SKINVISIBLE, INC. 10-K

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 F-3 Consolidated Balance Sheets as of December 31, 2020 and 2019 F-4 Consolidated Statements of Operations for the years ended December 31, 2020 and 2019 F-5 Consolidated Statement of Stockholders’ Deficit for the years ended December 31, 2020 and 2019 F-6 Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019 F-7 Notes to Consolidated Financial Statements 20 Table of Contents 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 sheets of Skinvisible, Inc. (the Company) as of December 31, 2020 and 2019, and the related statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, 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 incurred cumulative net losses, 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 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. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Revenue Recognition As described in Note 3, to the financial statements, the Company recognizes revenue 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. The principal considerations for our determination that performing procedures relating to revenue recognition as a critical audit matter are the significant judgement by management in determining the nature, timing and extent in the recognition of revenue, this in turn led to significant auditor judgement, subjectivity, and effort in performing procedures and evaluating audit evidence. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included: 1) evaluating the appropriateness and consistency of management’s methods and assumptions used in identification, recognition, measurement and disclosure of revenue 2) reading contract source documents for each audit selection, including master agreements, and other documents that were part of the agreement 3) testing management's identification and treatment of contract terms 4) Assessing the terms in the customer agreement and evaluated the appropriateness of management's application of their accounting policies, along with their use of estimates, in the determination of revenue recognition conclusions 5) testing the mathematical accuracy of management's calculations of revenue and the associated timing of revenue recognized in the financial statements. Valuation of Intangible Assets As disclosed in Note 6, to the financial statements, intangible assets are tested for impairment at least annually and has determined that no impairment write-down is considered necessary as of December 31, 2020. Auditing management’s impairment tests of intangible assets was complex and highly judgmental due to the significant measurement uncertainty in determining the fair values of intangible assets. The principal considerations for our determination that performing procedures relating to the valuation of intangible assets as a critical audit matter are the significant judgement by management in determining the nature, timing and extent of the carrying value of intangible assets, this in turn led to significant auditor judgement, subjectivity, and effort in performing procedures and evaluating audit evidence. Addressing the matter included assessing methodologies and testing the significant assumptions and underlying data used by the Company. We compared the significant assumptions used in the Company’s plan for the next twelve months, as well as revenue and operating margins, to current industry and economic trends, including the impact of COVID-19. /s/ Prager Metis CPAs, LLC We have served as the Company’s auditor since 2019. Basking Ridge, NJ April 15, 2020 F- 1 Table of Contents SKINVISIBLE, INC. CONSOLIDATED BALANCE SHEETS December 31, 2020 December 31, 2019 ASSETS Current assets Cash $ 35,896 $ 1,298 Accounts receivable 7,718 10,204 Prepaid expense and other current assets 6,500 4,875 Total current assets 50,114 16,377 Patents and trademarks, net of accumulated amortization of $111,596 and $533,415, respectively 150,130 165,385 Total assets $ 200,244 $ 181,762 . LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities Accounts payable and accrued liabilities $ 865,497 $ 597,291 Accounts payable related party 7,616 9,274 Accrued interest payable 1,021,373 491,601 Loans from related party 52,499 46,899 Loans payable 552,000 552,000 Convertible notes payable, current portion 220,000 220,000 Total current liabilities 2,718,985 1,917,065 Convertible notes payable related party, net of unamortized discount of $2,603,581 and $3,060,970 respectively 1,787,439 1,174,239 Convertible notes payable, net of unamortized debt discount of $216,289 and $254,450, respectively, less current potion 148,599 97,625 Total liabilities 4,655,023 3,188,929 Commitment and contingencies( Note 6) Stockholders' deficit Common stock; $0.001 par value; 200,000,000 shares authorized; 4,539,843 and 4,471,746 