UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

[X]	ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2019
[  ]	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
	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)		(I.R.S. Employer Identification No.)
6320 South Sandhill Road, Suite 10, Las Vegas, NV		89120
(Address of principal executive offices)		(Zip Code)
Registrant’s telephone number: 702.433.7154
Securities registered under Section 12(b) of the Exchange Act:
Title of each class	Name of each exchange on which registered
None	not applicable
Securities registered under Section 12(g) of the Exchange Act:
Title of each class
Common Stock, par value $0.001

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act 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. Yes [X] No [ ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ]

 

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

 

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

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $2,388,180

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. 4,471,746 common shares as of May 12, 2020

 

 

TABLE OF CONTENTS

 

		Page
PART I
Item 1.	Business	3
Item 1A.	Risk Factors	8
Item 2.	Properties	14
Item 3.	Legal Proceedings	14
Item 4.	Mine Safety Disclosures	14
PART II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities	15
Item 6.	Selected Financial Data	17
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	20
Item 8.	Financial Statements and Supplementary Data	20
Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	21
Item 9A.	Controls and Procedures	21
Item 9B.	Other Information	21
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	22
Item 11.	Executive Compensation	24
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	26
Item 13.	Certain Relationships and Related Transactions, and Director Independence	26
Item 14.	Principal Accountant Fees and Services	27

PART IV
Item 15.	Exhibits, Financial Statement Schedules	28

  

 

PART I

 

Item 1. Business

 

Recent Developments

 

Merger with Quoin Pharmaceuticals, Inc.

 

On March 26, 2018, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Quoin Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and Quoin Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Parent (“Merger Sub”).

 

On October 17, 2019, we entered into a Termination and Release Agreement with Quoin to terminate the Merger Agreement and to release each other from liability. The Merger Agreement had a break-up fee of $300,000 payable by us upon certain events. The parties decided to be responsible for their own costs and the Termination Agreement specifically voided the break-up fee.

 

On October 17, 2019, we entered an Exclusive License Agreement with Quoin pursuant to which we granted to Quoin a license to certain patents for the development of products for commercial sale. In exchange for the license, Quoin agreed to pay to us a license fee of $1,000,000 (the “License Fee”) and a single digit royalty interest of all net sales on the licensed products subject to adjustment in certain situations. The agreement also requires that Quoin make certain milestone payments to us upon achieving regulatory approval milestones for certain drug products.

 

Both Parties continue see the value in a partnership and therefore on May 8, 2020 the companies agreed to extend the Exclusive License Agreement under the same terms to expire now on July 31, 2020.

 

Company Overview

 

We, through our wholly owned subsidiary Skinvisible Pharmaceuticals Inc., are a pharmaceutical research and development (“R&D”) company that has developed and patented an innovative polymer delivery system, Invisicare® and formulated over forty topical skin products, which we out-license globally. We were incorporated in 1998, and target an estimated $80 billion global skincare and dermatology market and a $30 billion global over-the-counter market as well as other healthcare / medical and consumer goods markets.

With the research and development complete on forty products and numerous patents issued (technology and product patents), we are ready to monetize our investment. Our business model will continue to be to out-license our patented prescription and over-the-counter (“OTC”) products featuring Invisicare to established manufacturers and marketers of brands internationally and to maximize profits from the products we have already out-licensed.

The opportunity for us to license our products continues to be a viable model as the need for pharmaceutical companies to access external R&D companies for new products due to their own 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 Flagship Product

 

Pivotal to our success is our patented polymer delivery system technology Invisicare. Invisicare is a patented polymer delivery system that enhances the delivery of active ingredients for topically applied skin care products. Its patented technology has a unique formula and process for combining active ingredients with a delivery system that extends the duration of time the product remains on the skin and active.

Invisicare is specifically formulated to carry water insoluble active and certain cationic active ingredients in water-based products without the use of alcohol, silicones, waxes, or other organic solvents. Products utilizing Invisicare have the proven ability to bond active ingredients to the skin for up to four hours and longer. They are non-occlusive and allow normal skin respiration and perspiration while moisturizing and protecting against exposure from a wide variety of environmental irritants.

When topically applied, these formulated products adhere to the skin's outer layers, forming a protective bond, resisting wash-off, and delivering targeted levels of therapeutic or cosmetic skincare agents to the skin. They allow enhanced delivery performance for a variety of skincare agents resulting in improved efficacy, longer duration of action, reduced irritation and lower dosage of active agent required. The "invisible" polymer compositions wear off as part of the natural exfoliation process of the skin's outer layer cells.

 

The advantage of products formulated with Invisicare is (1) Invisicare’s ability to bind active ingredients (the drug) to the skin, forming a protective bond on the skin, for extended periods of time - some up to eight hours or more; (2) Invisicare can deliver targeted levels (high or low) of therapeutic or cosmetic ingredients to the skin in a controlled release; (3) Invisicare can help to reduce the irritation of some active ingredients due to how it controls the slower release of that active ingredient; and (4) Invisicare science proves that it provides a protective skin barrier which helps retain the natural moisture content of the skin, while still allowing it to breathe. These benefits present an excellent opportunity for clear scientific advantages and marketing messages which resonate with physicians and consumers.

 

The Market

 

The dermatology market is large, with over 80% of Americans affected by some kind of skin condition in their lifetime. The worldwide market for dermatology products including prescription, OTC and cosmeceuticals is estimated at $80 billion.

 

Company History

 

We formed Skinvisible Pharmaceuticals, Inc. (“Skinvisible”), in March 1998 and purchased the exclusive worldwide manufacturing and marketing rights for a polymer delivery system invention now called Invisicare® from the inventor for $2 million. We have continued to develop the Invisicare technology and subsequent product development resulting in over seven series of Invisicare and over forty unique, patented formulations offering distinctive benefits that differentiate them significantly from other leading products in the marketplace.

 

What We Do

 

We have positioned ourselves in the $80 billion worldwide prescription and over-the-counter dermatology and skincare market. We generate revenue by:

 

• LICENSING: We develop topical prescription and over-the-counter products enhanced with Invisicare to license to pharmaceutical and consumer goods companies around the world for an upfront fee and ongoing royalties;
• CO-DEVELOPMENT: We assist pharmaceutical clients in the early development of the most optimal formulation, which they then take forward into clinical testing;
• LIFE CYCLE MANAGEMENT: We provide cost-effective solutions to global pharmaceutical companies by reformulating their products coming off patent with a new Invisicare patent and new product benefits and line extensions. Pharmaceutical companies are under a lot of pressure to develop innovative strategies to counteract the revenue loss from their drugs coming off patent.

 

Corporate Ownership

 

We are a publicly traded company under the symbol SKVI, quoted on the OTC markets since February 1999 and currently trading on the OTCQB in the United States.

 

We carry on business primarily through our wholly owned subsidiaries: Skinvisible Pharmaceuticals, Inc. a Nevada corporation.

 

Patents

 

We have patents granted in 11 countries, including comprehensive patents on Invisicare, the foundation of all of our products; the United States, and internationally in Canada, Europe (4), China, India, Australia, Hong Kong, and Korea. The Invisicare patents cover manufacturing, composition and use. Additionally, we have been granted product specific patents in the United States for dermal barrier products, sunscreens (photostability of avobenzone), retinoids (stabilization), cationic products and acne products.

 

Our value lies in our ability to continually generate new IP on dermatology and medical products formulated with Invisicare. Patent approvals are sought (initially in the United States. and later internationally) for all products developed. All patents with Invisicare are owned by us.

 

Trademarks

 

When developing new products using Invisicare, we file for both patent and trademark protection. We have been granted trademarks in the U.S. and Canada for the following names:

 

- Skinvisible® w Invisicare® w JUSTCARE® w Work Gluv® w Kintari® w Skinbrella®

 

Revenue generation: We plan to achieve revenues from a combination of four revenue streams including:

 

Research and development fees; Upfront license fee; Ongoing royalties based on product sales; Licensees purchase Invisicare polymers from us. The polymers make up 6-8% of each final product formulation for OTC and cosmetic formulas and less for prescription formulas.

 

Strategic Growth Opportunities

 

Our growth strategy is to:

 

1.

Generate revenue from private label products;

 

2.

Capitalize on the success of current licensees;

 

3.

Increase the value of our current pipeline; and

 

4.

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

 

 

Private Label Products

 

Our sunscreen is a broad spectrum SPF 30 known as Skinbrella®. We completed independent testing to validate our broad spectrum sunscreen claims according to the labeling guidelines of the FDA, which are designed to help reduce the incidents of skin cancer in the U.S. Our claims are as follows:

 

• Claim # 1 – Broad-Spectrum: According to the FDA, in order for a sunscreen to be labeled “broad spectrum” it must prove it protects against both UVA and UVB rays by having an SPF (Sun Protection Factor) of at least 15 and a critical wave length of at least 370 nm. Our sunscreen has surpassed both of these criteria, allowing our broad spectrum sunscreen label to also state “prevents sunburn, skin cancer and aging due to the sun.”

• Claim # 2 – Water-Resistant 80 Minutes: The FDA sunscreen water resistant claim requires that a sunscreen must have the same SPF after being in water or sweating for 40 or 80 minutes. Our testing was conducted at an independent laboratory specializing in sunscreen testing. The test involved human subjects that applied sunscreen to their arm, followed by the immersion of the arm into a Jacuzzi for 80 minutes (10 minutes in / 10 minutes out). Our sunscreen successfully completed this testing and is allowed to use “Water-resistant for 80 Minutes” on its sunscreen label, the longest length of time allowed by the FDA.

• Claim # 3 – Unique Patented Technology / Eight-Hour Photostability: As previously announced, we were granted a patent from the United States Patent and Trademark Office entitled “Sunscreen Composition with Enhanced UVA Absorber Stability and Methods”, which provides protection until November 2029. Skinvisible successfully formulated a unique Invisicare® delivery system specifically for stabilizing avobenzone; the key sunscreen used in the USA. Data submitted to the US patent office proved that our sunscreen provides a minimum of eight hours of photostability.

Additional Skinvisible Products

 

Sunless Tanning Products

 

We have developed a 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.

 

Sunscreen Products

 

We have developed 3 broad spectrum sunscreens, with SPF 15, 30 and 50 (the highest SPF allowed by the FDA). All 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 in 2013. 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.

 

Capitalize On Current Licensees:

 

We continue to work diligently with our licensees to ensure they have a smooth manufacturing process, ongoing R&D support and marketing feedback.

  

Ovation

 

On February 3, 2020, we entered into a License Agreement with Ovation Science Inc. pursuant to which Skinvisible granted to Ovation Science Inc. a license for the manufacture and distribution rights to its hand sanitizer product, DermSafe. In exchange for the license, Ovation Science Inc. agreed to pay to Skinvisible a single digit royalty interest on all net sales on the licensed products subject to adjustment in certain situations plus a license fee payable in year 3 of the agreement if it chooses to continue the license.

 

 

Women’s Choice Pharmaceuticals

 

Product: ProCort®, long lasting prescription hemorrhoid cream launched in the United States August 2011.

 

Sales and Royalties: Skinvisible receives a royalty based on net sales of ProCort. Women’s Choice has been successfully growing their sales of ProCort®

 

Increasing The Value of Skinvisible’s 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 find a partner for our prescription product portfolio. This would allow for a partner to seek FDA approval using the 505b2 pathway for one or more of our products.

