UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

[X]	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended June 30, 2013
[  ]	Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period from __________  to __________
	Commission File Number: 000-25911

 

Skinvisible, Inc.

(Exact name of Registrant as specified in its charter)

 

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

 

6320 South Sandhill Road, Suite 10, Las Vegas, NV 89120

(Address of principal executive offices)

 

702.433.7154

(Registrant’s telephone number)

_______________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days

[X] Yes [ ] No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [  ] No [X]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

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

 

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

[ ] Yes [X] No

 

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 110,489,969 common shares as of June 30, 2013

	TABLE OF CONTENTS	Page
PART I – FINANCIAL INFORMATION
Item 1:	Financial Statements	3
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	11
Item 4:	Controls and Procedures	11
PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	12
Item 1A:	Risk Factors	12
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	12
Item 3:	Defaults Upon Senior Securities	12
Item 4:	Mine Safety Disclosure	12
Item 5:	Other Information	12
Item 6:	Exhibits	12

 

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, 2013 (unaudited) and December 31, 2012 (audited);

F-2	Consolidated Statements of Operations for the three and six months ended June 30, 2013 and 2012 (unaudited);

F-3	Consolidated Statements of Cash Flow for the six months ended June 30, 2013 and 2012 (unaudited);

F-4	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, 2013 are not necessarily indicative of the results that can be expected for the full year.

 

 SKINVISIBLE, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

	June 30, 2013				December 31, 2012
ASSETS
Current assets
Cash	$	380,076			$	450,507
Accounts receivable		10,500				27,299
Inventory		22,264				18,769
Due from related party		1,145				1,145
Prepaid expense and other current assets		515				515
Total current assets		414,500				498,235
Fixed assets, net of accumulated depreciation of $322,141 and  $318,519, respectively		4,227				4,459
Intangible and other assets:
Patents and trademarks, net of accumulated amortization of $229,721 and $213,205, respectively		317,211				251,553
Total assets	$	735,938			$	754,247
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued liabilities	$	543,167			$	636,314
Accrued interest payable		128,546				25,264
Loans from related party		134				7,661
Loans payable		430,000				1,991
Convertible notes payable, net of unamortized debt discount of $75,709 and $102,200, respectively		1,089,877				1,088,386
Convertible notes payable related party, net of unamortized discount of $985,150 and $1,036,956, respectively		738,711				593,227
Unearned revenue		—				19,792
Total current liabilities		2,930,435				2,372,635
Total liabilities		2,930,435				2,372,635
Stockholders' deficit
Common stock; $0.001 par value; 200,000,000 shares authorized; 110,490,969 and 109,507,409 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively		110,490				109,507
Additional paid-in capital		20,954,233				20,841,670
Stock payable		1,800				1,800
Accumulated deficit		(23,261,020	)			(22,571,365	)
Total stockholders' deficit		(2,194,497	)			(1,618,388	)
Total liabilities and stockholders' deficit	$	735,938			$	754,247

 

See Accompanying Notes to Consolidated Financial Statements.

SKINVISIBLE, INC. CONSOLIDATED

STATEMENTS OF OPERATIONS

(Unaudited)

 

	Three months ended								Six months ended
	June 30, 2013				June 30, 2012				June 30, 2013				June 30, 2012
						(Restated)								(Restated)
Revenues	$	7,448			$	30,550			$	34,735			$	60,628
Cost of revenues		1,031				1,068				1,189				1,944
Gross profit		6,417				29,482				33,546				58,684
Operating expenses
Depreciation and amortization		9,047				17,895				17,182				35,614
Selling general and administrative		244,628				363,968				396,146				679,333
Total operating expenses		253,675				381,863				413,328				714,947
Loss from operations		(247,258	)			(352,381	)			(379,782	)			(656,263	)
Other income and (expense)
Other income		—				—				—
Interest expense		(145,550	)			(35,272	)			(310,573	)			(70,020	)
Gain on extinguishment of debt		—				—				700				1,727
Total other expense		(145,550	)			(35,272	)			(309,873	)			(68,293	)
Net loss	$	(392,808	)		$	(387,653	)		$	(689,655	)		$	(724,556	)
Basic loss per common share	$	(0.00	)		$	(0.00	)		$	(0.01	)		$	(0.01	)
Basic weighted average common shares outstanding		110,450,409				105,275,699				110,217,662				102,762,334

 

See Accompanying Notes to Consolidated Financial Statements.

