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
      1934For
      the fiscal year ended  December 31, 2008[  ]
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACTFor
      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 registerednone
            not
      applicableSecurities
      registered under Section 12(g) of the Exchange Act:Title
      of each class
            Name
      of each exchange on which registeredCommon Stock, par
      value $0.001
            not
      applicable





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]





Check
whether the Issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act during the past 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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. Yes
[  ]     No [X]





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





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





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).   Yes
[  ]   No [X]





State the
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. $120,360





Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date.  84,095,888 as of December 31,
2008.





Table of Contents





TABLE OF
CONTENTS





PagePART
      IItem 1.
            Business
            3Item 1A.
            Risk Factors
            8Item 1B.
            Unresolved Staff Comments
            8Item 2.
            Properties
            8Item 3.
            Legal Proceedings
            9Item 4.
            Submission of Matters to a Vote of Security
      Holders
            9PART
      IIItem 5.
            Market for Registrant’s Common Equity and Related Stockholder
      Matters and Issuer Purchases of Equity Securities
            9Item 6.
            Selected Financial Data
            12Item 7.
            Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
            13Item 7A.
            Quantitative and Qualitative Disclosures About Market
      Risk
            18Item 8.
            Financial Statements and Supplementary Data
            18Item 9.
            Changes In and Disagreements With Accountants on Accounting and
      Financial Disclosure
            18Item 9A(T).
            Controls and Procedures
            18Item 9B.
            Other Information
            19PART
      IIIItem 10.
            Directors, Executive Officers and Corporate
      Governance
            19Item 11.
            Executive Compensation
            22Item 12.
            Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters
            24Item 13.
            Certain Relationships and Related Transactions, and Director
      Independence
            25Item 14.
            Principal Accountant Fees and Services
            25PART
      IVItem 15.
            Exhibits, Financial Statement Schedules
            26




2
 Table of Contents





PART I





Item 1.   Business





Company
Overview




We
develop innovative polymer delivery vehicles and related compositions that
hold active ingredients on the skin for extended periods of time when
applied topically. We designed a process for combining water soluble and
insoluble polymers that is specifically formulated to carry water insoluble
active ingredients in water-based products without the use of alcohol,
silicones, waxes, or other organic solvents. This enables active agents the
ability to perform their intended functions for an extended period of time. Our
polymer delivery vehicles, trademarked Invisicare®,
allow normal skin respiration and perspiration. The polymer compositions we
develop wear off as part of the natural exfoliation process of the skin's outer
layer cells.
 
 We
believe Invisicare®offers
the following benefits:
 
 §
              Displays
      superior skin adherence for extended time
  periods
 §
              Non-occlusive
      yet resists water wash-off, respiration and
  perspiration
 §
              Increased
      efficacy of active ingredients
 §
              Allows
      for lower use levels of actives with increased persistence of
      effect
 §
              Offers
      advantage of controlled and/or sustained
  time-release
 §
              Highly
      compatible with a variety of actives and
bases
 §
              Easy
      to emulsify
 §
              Formulates
      well at a cream, lotion, or spray
viscosity
 §
              Non-irritating
      emulsion dries quickly with no greasy
after-feel
 §
              Non-occlusive
      film forms protective barrier against environmental
    irritants
 §
              Broad
      polymer selection to meet application
  requirements
 §
              Offers
      “Life Cycle” management to core products with potential for new
      patent
 §
              Simplified
      manufacturing process
 
 Products
that successfully incorporate Invisicare to date include antimicrobial hand
sanitizer lotions, suncare products, skincare moisturizers, sunless tanning
products as well as various dermatology products for various skin
disorders.  On an ongoing basis, we are seeking to develop polymer
formulations that can successfully be incorporated into other
products.
 
 Our
primary objective is to license Invisicare to established brand
manufacturers and marketers of prescription and over-the-counter
products in the dermatological, medical, cosmetic, and skincare
markets. With the exception of sales to one vendor, our management’s policy is
to only sell Invisicare to vendors that have executed a license agreement with
us. We conduct our research and development in-house. We engage an outside party
that currently handles all of our manufacturing and distribution
needs.