shares issued and outstanding at December 31, 2020 and 2019, respectively 4,540 4,472 Shares payable — 59,602 Additional paid-in capital 30,241,089 30,181,555 Accumulated deficit (34,700,408 ) (33,252,796) Total stockholders' deficit (4,454,779 ) (3,007,167) Total liabilities and stockholders' deficit $ 200,244 $ 181,762 See Accompanying Notes to Consolidated Financial Statements. F- 2 Table of Contents SKINVISIBLE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 2020 December 31, 2019 Revenues $ 152,633 $ 42,066 Revenues, related party 122,923 1,100 Cost of revenues — 17,551 Gross profit 275,556 25,615 Operating expenses Depreciation and amortization 32,022 39,616 Selling general and administrative 497,199 525,776 Total operating expenses 529,221 565,392 Loss from operations (253,665 ) (539,777) Other income and (expense) Other income - related party — 15,400 Gain on sale of fixed assets, related party — 75,000 Loss on extinguishment of debt — (247,998) Interest expense (1,193,947 ) (1,004,756) Total other income (expense) (1,193,947 ) (1,162,354) Net loss before tax provision (1,447,612 ) (1,702,131) Tax provision — — Net loss $ (1,447,612 ) $ (1,702,131) Basic loss per common share $ (0.32 ) $ (0.59) Fully diluted loss per common share $ (0.32 ) $ (0.59) Basic weighted average common shares outstanding 4,492,398 2,896,689 Fully diluted weighted average common shares outstanding 4,492,398 2,896,689 See Accompanying Notes to Consolidated Financial Statements. F- 3 Table of Contents 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, 2018 2,896,689 $ 2,897 $ 24,774,887 $ 2,053,466 $ (31,550,665 ) $ (4,719,415) Shares to be issued for 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) Issuance of shares payable 68,097 68 59,534 (59,602 ) — — Net loss — — — — (1,447,612 ) (1,447,612) Balance, December 31, 2020 4,539,843 $ 4,540 $ 30,241,089 $ — $ (34,700,408 ) $ (4,454,779) See Accompanying Notes to Consolidated Financial Statements. F- 4 Table of Contents SKINVISIBLE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 2020 December 31, 2019 Cash flows from operating activities: Net loss $ (1,447,612 ) $ (1,702,131) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation and amortization 32,022 39,616 Amortization of debt discount 664,174 561,292 Loss on extinguishment of debt — 247,998 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 Decrease (Increase) in prepaid assets (1,625 ) 7,125 Decrease (Increase) in accounts receivable 2,486 (1,745) Increase in accounts payable and accrued liabilities 266,548 354,707 Decrease in due from related party — 1,145 Increase in accrued interest 529,772 421,364 Net cash provided by (used in) operating activities 45,765 (128,212) Cash flows from investing activities: Proceeds from sale of fixed assets — 75,000 Purchase of fixed and intangible assets (16,767 ) (26,116) Net cash (used in) provided by investing activities (16,767 ) 48,884 Cash flows from financing activities: Proceeds from related party loans 26,900 117,144 Payments on related party loans (21,300 ) (39,000) Net cash provided by financing activities 5,600 78,144 Net change in cash 34,598 (1,184) Cash, beginning of period 1,298 2,482 Cash, end of period $ 35,896 $ 1,298 Supplemental disclosure of cash flow information: Cash paid for interest $ 12,631 $ 27,005 Cash paid for tax $ — $ — SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Non-cash investing and financing activities: Beneficial conversion feature on convertible debt $ — $ 3,649,320 Common stock issued on extinguishment of debts $ — $ 2,000,892 Common stock payable on extinguishment of debts $ — $ 42,000 Shares issued to settle shares payable $ 59,534 $ — See Accompanying Notes to Consolidated Financial Statements. F- 5 Table of Contents 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, 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 including women’s health, pain management, and others. The Company maintains executive and sales offices in Las Vegas, Nevada. History – The Company was incorporated in Nevada on March 6, 1998, under the name of Microbial Solutions, Inc. The Company underwent a name change on February 26, 1999, when it changed its name to Skinvisible, Inc. The Company’s subsidiary’s name of Manloe Labs, Inc. was also changed to Skinvisible Pharmaceuticals, Inc. Skinvisible, Inc., together with its subsidiaries, shall herein be collectively referred to as the “Company.” 2. BASIS OF PRESENTATION AND GOING CONCERN Basis of presentation – The accompanying audited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America. 