SKINVISIBLE, INC. - Quarter Report: 2009 March (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
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[X]
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Quarterly
Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
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For
the quarterly period ended March 31,
2009
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[ ]
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Transition
Report pursuant to 13 or 15(d) of the Securities Exchange Act of
1934
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For
the transition period __________ to __________
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Commission
File Number: 000-25911
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Skinvisible,
Inc.
(Exact
name of small business issuer as specified in its charter)
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Nevada
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88-0344219
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(State
or other jurisdiction of incorporation or
organization)
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(IRS
Employer Identification
No.)
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6320
South Sandhill Road Suite 10
Las Vegas, Nevada 89120
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(Address
of principal executive
offices)
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702-433-7154
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(Issuer’s
telephone number)
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_______________________________________________________________
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(Former
name, former address and former fiscal year, if changed since last
report)
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Check
whether the issuer (1) 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 issuer 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 is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.
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[ ]
Large accelerated filer Accelerated filer
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[ ]
Non-accelerated filer
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[X]
Smaller reporting company
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No
[X]
State the
number of shares outstanding of each of the issuer’s classes of common stock, as
of the latest practicable date: 84,650,888 Common Shares as of March
31, 2009.
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TABLE OF
CONTENTS
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Page
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PART I – FINANCIAL INFORMATION
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PART II – OTHER INFORMATION
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PART
I - FINANCIAL INFORMATION
Item 1. Financial Statements
Our
unaudited consolidated financial statements included in this Form 10-Q are as
follows:
These
unaudited consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and the SEC instructions to Form
10-Q. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Operating
results for the interim period ended March 31, 2009 are not necessarily
indicative of the results that can be expected for the full year.
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March
31, 2009
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December
31, 2008
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(Unaudited)
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(Audited)
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ASSETS
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Current
assets
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|||||
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Cash
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$ | 185 | $ | 6,062 | |
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Accounts
receivable
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3,459 | 9,553 | |||
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Inventory
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17,796 | 17,796 | |||
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Due
from related party
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910 | 986 | |||
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Financing
costs
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5,155 | 55,562 | |||
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Prepaid
royalty fees
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120,000 | 180,000 | |||
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Prepaid
expense and other current assets
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3,431 | 4,182 | |||
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Total
current assets
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150,936 | 274,141 | |||
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Fixed
assets, net
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13,792 | 16,593 | |||
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Intangible
and other assets
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|||||
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Patents
and trademarks, net
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20,448 | 23,333 | |||
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License
and distributor rights
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50,000 | 50,000 | |||
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Total
assets
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$ | 235,176 | $ | 364,067 | |
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LIABILITIES
AND STOCKHOLDERS' DEFICIT
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Current
liabilities
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Accounts
payable and accrued liabilities
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$ | 503,699 | $ | 469,151 | |
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Accrued
interest payable
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23,209 | 23,209 | |||
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Loans
from related party
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1,310 | 2,136 | |||
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Convertible
notes payable related party
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231,146 | 120,627 | |||
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Unearned
revenue
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- | 50,000 | |||
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Total
current liabilities
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759,364 | 665,123 | |||
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Total
liabilities
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759,364 | 665,123 | |||
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Commitments
and contingencies
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-- | -- | |||
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Stockholders'
deficit
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|||||
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Common
stock; $0.001 par value; 100,000,000 shares authorized;
and 84,650,888
and 84,095,888 shares issued and outstanding, respectively
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84,653 | 84,098 | |||
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Additional
paid-in capital
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16,694,942 | 16,552,571 | |||
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Accumulated
deficit
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(17,303,783) | (16,937,725) | |||
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Total
stockholders' deficit
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(524,188) | (301,056) | |||
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Total
liabilities and stockholders' deficit
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$ | 235,176 | $ | 364,067 | |
See Accompanying Notes to Consolidated Financial Statements
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For
the three months ended
March
31, 2009
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For
the three months ended
March
31, 2008
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Revenues
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$ | 77,953 | $ | 149,411 | |
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Cost
of revenues
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1,421 | 10,131 | |||
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Gross
profit
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76,532 | 139,280 | |||
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Operating
expenses
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Depreciation
and amortization
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4,004 | 5,356 | |||