 

Competition

 

Market research indicates there is reasonably limited direct competition for Invisicare and patented products in terms of performance capabilities for topically administered skin products. Many companies are seeking unique delivery systems to enhance their portfolio and purchasing companies that have delivery technology.

 

Government Regulation

 

Cosmetic and Skin Care Regulation

 

Depending upon product claims and formulation, skin care products may be regulated as cosmetics, drugs, devices, or combination cosmetics and drugs. The FDA has authority to regulate cosmetics marketed in the United States under the FDCA and the Fair Packaging and Labeling Act (“FPLA”) and implementing regulations. The Federal Trade Commission (the “FTC”) regulates the advertising of cosmetics under the FTCA.

 

The FDCA prohibits the marketing of adulterated and misbranded cosmetics. Cosmetic ingredients must also comply with the FDA’s ingredient, quality, and labeling requirements and the FTC’s requirements pertaining to truthful and non-misleading advertising. Cosmetic products and ingredients, with the exception of color additives, are not required to have FDA premarket approval. Manufacturers of cosmetics are also not required to register their establishments, file data on ingredients, or report cosmetic-related injuries to the FDA.

 

We will be responsible for substantiating the safety and product claims of the cosmetic products and ingredients before marketing. The FDA or FTC may disagree with our characterization of one or more of the skin care products as a cosmetic or the product claims. This could result in a variety of enforcement actions which could require the reformulation or relabeling of our products, the submission of information in support of the product claims or the safety and effectiveness of our products, or more punitive action, all of which could have a material adverse effect on our business. If the FDA determines we have failed to comply with applicable requirements under the FDCA or FPLA, it can impose a variety of enforcement actions from public warning letters, injunctions, consent decrees, and civil penalties to seizure of our products, total or partial shutdown of our production, and criminal prosecutions. If any of these events were to occur, it could materially adversely affect us. If the FTC determines we have failed to substantiate our claims, it can pursue a variety of actions including disgorgement of profits, injunction from further violative conduct, and consent decrees.

 

Domestic State and Local Government Regulation

 

Some states and local governments in the United States regulate the labeling, operation, sale, and distribution of our skin care products. To the extent additional state or local laws apply, we intend to comply with them.

 

 

Foreign Government Regulation

 

In general, we will need to comply with the government regulations of each individual country in which our products are to be distributed and sold. These regulations vary in complexity and can be as stringent, and on occasion even more stringent, than FDA regulations in the United States. The level of complexity and stringency is not always precisely understood today for each country, creating greater uncertainty for the international regulatory process. Furthermore, government regulations can change with little to no notice and may result in up-regulation of our product(s), thereby creating a greater regulatory burden for us. We have not yet thoroughly explored the applicable laws and regulations that we will need to comply with in foreign jurisdictions. As a result it is possible that we may not be permitted to sell our products in foreign markets or expand our business into one or more foreign jurisdictions.

 

Environmental Laws

 

We are not subject to any significant or material environmental regulation in the normal operation of our business.

 

Employees

 

Currently, we have three employees, including our CEO Terry Howlett.

 

Subsidiaries

 

We conduct our operations through our wholly-owned subsidiary, Skinvisible Pharmaceuticals, Inc.

 

Item 1A. Risk Factors

 

Risk Factors Associated with Covid 19

 

The extent to which the coronavirus (“COVID-19”) outbreak impacts our business, results of operations and financial condition will depend on future developments, which cannot be predicted.

 

The COVID-19 pandemic has caused us to modify our business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences), and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or otherwise be satisfactory to government authorities.

 

The extent to which COVID-19 impacts our business, results of operations and financial condition will depend on future developments, which are uncertain and cannot be predicted, including, but not limited to:

 

§

the duration and scope of the pandemic;

§

governmental, business and individual actions taken in response to the pandemic and the impact of those actions on global economic activity;

§

the actions taken in response to economic disruption;

§

the impact of business disruptions;

§

the increase in business failures that we may utilize as industry partners and the customers we serve;

§

uncertainty as to the impact or staff availability during and post the pandemic; and

§

our ability to provide our services, including as a result of our employees or our customers and suppliers working remotely and/or closures of offices and facilities.

 

Even after the coronavirus outbreak has subsided, we may continue to experience materially adverse impacts to our business as a result of its global economic impact, including any recession that has occurred or may occur in the future.

 

 

Risks Related to Our Financial Condition and our Business

 

Our investors may lose their entire investment because our financial status creates a doubt whether we will continue as a going concern.

 

We do not have sufficient cash nor do we have a significant source of revenues to cover our operational costs and allow us to continue as a going concern.  The Company anticipates generating revenues through the licensing of its core products and if that is not sufficient we may seek to raise additional operating capital to implement our business plan in an offering of our common stock or debt.  Our company's plan specifies a minimum amount of $500,000 in additional operating capital to operate for the next twelve months. However, there can be no assurance that the revenues generated or that such an offering will be successful. You may lose your entire investment

 

Our failure to raise additional capital or generate cash flows necessary to expand our operations could reduce our ability to compete successfully and adversely affect our results of operations.

 

We need to raise additional funds to achieve our future strategic objectives, and we may not be able to obtain additional debt or equity financing on favorable terms, if at all. If we engage in debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness, force us to maintain specified liquidity or other ratios or restrict our ability to pay dividends or make acquisitions. If we need additional capital and cannot raise it on acceptable terms, we may not be able to, among other things:

 

§  launch, develop and enhance our existing products;

§  continue to expand our product base, sales and/or marketing efforts;

§  hire, train and retain employees; or

§  respond to competitive pressures or unanticipated working capital requirements.

 

Our inability to do any of the foregoing could reduce our ability to compete successfully and adversely affect our results of operations.

 

If we are unable to generate revenues by implementing our business plan, you will lose your entire investment in our company.

 

We have a history of losses from inception and we had an accumulated deficit as of December 31, 2019 of $33,252,796. We have not been able to generate sufficient revenues from licensees, from the sale of our own products or otherwise to cover our expenses. If we are unsuccessful in generating revenues, you could lose your entire investment.

 

If our products are not deemed desirable and suitable for purchase and we cannot establish a customer base, we may not be able to generate sufficient revenues, which would result in a failure of the business and a loss of any investment one makes in our company.

 

The acceptance of our products is critically important to our success. We cannot be certain that the products that we will be offering will be appealing and as a result there may not be any demand for these products and our sales could be limited and we may never realize any significant revenues. In addition, there are no assurances that if we alter or change the products we offer in the future that the demand for these new products will develop and this could adversely affect our business and any possible revenues.

 

If demand for the products that we plan to offer slows, then our business would be materially affected.

 

Demand for products, which we intend to sell, depends on many factors, including:

 

§

the economy, and in periods of rapidly declining economic conditions, customers may defer luxury purchases or may choose alternate products;

 

§

the competitive environment in the skin care sector may force us to reduce prices below our desired pricing level or increase promotional spending;

 

§

our ability to anticipate changes in consumer preferences and to meet customers’ needs for skin care products in a timely cost-effective manner;

 

§

our ability to maintain efficient, timely and cost-effective production and delivery of the products and services; and,

 

§

our ability to identify and respond successfully to emerging trends in the skin care and personal care industries.

 

 

For the long term, demand for the products we plan to offer may be affected by:

 

§

the ability to establish, maintain and eventually grow market share in a competitive environment;

 

§

our ability to deliver our products in the markets we intend to service, changes in government regulations, currency fluctuations, natural disasters, pandemics and other factors beyond our control may increase the cost of items we purchase, create communication issues or render product delivery difficult which could have a material adverse effect on our sales and profitability; and

 

§

restrictions on access to North American markets and supplies.

 

All of these factors could result in immediate and longer term declines in the demand for the products that we plan to offer, which could adversely affect our sales, cash flows and overall financial condition.

 

Because we are new in the marketplace, we may not be able to compete effectively and increase market share.

 

Our current and potential competitors may have longer operating histories, significantly greater resources and name recognition, and a larger base of customers than we have. Our competitors may also be able to adopt more aggressive pricing policies and devote greater resources to the development, marketing and sale of their products and services than we can. To be competitive, we must continue to invest significant resources in sales and marketing. We may not have sufficient resources to make these investments or to develop the technological advances necessary to be competitive, which in turn will cause our business to suffer and restrict our profitability potential.

 

Because we rely on third parties to manufacture our products, we are subject to factors outside of our control to meet our standards or timelines.

 

Our products are manufactured by three third-party manufacturing companies on a purchase order basis. No contractual arrangement are currently in place, except for standard confidentiality agreements. We are dependent on the timeliness and effectiveness of our third-part manufacturers’ efforts.

 

Failure or lack of reliability in the manufacture of our products is likely to result in loss of business. Among other risks:

 

§

Our products may fail to provide the expected results;

 

§

We may experience limited availability of quality ingredients for manufacturing;

 

§

We may experience poor quality manufacturing;

 

§

Our products may have new competition from other companies attempting to duplicate our formulas; and

 

§

Our customers could experience results different from our test results.

 

Like other retailers, distributors and manufacturers of skin care and personal care products, we face an inherent risk of exposure to product liability claims in the event that the use of the products that we sell results in injury.

 

We may be subjected to various product liability claims, including claims that the products we sell contain contaminants, are improperly labeled or include inadequate instructions as to use or inadequate warnings concerning side effects and interactions with other substances. In addition, we may be forced to defend lawsuits. We cannot predict whether product liability claims will be brought against us in the future or the effect of any resulting adverse publicity on the business. Moreover, we may not have adequate resources in the event of a successful claim against us. The successful assertion of product liability claim against us could result in potentially significant monetary damages. In addition, interactions of the products with other similar products, prescription medicines and over-the-counter drugs have not been fully explored.

 

We may also be exposed to claims relating to product advertising or product quality. People may purchase our products expecting certain physical results, unique to skin care and personal care products. If they do not perceive expected results to occur, certain individuals or groups of individuals may seek monetary retribution.

 

 

If our products become contaminated, our business could be seriously harmed.

 

We have adopted various quality, environmental, health and safety standards. However, our products may still not meet these standards or could otherwise become contaminated. A failure to meet these standards or contamination could occur in our operations or those of our bottlers, manufacturers, distributors or suppliers. Such a failure or contamination could result in expensive production interruptions, recalls and liability claims. Moreover, negative publicity could be generated even from false, unfounded or nominal liability claims or limited recalls. Any of these failures or occurrences could negatively affect our business and financial performance.

 

Our business may be adversely affected by unfavorable publicity within the skin care markets.

 

Management believes that the skin care market and personal care markets are significantly affected by national media attention. As with any retail provider, future scientific research or publicity may not be favorable to the industry or to any particular product, and may not be consistent with earlier favorable research or publicity. Because of our dependence on consumers’ perceptions, adverse publicity associated with illness or other adverse effects resulting from the use of our products or any similar products distributed by other companies and future reports of research that are perceived as less favorable or that question earlier research, could have a material adverse effect on our business, financial condition and results of operations. We are highly dependent upon consumers’ perceptions of the safety and quality of the products as well as similar products distributed by other companies. Thus, the mere publication of reports asserting that skin care or personal care products may be harmful or questioning their efficacy could have a material adverse effect on our business, financial condition and results of operations, regardless of whether such reports are scientifically supported or whether the claimed harmful effects would be present at the dosages recommended for such products.

 

As we intend to conduct international business transactions, we will be exposed to local business risks in different countries, which could have a material adverse effect on our financial condition or results of operations.