SKINVISIBLE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

	Six months ended
	June 30, 2013				June 30, 2012
					(Restated)
Cash flows from operating activities:
Net loss	$	(689,655	)		$	(724,556	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		17,182				35,614
Stock-based compensation		12,800				—
Amortization of debt discount		149,065				267,444
Accrued expenses converted to notes		—				217,652
Stock issued for interest expense		422				—
Debt paid with common stock		—				76,009
Gain on extinguishment of debt		(700	)			(1,727	)
Changes in operating assets and liabilities:
(Increase) decrease in inventory		(3,495	)			1,752
Decrease in accounts receivable		16,799				(8,895	)
Increase in prepaid expenses and other current assets		—				(33,456	)
Increase in related party receivable		—				—
(Decrease) increase in accounts payable and accrued liabilities		27,407				99,944
Increase in accrued interest		102,146				21,412
Decrease in unearned revenue		(19,792	)			(35,000	)
Net cash used in operating activities		(387,821	)			(83,807	)
Cash flows from investing activities:
Purchase of fixed assets and intangible assets		(82,608	)			(50,690	)
Net cash used in investing activities		(82,608	)			(50,690	)
Cash flows from financing activities:
Proceeds from, net of payments to, related parties for loans		(7,527	)			7,584
Payments on related parties convertible notes payable		(12,475	)			—
Proceeds from convertible notes payable		—				101,400
Payments on convertible notes payable		(10,000	)			—
Proceeds from loans		430,000				31,000
Net cash provided by (used in) financing activities		399,998				139,984
Net change in cash		(70,431	)			5,487
Cash, beginning of period		450,507				1,218
Cash, end of period	$	380,076			$	6,705
Supplemental disclosure of cash flow information:
Cash paid for interest	$	3,696			$	—
Cash paid for tax	$	—			$	—
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Non-cash investing and financing activities:
Loan payable converted to convertible loan	$	23,554			$	(9,719	)
Common stock issued on conversion of debts	$	23,554			$	76,009
Beneficial conversion feature	$	—			$	288,069
Common stock issued for extinguishment of debts	$	13,700			$	—

 

See Accompanying Notes to Consolidated Financial Statements.

SKINVISIBLE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1. DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES

 

Description of business – Skinvisible, Inc., (referred to as the “Company”) is focused on the development and manufacture 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 – Skinvisible, Inc. (referred to as 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 subsidiary shall herein be collectively referred to as the “Company”.

 

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 $23,261,020 since its inception and requires capital for its contemplated operational and marketing activities to take place. The Company’s ability to raise additional capital through the future issuances of common stock is unknown. The obtainment of additional financing, the successful development of the Company’s contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors 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.

 

Principles of consolidation – The consolidated financial statements include the accounts of the Company and its subsidiary. 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 requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Cash and cash equivalents

For purposes of the statement of cash flows, the Company considers all highly liquid investments and short-term debt instruments with original maturities of three months or less to be cash equivalents.

 

Fair Value of Financial Instruments

The carrying amounts reflected in the balance sheets for cash, accounts payable and accrued expenses approximate the respective fair values due to the short maturities of these items.

 

As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

The three levels of the fair value hierarchy are described below:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

 

Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

 

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

 

SKINVISIBLE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Revenue recognition

 

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 – The Company also recognizes royalty revenue from licensing its patented product formulations only when earned, when 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 – The Company also recognizes revenue from distribution and license rights only when earned (and are amortized over a five year period), when 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 June 30, 2013, the Company had not recorded a reserve for doubtful accounts.

 

Inventory – Substantially all inventory consists of finished goods and are valued based upon first-in first-out ("FIFO") cost, not in excess of market. The determination of whether the carrying amount of inventory requires a write-down is based on an evaluation of inventory.

 

Goodwill and 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, goodwill and 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. Fair value for goodwill is based on discounted cash flows, market multiples and/or appraised values as appropriate. Under ASC 350-10, the carrying value of assets are calculated at the lowest level for which there are identifiable cash flows.

 

Income taxes – The Company accounts for its income taxes in accordance with FASB Codification Topic ASC 740-10, “Income Taxes”, which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

Stock-based compensation – The Company follows the guidelines in FASB Codification Topic ASC 718-10 “Compensation-Stock Compensation”, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options and employee stock purchases related to a Employee Stock Purchase Plan based on the estimated fair values.

 

Stock based compensation expense recognized under ASC 718-10 for the six months ended June 30, 2013 and 2012 totaled $12,800 and $0 respectively.

SKINVISIBLE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Earnings (loss) per share – The Company reports earnings (loss) per share in accordance with FASB Codification Topic ASC 260-10 “Earnings Per Share”, Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted earnings (loss) per share has not been presented since the effect of the assumed exercise of options and warrants to purchase common shares (common stock equivalents) would have an anti-dilutive effect.

 

Restatement

Upon completing the Company’s September 30, 2012 financial statements, an accounting error was discovered that misstated certain balance sheet amounts previously reported as of June 30, 2012. The following is a summary of the impact of these restatements on the Company’s Consolidated Balance Sheet at June 30, 2012:

 

		June 30, 2012
		As previously				Error
		reported				correction				As restated
Accounts payable and accrued liabilities		$	701,466			$	22,450		(b)	$	723,916
Accrued interest payable		$	5,551			$	15,861		(b)	$	21,412
Loans from related party		$	19,984			$	(9,719	)	(b)	$	10,265
Convertible notes payable, net of unamortized discount		$	150,167			$	207		(b)	$	154,349
						$	3,975		(a)
Convertible notes payable related party, net of unamortized discount		$	745,517			$	(402,155	)	(a)	$	343,362
Total current liabilities		$	1,845,138			$	(398,180	)	(a)	$	1,475,757
						$	28,799		(b)
Additional paid-in capital		$	20,169,778			$	447,021		(a)	$	20,616,799
Accumulated deficit		$	(21,765,859	)		$	(48,841	)	(a)	$	(21,843,499	)
						$	(28,799	)	(b)
Total stockholders’ deficit		$	(1,487,059	)		$	398,180		(a)	$	(1,117,678	)
						$	(28,799	)	(b)
(a) To correct errors in debt discount of convertible notes payable.
(b) To correct errors due to incorrect allocation of convertible debt.

