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 __________ | |
| Commission File Number: |
(Exact name of Registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
| (Address of principal executive offices) |
| (Registrant’s telephone number) |
| _______________________________________________________________ |
| (Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None | None | None |
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 |
| ☒
|
|
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 November 10, 2023.
| 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 | 9 |
| Item 4: | Controls and Procedures | 10 |
PART II – OTHER INFORMATION
| ||
| Item 1: | Legal Proceedings | 11 |
| Item 1A: | Risk Factors | 11 |
| Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds | 11 |
| Item 3: | Defaults Upon Senior Securities | 11 |
| Item 4: | Mine Safety Disclosure | 11 |
| Item 5: | Other Information | 11 |
| Item 6: | Exhibits | 11 |
| 2 |
PART I - FINANCIAL INFORMATION
| Item 1. | Financial Statements |
Our consolidated financial statements included in this Form 10-Q are as follows:
| F-1 | Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 (unaudited); |
| F-2 | Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022 (unaudited); |
| F-3 | Consolidated Statements of Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2023 and 2022 (unaudited); |
| F-4 | Consolidated Statements of Cash Flow for the nine months ended September 30, 2023 and 2022 (unaudited); |
| F-5 | Notes to Consolidated Financial Statements. |
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended September 30, 2023 are not necessarily indicative of the results that can be expected for the full year.
| 3 |
SKINVISIBLE, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| September 30, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Due from related party | ||||||||
| 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 | $ | $ | ||||||
| Accrued interest payable | ||||||||
| Loan from related party | ||||||||
| Loans payable | ||||||||
| Convertible notes payable | ||||||||
| Derivative liability | ||||||||
| Total current liabilities | ||||||||
| Convertible notes payable related party, net of unamortized discount of $0 and $1,532,992 respectively | ||||||||
| Convertible notes payable, net of unamortized debt discount of $63,786 and $127,434, respectively | ||||||||
| Total liabilities | ||||||||
| Stockholders' deficit | ||||||||
| Common stock; $0.001 par value; 200,000,000 shares authorized; 4,539,843 shares issued and outstanding at September 30, 2023 and December 31, 2022, 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 | Nine months ended | |||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Selling general and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income and (expense) | ||||||||||||||||
| Gain/(loss) on settlement of debt | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain/(loss) on change in derivative liability | ( | ) | ( | ) | ||||||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic income (loss) per common share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Fully diluted income (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, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||
| Balance, March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||
| Balance, June 30, 2022 | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||
| Balance, September 30, 2022 | ( | ) | ( | ) | ||||||||||||||||||||
See Accompanying Notes to Condensed Consolidated Financial Statements.
| F-3 |
SKINVISIBLE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Nine months ended | ||||||||
| September 30, 2023 | September 30, 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net Income (loss) | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided (used) by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of debt discount | ||||||||
| Gain/(loss) on settlement of debt | ( | ) | ||||||
| Gain/(loss) on change in derivative liability | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| 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 used in operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchase of intangible assets | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Payments on related party loans | ( | ) | ||||||
| Proceeds from related party loans | ||||||||
| 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: | ||||||||
| Accrued salary settled with Convertible notes payable related party | ||||||||
See Accompanying Notes to Condensed Consolidated Financial Statements.
| F-4 |
SKINVISIBLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
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, 2023. 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, 2022 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 nine months ended September 30, 2023, the Company had a net loss of $2,078,649. The Company has also incurred cumulative net losses of $39,076,697 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.
| 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. |
| 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.
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 September 30, 2023 and December 31, 2022, 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 nine months ending September 30, 2023, 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 82,981,326 additional shares issuable in connection with outstanding convertible debts as of September 30, 2023.