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Selling
general and administrative
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376,249 | 644,555 | |||
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Total
operating expenses
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380,253 | 649,911 | |||
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Loss
before provision for income taxes
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(303,721) | (510,631) | |||
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Other
income (expense)
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Interest
income
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17 | -- | |||
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Interest
expense
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(62,354) | (162,423) | |||
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Total
other income (expense)
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(62,337) | (162,423) | |||
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Provision
for income taxes
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-- | -- | |||
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Net
loss
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$ | (366,058) | $ | (673,054) | |
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Basic
loss per common share
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$ | (0.00) | $ | (0.01) | |
| Basic weighted average common shares outstanding | 84,376,721 | 75,487,238 | |||
See Accompanying Notes to Consolidated Financial Statements
F-2
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For
the three months ended
March
31, 2009
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For
the three months ended
March
31, 2008
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Cash
flows from operating activities:
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Net
loss
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$ | (366,058) | $ | (673,054) | |
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Adjustments
to reconcile net loss to net cash used by operating
activities:
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Depreciation
and amortization
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4,004 | 5,356 | |||
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Stock
based compensation
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120,426 | 248,442 | |||
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Interest
expense paid with common stock
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54,907 | 151,613 | |||
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Loss
on disposal of assets
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1,682 | -- | |||
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Changes
in operating assets and liabilities:
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(Increase)
in inventory
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-- | (15,007) | |||
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(Increase)
decrease in accounts receivable
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6,094 | 31,026 | |||
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Decrease
in prepaid expenses and other current assets
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751 | 477 | |||
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(Increase)
decrease in related party receivable
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76 | -- | |||
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Decrease
in prepaid royalty fees
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60,000 | 60,000 | |||
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Increase
in accounts payable and accrued liabilities
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52,548 | 139,299 | |||
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Increase
in accrued interest
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-- | 6,658 | |||
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Decrease
in unearned revenue
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(50,000) | (100,000) | |||
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Net
cash used in operating activities
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(115,570) | (145,190) | |||
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Cash
flows from investing activities:
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Purchase
of fixed assets and untangible assets
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-- | -- | |||
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Net
cash used in investing activities
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-- | -- | |||
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Cash
flows from financing activities:
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Proceeds
from (Payments to) related party loans
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(826) | (30,892) | |||
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Proceeds
from convertible notes payable
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110,519 | 115,199 | |||
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Proceeds
from loan payable
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-- | 3,500 | |||
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Net
cash provided by financing activities
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109,693 | 87,807 | |||
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Net
change in cash
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(5,877) | (57,383) | |||
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Cash,
beginning of period
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6,062 | 63,168 | |||
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Cash,
end of period
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$ | 185 | $ | 5,785 | |
See Accompanying Notes to Consolidated Financial Statements
SKINVISIBLE, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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1.
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DESCRIPTION OF
BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT
POLICIES
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Basis
of presentation – The accompanying unaudited Consolidated Financial
Statements of Skinvisible, Inc. (the “Company”) have been prepared in accordance
with U.S. generally accepted accounting principles (GAAP) for interim financial
information and with the instructions to Form 10-QSB. The financial
statements reflect all adjustments consisting of normal recurring adjustments
which, in the opinion of management, are necessary for a fair presentation of
the results for the periods shown. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles (GAAP) for complete financial statements.
These
Consolidated Financial Statements should be read in conjunction with the audited
financial statements and footnotes included in Skinvisible, Inc.’s Form 10-K for
the year ended December 31, 2008, as filed with the Securities and Exchange
Commission.
The
preparation of financial statements in conformity with generally accepted
accounting principles 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 financial
statements and that affect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
Description
of business - Skinvisible, Inc., (referred to as the “Company”) is
focused on the development and manufacture of innovative topical 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. The
Company’s antibacterial/antimicrobial hand sanitizer formulations, available for
private label commercialization opportunities, offer skincare solutions for the
healthcare, food service, industrial, cosmetic and salon industries, as well as
for personal use in the retail marketplace. The Company maintains manufacturing,
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 $17,303,783 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 raise 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.
SKINVISIBLE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.
DESCRIPTION OF
BUSINESS AND SUMMARY OF SIGNIFICANT POLICIES (continued)
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.
Revenue
recognition
Product sales -
Revenues from the sale of products 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 patent and
trademarks, 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 – The Company also recognizes revenue from distribution and
license rights 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.
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 March 31, 2009,
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 - Beginning January 1, 2002, the Company adopted Statement of
Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible
Assets”. 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 SFAS No. 142, the carrying value of assets are
calculated at the lowest level for which there are identifiable cash
flows.