 

SKINVISIBLE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The following is a summary of the impact of these restatements on the Company’s Consolidated Income Statement for the quarter ended June 30, 2012:

 

		June 30, 2012
		As previously				Error
		reported				correction				As restated
Selling, general and administrative		$	306,016			$	26,409		(a)	$	363,968
						$	31,543		(b)
Total operating expenses		$	323,911			$	26,409		(a)	$	381,863
						$	31,543		(b)
Loss from operations		$	(294,429	)		$	(26,409	)	(a)	$	(352,381	)
						$	(31,543	)	(b)
Loss on conversion of debt		$	(3,580	)		$	3,580		(b)	$	—
Gain on extinguishment of debt		$	836			$	(836	)	(b)	$	—
Net loss		$	(332,445	)		$	(26,409	)	(a)	$	(387,653	)
						$	(28,799	)	(b)
Basic loss per common share		$	(0.00	)		$	(0.00	)		$	(0.00	)
(a) To correct errors in debt discount of convertible notes payable.
(b) To correct errors due to incorrect allocation of convertible debt.

 

The following is a summary of the impact of these restatements on the Company’s Consolidated Income Statement for the six months ended June 30, 2012:

 

		June 30, 2012
		As previously				Error
		reported				correction				As restated
Selling, general and administrative		$	598,949			$	48,841		(a)	$	679,333
						$	31,543		(b)
Total operating expenses		$	634,563			$	48,841		(a)	$	714,947
						$	31,543		(b)
Loss from operations		$	(575,879	)		$	(48,841	)	(a)	$	(656,263	)
						$	(31,543	)	(b)
Loss on conversion of debt		$	(3,580	)		$	3,580		(b)	$	—
Gain on extinguishment of debt		$	2,563			$	(836	)	(b)	$	1,727
Net loss		$	(646,916	)		$	(48,841	)	(a)	$	(724,556	)
						$	(28,799	)	(b)
Basic loss per common share		$	(0.00	)		$	(0.00	)		$	(0.00	)
(a) To correct errors in debt discount of convertible notes payable.
(b) To correct errors due to incorrect allocation of convertible debt.

 

The following is a summary of the impact of these restatements on the Company’s Consolidated Statement of Cash Flows for the six months ended June 30, 2012:

 

		June 30, 2012
		As previously				Error
		reported				correction				As restated
Net loss		$	(646,916	)		$	(48,841	)	(a)	$	(724,556	)
						$	(28,799	)	(b)
Amortization of debt discount		$	218,603			$	48,841		(a)	$	267,444
Debt paid with common stock		$	82,984			$	(6,975	)	(b)	$	76,009
Accrued expenses converted to notes		$	217,445			$	207		(b)	$	217,652
Loss on extinguishment of debt		$	3,580			$	(3,580	)	(b)	$	—
Gain on extinguishment of debt		$	(2,563	)		$	836		(b)	$	(1,727	)
Increase in accounts payable and accrued liabilities		$	77,494			$	22,450		(b)	$	99,944
Increase in accrued interest		$	5,551			$	15,861		(b)	$	21,412
(a) To correct errors in debt discount of convertible notes payable.
(b) To correct errors due to incorrect allocation of convertible debt.

 

SKINVISIBLE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

2. FIXED ASSETS

 

Fixed assets consist of the following as of June 30, 2013 and December 31, 2012:

 

	June 30, 2013				December 31, 2012
Machinery and equipment	$	48,163			$	45,208
Furniture and fixtures		113,635				113,635
Computers, equipment and software		38,540				38,105
Leasehold improvements		12,569				12,569
Lab equipment		113,461				113,461
Total		326,368				322,978
Less: accumulated depreciation		(322,141	)			(318,519	)
Fixed assets, net of accumulated depreciation	$	4,227			$	4,459

 

Depreciation expense for the six months ended June 30, 2013 and 2012 was $667 and $628, respectively.

 

3.    INTANGIBLE AND OTHER ASSETS

 

Patents and trademarks are capitalized at its historical cost and are amortized over their useful lives. As of June 30, 2013, patents and trademarks total $317,211, net of $229,721 of accumulated amortization. Amortization expense for the six months ended June 30, 2013 and 2012 was $16,515 and $34,986, respectively.

 

License and distributor rights (“agreement”) were acquired by the Company in January 1999 and provide exclusive use distribution of polymers and polymer based products. The Company has a non-expiring term on the license and distribution rights. Accordingly, the Company annually assesses this license and distribution rights for impairment and has determined that no impairment write-down is considered necessary as of June 30, 2013.

 

4.    UNEARNED REVENUE

 

On January 16, 2013, the company terminated its licensing agreement with Panalab dated January 23, 2008. The agreement provided Panalab the right to distribute, market, sell and promote Skinvisible’s proprietary formulas made with Invisicare and Adapalene through-out Panalabs assigned territory. Panalab had failed to sell or sub-license the products in the territory, thereby not fulfilling the conditions as set forth in the agreement and allowing for immediate termination of the agreement. As a result of this cancelation, unearned revenue of $19,792 has been recognized as revenue during the six months ended June 30, 2013.

 

5. STOCK OPTIONS AND WARRANTS

 

The following is a summary of option activity during the six months ended June 30, 2013.