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. For the year ended December 31, 2020, the Company had a net loss of $1,447,612 The Company has also incurred cumulative net losses of $34,700,408 since its inception and requires capital for its contemplated operational and marketing activities to take place. These factors, among others, raises substantial doubt about the Company’s ability to continue as a going concern within one year from the date of filing. Managements plans for the Company are to generate the necessary funding through licensing of its core products and to seek additional debt and equity funding. However, the Company’s ability to generate the necessary funds through licensing or raise additional capital through the future issuances of common stock or debt is unknown. The obtainment of additional financing, the successful development of the Company’s contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties. The Company's operations and business have experienced disruption due to the unprecedented conditions surrounding the COVID-19 pandemic spreading throughout the United States and elsewhere. The spread of COVID-19 has caused a change in the availability of our staff and support services. 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 filing. These estimates could change in the future, as new events occur, or additional information is obtained. F- 6 Table of Contents 3. SUMMARY OF SIGNIFICANT POLICIES This summary of significant accounting policies of Skinvisible Inc. is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the consolidated financial statements. Principles of consolidation – The consolidated financial statements include the accounts of the Company and its subsidiary Skinvisible Pharmaceuticals Inc. All significant intercompany balances and transactions have been eliminated. Use of estimates – The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include estimates used to review the Company’s impairments and estimations of long-lived assets, allowances for uncollectible accounts, inventory valuation, and the valuations of non-cash capital stock issuances. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Cash and cash equivalents – For purposes of the statement of cash flows, the Company considers all highly liquid investments and short-term instruments with original maturities of three months or less to be cash equivalents. Fair Value of financial instruments –The carrying value of cash, accounts payable and accrued expenses, and debt (See Notes 6 & 8) 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. F- 7 Table of Contents Revenue recognition – We recognize revenue in accordance with generally accepted accounting principles as outlined in the Financial Accounting Standard Board's (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue From Contracts with Customers, which requires that five steps be followed in evaluating revenue recognition: (i) identify the contract with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price; and (v) recognize revenue when or as the entity satisfied a performance obligation. Product sales – Revenues from the sale of products (Invisicare® polymers) are recognized when title to the products are transferred to the customer and only when no further contingencies or material performance obligations are warranted, and thereby have earned the right to receive reasonably assured payments for products sold and delivered. Royalty sales – We also recognize royalty revenue from licensing our patented product formulations only when earned, with no further contingencies or material performance obligations are warranted, and thereby have earned the right to receive and retain reasonably assured payments. Distribution and license rights sales – We also recognize revenue from distribution and license rights when no further contingencies or material performance obligations are warranted, and thereby have earned the right to receive and retain reasonably assured payments. The Company has made an accounting policy election to exclude from the measurement of the transaction price all taxes assessed by governmental authorities that are collected by the Company from its customers (sales and use taxes, value added taxes, some excise taxes). Accounts Receivable – Accounts receivable is comprised of uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. The carrying amount of accounts receivable is reviewed periodically for collectability. If management determines that collection is unlikely, an allowance that reflects management’s best estimate of the amounts that will not be collected is recorded. Management reviews each accounts receivable balance that exceeds 30 days from the invoice date and, based on an assessment of creditworthiness, estimates the portion, if any, of the balance that will not be collected. As of December 31, 2020 and 2019, the Company had determined it was not necessary to recognize a reserve for doubtful accounts. Intangible assets – The Company follows Financial Accounting Standard Board’s (FASB) Codification Topic 350-10 (“ASC 350-10”), “ Intangibles – Goodwill and Other ”. According to this statement, intangible assets with indefinite lives are no longer subject to amortization, but rather an annual assessment of impairment by applying a fair-value based test. Under ASC 350-10, the carrying value of assets are calculated at the lowest level for which there are identifiable cash flows. 