SFAS 142
requires the Company to compare the fair value of the reporting unit to its
carrying amount on an annual basis to determine if there is potential
impairment. If the fair value of the reporting unit is less than its carrying
value, an impairment loss is recorded to the extent that the fair value of the
goodwill within the reporting unit is less than its carrying value. Upon
adoption and during 2002, the Company completed an impairment review and did not
recognize any impairment of goodwill and other intangible assets already
included in the financial statements. The Company expects to receive future
benefits from previously acquired goodwill over an indefinite period of time.
Accordingly, beginning January 1, 2002, the Company has foregone all related
amortization expense. Prior to January 1, 2002, the Company amortized goodwill
over an estimated useful life ranging from 3 to 15 years using the straight-line
method.
SKINVISIBLE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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1.
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DESCRIPTION OF
BUSINESS AND SUMMARY OF SIGNIFICANT POLICIES
(continued)
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Income taxes - The
Company accounts for its income taxes in accordance with Statement of Financial
Accounting Standards No. 109, 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
- On January 1, 2005, the Company adopted SFAS No. 123 (R) “Share-Based
Payment” 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.
The
Company adopted SFAS No. 123(R) using the modified prospective transition
method, which required the application of the accounting standard as of January
1, 2005. The accompanying consolidated financial statements as of and
for the three months ended March 31, 2008 reflect the impact of SFAS No.
123(R). In accordance with the modified prospective transition
method, the Company’s accompanying consolidated financial statements for the
prior periods have not been restated, and do not include the impact of SFAS No.
123(R). Stock based compensation expense recognized under SFAS No.
123(R) for the three months ended March 31, 2009 and 2008 totaled
$120,426 and $248,442, respectively.
Earnings (loss) per
share - The Company reports earnings (loss) per share in accordance with
SFAS No. 128, "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.
Reclassification –
The financial statements from 2008 reflect certain reclassifications, which will
have no effect on net income, to conform to classifications in the current
year.
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2.
INTANGIBLE AND
OTHER ASSETS
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Patents
and trademarks are capitalized at its historical cost and are amortized over
their useful lives. As of March 31, 2009, patents and trademarks total $20,448,
and amortization expense for the three months ended March 31, 2009
and 2008 were $2,885 and $2,885, respectively.
License
and distributor rights (“agreement”) was acquired by the Company in January 1999
and provides exclusive use distribution of polymers and polymer based products.
The Company has a non-expiring term on the license and distribution rights.
Accordingly, the Company annually assesses this license and distribution rights
for impairment and has determined that no impairment write-down is considered
necessary as of March 31, 2009.
Prepaid
royalties fees are amounts prepaid by the Company related to the license and
distributor rights. The future royalties payments required by the Company total
$2,000,000. The royalties fees are to be paid in an amount equal to the greater
of (a) $6,000 per month; or (b) 1.5% of net revenues realized by the sale of the
associated polymer products subject to a cap of $2,000,000. The Company will
make payments of $6,000 per month, and by a payment on any royalties in excess
of $72,000 in each year payable on an annual basis calculated within 60 days of
each anniversary date of the agreement. The future royalties payments are to be
amortized over eight years, which is the life of the agreement. As of
March 31, 2009, the Company has paid a total of $2,000,000 of which
$1,880,000 has been expensed and $120,000 has been recorded as prepaid
royalties. The Company will expense the prepayment in the future in
accordance to the terms of the agreement.
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
develop innovative polymer delivery vehicles and related compositions that
hold active ingredients on the skin for extended periods of time when
applied topically. We designed a process for combining water soluble and
insoluble polymers that is specifically formulated to carry water insoluble
active ingredients in water-based products without the use of alcohol,
silicones, waxes, or other organic solvents. This enables active agents the
ability to perform their intended functions for an extended period of time. Our
polymer delivery vehicles, trademarked Invisicare®,
allow normal skin respiration and perspiration. The polymer compositions we
develop wear off as part of the natural exfoliation process of the skin's outer
layer cells.