3
 Table of Contents


Recent
Developments
 
 Our core
business is the research and development of products formulated with our
patented technology Invisicare.  This year we have added a strategic
focus on the sale and marketing of these products and developing new Invisicare
technologies. Our focus has allowed us to expand our reputation amongst key
dermatology, consumer goods and medical/surgical companies around the
globe.  It has also allowed us to branch out beyond dermatology into
other medical areas that require topically delivered products.
 
 Leadership
 
 We have
brought on key people this year with specific skills to assist us with our
growth strategy.  Mr. Brian Piwek became a member of our Board of
Directors early in the year.  He was selected not only for his
excellent business acumen but also his vast experience in the international
retail / personal goods marketplace. He was President of Overwaitea Foods
supermarket in Canada from 1991 until 1997. Prior to retiring in 2005, Brian
served as the President and Chief Executive Officer of A&P Foods, one of
North America’s oldest retail food chains.
 
 Internally,
we hired a Vice President of Business Development and Marketing - Ms. Doreen
McMorran. She brings over seven years of international dermatology marketing
experience to our company.  We believe having a person solely focused
on revenue generation and with excellent dermatology industry contacts will
assist our expansion plans.
 
 In the
fall of 2008, we appointed Dr. Geert Cauwenbergh PhD. to head our International
Advisory Board and to spearhead further extension into international markets.
Dr. Cauwenbergh has vast dermatology experience having held senior executive
positions with Barrier Therapeutics, Johnson & Johnson and Janssen
Pharmaceutica. Dr. Cauwenbergh assists us with dermatology research and
development knowledge.
 
 Product
Developments
 
 We intend
to expand our product offerings. Currently we have over 30 topical products
formulated with Invisicare available for licensing.  Our products
range from acne formations to sunscreens to surgical products.  A key
addition to our portfolio in 2008 was our UVA/UVB sunscreen with Parsol 1789.
Parsol 1789 is the most used UVA filter in sunscreens in the US and the only
ingredient approved by the US FDA that is not proprietary. Our studies show a
minimum of eight hour photostability compared to the industry average of two
hours. In addition, most sunscreens, even those that indicate they are water
resistant, do not remain on the skin after swimming.  With our
Invisicare technology, sunscreens remain on the skin for 8 to 12 hours and
resist wash-off and rub-off. For the international market, we have developed new
sunscreens using a proprietary sunscreen UVA filter from CIBA Specialty
Chemicals. While this ingredient is not yet approved for sale in the US, it is
used internationally and we are working with sunscreen companies in Europe and
Latin America on this new development.
 
 In the
third quarter of 2009, we intend to begin marketing our Chlorhexidine Hand
Sanitizer Lotion “DermSafe” in Canada where we have received approval from
Health Canada. We expect to file for US FDA approval with a marketing partner in
2009. We believe this is a unique product that is needed immediately in all
healthcare settings from hospitals to nursing homes. DermSafe stays bound to the
hands, even after frequent washings, for up to 4 hours while killing both
bacteria and viruses; a real plus for doctors and nurses as they move from
patient to patient.




4
 Table of Contents




Patent
Developments
 
 We intend
to continually to generate new patents (intellectual property) on our
dermatology and medical products. Every product we formulate is protected by one
or more patents.  Patent approvals are sought (initially in the U.S.
and later internationally) for all products developed. Currently there are 5
patents approved including the US, Australia, India and this year Japan, 9 U.S.
patents pending in addition to 34 PCT's internationally, with many more to be
filed.  Some of these PCT patents cover up to 5 products. All patents
with Invisicare are owned by Skinvisible.
 
 Patent
protection is important to our company. Pharmaceutical companies are pursuing
new or improved revenue streams along with protecting their own intellectual
properties.  Invisicare allows companies to sell a patent-protected
product that has been revitalized with new benefits, giving them a new story to
help combat generic competitors. A prescription dermatology product can generate
$100 plus million per year; some even $200 plus million – and that is why we
believe the investment into a license with an Invisicare formulation is a very
viable option for these companies.
 
 We
continue to submit for patent protection worldwide for products formulated with
Invisicare.
 
