorded a net loss of $268,514 for the three months ended June 30, 2021, as compared with a net loss of $312,793 for the three months ended June 30, 2020. We recorded a net loss of $704,019 for the six months ended June 30, 2021, as compared with a net loss of $742,877 for the six months ended June 30, 2020.
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Liquidity and Capital Resources
As of June 30, 2021, we had total current assets of $68,352 and total assets in the amount of $230,798. Our total current liabilities as of June 30, 2021 were $3,070,119. We had a working capital deficit of $3,001,767 as of June 30, 2021, compared with a working capital deficit of $2,668,871 as of December 31, 2020.
Operating activities provided $171,043 in cash for the six months ended June 30, 2021, as compared with $36,464 provided for the six months ended June 30, 2020. Our positive operating cash flow for each period was largely the result of the amortization of debt discount and changes in accounts payable and accrued liabilities and accrued interest.
We used cash of $20,864 and $14,673 in investing activities for the six months ended June 30, 2021 and 2020, respectively, for the purchase of fixed and intangible assets.
Cash flows used by financing activities during the six months ended June 30, 2021 amounted to $131,100, as compared with cash provided of $12,000 for the six months ended June 30, 2020. Our negative financing cash flow for the six months ended June 30, 2021 resulted from the repayments of debt. Our positive financing cash flow for the six months ended June 30, 2020 consisted of proceeds from related party loans, offset by repayments on the same.
The features of the debt instruments and payables concerning our financing activities are detailed in the footnotes to our financial statements.
Based upon our current financial condition, we do not have sufficient cash to operate our business at the current level for the next twelve months. We intend to fund operations through increased sales and debt and/or equity financing arrangements, which may be insufficient to fund expenditures or other cash requirements. We plan to seek additional financing in a private equity offering to secure funding for operations. There can be no assurance that we will be successful in raising additional funding. If we are not able to secure additional funding, the implementation of our business plan will be impaired. There can be no assurance that such additional financing will be available to us on acceptable terms or at all.
Going concern – The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have incurred cumulative net losses of $35,404,427 since our inception and require capital for our contemplated operational and marketing activities to take place. Our ability to raise additional capital through the future issuances of common stock is unknown. The obtainment of additional financing, the successful development of our contemplated plan of operations, and our transition, ultimately, to the attainment of profitable operations are necessary for us to continue operations. The ability to successfully resolve these factors raise substantial doubt about our ability to continue as a going concern. These consolidated financial statements do not include any adjustments that may result from the outcome of these aforementioned uncertainties.
Off Balance Sheet Arrangements
As of June 30, 2021, 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 – 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 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.
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Accounts Receivable – Accounts receivable is comprised of uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. The carrying amount of accounts receivable is reviewed periodically for collectability. If management determines that collection is unlikely, an allowance that reflects management’s best estimate of the amounts that will not be collected is recorded. Management reviews each accounts receivable balance that exceeds 30 days from the invoice date and, based on an assessment of creditworthiness, estimates the portion, if any, of the balance that will not be collected. As of June 30, 2021, we 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.
| 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 |
Disclosure 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 June 30, 2021. 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 June 30, 2021, 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 June 30, 2021, 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, 2021: (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 six months ended June 30, 2021 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, 2020 filed on April 15, 2021.
| 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 June 30, 2021 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: August 16, 2021
By: /s/ Terry Howlett
Terry Howlett
Title: Chief Executive Officer, Chief Financial Officer and Director
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