We
believe Invisicare® offers
the following benefits:
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§
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Displays
superior skin adherence for extended time
periods
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§
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Non-occlusive
yet resists water wash-off, respiration and
perspiration
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§
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Increased
efficacy of active ingredients
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§
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Allows
for lower use levels of actives with increased persistence of
effect
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§
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Offers
advantage of controlled and/or sustained
time-release
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§
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Highly
compatible with a variety of actives and
bases
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§
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Easy
to emulsify
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§
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Formulates
well at a cream, lotion, or spray
viscosity
|
|
§
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Non-irritating
emulsion dries quickly with no greasy
after-feel
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|
§
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Non-occlusive
film forms protective barrier against environmental
irritants
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|
§
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Broad
polymer selection to meet application
requirements
|
|
§
|
Offers
“Life Cycle” management to core products with potential for new
patent
|
|
§
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Simplified
manufacturing process
|
Products
that successfully incorporate Invisicare to date include antimicrobial hand
sanitizer lotions, suncare products, skincare moisturizers, sunless tanning
products as well as various dermatology products for various skin
disorders. On an ongoing basis, we are seeking to develop polymer
formulations that can successfully be incorporated into other
products.
Our
primary objective is to license Invisicare to established brand
manufacturers and marketers of prescription and over-the-counter
products in the dermatological, medical, cosmetic, and skincare
markets. With the exception of sales to one vendor, our management’s policy is
to only sell Invisicare to vendors that have executed a license agreement with
us. We conduct our research and development in-house. We engage an outside party
that currently handles all of our manufacturing and distribution
needs.
Recent
Developments
Our core
business is the research and development of products formulated with our
patented technology Invisicare. This year we have added a strategic
focus on the sale and marketing of these products and developing new Invisicare
technologies. Our focus has allowed us to expand our reputation amongst key
dermatology, consumer goods and medical/surgical companies around the
globe. It has also allowed us to branch out beyond dermatology into
other medical areas that require topically delivered products.
Product
Developments
We intend
to expand our product offerings. Currently we have over 30 topical products
formulated with Invisicare available for licensing. Our products
range from acne formations to sunscreens to surgical products. A key
addition to our portfolio in 2008 was our UVA/UVB sunscreen with Parsol 1789.
Parsol 1789 is the most used UVA filter in sunscreens in the US and the only
ingredient approved by the US FDA that is not proprietary. Our studies show a
minimum of eight hour photostability compared to the industry average of two
hours. In addition, most sunscreens, even those that indicate they are water
resistant, do not remain on the skin after swimming. With our
Invisicare technology, sunscreens remain on the skin for 8 to 12 hours and
resist wash-off and rub-off. For the international market, we have developed new
sunscreens using a proprietary sunscreen UVA filter from CIBA Specialty
Chemicals. While this ingredient is not yet approved for sale in the US, it is
used internationally and we are working with sunscreen companies in Europe and
Latin America on this new development.
In the
third quarter of 2009, we intend to begin marketing our Chlorhexidine Hand
Sanitizer Lotion “DermSafe” in Canada where we have received approval from
Health Canada. We expect to file for US FDA approval with a marketing partner in
2009. We believe this is a unique product that is needed immediately in all
healthcare settings from hospitals to nursing homes. DermSafe stays bound to the
hands, even after frequent washings, for up to 4 hours while killing both
bacteria and viruses; a real plus for doctors and nurses as they move from
patient to patient.
Patent
Developments
We intend
to continually generate new patents (intellectual property) on our dermatology
and medical products. Every product we formulate is protected by one or more
patents. Patent approvals are sought (initially in the U.S. and later
internationally) for all products developed. Currently there are 5 patents
approved including the US, Australia, India and this year Japan, 9 U.S. patents
pending in addition to 34 PCT's internationally, with many more to be
filed. Some of these PCT patents cover up to 5 products. All patents
with Invisicare are owned by Skinvisible.
Patent
protection is important to our company. Pharmaceutical companies are pursuing
new or improved revenue streams along with protecting their own intellectual
properties. Invisicare allows companies to sell a patent-protected
product that has been revitalized with new benefits, giving them a new story to
help combat generic competitors. A prescription dermatology product can generate
$100 plus million per year; some even $200 plus million – and that is why we
believe the investment into a license with an Invisicare formulation is a very
viable option for these companies.
We
continue to submit for patent protection worldwide for products formulated with
Invisicare.