 License
Agreements
 
 Our
current licensees: JD Nelson with Safe4Hours®, DRJ Group with Stopain® and
Sunless Beauty with Solerra® all remain focused on expanding their markets in
the US and Solerra  globally. In 2008, we added two new licensees. Our
first addition was for two acne formulations made with adapalene for Panalab
Internacional S.A. for the territory of Latin America. Panalab is a
multi-national dermatology company headquartered in Panama with subsidiaries and
partners in most Latin American countries. Under the terms of the agreement,
Panalab will be responsible for filing and obtaining marketing approval in the
countries they have licensed. We received a research and development fee plus a
licensing fee allocated as an upfront fee plus milestone payments. In addition,
we will receive royalties based on revenues generated by the sale of the
products. According to the agreement, Panalab will have the right to
manufacture, distribute, market, sell and promote the Adapalene formulations in
the specified territory. Panalabs expect to be selling in their territory by
late fall 2009.
 
 In
addition, two more prescription acne products (clindamycin and retinoic acid)
were licensed to Embil Pharmaceuticals for Turkey, parts of Asia (Indonesia,
Malaysia, and the Philippines) and Azerbaijan, Kazakhstan, Kyrgyzstan,
Turkmenistan, and Uzbekistan. Embil is a multi-national dermatology company
headquartered in Instanbul, Turkey with subsidiaries and partners in S.E. Asia.
Under the terms of the agreement, Embil will be responsible for filing and
obtaining marketing approval in the countries they have licensed. We have
received a research and development fee plus a licensing fee allocated as an
upfront fee plus milestone payments. In addition, we will receive royalties
based on revenues generated by the sale of the products.




5
 Table of Contents




According
to the agreement, Embil will have the right to manufacture, distribute, market,
sell and promote the Clindamycin HCL and Retinoic Acid formulations for acne in
the specified territory.
 
 In
January 2009, we signed an agreement with RHEI Pharmaceuticals NV, a Belgium
based pharmaceutical company that in-licenses drugs for sale in China. This
agreement gives RHEI the first option to license the exclusive rights for
Skinvisible's dermatology products for the territory of China, Hong Kong and
Taiwan. Specifically the agreement is for over-the-counter and prescription
dermatology products formulated with Invisicare that have been approved in a
reference country.  As part of the agreement, RHEI will augment its
existing product lines by seeking approval and then marketing and manufacturing
Skinvisible's Invisicare dermatology products in the approved
territory.
 
 The
Chinese pharmaceutical market represents a huge opportunity with an estimated
$22.6 billion spent on pharmaceutical drugs in 2007 and growing at an annual
rate of nearly 20%. To address this huge growth, the Chinese government has
implemented a more effective approval process, one that fits advantageously into
the strategic plans of both Skinvisible and RHEI.
 
 Status
of Research and Development for New Applications
 
 We
believe that the enhancement and extension of our existing products and the
development of new product categories have contributed significantly to our
growth to date and are necessary for our continued growth. Our management
evaluates new ideas and seeks to develop new products and improvements to
existing products to satisfy industry requirements and changing consumer
preferences. We seek to identify trends in consumer preferences and to generate
new product ideas. Specific to the objective of generating new products, we are
continuing our research and development toward developing additional
applications with Invisicare. We are currently at various development stages for
the following potential applications using Invisicare:







Skinvisible’s
Formulas with Invisicare:












ACTIVE
      INGREDIENT
            TYPE
            Availability
            PatentAcneAdapalene
      Cream & Gel (0.1% & 0.3%)
            Rx
            yes*
            pendingClindamycin
      Hydrochloride Cream (1%)
            Rx
            yes*
            pendingRetinoic
      Acid Cream (0.1%)
            Rx
            yes*
            pendingBenzoyl
      Peroxide (2.5%) Cream
            Rx
      / OTC
            In
      development
            pendingActinic
      KeratosisImiquimod
      Lotion (2%, 3%)
            Rx
            yes
            pendingAnalgesicsTopical
      Spray with Menthol (6% & 8%)
            OTC
            yes
            technologyTopical
      Roll-On with Menthol (6% & 8%)
            OTC
            yes
            technology


Topical
      Cream with Salicylate (10%)
            OTC
            yes
            technologyAnti-Aging