Recently issued accounting pronouncements
In August 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 reduces the number of accounting models in ASC 470-20 that require separate accounting for embedded conversion features. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the effective interest rate of convertible debt instruments will be closer to the coupon interest rate. Further, the diluted net income per share calculation for convertible instruments will require the Company to use the if-converted method. The treasury stock method should no longer be used to calculate diluted net income per share for convertible instruments. The amendment will be effective for the Company for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.
| 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 September 30, 2023, intangible assets total $
Amortization
expense for the nine months ended September 30, 2023 and 2022 was $
5. RELATED PARTY TRANSACTIONS
Convertible Notes Related Party
| Convertible Notes Payable Related Party consists of the following: | September 30, 2023 | December 31, 2022 | ||||||
| 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 $ | $ | $ | ||||||
| On
January 31, 2023, the Company renegotiated accrued salaries, vacation, and outstanding convertible notes for its two officers. Under
the terms of the agreements, all outstanding notes totaling $ | ||||||||
| Unamoritzed 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
As
of September 30, 2023, $
7. CONVERTIBLE NOTES PAYABLE
| Convertible Notes Payable consists of the following: | September 30, | December 31, | ||||||
| 2023 | 2022 | |||||||
| $ | ||||||||
| Original issue discount | ||||||||
| 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-9 |
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 $
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 ($
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 $
9. 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 September 30, 2023 and December 31, 2022, respectively.
10. SUBSEQUENT EVENTS
In accordance with ASC Topic 855-10, the Company has analyzed its operations subsequent to September 30, 2023 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-10 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements |
This quarterly report contains forward-looking statements. Forward-looking statements are projections of events, revenues, income, future economic performance or management’s plans and objectives for our future operations. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” and the risks set out below, any of which may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks include, by way of example and not in limitation:
| • | the uncertainty of profitability based upon our history of losses; |
| • | legislative or regulatory changes concerning skincare research and therapies; |
| • | risks related to failure to obtain adequate financing on a timely basis and on acceptable terms to continue as going concern; |
| • | risks related to our operations and uncertainties related to our business plan and business strategy; |
| • | changes in economic conditions; |
| • | uncertainty with respect to intellectual property rights, protecting those rights and claims of infringement of other’s intellectual property; |
| • | competition; and |
| • | cybersecurity concerns. |
This list is not an exhaustive list of the factors that may affect any of our forward-looking statements. These and other factors should be considered carefully, including those contained in our Annual Report on Form 10-K under “Risk Factors” for the year ended December 31, 2022, and readers should not place undue reliance on our forward-looking statements. Forward looking statements are made based on management’s beliefs, estimates and opinions on the date the statements are made, and we undertake no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are stated in United States dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.
Company Overview
We, through our wholly owned subsidiary Skinvisible Pharmaceuticals Inc., are a pharmaceutical research and development (“R&D”) company that has developed and patented an innovative polymer delivery system, Invisicare® and formulated over forty topical skin products, which we out-license globally. We were incorporated in 1998 and target an estimated $80 billion global skincare and dermatology market and a $30 billion global over-the-counter market as well as other healthcare / medical and consumer goods markets.
With the research and development complete on forty products and numerous patents issued (technology and product patents), we are ready to monetize our investment. Our business model will continue to be to out-license our patented prescription and over-the-counter (“OTC”) products featuring Invisicare to established manufacturers and marketers of brands internationally and to maximize profits from the products we have already out-licensed.
| 4 |
The opportunity for us to license our products continues to be a viable model as the need for pharmaceutical companies to access external R&D companies for new products due to their own downsizing or elimination of internal R&D departments. The demand for our products is enhanced due to the granting of key US and international patents and the completed development of a number of unique products.
Our Flagship Product
Pivotal to our success is our patented polymer delivery system technology Invisicare. Invisicare is a patented polymer delivery system that enhances the delivery of active ingredients for topically applied skin care products. Its patented technology has a unique formula and process for combining active ingredients with a delivery system that extends the duration of time the product remains on the skin and active.
Invisicare is specifically formulated to carry water insoluble active and certain cationic active ingredients in water-based products without the use of alcohol, silicones, waxes, or other organic solvents. Products utilizing Invisicare have the proven ability to bond active ingredients to the skin for up to four hours and longer. They are non-occlusive and allow normal skin respiration and perspiration while moisturizing and protecting against exposure from a wide variety of environmental irritants.
When topically applied, these formulated products adhere to the skin's outer layers, forming a protective bond, resisting wash-off, and delivering targeted levels of therapeutic or cosmetic skincare agents to the skin. They allow enhanced delivery performance for a variety of skincare agents resulting in improved efficacy, longer duration of action, reduced irritation and lower dosage of active agent required. The "invisible" polymer compositions wear off as part of the natural exfoliation process of the skin's outer layer cells.