License
Agreements
Our
current licensees: JD Nelson with Safe4Hours®, DRJ Group with Stopain® and
Sunless Beauty with Solerra® all remain focused on expanding their markets in
the US and Solerra globally. In 2008, we added two new licensees. Our
first addition was for two acne formulations made with adapalene for Panalab
Internacional S.A. for the territory of Latin America. Panalab is a
multi-national dermatology company headquartered in Panama with subsidiaries and
partners in most Latin American countries. Under the terms of the agreement,
Panalab will be responsible for filing and obtaining marketing approval in the
countries they have licensed. We received a research and development fee plus a
licensing fee allocated as an upfront fee plus milestone payments. In addition,
we will receive royalties based on revenues generated by the sale of the
products. According to the agreement, Panalab will have the right to
manufacture, distribute, market, sell and promote the Adapalene formulations in
the specified territory. Panalabs expect to be selling in their territory by
late fall 2009.
In
addition, two more prescription acne products (clindamycin and retinoic acid)
were licensed to Embil Pharmaceuticals for Turkey, parts of Asia (Indonesia,
Malaysia, and the Philippines) and Azerbaijan, Kazakhstan, Kyrgyzstan,
Turkmenistan, and Uzbekistan. Embil is a multi-national dermatology company
headquartered in Instanbul, Turkey with subsidiaries and partners in S.E. Asia.
Under the terms of the agreement, Embil will be responsible for filing and
obtaining marketing approval in the countries they have licensed. We have
received a research and development fee plus a licensing fee allocated as an
upfront fee plus milestone payments. In addition, we will receive royalties
based on revenues generated by the sale of the products. According to the
agreement, Embil will have the right to manufacture, distribute, market, sell
and promote the Clindamycin HCL and Retinoic Acid formulations for acne in the
specified territory.
In
January 2009, we signed an agreement with RHEI Pharmaceuticals NV, a Belgium
based pharmaceutical company that in-licenses drugs for sale in China. This
agreement gives RHEI the first option to license the exclusive rights for
Skinvisible's dermatology products for the territory of China, Hong Kong and
Taiwan. Specifically the agreement is for over-the-counter and prescription
dermatology products formulated with Invisicare that have been approved in a
reference country. As part of the agreement, RHEI will augment its
existing product lines by seeking approval and then marketing and manufacturing
Skinvisible's Invisicare dermatology products in the approved
territory.
The
Chinese pharmaceutical market represents a huge opportunity with an estimated
$22.6 billion spent on pharmaceutical drugs in 2007 and growing at an annual
rate of nearly 20%. To address this huge growth, the Chinese government has
implemented a more effective approval process, one that fits advantageously into
the strategic plans of both Skinvisible and RHEI.
Status
of Research and Development for New Applications
We
believe that the enhancement and extension of our existing products and the
development of new product categories have contributed significantly to our
growth to date and are necessary for our continued growth. Our management
evaluates new ideas and seeks to develop new products and improvements to
existing products to satisfy industry requirements and changing consumer
preferences. We seek to identify trends in consumer preferences and to generate
new product ideas. Specific to the objective of generating new products, we are
continuing our research and development toward developing additional
applications with Invisicare. We are currently at various development stages for
the following potential applications using Invisicare:
|
Skinvisible’s
Formulas with Invisicare:
|
 |
||
|
ACTIVE
INGREDIENT
|
TYPE
|
Availability
|
Patent
|
|
Acne
|
|||
|
Adapalene
Cream & Gel (0.1% & 0.3%)
|
Rx
|
yes*
|
pending
|
|
Clindamycin
Hydrochloride Cream (1%)
|
Rx
|
yes*
|
pending
|
|
Retinoic
Acid Cream (0.1%)
|
Rx
|
yes*
|
pending
|
|
Benzoyl
Peroxide (2.5%) Cream
|
Rx
/ OTC
|
In
development
|
pending
|
|
Actinic
Keratosis
|
|||
|
