SKINVISIBLE, INC. 10-K

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. Trading in stocks quoted on the OTCQB is often thin and is characterized by wide fluctuations in trading prices due to many factors that may be unrelated to a company’s operations or business prospects. We cannot assure you that there will be a market in the future for our common stock. 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 April 6, 2021, we had 4,539,843 shares of our common stock issued and outstanding, held by 253 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. 15 Table of Contents 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 ended December 31, 2020, the Company issued 68,097 shares valued at $59,602 to investors in settlement of outstanding stock payable. 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, 2020. 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, 2020 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 60,000 $1.11 - Total 160,000 $1.31 - Item 6. Selected Financial Data A smaller reporting company is not required to provide the information required by this Item. 16 Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.” 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. COVID-19 The full extent of the impact of the COVID-19 pandemic on our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict at the present time. In an effort to contain COVID-19 or slow its spread, governments around the world have enacted various measures, including orders to close all businesses not deemed “essential,” isolate residents to their homes or places of residence, and practice social distancing when engaging in essential activities. We anticipate that these actions and the global health crisis caused by COVID-19 will negatively impact business activity across the globe. While we have not observed any noticeable impact on our revenue related to these conditions in the past fiscal year, or through the date of this filing, we cannot estimate the impact COVID-19 will have in the future as business and consumer activity decelerates across the globe. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, customers, partners and stockholders. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, partners, or vendors, or on our financial results. Results of Operations for the Years Ended December 31, 2020 and 2019 Revenues Our revenue from product sales, royalties on patent licenses and license fees (product development fees) for the year ended December 31, 2020 was $275,556, an increase from $43,166 for the year ended December 31, 2019. The increase in revenue for year ended December 31, 2020 was mainly due to our license agreements with Ovation and Quoin. Cost of Revenues Our cost of revenues for the year ended December 31, 2020 decreased to $0 from the prior year when cost of revenues was $17,551. Our cost of revenues decreased for the year ended December 31, 2020 over the prior year period as a result of decreased product sales and increased license fees that do not have a cost of revenue. Gross Profit Gross profit for the year ended December 31, 2020 was $275,556, or 100% of sales. Gross profit for the year ended December 31, 2019 was $25,615, or approximately 60% of sales. Our gross profit margin increased significantly in 2020 over 2019 as a result of the increased license fee revenue, which has no costs verses product sales. 17 Table of Contents Operating Expenses Operating expenses decreased to $529,221 for the year ended December 31, 2020 from $565,392 for the year ended December 31, 2019. Our operating expenses for the year ended December 31, 2020 consisted mainly of selling, general and administrative expenses of $497,199 and depreciation and amortization of $32,022. In comparison, our operating expenses for the year ended December 31, 2019 consisted mainly of selling, general and administrative expenses of $525,776 and depreciation and amortization of $39,616. Other Expenses We had other expense of $1,193,947 for the year ended December 31, 2020, compared with other expenses of $1,162,354 for the year ended December 31, 2019. Our other expenses for 2020 are the result of interest expense. Our other expenses for 2019 is largely the result of $1,004,756 in interest expense and $247,998 in the extinguishment of debt offset by $90,400 as other related party income. We expect to experience high debt 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 note with an aggregate principal amount of $10,000 that has 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 Loss We recorded net loss for the year ended December 31, 2020 of $1,447,612 compared to net loss of $1,702,131 for the year ended December 31, 2019. 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 $34,700,408 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, 2020, we had total current assets of $50,114 and total assets in the amount of $200,244. Our total current liabilities as of December 31, 2020 were $2,718,985. We had a working capital deficit of $ 2,668,871 as of December 31, 2020 as compared with a working capital deficit of $2,550,568 as of September 30, 2020 and a working capital deficit of $1,900,688 as of December 31, 2019. The change in working capital is largely the result of our efforts to convert debt into equity during the year. Operating activities used $45,765 in cash for the year ended December 31, 2020, as compared with $128,212 for the year ended December 31, 2019. The company’s net loss was the main component of our negative operating cash flow, offset mainly by an increase in accrued interest of $529,772 amortization of debt discount of $664,174 and an increase in accounts payable and accrued liabilities of $268,206. Cash flows used by investing activities during the year ended December 31, 2020 was $16,767 as compared with $26,116 for the year ended December 31, 2019, 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, 2020 amounted to $5,600 as compared with $78,144 for the year ended December 31, 2019. Cash flows for the year ended December 31, 2020 consisted of $26,900 in proceeds from related party debt offset by $21,300 paid on notes payable. Cash flows for the year ended December 31, 2019 mainly consisted of $117,144 in proceeds from related party debt, offset by $39,000 in payments on notes payable. 18 Table of Contents 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, 2020, 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, 2020, 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. 19 Table of Contents