 

We intend to promote and sell our products internationally. Our international operations will be subject to risks inherent in doing business in foreign countries, including, but not necessarily limited to:

 

§

new and different legal and regulatory requirements in local jurisdictions;

 

§

potentially adverse tax consequences, including imposition or increase of taxes on transactions or withholding and other taxes on remittances and other payments by subsidiaries;

 

§

risk of nationalization of private enterprises by foreign governments;

 

§

legal restrictions on doing business in or with certain nations, certain parties and/or certain products; and,

 

§

local economic, political and social conditions, including the possibility of hyperinflationary conditions and political instability.

 

We may not be successful in developing and implementing policies and strategies to address the foregoing factors in a timely and effective manner in the locations where we will do business. Consequently, the occurrence of one or more of the foregoing factors could have a material adverse effect on our base operations and upon our financial condition and results of operations.

 

Since our products will be available over the Internet in foreign countries and we plan to have customers residing in foreign countries, foreign jurisdictions may require us to qualify to do business in their country. We will be required to comply with certain laws and regulations of each country in which we conduct business, including laws and regulations currently in place or which may be enacted related to Internet services available to the residents of each country from online sites located elsewhere.

 

Because of the nature of our products, we may be subject to government regulations or laws that increase our costs of operations or decrease our ability to generate income.

 

Any failure by us, or by any third party that may manufacture or market our products, to comply with the law, including statutes and regulations administered by the FDA or other U.S. or foreign regulatory authorities, could result in, among other things, warning letters, fines and other civil penalties, suspension of regulatory approvals and the resulting requirement that we suspend sales of our products, refusal to approve pending applications or supplements to approved applications, export or import restrictions, interruption of production, operating restrictions, closure of the facilities used by us or third parties to manufacture our product candidates, injunctions or criminal prosecution. Any of the foregoing actions could have a material adverse effect on our business.

 

 

Our commercial success depends significantly on our ability to develop and commercialize our potential products without infringing the intellectual property rights of third parties.

 

Our commercial success will depend, in part, on operating our business without infringing the patents or proprietary rights of third parties. Third parties that believe we are infringing on their rights could bring actions against us claiming damages and seeking to enjoin the development, marketing and distribution of our products. If we become involved in any litigation, it could consume a substantial portion of our resources, regardless of the outcome of the litigation. If any of these actions are successful, we could be required to pay damages and/or to obtain a license to continue to develop or market our products, in which case we may be required to pay substantial royalties. However, any such license may not be available on terms acceptable to us or at all. Ultimately, we could be prevented from commercializing a product or forced to cease some aspect of our business operations as a result of patent infringement claims, which would harm our business.

 

The implementation of our business plan relies on our ability to manage growth. If we are not able to manage the growth, our business plan may not be successfully implemented.

 

We expect to expand our operations by increasing our sales and marketing efforts, research and development activities, and escalating our services. The anticipated growth could place a significant strain on our management, and operational and financial resources. Effective management of the anticipated growth shall require expanding our management and financial controls, hiring additional appropriate personnel as required, and developing additional expertise by existing management personnel. However, there can be no assurances that these or other measures we may implement shall effectively increase our capabilities to manage such anticipated growth or to do so in a timely and cost-effective manner. Moreover, management of growth is especially challenging for a company with a short revenue generating history and limited financial resources, and the failure to effectively manage growth could have a material adverse effect on our operations.

 

Our success depends on continuing to hire and retain qualified personnel, including our director and officers and our technical personnel.  If we are not successful in attracting and retaining these personnel, our business will suffer.

 

Our success depends substantially on the performance of our management team and key personnel. Currently, we have three employees, including our CEO Terry Howlett.. Due to the specialized technical nature of our business, we are particularly dependent on our technical personnel. Our future success will depend on our ability to attract, integrate, motivate and retain qualified technical, sales, operations, and managerial personnel, as well as our ability to successfully implement a plan for management succession. Competition for qualified personnel in our business areas is intense, and we may not be able to continue to attract and retain key personnel. In addition, if we lose the services of any of our management team or key personnel and are not able to find suitable replacements in a timely manner, our business could be disrupted and we may incur increased operating expenses.

 

If we are unable to attract new distributors and customers, or if our existing distributors and customers do not purchase additional products, the growth of our business and cash flows will be adversely affected.

 

To increase our revenues and cash flows, we must regularly add distributors and customers and sell additional products to our existing distributors and customers. If we are unable to sell our products to customers that have been referred to us, unable to generate sufficient sales leads through our marketing programs, or if our existing or new distributors and customers do not perceive our products to be of sufficiently high value and quality, we may not be able to increase sales and our operating results would be adversely affected. In addition, if we fail to sell new products to existing distributors and customers or new distributors and customers, our operating results will suffer, and our revenue growth, cash flows and profitability may be materially and adversely affected.

 

Key management personnel may leave us, which could adversely affect our ability to continue operations.

 

We are entirely dependent on the efforts of our management because of the time and effort that they devote to us. They are in charge of overseeing all development strategies, supervising any/all future personnel, and the implementation of our business plan. Their loss, or other key personnel in the future, could have a material adverse effect on our business, financial condition and results of operations.

 

 

Risks Related to Our Securities

 

If a market for our common stock does not develop, shareholders may be unable to sell their shares.

 

Our common stock is quoted under the symbol “SKVI” on the OTCQB operated by OTC Markets Group, Inc, an electronic inter-dealer quotation medium for equity securities. We do not currently have an active trading market. There can be no assurance that an active and liquid trading market will develop or, if developed, that it will be sustained.

 

Our securities are very thinly traded. Accordingly, it may be difficult to sell shares of our common stock without significantly depressing the value of the stock. Unless we are successful in developing continued investor interest in our stock, sales of our stock could continue to result in major fluctuations in the price of the stock.

 

Our common stock price may be volatile and could fluctuate widely in price, which could result in substantial losses for investors.

 

The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including:

 

• technological innovations or new products and services by us or our competitors;
• government regulation of our products and services;
• the establishment of partnerships with other technology companies;
• intellectual property disputes;
• additions or departures of key personnel;
• sales of our common stock
• our ability to integrate operations, technology, products and services;
• our ability to execute our business plan;
• operating results below expectations;
• loss of any strategic relationship;
• industry developments;
• economic and other external factors; and
• period to period fluctuations in our financial results.

Because we have nominal revenues to date, you should consider any one of these factors to be material. Our stock price may fluctuate widely as a result of any of the above.

 

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.

 

We have not paid cash dividends in the past and do not expect to pay cash dividends in the future on our common stock. Any return on investment may be limited to the value of our common stock.

 

We have never paid cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future. The payment of cash dividends on our common stock will depend on earnings, financial condition and other business and economic factors at such time as the board of directors may consider relevant. If we do not pay cash dividends, our common stock may be less valuable because a return on your investment will only occur if its stock price appreciates.

 

As a new investor, you will experience substantial dilution as a result of future equity issuances.

 

In the event we are required to raise additional capital it may do so by selling additional shares of common stock thereby diluting the shares and ownership interests of existing shareholders.

 

 

Because we are subject to the “Penny Stock” rules, the level of trading activity in our stock may be reduced.

 

The Securities and Exchange Commission has adopted regulations which generally define "penny stock" to be any listed, trading equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules generally require that prior to a transaction in a penny stock, the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules which may increase the difficulty Purchasers may experience in attempting to liquidate such securities.

 

Provisions in the Nevada Revised Statutes and our Bylaws could make it very difficult for an investor to bring any legal actions against our directors or officers for violations of their fiduciary duties or could require us to pay any amounts incurred by our directors or officers in any such actions.

 

Members of our board of directors and our officers will have no liability for breaches of their fiduciary duty of care as a director or officer, except in limited circumstances, pursuant to provisions in the Nevada Revised Statutes and our Bylaws as authorized by the Nevada Revised Statutes. Specifically, Section 78.138 of the Nevada Revised Statutes provides that a director or officer is not individually liable to the company or its shareholders or creditors for any damages as a result of any act or failure to act in his or her capacity as a director or officer unless it is proven that (1) the director’s or officer’s act or failure to act constituted a breach of his or her fiduciary duties as a director or officer and (2) his or her breach of those duties involved intentional misconduct, fraud or a knowing violation of law. This provision is intended to afford directors and officers protection against and to limit their potential liability for monetary damages resulting from suits alleging a breach of the duty of care by a director or officer. Accordingly, you may be unable to prevail in a legal action against our directors or officers even if they have breached their fiduciary duty of care. In addition, our Bylaws allow us to indemnify our directors and officers from and against any and all costs, charges and expenses resulting from their acting in such capacities with us. This means that if you were able to enforce an action against our directors or officers, in all likelihood, we would be required to pay any expenses they incurred in defending the lawsuit and any judgment or settlement they otherwise would be required to pay. Accordingly, our indemnification obligations could divert needed financial resources and may adversely affect our business, financial condition, results of operations and cash flows, and adversely affect prevailing market prices for our common stock.

 

Item 2. Properties

 

Currently, we do not own any or lease any real estate.

 

Item 3. 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 4. Mine Safety Disclosures

 

Not Applicable

 

 

PART II

 

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Market Information

 

Our common stock is quoted under the symbol “SKVI” on the OTCQB operated by OTC Markets Group, Inc. 

 

The OTCQB is a quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter equity securities. An OTCQB equity security generally is any equity that is not listed or traded on a national securities exchange. Because we are quoted on the OTCQB, our securities may be less liquid, receive less coverage by security analysts and news media, and generate lower prices than might otherwise be obtained if they were listed on a national securities exchange.

 

The following table sets forth the range of high and low bid quotations for our common stock for each of the periods indicated as reported by the OTCQB. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

Fiscal Year Ending December 31, 2019
Quarter Ended				High $				Low $
	December 31, 2019				0.188				0.02
	September 30, 2019				0.134				0.012
	June 30, 2019				0.33				0.20
	March 31, 2019				0.85				0.10

 

Fiscal Year Ending December 31, 2018
Quarter Ended				High $				Low $
	December 31, 2018				0.0253				0.002
	September 30, 2018				0.026				0.009
	June 30, 2018				0.0241				0.0121
	March 31, 2018				0.0503				0.0201

 

On May 4, 2020, the last sales price per share of our common stock on the OTCQB was $0.09.  

 

Penny Stock

 

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.

 

 

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer’s account.

 

In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.

 

These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities.

 

Holders of Our Common Stock

 

As of May 6, 2020, we had 4,471,746 shares of our common stock issued and outstanding, held by 252 shareholders of record, other than those held in street name.

 

Dividends

 

There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where after giving effect to the distribution of the dividend:

 

1.	we would not be able to pay our debts as they become due in the usual course of business, or;
2.	our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.

 

We have not declared any dividends and we do not plan to declare any dividends in the foreseeable future.

 

Recent Sales of Unregistered Securities

 

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.

  

During the year ending December 31, 2018, the Company executed agreements with 45 noteholders that participated in the Company’s debt offerings between May 22, 2013 and December 31, 2015. In accordance with the agreements the Company and the investors agreed to settle a total of $2,623,875 in outstanding principal and $604,736 in accrued interest in exchange for the issuance of 1,614,305 shares. The Company fair valued the shares issuable on the date each investors signed their respective agreement, as of December 31, 2019 the Company had issued 1,575,057 shares and had 68,097 shares remaining to be issued to the investors, as a result of the transaction and has recorded stock payable of $59,602.

 

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.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The following table provides information about our compensation plans under which shares of common stock may be issued upon the exercise of options as of December 31, 2019.