 

	Number of Shares				Weighted Average Exercise Price
Balance, December 31, 2012		9,400,000			$	0.05
Options granted and assumed		—				—
Options expired		400,000			$	0.05
Options canceled		—				—
Options exercised		—				—
Balance, June 30, 2013		9,000,000			$	0.05

SKINVISIBLE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

As of June 30, 2013, 9,000,000 stock options are exercisable.

 

Stock warrants -

 

The following is a summary of warrants activity during the six months ended June 30, 2013.

 

	Number of Shares				Weighted Average Exercise Price
Balance, December 31, 2012		6,765,200			$	0.06
Warrants granted and assumed		271,280			$	0.06
Warrants expired		1,562,500			$	0.05
Warrants canceled		—				—
Warrants exercised		—				—
Balance, June 30, 2013		5,473,980			$	0.06

 

All warrants outstanding as of June 30, 2013 are exercisable.

 

271,280 warrants were issued during the three months ended March 31, 2013 as part of a series of convertible notes with attached warrants. The warrants issued allow the holder to purchase one share for every two shares issued upon conversion at an exercise price of $0.07 cents per share.

 

On May 22, 2013 200,000 warrants were issued as compensation for consulting services. The warrants issued allow the holder to purchase one share at an exercise price of $0.04 cents per share. 

 

6.    RELATED PARTY TRANSACTIONS

 

Various officers advanced funds to support the daily operations of the company. As of June 30, 2013, $134 remained due to related parties, which is an unsecured payable due to an officer of the Company bearing no interest and due on demand. 

SKINVISIBLE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

7. CONVERTIBLE NOTES PAYABLE

 

Convertible Notes Payable at consists of the following:	June 30, 2013				December 31, 2012
$52,476 face value,10% unsecured note payable to an investor, note interest and payment are due on demand. The note could be converted to option rights for Skinvisible, Inc. shares at ten cents per share ($0.10), these rights expired January 12, 2010. Note is currently in default, no penalties occur due to default.   During the six months ended June 30, 2013, the Company made $8,000 cash payment to reduce to the note balance.	$	44,476			$	52,476
$27,000 face value 10% unsecured $27,000 notes payable to investors, due October, 2012. At the written request of the investor’s until the repayment date, the note may be converted at the investors option to shares of the Company’s common stock at a fixed price of $0.05 per share along with additional warrants to purchase one share for every two shares issued at the exercise price of $0.07 per share for two years after the conversion date. The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be $19,385. The aggregate beneficial conversion feature has been fully accreted and was charged to general and administrative expenses during the year ended December 31, 2012. The beneficial conversion feature is valued under the intrinsic value method. Interest due to lender can also be converted at a rate of ($0.05) per share into warrants.   During the six months ended June 30, 2013, the Company made a $2,000 cash payment to reduce the note balance and converted principal of $15,000 plus accrued interest of $1,277 to 542,560 shares of common stock and granted 271,280 warrants with the exercise price of $0.07 per shares for two years.		10,000				27,000
$1,000,000 face value 9% notes payable to investor, due August 1, 2014.  At the investor’s option until the repayment date, the note and related interest may be converted to shares of the Company’s common stock a discount of  90% of the current share price after the first anniversary of the note. The Notes are secured by the accounts receivable of a license agreement the Company has with Women's Choice Pharmaceuticals, LLC on its proprietary prescription product, ProCort®. The Company has determined the value associated with the beneficial conversion feature in connection with the notes and interest to be $111,110. The aggregate original issue discount feature has been accreted and charged to general and administrative expenses as a financing expense in the amount of $26,491 and $8,910 during the periods ending June 30, 2013 and December 31, 2012, respectively.  The original issue discount feature is valued under the intrinsic value method.		1,000,000				1,000,000
Original issue discount		111,110				111,110
Unamortized debt discount		(75,709	)			(102,200	)
	$	1,089,877			$	1,088,386

  

8. CONVERTIBLE NOTES PAYABLE RELATED PARTY

 

On December 31, 2011, the Company re-negotiated accrued salaries and interest for three employees. Under the terms of the agreements, the notes dated before December 31, 2010 and all salaries not previously converted were converted to promissory notes convertible into common stock with a warrant feature. The $802,864 face value promissory notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares of the Company’s common stock at a fixed price of $0.04 per share along with additional warrants to purchase one share for every two shares issued at the exercise price of $0.06 per share for three years after the conversion date. The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be $538,295 for the notes negotiated on December 31, 2010, $45,557 for the notes negotiated on July 1, 2011 and $1,123,078 for the notes negotiated December 31, 2011. The beneficial conversion feature is valued under the intrinsic value method. The aggregate beneficial conversion feature has been accreted and charged to general and administrative expenses as a financing expense in the amount of $82,846 for the six months ended June 30, 2013. As of June 30, 2013, the aggregate convertible notes payable are $526,666, net of unamortized beneficial conversion feature of $583,937.

 

On June 30, 2012, the Company re-negotiated accrued salaries and interest for three employees. Under the terms of the agreements, the notes dated before July 1, 2011 and all salaries not previously converted were converted to promissory notes convertible into common stock with a warrant feature. The $325,023 face value promissory notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares of the Company’s common stock at a fixed price of $0.04 per share along with additional warrants to purchase one share for every two shares issued at the exercise price of $0.06 per share for three years after the conversion date. The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be $209,809. The beneficial conversion feature is valued under the intrinsic value method. The aggregate beneficial conversion feature has been accreted and charged to general and administrative expenses as a financing expense in the amount of $21,680 for the six months ended June 30, 2013. As of June 30, 2013, the aggregate convertible notes payable are $158,599, net of unamortized beneficial conversion feature of $166,423.