The advantage of products formulated with Invisicare is (1) Invisicare’s ability to bind active ingredients (the drug) to the skin, forming a protective bond on the skin, for extended periods of time; (2) Invisicare can deliver targeted levels (high or low) of therapeutic or cosmetic ingredients to the skin in a controlled release; (3) Invisicare can help to reduce the irritation of some active ingredients due to how it controls the slower release of that active ingredient; and (4) Invisicare science proves that it provides a protective skin barrier which helps retain the natural moisture content of the skin, while still allowing it to breathe. These benefits present an excellent opportunity for clear scientific advantages and marketing messages which resonate with physicians and consumers.
We generate revenue by:
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License Agreement with Quoin
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 December 31, 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 (USD $1,000,000) (''License Fee''). To date, Licensee has paid one million US dollars (USD $1,000,000).
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 the US or EU, whichever happens first: $5,000,000
On June 6, 2022 we announced that Quoin has received U.S. FDA acceptance of its Investigational New Drug (IND) application for its licensed formulation which uses our Invisicare proprietary drug delivery technology. The topical formulation "QRX003" was developed to treat Nethertons Syndrome, a debilitating hereditary disorder that affects the skin, hair and the immune system. There currently is no cure or approved treatment for Netherton Syndrome.
With the IND approved, the clinical trial is underway. We look forward to assisting Quoin in their success and potential FDA approval as well as potentially bringing a treatment to patients suffering from Nethertons Syndrome. For information and updates see www.quoipharma.com.
Quoin is responsible for obtaining all FDA and other regulatory body approvals necessary to market the products in the US and other countries. Upon the successful completion of various clinical and regulatory milestones, Skinvisible is entitled to receive a milestone payment of $5 million and ongoing royalties from sales.
License Agreement with Ovation Science
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, Ovation Science paid us the fee otherwise due in year 3 and in exchange we extended the term of Ovation Science’s license to 6-years and granted Ovation additional rights to its hand sanitizer products and assigned Canadian Identification Numbers 02310589 and 02355558, all DermSafe Trademarks, DermSafe clinical data and the right to patent DermSafe where not currently patented. In exchange for these rights, Ovation Science paid a $100,000 license fee. We completed the required assignments during the year ending December 31, 2020 and recognized $100,000 in revenue.
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Results of Operations for the Three and Nine Months Ended September 30, 2023 and 2022
Revenues
Our revenue, which we combine from product sales, royalties on patent licenses and license fees (product development fees), was $5,000 for the three months ended September 30, 2023, a decrease from $9,316 for the same period ended September 30, 2022.
Our revenue, which we combine from product sales, royalties on patent licenses and license fees (product development fees), was $15,000 for the nine months ended September 30, 2023, a decrease from $274,296 for the same period ended September 30, 2022.
The decrease in revenue for the three and nine months ended September 30, 2023, was primarily the result of a decrease in license fees.
Gross Profit
We had $0 in cost of revenues for the three months ended September 30, 2023, compared with $3,300 in cost of revenues for the three months ended September 30, 2022, so our gross profit was $5,000 for the three months ended September 30, 2023, as compared with gross profit of $6,016 for the three ended September 30, 2022. We had $0 in cost of revenues for the nine months ended September 30, 2023, compared with $4,808 in cost of revenues for the nine months ended September 30, 2022, so our gross profit was $15,000 for the nine months ended September 30, 2023, as compared with gross profit of $269,488 for the nine months ended September 30, 2022.
Our gross profit decreased in Q3 2023 due to less revenues from our license with Quoin. We hope to generate more revenues from our licenses with Quoin and Ovation for the rest of 2023.
Operating Expenses
Operating expenses decreased to $118,110 for the three months ended September 30, 2023, from $133,183 for the same period ended September 30, 2022. Operating expenses decreased to $368,837 for the nine months ended September 30, 2023, from $390,204 for the same period ended September 30, 2022.
Our operating expenses for all periods consisted mainly of selling, general and administrative expenses.
Our selling, general and administrative expenses for the nine months ended September 30, 2023, consisted mainly of accrued salaries and wages of $263,329 and audit and accounting of $33,029. In comparison, our selling, general and administrative expenses for the nine months ended September 30, 2022 consisted mainly of accrued salaries and wages of $245,827 and audit and accounting of $46,528.