 

 

In July 2006, we adopted the 2006 Skinvisible, Inc. Stock Option Plan, which provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, performance shares and performance units, and stock awards our officers, directors or employees of, as well as advisers and consultants. This plan was confirmed by our stockholders on August 7, 2006 at the annual shareholders meeting.

 

Under the 2006 Skinvisible, Inc. Stock Option Plan, we reserved 200,000 shares of common stock for the granting of options and rights.

 

Equity Compensation Plans as of December 31, 2019

	A	B	C
Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and right	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (A))
Equity compensation plans approved by security holders	100,000	$1.51	39,000
Equity compensation plans not approved by security holders	72,200	$1.18	-
Total	172,200	$1.37	-

 

Item 6. Selected Financial Data

 

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

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations  

 

COVID-19

 

The full extent of the impact of the COVID-19 pandemic on our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict at the present time. In an effort to contain COVID-19 or slow its spread, governments around the world have enacted various measures, including orders to close all businesses not deemed “essential,” isolate residents to their homes or places of residence, and practice social distancing when engaging in essential activities. We anticipate that these actions and the global health crisis caused by COVID-19 will negatively impact business activity across the globe. While we have not observed any noticeable impact on our revenue related to these conditions in the past fiscal year, or through the date of this filing, we cannot estimate the impact COVID-19 will have in the future as business and consumer activity decelerates across the globe.

 

In March 2020, we enacted precautionary measures to protect the health and safety of our employees and partners. These measures include closing our office, having employees work from home, and eliminating all travel. While having employees work from home may have a negative impact on efficiency and may result in negligible increases in costs, it does have an impact on our ability to execute on our agreements to deliver our core products.

 

We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, customers, partners and stockholders. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, partners, or vendors, or on our financial results. 

 

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.” 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. 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.

 

 

Results of Operations for the Years Ended December 31, 2019 and 2018

 

Revenues

 

Our revenue from product sales, royalties on patent licenses and license fees (product development fees) for the year ended December 31, 2019 was $43,166, a decrease from $69,347 for the year ended December 31, 2018.

 

The decrease in revenue for year ended December 31, 2019 was mainly due to the lack of product sales with no license fees as in 2018.

 

Cost of Revenues

 

Our cost of revenues for the year ended December 31, 2019 decreased to $17,551 from the prior year when cost of revenues was $20,701.

 

Our cost of revenues decreased for the year ended December 31, 2019 over the prior year period as a result of decreased product sales.

 

Gross Profit

 

Gross profit for the year ended December 31, 2019 was $25,615, or approximately 59% of sales. Gross profit for the year ended December 31, 2018 was $48,646, or approximately 70% of sales. Our gross profit margin decreased significantly in 2019 over 2018 as a result of the lack of license fee revenue, which has less costs than product sales.

 

Operating Expenses

 

Operating expenses decreased to $565,392 for the year ended December 31, 2019 from $646,581 for the year ended December 31, 2018. Our operating expenses for the year ended December 31, 2019 consisted mainly of accrued salaries and wages of $351,769, depreciation and amortization expenses of $39,616, rent of $29,810, accounting and audit expenses of $52,899. In comparison, our operating expenses for the year ended December 31, 2018 consisted mainly of accrued salaries and wages of $337,369, depreciation and amortization expenses of $38,971, rent of $54,688, accounting and audit expenses of $67,885, transfer agent fees of $11,963 and legal fees of $20,724.

 

Other Income/Expenses

We had other expense of $1,162,354 for the year ended December 31, 2019, compared with other income of $756,277 for the year ended December 31, 2018. Our other expenses for 2019 are, largely the result of $1,004,756 in interest expense, $247,998 in loss on extinguishment of debt, off-set by $90,400 in other income from related parties. Our other income for 2018 is largely the result of $1,191,315 in the extinguishment of debt and $595,127 on the sale of Ovation, offset mainly by $1,013,162 in interest expense.

We expect to continue to experience high interest payments in the future as a result of our outstanding liabilities. Moreover, as of the date of this report, there are a number of secured promissory notes with an aggregate principal amount of approximately $762,000 that have matured. In addition, we also have one unsecured promissory notes with an aggregate principal amount of $10,000 that have matured. If we are unable to generate sufficient revenues and/or additional financing to service this debt, there is a risk the lenders will call the notes, secure our assets, as to those applicable secured notes, and demand payment. If this happens, we could go out of business.

Net Income/Loss

 

We recorded net loss for the year ended December 31, 2019 of $1,702,131 compared to net income of $158,342 for the year ended December 31, 2018.

 

Liquidity and Capital Resources

 

Going concern – The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred cumulative net losses of $33,252,796 since its inception and requires capital for its contemplated operational and marketing activities to take place. The Company’s ability to generate the necessary funds through licensing of its core products or the ability to raise additional capital through the future issuances of common stock or debt is unknown. The obtainment of additional financing, the successful development of the Company’s contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. These factors, among others, raises substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.

 

 

As of December 31, 2019, we had total current assets of $16,377 and total assets in the amount of $181,762. Our total current liabilities as of December 31, 2019 were $3,188,929. We had a working capital deficit of $3,172,552 as of December 31, 2019 as compared with a working capital deficit of $4,898,300 as of December 31, 2018. The change in working capital is largely the result of our efforts to convert debt into equity during the year.

 

Operating activities used $54,138 in cash for the year ended December 31, 2019, as compared with $34,325 for the year ended December 31, 2018. The company’s net loss was the main component of our negative operating cash flow, offset mainly by an increase in accrued interest of $421,364, amortization of debt discount of $857,836 and an increase in accounts payable and accrued liabilities of $354,707.

 

Cash flows used by investing activities during the year ended December 31, 2019 was $25,190, as compared with $11,511 for the year ended December 31, 2018, as a result of the purchase of intangible assets for 2019 and 2018.

 

Cash flows provided by financing activities during the year ended December 31, 2019 amounted to $78,144, as compared with $25,000 for the year ended December 31, 2018. Cash flows for the year ended December 31, 2019 consisted of $117,144 in proceeds from related party debt offset by $39,000 paid on notes payable. Cash flows for the year ended December 31, 2018 mainly consisted of $30,000 in proceeds from related party debt, offset by $5,000 in payments on notes payable.

 

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 December 31, 2019, there were no off balance sheet arrangements.

 

Critical Accounting Policies

 

In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

 

Product sales – Revenues from the sale of products (Invisicare® polymers) are recognized when title to the products are transferred to the customer and only when no further contingencies or material performance obligations are warranted, and thereby have earned the right to receive reasonably assured payments for products sold and delivered.

 

Royalty sales – We also recognize royalty revenue from licensing our patented product formulations only when earned, with no further contingencies or material performance obligations are warranted, and thereby have earned the right to receive and retain reasonably assured payments.

 

 

Distribution and license rights sales – We also recognize revenue from distribution and license rights only when earned (and are amortized over a five-year period), with no further contingencies or material performance obligations are warranted, and thereby have earned the right to receive and retain reasonably assured payments.

 

Costs of Revenue – Cost of revenue includes raw materials, component parts, and shipping supplies. Shipping and handling costs is not a significant portion of the cost of revenue.

 

Accounts Receivable – Accounts receivable is comprised of uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. The carrying amount of accounts receivable is reviewed periodically for collectability. If management determines that collection is unlikely, an allowance that reflects management’s best estimate of the amounts that will not be collected is recorded. Management reviews each accounts receivable balance that exceeds 30 days from the invoice date and, based on an assessment of creditworthiness, estimates the portion, if any, of the balance that will not be collected. As of December 31, 2019, the Company had not recorded a reserve for doubtful accounts. The Company has $175,000 in convertible notes payable which 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®.

 

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 7A. Quantitative and Qualitative Disclosures About Market Risk

 

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

 

Item 8. Financial Statements and Supplementary Data

 

Index to Financial Statements Required by Article 8 of Regulation S-X:

 

Audited Financial Statements:

 

F-1	Report of Independent Registered Public Accounting Firm, May 14, 2020
F-2	Report of Independent Registered Public Accounting Firm, April 12, 2019
F-3	Consolidated Balance Sheets as of December 31, 2019 and 2018
F-4	Consolidated Statements of Operations for the years ended December 31, 2019 and 2018
F-5	Consolidated Statement of Stockholders’ Deficit for the years ended December 31, 2019 and 2018
F-6	Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018
F-7	Notes to Consolidated Financial Statements

  

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of Skinvisible, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheet of Skinvisible, Inc. (the “Company”) as of December 31, 2019, and the related statements of operations, stockholders’ deficit, and cash flows for the year ended December 31, 2019, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has minimal revenues, has negative working capital at December 31, 2019, has incurred recurring losses and recurring negative cash flow from operating activities, and has an accumulated deficit which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ Prager Metis CPAs, LLC

 

We have served as the Company’s auditor since 2019

Las Vegas, Nevada

May 14, 2020 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors and Stockholders of

Skinvisible, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheet of Skinvisible, Inc. (the “Company”) as of December 31, 2018 and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the period ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has negative working capital at December 31, 2018, has incurred recurring negative cash flow from operating activities, and has an accumulated deficit which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ AMC Auditing

 

AMC Auditing
We have served as the Company’s auditor since 2014

Las Vegas, Nevada

April 12, 2019 

 

 

SKINVISIBLE, INC.

CONSOLIDATED BALANCE SHEETS  

 

		December 31, 2019				December 31, 2018
ASSETS
Current assets
Cash		$	1,298			$	2,482
Accounts receivable			10,204				8,459
Inventory			—				17,417
Due from related party			—				1,145
Prepaid expense and other current assets			4,875				12,000
Total current assets			16,377				41,503
Fixed assets, net of accumulated depreciation of $0 and $327,432, respectively			—				118
Intangible and other assets:
Patents and trademarks, net of accumulated amortization of $533,415 and $493,918, respectively			165,385				178,767
Total assets		$	181,762			$	220,388
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued liabilities		$	597,291			$	944,380
Accounts payable related party			9,274				10,490
Accrued interest payable			491,601				1,169,293
Loans from related party			46,899				40,000
Loans payable			552,000				633,000
Convertible notes payable, net of unamortized debt discount of $254,450 and $78, respectively			317,625				219,922
Convertible notes payable related party, net of unamortized discount of $3,060,970 and $765,825 respectively			1,174,239				1,922,718
Total current liabilities			3,188,929				4,939,803
Total liabilities			3,188,929				4,939,803
Commitments and Contingencies (Note 14)			—				—
Stockholders' deficit
Common stock; $0.001 par value; 200,000,000 shares authorized; 4,471,746 and 2,896,689 shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively			4,472				2,897
Shares payable			59,602				2,053,466
Additional paid-in capital			30,181,555				24,774,887
Accumulated deficit			(33,252,796	)			(31,550,665)
Total stockholders' deficit			(3,007,167	)			(4,719,415)
Total liabilities and stockholders' deficit		$	181,762			$	220,388

 

 See Accompanying Notes to Consolidated Financial Statements. 