6
 Table of Contents




Retinol
      Cream (0.3%)
            Cosmetic
            yes
            technologyAnti-FungalTerbinafine
      Cream, Gel (1%)
            OTC
            yes
            pendingNaftifine
      Cream (1%)
            Rx
            yes
            pendingNaftifine
      (1%) & Hydrocortisone (1%) Cream
            Rx
            yes
            pendingClotrimazole
      Cream (1%)
            OTC
            yes
            pendingAnti-InflammatoryHydrocortisone
      Cream (1%)
            OTC
            yes
            technologyTriamcinolone
      (1%)
            Rx
            yes
            technologyTriamcinolone
      Acetonide (1%)
            Rx
            yes
            technologyClobetasole
      Proprionate (0.05%)
            Rx
            in-progress
            technologyBetamethasone
      (1%)
            Rx
            yes
            technologyAntimicrobial
      LotionsTriclosan
      Lotion (1%) with Nonoxynol-9
            OTC
            yes*
            grantedTriclosan
      Lotion (1%) with Tomadol 901
            OTC
            yes*
            grantedBenzalkonium
      Chloride Lotion (0.13%)
            OTC
            yes*
            grantedChlorhexidine
      Gluconate Lotion (4%)
            OTC
      / NDA
            yes
            pendingChlorhexidine
      Gluconate (2%) Pre-Surgical Prep
            NDA
            yes
            pendingAtopic
      Dermatitis / Super MoisturizersNon-Steroidal
      Atopic Dermatitis Cream 1% Hyaluronic Acid
            Rx
      / Cosmetic
            yes
            technologySkin
      Protectant Lotion with Allantoin (1%)
            OTC
            yes
            technologySuper
      Moisturizer with Ectoin
            Cosmetic
            yes
            technologyUrea
      Moisturizer (25% & 30%)
            Cosmetic
            yes
            technologyUVA
      / UVB  SunscreenParsol
      1789 - SPF 15 / 30 / 50 Lotion
            OTC
            yes
            pendingTinosorb
      S – SPF 15 / 30 / 50 Lotion
            OTC
            yes
            pendingOtherScar
      Lotion with Onion Bulb
            Cosmetic
            yes
            technologyFragrance
      – Long Lasting Gel
            Cosmetic
            yes
            technologyLong-lasting
      Sunless Tanner (2.5%, 5% & 9%)
            Cosmetic
            yes
            technologyAfter
      Sun (Aloe) Cream
            Cosmetic
            yes
            technology


*some
territories already licensed




Competition





While
there is significant competition in the skincare products industry, our primary
business objective is to license our technology and formulated products to
manufacturers of Rx and OTC skincare products. Market research undertaken to
date has indicated that, at present, there is reasonably limited competition for
our polymer-based delivery systems and related technologies such as delivery
vehicles and technologies that offer the same performance capabilities for
topically administered products.  Some delivery technology companies
offer a new way to bring active ingredients to the skin topically such as foam
technology. This is usually where it stops as Invisicare not only offers this
delivery but also offers a sustained or controlled release of the active
ingredient from the emulsion – a real plus if the active ingredient causes skin
irritation.




7
 Table of Contents


Trademarks
 
 In
January 2002, we received trademark approval in the United States for the name
"Invisicare" to
identify our family of polymer delivery systems. We have filed this trade name
with the Cosmetic, Fragrance and Toiletries Association ("CFTA") as an
ingredient for use in skincare and cosmetic formulations.
 
 We have
also applied and received trademark approval for the corporate logo “Skinvisible” and for our
sunless and sun tanning products under the name “Solerra” both in the US and
Canada.
 
 We are
seeking to extend the protection of our trademarks in additional countries where
we currently conduct business and those additional countries where we intend to
conduct business.
 
 Employees
 
 We
currently have five employees, including our sole officer Terry Howlett. All our
employees with the exception of our bookkeeper are full-time
employees.
 
 Research
and Development Expenditures
 
 We
incurred research and development expenditures of $21,780 in the fiscal year
ended December 31, 2008, and $20,291 in the fiscal year ended December 31,
2007.
 
 Government
Regulation
 
 We are
not subject to any significant or material federal or state government
regulation in connection with the research and development and licensing of our
innovative topical polymer-based delivery systems and technologies.
 
 With
respect to our products under development, our licensing agreements require the
licensee to seek all required approvals for marketing, distribution, and sale in
the jurisdictions for which it is desired to make the product available should
we succeed in developing a successful product.
 
 We are
not subject to any significant or material environmental regulation in the
normal operation of our business.
 