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. 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, 2020 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 30,779,400 additional shares issuable in connection with outstanding options, warrants, stock payable and convertible debts as of December 31, 2020. The shares issuable under each instrument is as follows; 100,000 shares issuable for options, 60,000 shares issuable for warrants, 30,619,400 shares issuable under convertible notes. There were 25,317,929 additional shares issuable in connection with outstanding options, warrants, stock payable and convertible debts as of December 31, 2019. The shares which were issuable at that date under each instrument were 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 – 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. F- 8 Table of Contents 4. RELATED PARTY TRANSACTIONS During the year ended December 31, 2020, $26,900 was advanced by an officer and $21,300 was repaid to another officer. As of December 31, 2020, $52,499 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 9 for additional details.) 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 percentage on all net sales on the licensed products subject to adjustment in certain situations plus a license fee payable in year 3 of the agreement if it chooses to continue the license. On June 10, 2020, Ovation Science Inc. paid the Company the fee otherwise due in year 3 and in exchange the Company extended the term of Ovation’s license to 6-years and granted Ovation additional rights to its hand sanitizer products and assigned Canadian Identification Numbers 02310589 and 02355558, all DermSafe Trademarks, DermSafe clinical data and the right to patent DermSafe where not currently patented. In exchange for these rights Ovation paid a $100,000 license fee. The Company completed the required assignments during the year ending December 31, 2020 and recognized $100,000 in revenue. The Company earned $15,860 in royalties under the license agreement during the year ending December 31, 2020. The Company sold polymer products to Ovation Science Inc and earned $7,132 and 0 as of December 31, 2020 and 2019, respectively. Convertible Notes Related Party Convertible Notes Payable Related Party consists of the following: December 31, 2020 December 31, 201 9 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 convertible 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 $613,200 during the year ended December 31, 2020 and $308,274 for the year ended December 31, 2019. $ 4,235,209 $ 4,235,209 Unamortized debt discount (2,447,770 ) (3,060,970) Total, net of unamortized discount $ 1,787,439 $ 1,174,239 F- 9 Table of Contents 5. FIXED ASSETS Depreciation expense for the years ended December 31, 2020 and 2019 was $0 and $119, 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. 6. INTANGIBLE AND OTHER ASSETS Patents and other intangible assets are capitalized at their historical cost and are amortized over their estimated useful lives. As of December 31, 2020 intangible assets total $261,726, net of $111,596 of accumulated amortization. As of December 31, 2019, intangible assets total $698,800, net of $533,415 of accumulated amortization. The Company capitalized $16,767 in patent cost during the year ended December 31, 2020. Amortization expense for the years ended December 31, 2020 and 2019 was $34,056 and $39,497, 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, 2020. 7. NOTES PAYABLE Secured debt offering During the period from May 22, 2013 and December 31, 2018, the Company entered into a 9% notes payable to nineteen investors and received proceeds of $552,000. The notes were due two years from the anniversary date of execution. The Notes are secured by the US Patent rights granted for the Company's Sunscreen Products: US patent number #8,128,913: "Sunscreen Composition with Enhanced UV-A Absorber Stability and Methods.” As of December 31, 2020, $552,000 of the outstanding notes payable are past due and in default and have been classified as current notes payable. F- 10 Table of Contents 8. CONVERTIBLE NOTES PAYABLE Convertible Notes Payable consists of the following: December 31, December 31, 2020 2019 $40,000 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 reached maturity and are now in default, under the notes default provisions the entire balance is now due upon demand. 