 

 

SKINVISIBLE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS 

 

		Years Ended
		December 31, 2019				December 31, 2018
Revenues		$	43,166			$	69,347
Cost of revenues			17,551				20,701
Gross profit			25,615				48,646
Operating expenses
Depreciation and amortization			39,616				38,972
Selling general and administrative			525,776				607,609
Total operating expenses			565,392				646,581
Loss from operations			(539,777	)			(597,935)
Other income and (expense)
Other income - related party			15,400				4,807
Gain on sale of fixed assets, related party			75,000				—
Interest expense			(1,004,756	)			(1,013,162)
Gain on sale of Ovation Science Inc.			—				595,127
Loss on equity method investment			—				(21,810)
Gain (loss) on extinguishment of debt			(247,998	)			1,191,315
Total other income (expense)			(1,162,354	)			756,277
Net income (loss)		$	(1,702,131	)		$	158,342
Basic income (loss) per common share		$	(0.57	)		$	0.06
Fully diluted income (loss) per common share		$	(0.57	)		$	0.01
Basic weighted average common shares outstanding			3,008,885				2,863,094
Fully diluted weighted average common shares outstanding			3,008,885				30,091,501

 

 See Accompanying Notes to Consolidated Financial Statements.

 

 

SKINVISIBLE, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT

 

			Common Stock
			Shares				Amount				Additional Paid-in Capital				Shares payable				Accumulated Deficit				Total Stockholders' Deficit
Balance, December 31, 2017			2,737,281			$	2,737			$	24,884,672			$	61,976			$	(31,709,007	)		$	(6,759,622)
Shares issued for accounts payable			95,453				96				136,549				1,991,490				—				2,128,135
Loss on debt modification			—				—				(320,756	)			—				—				(320,756)
Shares issued for settlement of debts			63,955				64				74,422								—				74,486
Net income			—				—				—				—				158,342				158,342
Balance, December 31, 2018			2,896,689			$	2,897			$	24,774,887			$	2,053,466			$	(31,550,665	)		$	(4,719,415)
Settlement of debt			—				—				—				7,028				—				7,028
Discount on convertible notes			—				—				3,649,320				—				—				3,649,320
Debt modification			—				—				(241,969	)			—				—				(241,969)
Issuance of shares payable			1,575,057				1,575				1,999,317				(2,000,892	)			—				—
Net loss			—				—				—				—				(1,702,131	)			(1,702,131)
Balance, December 31, 2019			4,471,746			$	4,472			$	30,181,555			$	59,602			$	(33,252,796	)		$	(3,007,167

  

 See Accompanying Notes to Consolidated Financial Statements.

 

 

SKINVISIBLE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS 

 

		Years Ended
		December 31, 2019				December 31, 2018
Cash flows from operating activities:
Net Income (loss)		$	(1,702,131	)		$	158,342
Adjustments to reconcile net income (loss) to net  cash provided (used) by operating activities:
Depreciation and amortization			39,616				38,972
Gain on sale of Ovation Science Inc.			—				(595,127)
Amortization of debt discount			561,292				487,317
Loss on equity method investment			—				21,810
Imputed interest on Ovation Science loan			—				4,807
(Gain) loss on extinguishment of debt			247,998				(1,191,315)
Inventory write-off			10,265				—
Gain on sale of fixed assets, related party			(75,000	)			—
Changes in operating assets and liabilities:
Decrease in inventory			7,152				8,606
Decrease (Increase) in prepaid assets			7,125				(2,000)
Decrease (Increase) in accounts receivable			(1,745	)			1,446
Increase in accounts payable and accrued liabilities			354,707				376,713
Decrease in due from related party			1,145				291
Decrease in promissory note from Ovation Science Inc.			—				245,193
Increase in accrued interest			421,364				410,620
Net cash provided (used) by operating activities			(128,212	)			(34,325)
Cash flows from investing activities:
Proceeds from sale of fixed assets			75,000				—
Purchase of intangible assets			(26,116	)			(11,511)
Net cash used in investing activities			48,884				(11,511)
Cash flows from financing activities:
Proceeds from related party loans, net of payments			117,144				30,000
Payments on notes payable			(39,000	)			(5,000)
Net cash provided by (used in) financing activities			78,144				25,000
Net change in cash			(1,184	)			(20,836)
Cash, beginning of period			2,482				23,318
Cash, end of period		$	1,298			$	2,482
Supplemental disclosure of cash flow information:
Cash paid for interest		$	27,005			$	105,958
Cash paid for tax		$	—			$	—
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Non-cash investing and financing activities:
Beneficial conversion feature on convertible debts		$	3,649,320			$	—
Common stock issued on extinguishment of debts		$	2,000,892			$	74,486
Common stock payable on extinguishment of debts		$	42,000			$	2,053,466

 

 See Accompanying Notes to Consolidated Financial Statements.

  

  

SKINVISIBLE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  

1.       DESCRIPTION OF BUSINESS AND HISTORY

 

Description of business – Skinvisible, Inc., (referred to as the “Company”) is focused on the development and manufacture and sales of innovative topical, transdermal and mucosal polymer-based delivery system technologies and formulations incorporating its patent-pending formula/process for combining hydrophilic and hydrophobic polymer emulsions. The technologies and formulations have broad industry applications within the pharmaceutical, over-the-counter, personal skincare and cosmetic arenas. Additionally, the Company’s non-dermatological formulations, offer solutions for a broad spectrum of markets women’s health, pain management, and others. The Company maintains executive and sales offices in Las Vegas, Nevada.

 

History – The Company was incorporated in Nevada on March 6, 1998, under the name of Microbial Solutions, Inc. The Company underwent a name change on February 26, 1999, when it changed its name to Skinvisible, Inc. The Company’s subsidiary’s name of Manloe Labs, Inc. was also changed to Skinvisible Pharmaceuticals, Inc.

 

On September 26, 2017, the Company purchased 5,750,000 shares of common stock of Ovation Science Inc. (“Ovation”) for $32,286 which at the time of purchase the Company represented 99.9% of the then issued and outstanding common stock. On March 28, 2018 the Company sold its interest in Ovation to officers of the Company for $500,000 which at the time represented a 37.80% interest in Ovation.

 

Skinvisible, Inc., together with its subsidiaries, shall herein be collectively referred to as the “Company.”

 

2.       BASIS OF PRESENTATION AND GOING CONCERN

 

Basis of presentation – The accompanying audited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and with the instructions to Annual Report on Form 10-K and Article 10 of Regulation S-X.. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the period presented have been reflected herein.

 

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 $33,252,796 since its inception and requires capital for its contemplated operational and marketing activities to take place. Managements plans for the Company are to generate the necessary funding through licensing of its core products and to seek additional debt and equity funding but the Company’s ability to generate the necessary funds through licensing or raise additional capital through the future issuances of common stock or debt is unknown. The obtainment of additional financing, the successful development of the Company’s contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. These factors, among others, raises substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.

 

 

3.       SUMMARY OF SIGNIFICANT POLICIES

 

This summary of significant accounting policies of Skinvisible Inc. is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the consolidated financial statements.  

 

Principles of consolidation – The consolidated financial statements include the accounts of the Company and its subsidiary Skinvisible Pharmaceuticals Inc. All significant intercompany balances and transactions have been eliminated.

 

Use of estimates – The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include estimates used to review the Company’s, impairments and estimations of long-lived assets, allowances for uncollectible accounts, inventory valuation, and the valuations of non-cash capital stock issuances. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

Cash and cash equivalents – For purposes of the statement of cash flows, the Company considers all highly liquid investments and short-term instruments with original maturities of three months or less to be cash equivalents. There are $1,298 and $2,482 in cash as of December 31, 2019 and December 31, 2018 respectively.

 

Fair Value of financial instruments –The carrying value of cash, accounts payable and accrued expenses, and debt (See Notes 8 & 10) approximate their fair values because of the short-term nature of these instruments. Management believes the Company is not exposed to significant interest or credit risks arising from these financial instruments. The carrying amount of the Company’s convertible debt is also stated at a fair value of $4,807,284 since the stated rate of interest approximates market rates.

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company utilizes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable.

 

•

Level 1 Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets. The Company uses Level 1 measurements to value the transactions when it issues shares, warrants, options and debt with beneficial conversion features.

 

•

Level 2 Quoted prices for similar assets and liabilities in active markets; quoted prices included for identical or similar assets and liabilities that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. These are typically obtained from readily available pricing sources for comparable instruments. The Company did not rely on any Level 2 measurements for any of its transactions in the periods included in these financial statements.

 

•

Level 3 Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own beliefs about the assumptions that market participants would use in pricing the asset or liability, based on the best information available in the circumstances. The Company did not rely on any Level 3 measurements for any of its transactions in the periods included in these financial statements.

 

 

Revenue recognition – We recognize revenue in accordance with generally accepted accounting principles as outlined in the Financial Accounting Standard Board's (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue From Contracts with Customers, which requires that five steps be followed in evaluating revenue recognition: (i) identify the contract with the customer; (ii) identity the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price; and (v) recognize revenue when or as the entity satisfied a performance obligation.

 

As of December 31, 2019 and December 31, 2018, the Company had $10,204 and $8,459, respectively, in receivables related to royalty contracts.

 

The company has made an accounting policy election to exclude from the measurement of the transaction price all taxes assessed by governmental authorities that are collected by the company from its customers (sales and use taxes, value added taxes, some excise taxes).

 

Accounts Receivable – Accounts receivable is comprised of uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. The carrying amount of accounts receivable is reviewed periodically for collectability. If management determines that collection is unlikely, an allowance that reflects management’s best estimate of the amounts that will not be collected is recorded. Management reviews each accounts receivable balance that exceeds 30 days from the invoice date and, based on an assessment of creditworthiness, estimates the portion, if any, of the balance that will not be collected. As of December 31, 2019, the Company had not recorded a reserve for doubtful accounts.

 

Inventory – Substantially all inventory consists of packing materials  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.

 

Intangible assets – The Company follows Financial Accounting Standard Board’s (FASB) Codification Topic 350-10 (“ASC 350-10”), “Intangibles – Goodwill and Other”. According to this statement, intangible assets with indefinite lives are no longer subject to amortization, but rather an annual assessment of impairment by applying a fair-value based test.  Under ASC 350-10, the carrying value of assets are calculated at the lowest level for which there are identifiable cash flows.

 

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 an Employee Stock Purchase Plan based on the estimated fair values.

 

Stock based compensation expense recognized under ASC 718-10 for the years ended December 31, 2019 and 2018 totaled $0 and $0, respectively.

 

Earnings (loss) per share – The Company reports earnings (loss) per share in accordance with FASB Codification Topic ASC 260-10 “Earnings Per Share”, Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted earnings (loss) per share has not been presented for the year ending December 31, 2019, since the effect of the assumed exercise of options and warrants to purchase common shares (common stock equivalents) would have an anti-dilutive effect. There are 25,317,929 additional shares issuable in connection with outstanding options, warrants, stock payable and convertible debts as of December 31, 2019. The shares issuable under each instrument is as follows; 100,000 shares issuable for options, 72,000 shares issuable for warrants, 59,602 shares issuable for shares payable and 25,086,327 shares issuable under convertible notes.

 

 

Recently issued accounting pronouncements – In June 2018, the FASB issued ASU 2018-07, "Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting," which modifies the accounting for share-based payment awards issued to nonemployees to largely align it with the accounting for share-based payment awards issued to employees. ASU 2018-07 is effective for us for annual periods beginning January 1, 2019. The adoption of the standard had no impact on our financial position or results of operations for the year ending December 31, 2019.

 

In February 2016, the FASB issued ASU 2016-02, “Leases” (“ASC 842”). The guidance requires lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. Existing sale-leaseback guidance, including guidance for real estate, is replaced with a new model applicable to both lessees and lessors. ASC 842 is effective for fiscal years beginning after December 15, 2018.