SKINVISIBLE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

On December 30 and 31, 2012, the Company re-negotiated accrued salaries and interest for three employees. Under the terms of the agreements, $182,083 of related party notes accrued interest and salaries not previously converted were converted to promissory notes convertible into common stock with a warrant feature. The $182,083 face value promissory notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares of the Company’s common stock at a fixed price of $0.03 per share along with additional warrants to purchase one share for every two shares issued at the exercise price of $0.04 per share for three years after the conversion date. The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be $182,083. The beneficial conversion feature is valued under the intrinsic value method. The aggregate beneficial conversion feature has been accreted and charged to general and administrative expenses as a financing expense in the amount of $18,048 for the six months ended June 30, 2013. As of June 30, 2013, the aggregate convertible notes payable are $18,061, net of unamortized beneficial conversion feature of $164,022.

 

On June 30, 2013, the Company re-negotiated accrued salaries and interest for two employees. Under the terms of the agreements, $106,153 of related party notes accrued interest and salaries not previously converted were converted to promissory notes convertible into common stock with a warrant feature. The $106,153 face value promissory notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares of the Company’s common stock at a fixed price of $0.03 per share along with additional warrants to purchase one share for every two shares issued at the exercise price of $0.04 per share for three years after the conversion date. The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be $70,768. The beneficial conversion feature is valued under the intrinsic value method. The aggregate beneficial conversion feature will be accreted and charged to general and administrative expenses as a financing expense As of June 30, 2013, the aggregate convertible notes payable are $35,384, net of unamortized beneficial conversion feature of $70,768.

 

9. NOTES PAYABLE

 

On May 22, 2013 the Company approved a financing plan to offer accredited investors up to $1,000,000 in secured promissory notes. During the quarter ended June 30, 2013 the Company entered into twelve 9% notes payable to investors and received total proceeds of $430,000. The notes are due two years from the anniversary date of execution. The Notes are secured by the US Patent rights granted for the Company's Sunscreen Products: US patent number #8,128,913: "Sunscreen Composition with Enhanced UV-A Absorber Stability and Methods".

 

10. STOCKHOLDERS’ DEFICIT

 

The Company is authorized to issue 200,000,000 shares of $0.001 par value common stock. The Company has 110,490,969 and 109,507,409 issued and outstanding shares of common stock as of June 30, 2013 and December 31, 2012, respectively.

 

During the six months ended June 30, 2013, the Company issued a total of 440,000 shares of common stock, with a fair value of $13,700 for the conversion of debts totaling $14,400. The Company recorded a gain of $700 on extinguishment of debts.

 

On February 11, 2013, the Company issued a total of 300,000 shares of common stock for conversion of principal on convertible notes payable of $15,000 plus $1,277 accrued interest. The Company issued an additional 242,560 shares of common stock for this conversion of convertible notes payable, which the shares were fair valued at $7,277.

 

11. COMMITMENTS AND CONTINGENCIES

 

Lease obligations – The Company has operating leases for its offices. Future minimum lease payments under the operating leases for the facilities as of June 30, 2013 are as follows:

 

Fiscal year ending 2013 24,457

Fiscal year ending 2014 33,156

Fiscal year ending 2015 5,526

 

Rental expense, resulting from operating lease agreements, approximated $14,282 and $31,623 for the six months ended June 30, 2013 and 2012, respectively.

 

12.    SUBSEQUENT EVENTS

 

During the month ended July 2013 the Company entered into four 9% notes payable to investors and received total proceeds of $166,000. The notes are, due two years from the anniversary date of execution. The Notes are secured by the US Patent rights granted for the Company's Sunscreen Products: US patent number #8,128,913: "Sunscreen Composition with Enhanced UV-A Absorber Stability and Methods".

 

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.

 

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 is to out-license our patented prescription, over-the-counter (“OTC”) and cosmeceutical products featuring Invisicare to established manufacturers and marketers of brands internationally and to maximize profits from the products we have already out-licensed. We have also recently developed a product for Netherton syndrome, for which we are seeking “orphan drug” status in both the United States and Europe. This designation has the potential to be highly lucrative, with more global companies seeing the value of an orphan drug.

 

The opportunity for us to license our products has recently increased due to improving market conditions and the need for pharmaceutical companies to access external R&D companies for new products due to their own down-sizing or elimination of internal R&D departments. The demand for our products is enhanced due to the granting of key US and international patents and the completed development of a number of unique products.

Our Plan for the Next Twelve Months

 

Our growth strategy is to:

 

1.

Capitalize on the success of current licensees;

 

2.

Increase the value of our current pipeline; and

 

3.

Boost licensing revenues by securing additional licensees globally and develop a robust royalty revenue stream that will finance our future growth.

 

1.

Capitalize On Current Licensees:

 

This past year we made a concerted effort to help maximize the potential of our licensees but also to make some difficult decisions regarding some of our licensees. This past year, JD Nelson and Associates, RHEI Pharmaceuticals and Panalab S.A. agreements were cancelled. We continue to support our current licensees who remain focused on growing revenues.