 Subsidiaries
 
 We
conduct our operations through our wholly-owned subsidiary, Skinvisible
Pharmaceuticals, Inc.
  Item 1A  Risk
Factors
  A smaller
reporting company is not required to provide the information required by this
Item.
  Item 1B  Unresolved
Staff Comments
   
 Item 2.   Properties
 
 Currently,
we do not own any real estate. We are leasing our executive offices and research
facility. We are located at 6320 South Sandhill Road, Suite 10, Las Vegas,
Nevada 89120.





8
 Table of Contents




Skinvisible
Pharmaceuticals, Inc., our wholly-owned subsidiary, owns the manufacturing and
laboratory equipment at this location.





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.   Submission of Matters to a Vote of Security
Holders





No
matters were submitted to a vote of our shareholders during the fourth quarter
of our fiscal year ended December 31, 2008.





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 currently quoted on the OTC Bulletin Board (“OTCBB”), which is
sponsored by FINRA. The OTCBB is a network of security dealers who buy and sell
stock. The dealers are connected by a computer network that provides information
on current "bids" and "asks", as well as volume information. Our shares are
quoted on the OTCBB under the symbol “SKVI”
 
 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 OTCBB. 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, 2008Quarter
      Ended
            
            High
      $
            
            Low
      $December
      31, 2008
            
            0.09
            
            0.03September
      30, 2008
            
            0.13
            
            0.08June
      30, 2008
            
            0.14
            
            0.08March
      31, 2008
            
            0.16
            
            0.10








Fiscal
      Year Ending December 31, 2007Quarter
      Ended
            
            High
      $
            
            Low
      $December
      31, 2007
            
            0.30
            
            0.13September
      30, 2007
            
            0.32
            
            0.18June
      30, 2007
            
            0.35
            
            0.20March
      31, 2007
            
            0.25
            
            0.23





9
 Table of Contents




On April
7, 2009, the last sales price per share of our common stock was
$0.06.




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
December 31, 2008, we had 84,095,888 shares of our common stock issued
and outstanding, held by 401 shareholders of record.


10
 Table of Contents




Dividends
 
 We
currently intend to retain future earnings, if any, to finance the expansion of
our business. As a result, we do not anticipate paying any cash dividends in the
foreseeable future.
  In the
event that a dividend is declared, common stockholders on the record date are
entitled to share ratably in any dividends that may be declared from time to
time on the common stock by our board of directors from funds legally
available.
  There are
no restrictions in our articles of incorporation or bylaws that restrict 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.
 
 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 three months ended December 31, 2008, we issued 1,750,000 restricted shares
of our common stock as a result of entering into debt conversion agreements with
lenders to convert total principal balances of $123,000 into equity. These
shares were issued pursuant to Section 4(2) of the Securities Act. The lenders
represented their intention to acquire the securities for investment only and
not with a view towards distribution. The lenders were given adequate
information about us to make an informed investment decision. We did not engage
in any general solicitation or advertising. We directed our transfer agent to
issue the stock certificates with the appropriate restrictive legend affixed to
the restricted stock.
 
 During
the three months ended December 31, 2008, we issued 1,500,000 restricted shares
of our common stock as a result of entering into loan conversion agreements with
lenders to convert total principal balances and interest of $105,000 into
equity. In connection with the conversion, warrants were also granted to
purchase 750,000 shares of our common stock at a strike price of $0.10 per share
that expire on November 12, 2010.  These shares and warrants were
issued pursuant to Section 4(2) of the Securities Act. The lenders represented
their intention to acquire the securities for investment only and not with a
view towards distribution. The lenders were given adequate information about us
to make an informed investment decision. We did not engage in any general
solicitation or advertising. We directed our transfer agent to issue the stock
certificates with the appropriate restrictive legend affixed to the restricted
stock.
 
 During
the three months ended December 31, 2008, we issued options to purchase
2,370,000 shares of our common stock at prices ranging from $0.07 to $0.10 per
share under our 2006 Stock Option Plan to employees and
consultants.  In addition, we extended existing options to purchase
300,000 shares of our common stock.




11
 Table of Contents


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, 2008.
 
 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 10,000,000 shares of
common stock for the granting of options and rights.