 

We adopted ASC 842 effective January 1, 2019 using the optional transition method of recognizing a cumulative-effect adjustment to the opening balance of retained earnings on January 1, 2019. Therefore, comparative financial information was not adjusted and continues to be reported under the prior lease accounting guidance in ASC 840. We elected the transition relief package of practical expedients, and as a result, we did not assess 1) whether existing or expired contracts contain embedded leases, 2) lease classification for any existing or expired leases, and 3) whether lease origination costs qualified as initial direct costs. We elected the short-term lease practical expedient by establishing an accounting policy to exclude leases with a term of 12 months or less.

 

The Company has evaluated all other recent accounting pronouncements, and believes that none of them will have a material effect on the Company's financial position, results of operations or cash flows.

 

4.       FIXED ASSETS

  

Fixed assets consist of the following as of December 31, 2019 and December 31, 2018:

 

		December 31, 2019				December 31, 2018
Machinery and equipment		$	—			$	48,163
Furniture and fixtures			—				113,635
Computers, equipment and software			—				39,722
Leasehold improvements			—				12,569
Lab equipment			—				113,461
Total			—				327,550
Less: accumulated depreciation			—				(327,432
Fixed assets, net of accumulated depreciation		$	—			$	118

 

Depreciation expense for the years ended December 31, 2019 and 2018 was $118 and $241, respectively.

 

During the year ended December 31, 2019, the Company sold furniture, fixtures and lab equipment to Ovation Science, a related party, for $75,000, the assets had been fully depreciated by the Company in prior years and the Company recorded a gain from related party of $75,000 as a result of the sale. All other fixed assets were disposed of prior to December 31, 2019

 

5.       INVENTORY

 

Inventory consists of the following as of December 31, 2019 and December 31, 2018:

 

		December 31, 2019				December 31, 2018
Shipping and Packing materials		$	—			$	8,611
Finished Goods			—				2,687
Raw Materials			—				6,119
Total		$	—			$	17,417

 

 The Company wrote off $10,265 in inventory during the year ending December 31, 2019.

 

 

6.       INTANGIBLE AND OTHER ASSETS

 

Patents and trademarks and other intangible assets are capitalized at their historical cost and are amortized over their estimated useful lives. As of December 31, 2019, intangible assets total $698,800, net of $533,415 of accumulated amortization. As of December 31, 2018, intangible assets total $672,685, net of $493,918 of accumulated amortization.

The Company capitalized $25,190 in patent cost during the year ended December 31, 2019.

 

Amortization expense for the years ended December 31, 2019 and 2018 was $39,497 and $38,731, respectively.

 

License and distributor rights were acquired by the Company in January 1999 and provide exclusive use distribution of polymers and polymer based products. The Company has a non-expiring term on the license and distribution rights. Accordingly, the Company annually assesses this license and distribution rights for impairment and has determined that no impairment write-down is considered necessary as of December 31, 2019.

 

7.       STOCK OPTIONS AND WARRANTS

 

The following is a summary of option activity during the nine months ended December 31, 2019.

 

		Number of Shares				Weighted Average Exercise Price
Balance, December 31, 2018			161,000			$	1.50
Options granted and assumed			—				—
Options expired			(61,000	)			2.25
Options canceled			—				—
Options exercised			—				—
Balance, December 31, 2019			100,000				1. 51

 

As of December 31, 2019, all stock options outstanding are exercisable.

 

Stock warrants -

 

The following is a summary of warrants activity during the year ended December 31, 2018.

 

		Number of Shares				Weighted Average Exercise Price
Balance, December 31, 2018			72,200			$	1.00
Warrants granted and assumed			—				—
Warrants expired			—				—
Warrants canceled			—				—
Warrants exercised			—				—
Balance, December 31, 2019			72,200			$	1.00

 

All warrants outstanding as of December 31, 2019 are exercisable.

 

 

8.       NOTES PAYABLE

 

Secured debt offering

During the period from May 22, 2013 and September 30, 2015, the Company entered into sixty-four 9% notes payable to investors and received total proceeds of $2,326,000. The notes were due two years from the anniversary date of execution. The notes have not been paid as of maturity date and are in default. 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.”

 

During the year ending December 31, 2018 the Company made principal payments of $5,000 and executed agreements with 41 noteholders that participated in the Company’s debt offerings. In accordance with the agreements the Company and the investors agreed to settle a total of $1,663,875 in outstanding principal and $385,563 in accrued interest in exchange for the issuance of 1,024,719 shares of the Company’s common stock. The Company fair valued the shares issuable on the date each investors signed their respective agreement. As a result of the transaction the Company recorded stock payable of $874,294 and a gain on settlement of debt of $1,175,145. As of December 31, 2019 the Company had issued 982,660 shares and had 42,059 shares remaining to be issued to the investors as a result of the transaction and has a remaining stock payable of $52,574.

 

During the year ending December 31, 2019, the Company executed agreements with an additional noteholder that participated in the Company’s debt offerings. In accordance with the agreement the Company and the investor agreed to settle a total of $42,000 in outstanding principal and $13,574 in accrued interest in exchange for the issuance of 26,038 shares of the Company’s common stock. The Company fair valued the shares issuable on the date the investor signed their agreement and recorded a gain of $48,546 as a result of the settlement.

As of the December 31, 2019 the Company had not yet issued the shares and as a result of the transaction recorded a stock payable of $7,028.

 

Unsecured debt offering

On January 27, 2016, the Company entered into a 12% unsecured note payable to an investor and received total proceeds of $33,000. The note was due on May 30, 2016. The note was paid in full on September 20, 2019.

 

As of December 31, 2019, $552,000 of the outstanding notes payable are past due and in default and have been classified as current notes payable.

 

9.        RELATED PARTY TRANSACTIONS

 

During the year ended December 31, 2019, $117,144 was advanced by an officer.

 

As of December 31, 2019, $46,899 in advances remained due to officers of the company. All other related party notes have been extinguished or re-negotiated as convertible notes. (See note 11 for additional details.)

  

During the year ended December 31, 2019, the Company sold its polymer laboratory facility furniture, fixtures and equipment to Ovation Science for $75,000, the assets had been fully depreciated by the Company in prior years and the Company recorded a gain from related party of $75,000 as a result of the sale. The sale was approved by the board of directors and Mr. Howlett abstained from voting due to his relationship with Ovation Science.

 

Ovation Science Inc. subleased office space from the Company from February 2019 through July 2019.. During the year ended December 31, 2019 Ovation Science Inc. paid the Company $15,400 in rent.

 

 

10.       CONVERTIBLE NOTES PAYABLE

 

Convertible Notes Payable consists of the following:		December 31,				December 31,
		2019				2018
$1,000,000 face value 9% secured notes payable to investors, due in 2015. At the investor’s option until the repayment date, the note and related interest may be converted to shares of the Company’s common stock a discount of 90% of the current share price after the first anniversary of the note. The notes are secured by the accounts receivable of a license agreement the Company has with Womens Choice Pharmaceuticals, LLC on its proprietary prescription product, ProCort®. The notes have reach maturity and are now in default, under the notes default provisions the entire balance is now due upon demand.   During the year ending December 31, 2018, the Company executed agreements with 14 of the noteholders that participated in the Company’s convertible debt offering. In accordance with the agreements the Company and the ivestors agreed to settle a total of $960,000 in outstanding principal and $219,172 in accrued interest in exchange for the issuance of 589,586 shares of the Company’s common stock. The company treated the loan modification as a debt repurchase.			40,000				40,000
Original issue discount			—				—
Unamortized debt discount			—				—
Total, net of unamortized discount			40,000				40,000
On October 26, 2015 the Company issued a $135,000 face value 9% unsecured notes payable to investors, due October 26, 2017. 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 Womens Choice Pharmaceuticals, LLC on its proprietary prescription product, ProCort®. The note has reached maturity and is in default.			135,000				135,000
Unamortized debt discount			—				—
Total, net of unamortized discount			135,000				135,000
On February 17, 2016, the Company entered into a convertible promissory note pursuant to which it borrowed $20,000. Interest under the convertible promissory note is 9% per annum, and the principal and all accrued but unpaid interest is due on February 17, 2018. The note is convertible at any time following 90 days after the issuance date at noteholders option into shares of our common stock at a variable conversion price of 90% of the average five day market price of our common stock during the 5 trading days prior to the notice of conversion, subject to adjustment as described in the note. The holder’s ability to convert the note, however, is limited in that it will not be permitted to convert any portion of the note if the number of shares of our common stock beneficially owned by the holder and its affiliates, together with the number of shares of our common stock issuable upon any full or partial conversion, would exceed 4.99% of the Company’s outstanding shares of common stock. The note has reached maturity and is in default			20,000				20,000
Unamortized debt discount			—				—
Total, net of unamortized discount			20,000				20,000

 

On August 11, 2016, the Company entered into a convertible promissory note pursuant to which it borrowed $15,000. Interest under the convertible promissory note is 9% per annum, and the principal and all accrued but unpaid interest is due on August 11, 2018. The note is convertible into shares of our common stock at a variable conversion price of 90% of the average market price of our common stock during the 5 trading days prior to the notice of conversion, subject to adjustment as described in the note. The note has reached maturity and is in default			15,000				15,000
Unamortized debt discount			—				—
Total, net of unamortized discount			15,000				15,000
On January 27, 2017, the Company entered into a convertible promissory note pursuant to which it borrowed $10,000. Interest under the convertible promissory note is 9% per annum, and the principal and all accrued but unpaid interest is due on January 27, 2019. The note is convertible into shares of our common stock at a variable conversion price of 90% of the average market price of our common stock during the 5 trading days prior to the notice of conversion, subject to adjustment as described in the note. The note has reached maturity and is in default.   The Company has determined the value associated with the beneficial conversion feature in connection with the notes negotiated on January 27, 2017 to be $2,138. The aggregate beneficial conversion feature has been accreted and charged to interest expenses as a financing expense in the amount of $78 during the year ended ended December 31, 2019. The beneficial conversion feature is valued under the intrinsic value method			10,000				10,000
Unamortized debt discount			—				(78)
Total, net of unamortized discount			10,000				9,922
On June 30, 2019, the Company renegotiated accrued salaries and interest and outstanding convertible notes for a former employee. Under the terms of the agreements, all outstanding notes totaling $224,064, accrued interest of $119,278, accrued salaries of $7,260 and accrued vacation of $1,473 were converted to a promissory note convertible into common stock with a warrant feature. The promissory note is unsecured, due five years from issuance, and bears an interest rate of 10%. At the noteholder’s option until the repayment date, the note may be converted to shares of the Company’s common stock at a fixed price of $0.20 per share along with warrants to purchase one share for every two shares issued at the exercise price of $0.30 per share for three years after the conversion date.   The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be $280,076. The aggregate beneficial conversion feature will be accreted and charged to interest expenses as a financing expense. The beneficial conversion feature is valued under the intrinsic value method.			352,075				—
Unamortized debt discount			(254,450	)			—
Total, net of unamortized discount			97,625				—
		$	317,625			$	219,922

 

 

 11.       CONVERTIBLE NOTES PAYABLE RELATED PARTY 

 