Imiquimod
Lotion (2%, 3%)
|
Rx
|
yes
|
pending
|
|
Analgesics
|
|||
|
Topical
Spray with Menthol (6% & 8%)
|
OTC
|
yes
|
technology
|
|
Topical
Roll-On with Menthol (6% & 8%)
|
OTC
|
yes
|
technology
|
|
Topical
Cream with Salicylate (10%)
|
OTC
|
yes
|
technology
|
|
Anti-Aging
|
|||
|
Retinol
Cream (0.3%)
|
Cosmetic
|
yes
|
technology
|
|
Anti-Fungal
|
|||
|
Terbinafine
Cream, Gel (1%)
|
OTC
|
yes
|
pending
|
|
Naftifine
Cream (1%)
|
Rx
|
yes
|
pending
|
|
Naftifine
(1%) & Hydrocortisone (1%) Cream
|
Rx
|
yes
|
pending
|
|
Clotrimazole
Cream (1%)
|
OTC
|
yes
|
pending
|
|
Anti-Inflammatory
|
|||
|
Hydrocortisone
Cream (1%)
|
OTC
|
yes
|
technology
|
|
Triamcinolone
(1%)
|
Rx
|
yes
|
technology
|
|
Triamcinolone
Acetonide (1%)
|
Rx
|
yes
|
technology
|
|
Clobetasole
Proprionate (0.05%)
|
Rx
|
in-progress
|
technology
|
|
Betamethasone
(1%)
|
Rx
|
yes
|
technology
|
|
Antimicrobial
Lotions
|
|||
|
Triclosan
Lotion (1%) with Nonoxynol-9
|
OTC
|
yes*
|
granted
|
|
Triclosan
Lotion (1%) with Tomadol 901
|
OTC
|
yes*
|
granted
|
|
Benzalkonium
Chloride Lotion (0.13%)
|
OTC
|
yes*
|
granted
|
|
Chlorhexidine
Gluconate Lotion (4%)
|
OTC
/ NDA
|
yes
|
pending
|
|
Chlorhexidine
Gluconate (2%) Pre-Surgical Prep
|
NDA
|
yes
|
pending
|
|
Atopic
Dermatitis / Super Moisturizers
|
|||
|
Non-Steroidal
Atopic Dermatitis Cream 1% Hyaluronic Acid
|
Rx
/ Cosmetic
|
yes
|
technology
|
|
Skin
Protectant Lotion with Allantoin (1%)
|
OTC
|
yes
|
technology
|
|
Super
Moisturizer with Ectoin
|
Cosmetic
|
yes
|
technology
|
|
Urea
Moisturizer (25% & 30%)
|
Cosmetic
|
yes
|
technology
|
|
UVA
/ UVB Sunscreen
|
|||
|
Parsol
1789 - SPF 15 / 30 / 50 Lotion
|
OTC
|
yes
|
pending
|
|
Tinosorb
S – SPF 15 / 30 / 50 Lotion
|
OTC
|
yes
|
pending
|
|
Other
|
|||
|
Scar
Lotion with Onion Bulb
|
Cosmetic
|
yes
|
technology
|
|
Fragrance
– Long Lasting Gel
|
Cosmetic
|
yes
|
technology
|
|
Long-lasting
Sunless Tanner (2.5%, 5% & 9%)
|
Cosmetic
|
yes
|
technology
|
|
After
Sun (Aloe) Cream
|
Cosmetic
|
yes
|
technology
|
*some
territories already licensed
Results
of Operations for the Three months Ended March 31, 2009 and 2008
Revenues
Our total
revenue reported for the three months ended March 31, 2009 was 77,953, compared
to $149,411 for the three months ended March 31, 2008. The decrease
in revenues for the three months ended March 31, 2009 from the prior period is
attributable to decreased sales of polymers to our licensees.
Cost
of Revenues
Our cost
of revenues for the three months ended March 31, 2009 decreased to $1,421 from
the prior period when cost of revenues was $10,131. The decrease in our cost of
revenues for the three months ended March 31, 2009 from the prior period is
attributable to decreased sales of polymers.
Gross
Profit
Gross
profit for the three months ended March 31, 2009 was $76,532, or approximately
98% of sales. Gross profit for the three months ended March 31, 2008 was
$139,280, or approximately 93% of sales. The increase in total gross profit for
the three months ended March 31, 2009 from the prior period is attributable to
the decrease in cost of revenues.
Operating
Expenses
Operating
expenses decreased to $380,253 for the three months ended March 31, 2009 from
$649,911 for the three months ended March 31, 2008. Our operating expenses for
the three months ended March 31, 2009 consisted of depreciation and amortization
expenses of $4,004 and selling, general and administrative expenses of $376,249.
Our operating expenses for the three months ended March 31, 2008 consisted of
depreciation and amortization expenses of $5,356, and selling, general and
administrative expenses of $644,555.
Other
Expenses
We paid
less in interest expenses for the three months ended March 31, 2009 than in the
prior period ended 2008, resulting in total other expenses of $62,354 as
compared with $162,423 for the prior period.
Net
Loss
Net loss
for the three months ended March 31, 2009 was $366,058, compared to net loss of
$673,054 for the three months ended March 31, 2008.
Liquidity
and Capital Resources
As of
March 31, 2009, we had total current assets of $150,936 and total assets in the
amount of $235,936. Our total current liabilities as of March 31, 2009 were
$759,364. We had a working capital deficit of $608,428 as of March
31, 2009.