Equity
Compensation Plans as of December 31, 2008


A
            B
            CPlan
      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
            6,675,000
            $0.14
            3,325,000Equity
      compensation plans
              not
      approved by security
              holders
            120,000
            $0.125
            -Total
            6,795,000
            
            3,325,000





Item 6.   Selected Financial Data





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





12
 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” within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These forward-looking
statements generally are identified by the words “believes,” “project,”
“expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,”
“will,” “would,” “will be,” “will continue,” “will likely result,” and similar
expressions. We intend such forward-looking statements to be covered by the
safe-harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995, and are including this statement for
purposes of complying with those safe-harbor provisions. Forward-looking
statements are based on current expectations and assumptions that are subject to
risks and uncertainties which may cause actual results to differ materially from
the forward-looking statements. Our ability to predict results or the actual
effect of future plans or strategies is inherently uncertain. Factors which
could have a material adverse affect on our operations and future prospects on a
consolidated basis include, but are not limited to: changes in economic
conditions, legislative/regulatory changes, availability of capital, interest
rates, competition, and generally accepted accounting principles. These risks
and uncertainties should also be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. We
undertake no obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
Further information concerning our business, including additional factors that
could materially affect our financial results, is included herein and in our
other filings with the SEC.
 
 Results
of Operations for the Years Ended December 31, 2008 and 2007
 
 Revenues
 
 Our total
revenue reported for the year ended December 31, 2008 was
$­­­­767,600, a slight decrease from $777,685 for the year ended
December 31, 2007.  The decrease in revenues for the year ended
December 31, 2008 from the prior year is attributable to decreased sales of
polymers to our licensees.
 
 Cost
of Revenues
 
 Our cost
of revenues for the year ended December 31, 2008 decreased to $23,122 from the
prior year when cost of revenues was $140,875. The decrease in our cost of
revenues for the year ended December 31, 2008 from the prior year is
attributable to decreased sales of polymers.
 
 Gross
Profit
 
 Gross
profit for the year ended December 31, 2008 was $744,478, or approximately 3% of
sales. Gross profit for the year ended December 31, 2007 was $636,810, or
approximately 18% of sales. The increase in total gross profit for the year
ended December 31, 2008 from the prior year is attributable to the decrease in
cost of revenues for 2007.


13
 Table of Contents


Liquidity
and Capital Resources
 
 As of
December 31, 2008, we had total current assets of $274,141 and total assets in
the amount of $364,067. Our total current liabilities as of December 31, 2008
were $665,123.  We had a working capital deficit of $390,982 as of
December 31, 2008.
 
 Operating
activities used $947,355 in cash for the year ended December 31, 2008. Our net
loss of $1,640,877 combined with a decrease in unearned revenue of $40,000 was
the primary component of our negative operating cash flow, offset mainly by
stock based compensation of $437,892, decrease in prepaid royalty fees of
$240,000, interest expenses related to beneficial conversion feature of
$199,151, and increase in accounts payable and accrued liabilities of $144,397.
Cash flows used by investing activities during the year ended December 31, 2008
was $2,076.  Cash flows provided by financing activities during the
year ended December 31, 2008 amounted to $892,324 and consisted of $846,548 as
proceeds from the issuance of convertible notes payable, and $122,500 as
proceeds from the issuance of common stock, offset by payments of $76,724 on
related party loans.
 
 In order
to preserve needed cash to operate our business, we have sought to and have been
successful in converting certain of our debt into equity of our
company.  During the fourth quarter ended December 31, 2008, a total
of $228,000, represented by loans, accrued compensation and expenses, has been
converted into equity under various rates and terms. We can provide no assurance
that we will be able to convert other debt in our company under similar
arrangements, or at all, in the future.  If we are unable to convert
our debt into equity, or raise capital to cover our liabilities, we may not be
able to continue as a going concern.  The balance of $222,000 was
deferred into 2009.




14
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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, 2007, there were no off balance sheet arrangements.
 
 Going
Concern
 
 The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. We have incurred cumulative net losses of
approximately $16,663,497 since our inception and require capital for our
contemplated operational and marketing activities to take place. Our ability to
raise additional capital through the future issuances of the common stock is
unknown. The obtainment of additional financing, the successful development of
our contemplated plan of operations, and our transition, ultimately, to the
attainment of profitable operations are necessary for us to continue operations.
The ability to successfully resolve these factors raise substantial doubt about
our ability to continue as a going concern. Our consolidated financial
statements do not include any adjustments that may result from the outcome of
these aforementioned uncertainties.
 
 Off
Balance Sheet Arrangements
 
 As of
December 31, 2008, 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.
 