Convertible Notes Payable Related Party consists of the following:		December 31, 2019				December 31, 2018
Between December 30, 2012 and July 1, 2017, the Company re-negotiated accrued salaries and interest for its officers and several former employees.   As of December 31, 2018, there were $2,688,544 face value unsecured promissory notes are unsecured, due five years from issuance, bearing an interest rate of 10%. At the investor’s option until the repayment date, the notes were convertible to shares of the Company’s common stock at fixed prices between $0.50 and $2.00 per share along with warrants to purchase one share for every two shares issued at the exercise prices between $1.00 and $3.00 per share for three years after the conversion date.   The aggregate beneficial conversion feature associated with these notes has been accreted and charged to interest expenses as a financing expense in the amount of $227,314 during the year ended December 31, 2019.   On June 30, 2019 all of the convertible notes payable were settled through the issuance of new convertible debts as described below and in Note 9.		$	—			$	2,688,544
Unamortized debt discount			—				(765,825)
Total, net of unamortized discount		$	—			$	1,922,718
On June 30, 2019, the Company renegotiated accrued salaries, accrued interest, unpaid reimbursements, cash advances, and outstanding convertible notes for its two officers. Under the terms of the agreements, all outstanding notes totaling $2,464,480, accrued interest of $966,203, accrued salaries of $617,915, accrued vacation of $64,423, unpaid reimbursements of $11,942 and cash advances of $110,245 were converted to promissory notes convertible into common stock with a warrant feature. The promissory notes are unsecured, due five years from issuance, and bear an interest rate of 10%. At the investor’s option until the repayment date, the note may be converted to shares of the Company’s common stock at a fixed price of $0.20 per share along with warrants to purchase one share for every two shares issued at the exercise price of $0.30 per share for three years after the conversion date.   The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be $3,369,244. The aggregate beneficial conversion feature associated with these notes has been accreted and charged to interest expenses as a financing expense in the amount of $308,274 during the year ended December 31, 2019.   The Company treated the loan settlement as a debt extinguishment per ASC 470 and recorded a corresponding loss on settlement of debt of $241,969.		$	4,235,209			$	—
Unamortized debt discount			(3,060,970	)			—
Total, net of unamortized discount		$	1,174,239			$	—

 

 

12.       STOCKHOLDERS’ DEFICIT

 

The Company is authorized to issue 200,000,000 shares of $0.001 par value common stock. The Company had 4,471,746 and 2,896,689 issued and outstanding shares of common stock as of December 31, 2019 and December 31, 2018, respectively.

 

During the year ending December 31, 2018, the Company executed agreements with 45 noteholders that participated in the Company’s debt offerings between May 22, 2013 and December 31, 2015. In accordance with the agreements the Company and the investors agreed to settle a total of $2,623,875 in outstanding principal and $604,736 in accrued interest in exchange for the issuance of 1,614,305 shares fair valued at $2,053,466. The Company fair valued the shares issuable on the date each investor signed their respective agreement. 

 

During the year ending December 31, 2019, the Company executed agreements with an additional noteholder that participated in the Company’s debt offerings between May 22, 2013 and September 30, 2015. In accordance with the agreement the Company and the investor agreed to settle a total of $42,000 in outstanding principal and $13,574 in accrued interest in exchange for the issuance of 26,038 shares of the Company’s common stock fair valued at $7,028. The Company fair valued the shares issuable on the date the investor signed their agreement and recorded a gain of $48,546 as a result of the settlement.

 

As of December 31, 2019 the Company had issued 1,575,057 shares and had 68,097 shares remaining to be issued to the investors as a result of the settlement agreements and has a remaining stock payable of $59,602.

 

13.    INCOME TAXES  

 

The Company provides for income taxes under FASB ASC 740, Accounting for Income Taxes. FASB ASC 740 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect currently.

FASB ASC 740 requires the reduction of deferred tax assets by a valuation allowance, if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In the Company’s opinion, it is uncertain whether they will generate sufficient taxable income in the future to fully utilize the net deferred tax asset. Accordingly, a valuation allowance equal to the deferred tax asset has been recorded. The total deferred tax asset is approximately $2.8 million as of December 31, 2019 which is calculated by multiplying a 21% estimated tax rate by the cumulative net operating loss (NOL) of approximately $13.2 million.

Due to the enactment of the Tax Reform Act of 2017, we have calculated our deferred tax assets using an estimated corporate tax rate of 21%. US Tax codes and laws may be subject to further reform or adjustment which may have a material impact to the Company’s deferred tax assets and liabilities.

The Company will recognize interest and penalties related to uncertain tax positions as a component of income tax expense. As of December 31, 2019, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statement of operations.

The significant components of the Company's deferred tax assets and liabilities as of December 31, 2019 and 2018 are as follows:

As of December 31,		2019				2018
Cumulative tax net operating losses (in millions)		$	13.2			$	12.7
Deferred tax asset (in millions)		$	2.8			$	2.7
Valuation allowance (in millions)			(2.8	)			(2.7)
Current taxes payable			—				—
Income tax expense		$	—			$	—

 

As of December 31, 2019, and 2018, the Company had gross federal net operating loss carryforwards of approximately $13.2 million and $12.7 million, respectively.

The Company plans to file its U.S. federal return for the year ended December 31, 2019 upon the issuance of this filing. Upon filing of the tax return for the year ended December 31, 2019 the actual deferred tax asset and associated valuation allowance available to the Company may differ from management’s estimates. The tax years 2016-2018 remained open to examination for federal income tax purposes by the major tax jurisdictions to which the Company is subject. No tax returns are currently under examination by any tax authorities.

 

 

14.       COMMITMENTS AND CONTINGENCIES

 

Lease obligations – The Company has satisfied all lease obligations and has no future lease obligations.

 

Rental expense, resulting from operating lease agreements, approximated $29,810 and $54,688 for the years ended December 31, 2019 and 2018, respectively.

 

COVID-19

 

Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of issuance of this Annual Report on Form 10-K. These estimates could change in the future, as new events occur, or additional information is obtained.

 

15.       MERGER AGREEMENT

  

As previously reported, on or about March 26, 2018, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Quoin Pharmaceuticals, Inc., a Delaware corporation (“Quoin”), and Quoin Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Parent (“Merger Sub”).

 

The Merger Agreement provided that, subject to the terms and conditions set forth in the Merger Agreement, Merger Sub will merge with and into Quoin (the “Merger”), with Quoin surviving the Merger as a wholly-owned subsidiary of Skinvisible.

 

On October 17, 2019, Skinvisible entered into a Termination and Release Agreement with Quoin to terminate the Merger Agreement and the aforementioned ancillary agreements and to release each other from liability.. The parties decided to be responsible for their own costs and the Termination Agreement specifically voids any break-up fee.

 

On October 17, 2019, Skinvisible entered a Exclusive License Agreement with Quoin pursuant to which Skinvisible granted to Quoin a license to certain patents for the development of products for commercial sale. In exchange for the license, Quoin agreed to pay to Skinvisible a license fee of $1,000,000 and a single digit royalty interest of all net sales on the licensed products subject to adjustment in certain situations. The agreement also requires that Quoin make certain milestone payments to Skinvisible upon achieving regulatory approval milestones for certain drug products.

 

The agreement terminated, if among other things, 50% of the license fee is not paid by December 31, 2019 and if the full License Fee is not paid by March 31, 2020. No payments were made by Quoin and the agreement was terminated. Both Parties subsequently determined that they continue to see the value in a partnership and therefore on May 8, 2020 the companies agreed to extend the Exclusive License Agreement under the same terms to expire now on July 31, 2020.

 

16.       SUBSEQUENT EVENTS

 

License   Agreement with Ovation Science for DermSafe hand sanitizer

 

On February 3, 2020, we entered into a License Agreement with Ovation Science Inc., a related party, pursuant to which Skinvisible granted to Ovation Science Inc. a license for the manufacture and distribution rights to its hand sanitizer product, DermSafe. In exchange for the license, Ovation Science Inc. agreed to pay to Skinvisible a single digit royalty interest on all net sales on the licensed products subject to adjustment in certain situations plus a license fee payable in year 3 of the agreement if it chooses to continue the license.

 

 

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9A. Controls and Procedures  

 

As required by Rule 13a-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this annual report, being December 31, 2019. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer.

 

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 Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

Based upon that evaluation, including our Chief Executive Officer and Chief Financial Officer, we have concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this annual report.

 

Management’s Annual Report on Internal Control over Financing Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934). Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2019 based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of this assessment, management concluded that, as of December 31, 2019, our internal control over financial reporting was not effective. Our management identified the following material weaknesses in our internal control over financial reporting, which are indicative of many small companies with small staff: (i) inadequate segregation of duties and ineffective 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. (iii) inadequate documented policies and procedures to ensure appropriate retention of records and documentation. (iv) inadequate documented policies and procedures of physical safeguards of assets and information technology. (v) inadequate testing and monitoring procedures to test internal controls. (vi) inadequate documented policies and procedures of related to the supervision of operational activities and staff..

 

We plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered by this annual report on Form 10-K, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we hope to implement the following changes during our fiscal year ending December 31, 2020: (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. (iii) adopt sufficient written policies and procedures for monitoring and testing of internal controls. (iv) adopt sufficient written policies and procedures for supervision of operational activities, physical safeguards and record retention. The remediation efforts set out in (i) and (ii) 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.

 

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to an exemption for non-accelerated filers set forth in Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

 

Item 9B. Other Information

 

None

 

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

 

The following information sets forth the names, ages, and positions of our current directors and executive officers as of December 31, 2019.

 

Name	Age	Position(s) and Office(s) Held
Terry Howlett	71	Chief Executive Officer, Chief Financial Officer, and Director
David St. James	47	Director

 

 

Set forth below is a brief description of the background and business experience of each of our current executive officers and directors.

 

Mr. Terry H. Howlett, has been our Chief Executive Officer and Director since March 5, 1998. Mr. Howlett has a diversified background in market initialization and development, sales and venture capital financing for emerging growth companies. He has held senior management, marketing and sales positions with various companies, including the Canadian Federation of Independent Business, Family Life Insurance, and Avacare of Canada and founded Presley Laboratories, Inc., which marketed cosmetic and skin, care products on a direct sales basis. For the ten years prior to becoming President of the Company, Mr. Howlett was the President and CEO of Voice-it Solutions, Inc., a publicly traded company on the Vancouver Stock exchange that made voice response software for order entry systems.

 

Mr. David St. James is an inventor and businessman based in Las Vegas, Nevada. He has invented and co-invented turbochargers and superchargers, some of which are in use today on production vehicles and in Formula 1. He has also been involved in other various aspects of the automotive industry, including product development, service, and repair. He has been an Officer and Director of Homeland Resources Ltd. since July of 2014 and currently serves as the President and a Director. He has been the Vice President and a Director of Nouveau Ventures Inc. since August of 2014. Mr. St. James served as the President of XLR Medical Corporation from January 2009 through January 2012. 

 

Directors

 

Our bylaws authorize no less than one (1) and more than twelve (12) directors. We currently have two directors.

 

Term of Office

 

Our Directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.

 

Significant Employees

 

Ms. Doreen McMorran, is head of Business Development. Ms. McMorran brings to the Company almost 20 years of experience in the medical and pharmaceutical industry, specifically in the areas of strategic planning, sales and marketing. She has spent the last seven years selling to international dermatology and skincare focused companies like Procter and Gamble, Johnson & Johnson, Stiefel, Galderma, Novartis and Graceway, to name a few. Ms. McMorran, who holds a Bachelor of Commerce (Honors) degree, spent six years in the pharmaceutical industry with Astra Pharma. Additionally, she has held senior management level positions with a number of healthcare companies, focusing on business development, sales, marketing and operations.

 

Family Relationships

 

There are no family relationships between or among the directors, executive officers or persons nominated or chosen by us to become directors or executive officers.