 

We have licensees around the globe. Three of these licensees are currently in the marketplace: Avon Products globally, Women’s Choice Pharmaceuticals in the United States and Alto Pharmaceuticals in Canada. Additionally, we have licensees that have products being prepared for launch. We work diligently with our licensees to ensure they have a smooth manufacturing process, ongoing R&D support and marketing feedback.

 

Avon Products, Inc: Product: We have a long-term contract with Avon globally for over ten years to provide Invisicare polymer for their long-lasting lipsticks.   Sales: Invisicare polymers are purchased directly from Skinvisible.
Alto Pharmaceuticals: Product: DermSafe®, long lasting hand sanitizer lotion launched in Canada in Q4 of 2011 for commercial / industrial use   Sales and Royalties: Alto has received Health Canada marketing approval for DermSafe and is currently marketing the product directly and seeking distributors in the commercial marketplace.
Women’s Choice Pharmaceuticals: Product: ProCort®, long lasting prescription hemorrhoid cream launched in the United States August 2011   Sales and Royalties: ProCort continues to increase sales every quarter. Skinvisible receives a royalty based on net sales. This past year Women's Choice Pharmaceuticals LLC partnered with Advanced Medical Enterprises, LLC to market ProCort® in Puerto Rico. With over thirty pharmaceutical sales reps calling on OBGYNs in the US, Women’s Choice has been successfully growing their sales of ProCort® and we look forward to increased growth in 2013. Women’s Choice is seeking to form other strategic alliances in 2013 in order to increase its sales efforts by targeting new territories and targeting medical specialists which previously were not called upon.

 

Product Launches for 2013:

 

We have additional products which are anticipated to be in the market in 2013.

 

Triclosan Hand Sanitizer & First Aid Antiseptic Previously licensed as Safe4Hours® Antibacterial/Antimicrobial Hand Sanitizers (1% Triclosan) and Safe4Hours® First Aid Antiseptic & Skin Protectant for North America to Dermal Defense, Skinvisible has received the rights back for both products. Skinvisible anticipates setting up distributors for these products on an international basis.
Embil Pharmaceuticals Co. Ltd. Licensed two prescription acne products: Clindamycin and Retinoic Acid for the countries of Turkey, Azerbaijan, Kazakhstan, Kyrgyzstan, Turkmenistan, and Uzbekistan, as well as the S.E Asian countries of Indonesia, Malaysia, and the Philippines, for an upfront license fee and royalty.   The launch has been delayed due to company reorganization. It is anticipated that regulatory approval will begin in the latter half of 2013.
Mayquest Pharmaceuticals PTY Licensed DermSafe chlorhexidine hand sanitizer for Singapore, Taiwan, Thailand, Indonesia and the Philippines for a license fee and royalty.   Received importation approval for DermSafe from Canada to Singapore. Launch pending.   Currently seeking distribution partner or sub- licensee to launch the product.

 

2.

Increasing The Value Of Skinvisible’s Pipeline: Clinical Enhancement Of Pipeline

 

We have a pipeline of over forty products which are available for licensing. Testing is conducted in-house generating proof of concept including release of the active ingredient as well as long term shelf life (stability). Additional studies conducted on specific products including skin sensitivity, toxicity and product efficacy are outsourced to FDA compliant laboratories. These studies are critical in attracting potential licensees. Our clinical strategy is to:

 

(1)

Add new studies for our prescription products. Our clinical strategy is to increase the amount of outsourced studies, specifically for our prescription products. Additional studies including skin penetration and skin irritation studies will add to the integrity and value of our products available for licensing.

 

(2)

Add new long-term efficacy studies for our DermSafe® hand sanitizer. Last year we commissioned an independent laboratory to further analyze the long-term effectiveness of DermSafe® when put in contact with two bacteria; the “super bug” MRSA and E. coli, the “restaurant bug” since it is often transmitted by food and food handlers. The long-term effectiveness of two bacteria; Methicillin-resistant Staphylococcus aureus or MRSA (ATCC #33591) and Escherichia coli or E. coli (ATCC #43888") were tested up to four hours after application. The results showed that the individual arms of subjects which had DermSafe® applied and were even rinsed prior to each bacteria challenge, showed a 95.83% reduction at the 4 hour time point for MRSA and 99.38% for E. coli.

 

These new studies were undertaken to benefit our licensee in Canada, Alto Pharmaceuticals, and to assist in the re-licensing of DermSafe in Europe. In 2012 we cancelled the license agreement to RHEI Pharmaceuticals and we are in the process of transferring the regulatory approval in Europe to our company. The objective for 2013 is to make DermSafe available internationally to the general public and also for use in hospitals, schools, law enforcement and the military through independent distributors.

 

(3)

Obtain orphan drug status for our Netherton syndrome product. Along with our research and development of products to treat common skin conditions, we have also developed a patent pending product to treat a rare skin condition called Netherton syndrome. This disease is caused by a genetic defect which causes the skin to continually exfoliate, never forming a skin bond. This leaves the patient highly susceptible to infection and dealing with a life-long condition that has no cure.

 

Our product has shown excellent results in lab studies blocking the enzyme that breaks down the skin and we are seeking “Orphan Drug” designation in both the US (FDA) and Europe (EMA).