Operating
activities used $115,570 in cash for three months ended March 31, 2009. Our net
loss of $366,058 combined with a decrease in unearned revenue of $50,000 was the
primary component of our negative operating cash flow, offset mainly by stock
based compensation of $120,426, decrease in prepaid royalty fees of $60,000,
interest expenses paid with common stock of $54,907, and increase in accounts
payable and accrued liabilities of $_52,548. There were no cash flows used or
provided by investing activities during the three months ended March 31,
2009. Cash flows provided by financing activities during the three
months ended March 31, 2009 amounted to $109,693 and consisted of $110,519 as
proceeds from the issuance of convertible notes payable, offset by payments of
$826 on related party loans.
In order
to preserve needed cash to operate our business, we have sought to and have been
successful in converting certain of our debt into equity of our
company. During the first quarter ended March 31, 2008, a total of
$29,250, represented by loans, accrued compensation and expenses, has been
converted into equity under various rates and terms. We can provide no assurance
that we will be able to convert other debt in our company under similar
arrangements, or at all, in the future. If we are unable to convert
our debt into equity, or raise capital to cover our liabilities, we may not be
able to continue as a going concern.
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
March 31, 2009, there were no off balance sheet arrangements.
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
approximately $17,303,783 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 the 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. Our consolidated financial
statements do not include any adjustments that may result from the outcome of
these aforementioned uncertainties.
Critical
Accounting Policies
In
December 2001, the SEC requested that all registrants list their three to five
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. We believe that the following accounting policies fit this
definition.
Revenue
Recognition
Revenues
are recognized during the period in which the revenues are earned. Costs and
expenses are recognized during the period in which they are
incurred.
Product sales -
Revenues from the sale of products 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 patent and
trademarks, 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 – The Company also recognizes revenue from distribution and
license rights 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.
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.
Fixed
Assets
Fixed
assets are stated at cost less accumulated depreciation. Depreciation is
provided principally on the straight-line method over the estimated useful lives
of the assets, which are generally 3 to 10 years. The cost of repairs and
maintenance is charged to expense as incurred. Expenditures for property
betterments and renewals are capitalized. Upon sale or other disposition of a
depreciable asset, cost and accumulated depreciation are removed from the
accounts and any gain or loss is reflected in other income
(expense).
We
periodically evaluate whether events and circumstances have occurred that may
warrant revision of the estimated useful life of fixed assets or whether the
remaining balance of fixed assets should be evaluated for possible impairment.
We use an estimate of the related undiscounted cash flows over the remaining
life of the fixed assets in measuring their recoverability.
Goodwill
and Intangible Assets
Beginning
January 1, 2002, we adopted Statement of Financial Accounting Standards (“SFAS”)
No. 142, “Goodwill and Other Intangible Assets”. 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 SFAS No.
142, the carrying value of assets are calculated at the lowest level for which
there are identifiable cash flows.
SFAS 142
requires us to compare the fair value of the reporting unit to its carrying
amount on an annual basis to determine if there is potential impairment. If the
fair value of the reporting unit is less than its carrying value, an impairment
loss is recorded to the extent that the fair value of the goodwill within the
reporting unit is less than its carrying value. Upon adoption and during 2002,
we completed an impairment review and did not recognize any impairment of
goodwill and other intangible assets already included in the financial
statements. We expect to receive future benefits from previously acquired
goodwill over an indefinite period of time. Accordingly, beginning January 1,
2002, we have foregone all related amortization expense. Prior to January 1,
2002, we amortized goodwill over an estimated useful life ranging from 3 to 15
years using the straight-line method.
Recently Issued Accounting
Pronouncements
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement No. 133,”
(SFAS “161”) as amended and interpreted, which requires enhanced disclosures
about an entity’s derivative and hedging activities and thereby improves the
transparency of financial reporting. Disclosing the fair values of
derivative instruments and their gains and losses in a tabular format provides a
more complete picture of the location in an entity’s financial statements of
both the derivative positions existing at period end and the effect of using
derivatives during the reporting period. Entities are required to
provide enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under Statement 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. SFAS No. 161 is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008. Early adoption is
permitted.
At March
31, 2009, we did not have any derivative instruments or hedging activities.