Other Expenses
We had other expenses of $174,408 for the three months ended September 30, 2023, as compared with other expenses of $290,901 for the three months ended September 30, 2022. We had other expenses of $1,724,812 for the nine months ended September 30, 2023, as compared with other expenses of $703,594 for the nine months ended September 30, 2022.
Our other expenses for the nine months ended September 30, 2023 consisted mainly of interest expense, netted against a gain on forgiveness of debt and gain on derivative liability changes. Our other expenses for the nine months ended September 30, 2022 consisted mainly of interest expense, netted against a gain on settlement of debt and gain on derivative liability changes.
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Net Loss
We recorded a net loss of $287,518 for the three months ended September 30, 2023, as compared with a net loss of $418,068 for the three months ended September 30, 2022. We recorded a net loss of $2,078,649 for the nine months ended September 30, 2023, as compared with a net loss of $824,310 for the nine months ended September 30, 2022.
The increase in net loss is primarily the result of the increase in interest expense during the nine months ended September 30, 2023 compared to 2022.
Liquidity and Capital Resources
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 $39,076,697 since its inception and requires capital for its contemplated operational and marketing activities to take place. The Company’s ability to generate the necessary funds through licensing of its core products or the ability to raise additional capital through the future issuances of common stock or debt is unknown. The obtainment of additional financing, the successful development of the Company’s contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. 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.
As of September 30, 2023, we had total current assets of $52,905 and total assets in the amount of $185,061. Our total current liabilities as of September 30, 2023 were $3,243,621. We had a working capital deficit of $3,190,716 as of September 30, 2023, compared with a working capital deficit of $2,920,522 as of June 30, 2023 and $3,535,040 as of December 31, 2022.
Operating activities used $73,314 in cash for the nine months ended September 30, 2023, as compared with $90,680 provided for the nine months ended September 30, 2022. Our negative operating cash flows for 2023 was largely the result of our net loss for those quarter, mainly offset by changes in operating assets and liabilities and the amortization of debt discount. Our positive operating cash flows for 2022 was largely the result of changes in operating assets and liabilities, amortization of debt discount offset mainly by the net loss for the periods.
We used cash of $9,333 and $2,005 in investing activities for the nine months ended September 30, 2023 and 2022, respectively, for the purchase of intangible assets.
Cash flow provided from financing activities was $2,000 for the nine months ended September 30, 2023, as compared with cash flows used by financing activities during the nine months ended September 30, 2022 amounted to $27,299. Our negative financing cash flow for the nine months ended September 30, 2022 resulted from repayment of related party debt.
The features of the debt instruments and payables concerning our financing activities are detailed in the footnotes to our financial statements.
Based upon our current financial condition, we do not have sufficient cash to operate our business at the current level for the next twelve months. We intend to fund operations through increased sales and debt and/or equity financing arrangements, which may be insufficient to fund expenditures or other cash requirements. We plan to seek additional financing in a private equity offering to secure funding for operations. There can be no assurance that we will be successful in raising additional funding. If we are not able to secure additional funding, the implementation of our business plan will be impaired. There can be no assurance that such additional financing will be available to us on acceptable terms or at all.
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Off Balance Sheet Arrangements
As of September 30, 2023, 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.
Accounts Receivable – Accounts receivable is comprised of uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. The carrying amount of accounts receivable is reviewed periodically for collectability. If management determines that collection is unlikely, an allowance that reflects management’s best estimate of the amounts that will not be collected is recorded. Management reviews each accounts receivable balance that exceeds 30 days from the invoice date and, based on an assessment of creditworthiness, estimates the portion, if any, of the balance that will not be collected. As of September 30, 2023, 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.
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| 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 September 30, 2023. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2023, our disclosure controls and procedures were not effective due to the presence of material weaknesses in internal control over financial reporting.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses which have caused management to conclude that, as of September 30, 2023, 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, 2023: (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 three months ended September 30, 2023 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, 2022 filed on March 30, 2023.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None
| Item 3. | Defaults upon Senior Securities |
None
| Item 4. | Mine Safety Disclosures |
Not applicable.
| Item 5. | Other Information |
None
| Item 6. | Exhibits |
Exhibit Number Description of Exhibit
| 31.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101** | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 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: November 14, 2023
By: /s/ Terry Howlett
Terry Howlett
Title: Chief Executive Officer, Chief Financial Officer and Director
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