 

The advantages of obtaining Orphan Drug designation is that it provides various incentives including a reduction or elimination of registration and market authorization fees, protocol assistance, and seven years of market exclusivity for the product in the US and ten years in Europe. These incentives are highly attractive to pharmaceutical companies targeting this market.. We are currently in discussions with potential licensees and we are implementing a compassionate use study which is expected to begin in the 3^rd quarter of 2013. This study, if successful will add greatly to our request for Orphan Drug designation with both the EMA and FDA. Our lab studies have shown positive results so we are encouraged to go forward with the human study, however there can be no assurances that our project will be successful.

 

(4)

Seek clinical partnerships which will result in FDA approvals of our prescription products. There are three “Phases” involved in obtaining FDA approval. The completion of Phase 1 and/or Phase 2 will increase the value of the license and royalty fees of our products significantly. We are also seeking partnerships with Clinical Research Organizations (CROs) in order to define and begin the regulatory pathway for one or more of our prescription products.

 

3.

Secure Additional Licensees:

 

We are in discussions and undergoing internal studies with various global pharmaceutical and Consumer Goods companies for licenses. These negotiations are at various stages and some are expected to close in 2013.

 

To facilitate further expansion, we have entered discussions with potential partners that are dermatology service providers and knowledgeable and connected in the dermatology market.

 

4.

New Products Available for Exclusive Licensing:

 

During the past few months Skinvisible has developed a new sunless tanning mousse / foam which uses a unique foam with Invisicare®, developed specifically for its foaming properties. This adds to Skinvisible’s line of sunless tanning products which includes sunless tanning lotions (light, medium and dark), pre-sun moisturizer and after-sun moisturizer along with sunless tanning spray products for commercial use. The addition of a sunless tanning mousse enhances this line of products which are available for exclusive licensing.

 

Skinvisible completed its first production of its patented broad spectrum sunscreen. Skinvisible’s sunscreens (SPF 15, 30 and 50) are formulated with Avobenzone, the only UVA sun filter allowed under the US FDA monograph. This UVA/UVB sunscreen was granted a patent from the United States patent office last year. Avobenzone is known for breaking down in the sun after only two hours – thus the requirement to reapply every 2 hours. Skinvisible’s patent was granted based on Invisicare's® minimum 8 hour photo stability For countries outside the United States, Skinvisible has additionally patented UVA/UVB sunscreens formulated with Tinosorb S that are available for licensing.

 

5.

New Patent Received For Invisicare®:

 

Skinvisible expanded its US patent protection for Invisicare®, its unique topical drug delivery technology. In June 2013 Skinvisible was granted US Patent Number 8,481,058 for the topical composition precursor for Invisicare. The patent issued by the United States Patent and Trademark Office (USPTO) is a division of Skinvisible’s US patent “Topical Composition, Topical Composition Precursor, and Methods for Manufacturing and Using.” This latest patent granted to Skinvisible further protects the composition of Invisicare; specifically the composition of the precursor; the chemical composition that gives rise to the final Invisicare delivery technology.

 

This new patent expands Skinvisible’s patent portfolio to fourteen US and international patents and is one of a series of five patents (including Skinvisible’s initial product patent) granted in the United States specifically protecting Invisicare and the products formulated with it.

 

Results of Operations for the Three Months Ended June 30, 2013 and 2012

 

Revenues

 

Our total revenue reported for the three months ended June 30, 2013 was $7,448, a decrease from $30,550 for the same period ended June 30, 2012.  The decrease in revenues for the three months ended June 30, 2013 from the prior year period is a result of deferred revenues of $19,873 recognized as revenue during the first quarter as a result of the canceled licensing agreement. Our revenue for the three months ended June 30, 2013 consisted of $7,448 from royalties on patent licenses, and our revenue for the three months ended June 30, 2012 consisted of $2,877 from product sales, $10,173 from royalties on patent licenses and $17,500 as license fees.

 

Our total revenue reported for the six months ended June 30, 2013 was $34,735, a decrease from $60,628 for the same period ended June 30, 2012.  The decrease in revenues for the six months ended June 30, 2013 from the prior year period is a result of a result of deferred revenues of $19,873 recognized as revenue during the first quarter as a result of the canceled licensing agreement. Our revenue for the six months ended June 30, 2013 consisted of $3,178 from product sales and $31,557 from royalties on patent licenses, and our revenue for the six months ended June 30, 2012 consisted of $25,628 from royalties on patent licenses and $35,000 as license fees.

 

We expect revenues to increase for the balance of 2013 as we are currently in discussions on license agreements for two of our products.

 

Cost of Revenues

 

Our cost of revenues for the three months ended June 30, 2013 decreased to $1,031 from the prior year period when cost of revenues was $1,068. Our cost of revenues for the six months ended June 30, 2013 decreased to $1,189 from the prior year period when cost of revenues was $1,944.

 

The decrease in our cost of revenues for the three months ended June 30, 2013 from the prior year period is attributable to lower cost of goods.

 

Gross Profit

 

Gross profit for the three months ended June 30, 2013 was $6,417, or approximately 86% of sales. Gross profit for three months ended June 30, 2012 was $29,482, or approximately 96% of sales. Gross profit for the six months ended June 30, 2013 was $33,546, or approximately 96% of sales. Gross profit for six months ended June 30, 2012 was $58,684, or approximately 96% of sales.