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. 10,000 10,000 Unamortized debt discount — — Total, net of unamortized discount 10,000 10,000 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 convertible 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 as valued under the intrinsic value method. The aggregate beneficial conversion feature has been accreted and charged to interest expenses in the amount of $50,974 and $25,626 for the years ended December 31, 2020 and 2019, respectively. 352,075 352,075 Unamortized debt discount (203,476 ) (254,450) Total, net of unamortized discount 148,599 97,625 Total Convertible Notes $ 368,599 $ 317,625 Current portion: 220,000 220,000 Total long-term convertible notes $ 148,599 $ 97,625 F- 11 Table of Contents 9. COMMITMENTS AND CONTINGENCIES License Agreement On October 17, 2019, Skinvisible entered an Exclusive License Agreement with Quoin pursuant to which Skinvisible granted to Quoin a license to certain patents for the development of products for commercial sale. In exchange for the license, Quoin agreed to pay to Skinvisible a license fee of $1,000,000 and a royalty percentage on 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 is subject to termination, if among other things, 50% of the license fee is not paid by December 31, 2019 and if the full License Fee is not paid by March 31, 2020. No payments were made by Quoin and the agreement was terminated on December 31, 2019. Both Parties subsequently determined that they continue to see the value in a partnership and therefore on May 8, 2020 and again on July 31, 2020 the companies agreed to extend the Exclusive License Agreement, as amended under the same terms to expire on September 30, 2020 and on January 27, 2021 the companies agreed to revise the milestone payments due under the agreement and to extend the agreement indefinitely (See note 13). As of December 31, 2020 the Company has received $125,000 in licensing fee income per this agreement. 10. 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 $3.0 million as of December 31, 2020 which is calculated by multiplying a 21% estimated tax rate by the cumulative net operating loss (NOL) of approximately $14.6 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, 2020, 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, 2020 and 2019 are as follows: As of December 31, 2020 2019 Cumulative tax net operating losses (in millions) $ 14.6 $ 13.2 Deferred tax asset (in millions) $ 3.0 $ 2.8 Valuation allowance (in millions) (3.0 ) (2.8) Current taxes payable — — Income tax expense $ — $ — As of December 31, 2020, and 2019, the Company had gross federal net operating loss carryforwards of approximately $14.6 million and $13.2 million, respectively. The Company plans to file its U.S. federal return for the year ended December 31, 2020 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 2017-2019 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. F- 12 Table of Contents 11. STOCK OPTIONS AND WARRANTS Stock options The following is a summary of option activity during the years ended December 31, 2019 and 2020. Number of Shares Weighted Average Exercise Price Balance, December 31, 2018 161,000 $ 1.80 Options granted and assumed — — Options expired (61,000 ) 2.250 Options canceled — — Options exercised — — Balance, December 31, 2019 100,000 1. 51 Options granted and assumed — — Options expired — — Options canceled — — Options exercised — — Balance, December 31, 2020 100,000 1.51 As of December 31, 2020, all stock options outstanding are exercisable. Stock warrants The following is a summary of warrants activity during the years ended December 31, 2019 and 2020. 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 $ 1.18 Warrants granted and assumed — — Warrants expired (12,200 ) 1.50 Warrants canceled — — Warrants exercised — — Balance, December 31, 2020 60,000 1.11 As of December 31, 2020 , all stock warrants outstanding are exercisable. F- 13 Table of Contents 12. STOCKHOLDERS’ DEFICIT The Company is authorized to issue 200,000,000 shares of $0.001 par value common stock. The Company had 4,539,843 and 4,471,746 issued and outstanding shares of common stock as of December 31, 2020 and December 31, 2019, respectively. 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. 13. SUBSEQUENT EVENTS On January 27, 2021 the Company and Quoin agreed to revise the milestone payments due under the Exclusive License Agreement to the following: (i) Successful completion of Phase 2 testing: $250,000 (ii) Successful completion of Phase 3 testing: $500,000 (iii) Regulatory approval in US: $14,500,000 (iv) Regulatory approval in EU: $7,250,000 In addition as part the amendment the Companies also agreed to extend the agreement indefinitely. F- 14 Table of Contents Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure None.