Management is aware of the requirements of SFAS 161 and will disclose when
appropriate.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS 162 will provide framework for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with U.S. generally accepted accounting principles
(GAAP) for nongovernmental entities. SFAS 162 will be effective 60
days following the Securities and Exchange Commission’s approval of the Public
Company Accounting Oversight Board (“PCAOB”) amendments to AU Section
411. We do not expect the adoption of SFAS 162 will have a material
impact on our financial condition or results of operation.
In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts – an interpretation of FASB Statement No.
60.” SFAS 163 requires that an insurance enterprise recognize a claim
liability prior to an event of default (insured event) when there is evidence
that credit deterioration has occurred in an insured financial
obligation. This Statement also clarifies how Statement 60 applies to
financial guarantee insurance contracts, including the recognition and
measurement to be used to account for premium revenue and claim liabilities.
Those clarifications will increase comparability in financial reporting of
financial guarantee insurance contracts by insurance enterprises. This Statement
requires expanded disclosures about financial guarantee insurance contracts. The
accounting and disclosure requirements of the Statement will improve the quality
of information provided to users of financial statements. SFAS 163
will be effective for financial statements issued for fiscal years beginning
after December 15, 2008. We do not expect the adoption of SFAS 163
will have a material impact on our financial condition or results of
operation.
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 4T. 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 March 31, 2009. This evaluation was
carried out under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, Mr. Terry
Howlett. Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that, as of March 31, 2009, our disclosure
controls and procedures are effective. There have been no significant
changes in our internal controls over financial reporting during the quarter
ended March 31, 2009 that have materially affected or are reasonably likely to
materially affect such controls.
Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act are recorded, processed, summarized and
reported, within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in our
reports filed under the Exchange Act is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding required disclosure.
Limitations on the
Effectiveness of Internal Controls
Our
management does not expect that our disclosure controls and procedures or our
internal control over financial reporting will necessarily prevent all fraud and
material error. An internal control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the internal control. The design of
any system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions.
Over time, control may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may
deteriorate.
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
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 during the reporting period which were not
previously included in a Current Report on Form 8-K.
During
the three months ended March 31, 2009, we issued 555,000 restricted shares of
our common stock as a result of entering into debt conversion agreements with
lenders to convert total principal balances of $29,250 into equity. These shares
were issued pursuant to Section 4(2) of the Securities Act. The lenders
represented their intention to acquire the securities for investment only and
not with a view towards distribution. The lenders 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.
During
the three months ended March 31, 2009, we issued options to consultants to
purchase 200,000 shares of our common stock at an exercise price of $0.10 per
share. These securities were issued pursuant to Section 4(2) of the
Securities Act.
During
the three months ended March 31, 2009, we cancelled stock option agreements with
certain affiliates and employees, and granted new stock option
agreements as follows:
|
Old
Stock Option Agreements
|
New
Stock Option Agreements
|
|
|
Terry
Howlett
|
option
for 1,000,000 shares at $0.24 per share to expire in 5
years
|
option
for 1,000,000 shares at $0.06 per share to expire in 5
years
|
|
Greg
McCartney
|
option
for 250,000 shares at $0.24 per share to expire in 5
years
|
option
for 250,000 shares at $0.06 per share to expire in 5
years
|
|
Consultant
|
option
for 100,000 shares at $0.10 per share to expire 12/4/08
|
option
for 100,000 shares at $0.10 per share to expire
12/4/13
|
|
Employee
|
option
for 200,000 shares at $0.10 per share to expire 12/4/08
|
option
for 200,000 shares at $0.10 per share to expire
12/4/13
|
Following
the reporting period, on April 1, 2009, we issued 3,000,000 restricted shares of
our common stock as a result of entering into a debt conversion agreement with
Terry Howlett to convert a total principal balance of $90,000 into equity. These
shares were issued pursuant to Section 4(2) of the Securities Act. The lenders
represented their intention to acquire the securities for investment only and
not with a view towards distribution. The lenders 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. Submission of Matters to a Vote
of Security Holders
No
matters have been submitted to our security holders for a vote, through the
solicitation of proxies or otherwise, during the quarterly period ended March
31, 2009.
Item 5. Other Information
None
Item 6. Exhibits
|
Exhibit
Number
|
Description
of Exhibit
|
SIGNATURES
In
accordance with the requirements of the Securities and 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:
|
May 14, 2008
|
|
By: /s/ Terry
Howlett
Terry
Howlett
Title: Chief
Executive Officer, Chief Financial Officer, and
Director
|