 

Operating Expenses

 

Operating expenses decreased to $253,675 for the three months ended June 30, 2013 from $381,863 for the same period ended June 30, 2012. Our operating expenses for the three months ended June 30, 2013 consisted of $9,047 in depreciation and amortization and $244,628 in selling, general and administrative expenses. Our operating expenses for the three months ended June 30, 2012 consisted of $17,895 in depreciation and amortization and $363,968 in selling, general and administrative expenses.

 

Operating expenses decreased to $413,328 for the six months ended June 30, 2013 from $714,947 for the same period ended June 30, 2012. Our operating expenses for the six months ended June 30, 2013 consisted of $17,182 in depreciation and amortization and $396,146 in selling, general and administrative expenses. Our operating expenses for the six months ended June 30, 2012 consisted of $35,614 in depreciation and amortization and $679,333 in selling, general and administrative expenses.

 

Our selling, general and administrative expenses decreased significantly in the three and six months ended June 30, 2013 compared to the prior year periods as a result of decreased marketing expenses, salaries, wages and commissions, legal fees and amortization expenses.

 

Other Expenses

 

We had other expenses of $145,550 for the three months ended June 30, 2013, compared with other expenses of $35,272 for the three months ended June 30, 2012. This was entirely the result of more in interest expenses for the three months ended June 30, 2013 than in the prior period ended June 30, 2012.

 

We had other expenses of $309,873 for the six months ended June 30, 2013, compared with other expenses of $68,293 for the six months ended June 30, 2012. This was largely the result of $310,573 we paid in interest expenses for the six months ended June 30, 2013 from $70,020 in the prior period ended June 30, 2012.

 

Net Loss

 

We recorded a net loss of $392,808 for the three months ended June 30, 2013, as compared with a net loss of $387,653 for the three months ended June 30, 2012. We recorded a net loss of $689,655 for the six months ended June 30, 2013, as compared with a net loss of $724,556 for the six months ended June 30, 2012.

 

Liquidity and Capital Resources

 

As of June 30, 2013, we had total current assets of $414,500 and total assets in the amount of $735,938. Our total current liabilities as of June 30, 2013 were $2,930,435. We had a working capital deficit of $2,515,935 as of June 30, 2013.

 

Operating activities used $387,821 in cash for the six months ended June 30, 2013. Our net loss of $689,655 was the main component of our negative operating cash flow, offset mainly by amortization of debt discount of $149,065, an increase of accrued interest of $102,146 and an increase in accounts payable and accrued liabilities of $27,407.

 

Cash flows used by investing activities during the six months ended June 30, 2013 was $82,608 as a result of the purchase of fixed and intangible assets.

 

Cash flows provided by financing activities during the six months ended June 30, 2013 amounted to $399,998 and consisted of $430,000 as proceeds from loans, offset by $12,475 in payments on related party convertible notes payable, $10,000 in payments convertible notes payable, and $7,527 in payments to related party loans.

 

On May 22, 2013, we approved a financing plan to offer accredited investors up to $1,000,000 in secured promissory notes. During the quarter ended June 30, 2013, we entered into twelve 9% notes payable to investors and received total proceeds of 430,000. During the month ended July 2013, we entered into four 9% notes payable to investors and received total proceeds of 166,000.

 

The notes are secured by our US patent rights granted for our Sunscreen Products: US patent number #8,128,913: “Sunscreen Composition with Enhanced UV-A Absorber Stability and Methods.

 

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. 

 

Off Balance Sheet Arrangements

 

As of June 30, 2013, 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.

 

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 $23,261,020 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.

 

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 June 30, 2013, 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, 2013. 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, 2013, 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, 2013, 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, 2013: (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 June 30, 2013 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

Item 1.     Legal Proceedings

 

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

 

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

 

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

 

The information set forth below relates to our issuances of securities without registration under the Securities Act of 1933 during the reporting period which were not previously included in a Quarterly Report on Form 10-Q or Current Report on Form 8-K.

 

On April 15, 2013, we issued 240,000 shares of our common stock as a result of entering into debt conversion agreements to convert a total principal balance and interest of $7,200 into equity.

 

On May 22, 2013, we issued a consultant a one year warrant to purchase 200,000 at a strike price of $0.04 per share.

 

On June 30, 2013, we issued a promissory note to Doreen McMorran, an affiliate of our company. The note is for $43,661 and covers her salary as an employee of our company for the first six months of 2013. The note matures on June 30, 2018 and is convertible into shares of our common stock at $0.03 per share. We also issued to Mr. McMorran three year warrants to purchase shares of our common stock at $0.04 per share. The warrants give her the right to purchase one share of every two shares acquired in the conversion of the note.

 

On July 3, 2013, we issued 240,000 shares of our common stock as a result of entering into debt conversion agreements to convert a total principal balance and interest of $7,200 into equity. 

 

On June 30, 2013, we issued a promissory note to Terry Howlett, our officer and director. The note is for $62,490 and covers his salary as an employee of our company for the first six months of 2013. The note matures on June 30, 2018 and is convertible into shares of our common stock at $0.03 per share. We also issued to Mr. Howlett three year warrants to purchase shares of our common stock at $0.04 per share. The warrants give him the right to purchase one share of every two shares acquired in the conversion of the note.

 

These securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock.

 

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, 2013 formatted in Extensible Business Reporting Language (XBRL).
**Provided herewith

 

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 13, 2013
	By: /s/ Terry Howlett Terry Howlett Title:   Chief Executive Officer, Chief Financial Officer and Director