 

 

Involvement in Certain Legal Proceedings

 

To the best of our knowledge, during the past ten years, none of the following occurred with respect to a present or former director, executive officer, or employee: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

 

Audit Committee

 

We do not have a separately designated standing audit committee. The entire board of directors performs the functions of an audit committee, but no written charter governs the actions of the board of directors when performing the functions of that would generally be performed by an audit committee. The board of directors approves the selection of our independent accountants and meets and interacts with the independent accountants to discuss issues related to financial reporting. In addition, the board of directors reviews the scope and results of the audit with the independent accountants, reviews with management and the independent accountants our annual operating results, considers the adequacy of our internal accounting procedures and considers other auditing and accounting matters including fees to be paid to the independent auditor and the performance of the independent auditor.

 

We do not have an audit committee financial expert because of the size of our company and our board of directors at this time. We believe that we do not require an audit committee financial expert at this time because we retain outside consultants who possess these attributes as needed.

 

For the fiscal year ending December 31, 2019, the board of directors:

 

1. Reviewed and discussed the audited financial statements with management, and
2. Reviewed and discussed the written disclosures and the letter from our independent auditors on the matters relating to the auditor’s independence.

Based upon the board of directors’ review and discussion of the matters above, the board of directors authorized inclusion of the audited financial statements for the year ended December 31, 2019 to be included in this Annual Report on Form 10-K and filed with the Securities and Exchange Commission.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires our directors and executive officers and persons who beneficially own more than ten percent of a registered class of the Company’s equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent beneficial shareholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. To the best of our knowledge based solely on a review of Forms 3, 4, and 5 (and any amendments thereof) received by us during or with respect to the year ended December 31, 2019, the following persons have failed to file, on a timely basis, the identified reports required by Section 16(a) of the Exchange Act during fiscal year ended December 31, 2019:

 

Name and principal position	Number of late reports	Transactions not timely reported	Known failures to file a required form
Terry Howlett CEO, CFO & Director	0	4	0
David St. James	0	0	0
Doreen McMorran	0	4	0

 

Code of Ethics

 

We adopted a Code of Ethics for Financial Executives, which include our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The Code of Ethics was filed as an exhibit to the annual report on Form 10KSB for the fiscal year ended December 31, 2004 and filed with the SEC on April 14, 2005.

 

 

Item 11. Executive Compensation

 

Compensation Discussion and Analysis

 

Currently, the objective of the cash compensation paid by the company is to provide fair reimbursement for the time spent by our executive officer and independent directors to the extent feasible within the financial constraints faced by our developing business. The stock options granted to our executive officer and to our independent directors are intended to provide these individuals with incentives to pursue the growth and development of the company’s operations and business opportunities. Although the options awarded to our executive and directors are typically exercisable immediately, they also remain valid and exercisable for terms of several years. We believe this provides the proper balance of short-term and long-term incentives to increase the value of the company. Although an immediate increase in share price following the issuance of the options would obviously result in a profit if those options were exercised, the longer exercisable period of the options also provides an incentive to increase value over the long term and gives our executive officer and directors the opportunity to realize gains based on the sustained growth of our operations and revenues.

 

In addition, our sole executive officer holds substantial ownership in the company and is generally motivated by a strong entrepreneurial interest in expanding our operations and revenue base to the best of his ability.

 

Summary Compensation Table

 

The table below summarizes all compensation awarded to, earned by, or paid to our former or current executive officers for the fiscal years ended December 31, 2019 and 2018.

 

SUMMARY COMPENSATION TABLE
Name and principal position	Year	Salary ($)	Bonus ($)	Stock Awards  ($)	Option Awards ($)	Non-Equity Incentive Plan Compensation ($)	Nonqualified Deferred Compensation Earnings ($)	All Other Compensation ($)	Total ($)
Terry Howlett CEO & CFO	2019 2018	180,000 180,000	- -	- -	- -	- -	- -	- -	180,0001) 180,000(2)

 

(1) Due to financial constraints, however, the total paid to Mr. Howlett during the fiscal year ended December 31, 2019 was $0.

(2) Due to financial constraints, however, the total salary paid to Mr. Howlett during the fiscal year ended December 31, 2018 was $0.

 

Narrative Disclosure to the Summary Compensation Table

We granted Mr. Howlett the right to convert his accrued compensation of $90,000 as of December 31, 2018 into our common stock at $1.00 per share at any time until 2022. If exercised, we also agreed to issue a three-year warrant to Mr. Howlett to purchase an aggregate amount of 45,000 shares of common shares at a strike price of $1.50 per share.

 

Outstanding Equity Awards at Fiscal Year-End

The table below summarizes all unexercised options, stock that has not vested, and equity incentive plan awards for each named executive officer as of December 31, 2019.

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
OPTION AWARDS	STOCK AWARDS

 

Name		Number of Securities Underlying Unexercised Options (#)Exercisable				Number of Securities Underlying Unexercised Options (#) Unexercisable				Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)				Option Exercise Price ($)				Option Expiration Date		Number of Shares or Units of Stock That Have Not Vested(#)				Market Value of Shares or Units of Stock That Have Not Vested ($)				Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)				Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#)
Terry Howlett			34,000				—				—				1.50			2/10/2021			—				—				—				—

 

 

The table below summarizes all compensation of our directors as of December 31, 2019.

 

DIRECTOR COMPENSATION
Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	Non-Equity Incentive Plan Compensation ($)	Non-Qualified Deferred Compensation Earnings  ($)	All Other Compensation ($)	Total ($)
David St. James	6,000	-	-	-	-	-	-

 

Narrative Disclosure to the Director Compensation Table

 

All the fees earned or paid in cash and stock options awards granted to Terry Howlett were earned in connection with his service as an executive officer. Mr. Howlett received no compensation for his service as a member of our board of directors.

 

On September 22, 2018, we granted an option to purchase 2,000 shares of our common stock to Mr. St. James. The options have a strike price of $1.75. The stock options were exercisable upon grant and have a life of 5 years. The stock options were valued at $35,497 using the Black-Scholes option pricing model.

 

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The following table sets forth, as of April 24, 2020, the beneficial ownership of our common stock by each executive officer and director, by each person known by us to beneficially own more than 5% of our common stock and by the executive officers and directors as a group.

 

Title of class	Name and address of beneficial owner (1)	Amount of beneficial ownership(2)	Percent of class(3)
Executive Officers & Directors:
Common	Terry Howlett(4)	10,886,535 shares	71.2%
Common	David St. James(5)	2,000	Less than 1%
Total of All Directors and Executive Officers:		10,888,535 shares	71.2%
More Than 5% Beneficial Owners:
Doreen McMorran(6)		10,289,510 shares	69.8%

 

(1)

Except as otherwise indicated, the address of each person named in this table is c/o Skinvisible, Inc., 6320 South Sandhill Road, Suite 10, Las Vegas, Nevada 89120.

	(2)	As used in this table, "beneficial ownership" means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). In addition, for purposes of this table, a person is deemed, as of any date, to have "beneficial ownership" of any security that such person has the right to acquire within 60 days after such date.

	(3)	Except as otherwise indicated, all shares are owned directly and the percentage shown is based on 4,471,746 shares of common stock issued and outstanding on April 24. 2020.
	(4)	Includes 154,466 shares held in his name as indicated on our shareholder list, and 11,075,001 shares of common stock held in derivative securities.
	(5)	Includes an option to purchase 2,000 shares of common stock at $0.035 per share.

	(6)	Includes 36,000 shares held in her name as indicated on our shareholder list, and 10,350,510 shares of common stock held in derivative securities.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence

 

Aside from that which follows and in “Executive Compensation,” none of our directors or executive officers, nor any proposed nominee for election as a director, nor any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to all of our outstanding shares, nor any members of the immediate family (including spouse, parents, children, siblings, and in-laws) of any of the foregoing persons has any material interest, direct or indirect, in any transaction for the last two fiscal years or in any presently proposed transaction which, in either case, has or will materially affect us.

 

 

During the year ended December 31, 2019, $57,745 was advanced by Terry Howlett and $59,400 was advanced by Doreen McMorran. As of December 31, 2019, $46,899 in advances remained due to Terry Howlett and Doreen McMorran, and all other related party notes have been extinguished or re-negotiated as convertible notes.

 

The following table details the notes that are outstanding for Terry Howlett and Doreen McMorran.

Noteholder	Date of Note	Interest	Maturity	Outstanding Principal as of December 31, 2019
Terry Howlett	June 30, 2019	10%	December 31, 2024	$2,108,519
Terry Howlett	June 30, 2019	10%	December 31, 2024	$68,788
Terry Howlett	December 31, 2019	10%	December 31, 2019	$25,899
				Accrued Interest as of December 31, 2019
Terry Howlett				$109,760

 

Noteholder	Date of Note	Interest	Maturity	Outstanding Principal as of December 31, 2019
Doreen McMorran	June 30, 2019	10%	December 31, 2024	$2,004,502
Doreen McMorran	June 30, 2019	10%	December 31, 2024	$53,400
Doreen McMorran	December 31, 2019	10%	December 31, 2019	$21,000
				Accrued Interest as of December 31, 2019
Doreen McMorran				$103,741

 

 

Item 14. Principal Accounting Fees and Services

 

Below is the table of Audit Fees (amounts in US$) billed by our auditor in connection with the audit of the Company’s annual financial statements for the years ended:

 

Financial Statements for the Year Ended December 31			Audit Services				Audit Related Fees				Tax Fees				Other Fees
2019			$	34,500			$	0			$	0			$	0
2018			$	35,000			$	0			$	0			$	0

 

 

PART IV

 

Item 15. Exhibits, Financial Statements Schedules

 

(a)	Financial Statements and Schedules

 

The following financial statements and schedules listed below are included in this Form 10-K.

 

Financial Statements (See Item 8)

 

(b)

Exhibits

 

Exhibit Number	Description
2.1	Agreement and Plan of Merger(5)
3.1	Articles of Incorporation (1)
3.2	Bylaws, as amended (1)
3.3	Certificate of Amendment(2)
3.4	Certificate of Change(6)
10.1	Termination and Release Agreement, dated October 17, 2019(7)
10.2	Promissory Note, dated October 8, 2015(4)
14.1	Code of Ethics (3)
31.1	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), 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

 

1

Incorporated by reference to the Registration Statement on Form 10SB12G filed on April 30, 1999.

2

Incorporated by reference to the Report on Form 8-K filed on September 12, 2008.

	3	Incorporated by reference to Current report on Form 10-KSB filed with the Securities and Exchange Commission on April 14, 2005.
	4	Incorporated by reference to the Report on Form 8-K filed on August 8, 2018
	5	Incorporated by reference to the Report on Form 8-K filed on March 29, 2018
	6	Incorporated by reference to the Report on Form 8-K filed on January 22, 2019
	7	Incorporated by reference to the Report on Form 8-K filed on October 22, 2019

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the 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.
By:	/s/ Terry Howlett
	Terry Howlett President, Chief Executive Officer, Principal Executive Officer, Chief Financial Officer, Principal Financial Officer, Principal Accounting Officer and Director
	May 14, 2020

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By:	/s/ Terry Howlett
	Terry Howlett
	President, Chief Executive Officer, Principal Executive Officer, Chief Financial Officer, Principal Financial Officer, Principal Accounting Officer and Director
	May 14, 2020

 

 

By:	/s/ David St. James
	David St. James
	Director
	May 14, 2020