 Revenue
Recognition
 Revenues
are recognized during the period in which the revenues are earned. Costs and
expenses are recognized during the period in which they are
incurred.





15
 Table of Contents




Product
sales - Revenues from the sale of products are recognized when title to the
products are transferred to the customer and only when no further contingencies
or material performance obligations are warranted, and thereby have earned the
right to receive reasonably assured payments for products sold and
delivered.
 
 Royalty
sales – The Company also recognizes royalty revenue from licensing its patent
and trademarks, only when earned, with no further contingencies or material
performance obligations are warranted, and thereby have earned the right to
receive and retain reasonably assured payments.
 
 Distribution
and license rights sales – The Company also recognizes revenue from distribution
and license rights only when earned, with no further contingencies or material
performance obligations are warranted, and thereby have earned the right to
receive and retain reasonably assured payments.
 
 Costs of
Revenue – Cost of revenue includes raw materials, component parts, and shipping
supplies. Shipping and handling costs is not a significant portion of the cost
of revenue.
 
 Fixed
Assets
 
 Fixed
assets are stated at cost less accumulated depreciation. Depreciation is
provided principally on the straight-line method over the estimated useful lives
of the assets, which are generally 3 to 10 years. The cost of repairs and
maintenance is charged to expense as incurred. Expenditures for property
betterments and renewals are capitalized. Upon sale or other disposition of a
depreciable asset, cost and accumulated depreciation are removed from the
accounts and any gain or loss is reflected in other income
(expense).
 
 We
periodically evaluate whether events and circumstances have occurred that may
warrant revision of the estimated useful life of fixed assets or whether the
remaining balance of fixed assets should be evaluated for possible impairment.
We use an estimate of the related undiscounted cash flows over the remaining
life of the fixed assets in measuring their recoverability.
 
 Goodwill
and Intangible Assets
 
 Beginning
January 1, 2002, we adopted Statement of Financial Accounting Standards (“SFAS”)
No. 142, “Goodwill and Other Intangible Assets”. According to this statement,
goodwill and intangible assets with indefinite lives are no longer subject to
amortization, but rather an annual assessment of impairment by applying a
fair-value based test. Fair value for goodwill is based on discounted cash
flows, market multiples and/or appraised values as appropriate. Under SFAS No.
142, the carrying value of assets are calculated at the lowest level for which
there are identifiable cash flows.


16
 Table of Contents


SFAS 142
requires us to compare the fair value of the reporting unit to its carrying
amount on an annual basis to determine if there is potential impairment. If the
fair value of the reporting unit is less than its carrying value, an impairment
loss is recorded to the extent that the fair value of the goodwill within the
reporting unit is less than its carrying value. Upon adoption and during 2002,
we completed an impairment review and did not recognize any impairment of
goodwill and other intangible assets already included in the financial
statements. We expect to receive future benefits from previously acquired
goodwill over an indefinite period of time. Accordingly, beginning January 1,
2002, we have foregone all related amortization expense. Prior to January 1,
2002, we amortized goodwill over an estimated useful life ranging from 3 to 15
years using the straight-line method.


Recently Issued Accounting
Pronouncements
 
 In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities – an amendment of FASB Statement No. 133,” (SFAS “161”)
as amended and interpreted, which requires enhanced disclosures about an
entity’s derivative and hedging activities and thereby improves the transparency
of financial reporting.  Disclosing the fair values of derivative
instruments and their gains and losses in a tabular format provides a more
complete picture of the location in an entity’s financial statements of both the
derivative positions existing at period end and the effect of using derivatives
during the reporting period.  Entities are required to provide
enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under Statement 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows.  SFAS No. 161 is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008.  Early adoption is
permitted.
 
 At
September 30, 2008, we did not have any derivative instruments or hedging
activities. Management is aware of the requirements of SFAS 161 and will
disclose when appropriate.
 
 In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.”  SFAS 162 will provide framework for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with U.S. generally accepted accounting principles
(GAAP) for nongovernmental entities.  SFAS 162 will be effective 60
days following the Securities and Exchange Commission’s approval of the Public
Company Accounting Oversight Board (“PCAOB”) amendments to AU Section
411.  We do not expect the adoption of SFAS 162 will have a material
impact on our financial condition or results of operation.
 
 In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts – an interpretation of FASB Statement No.
60.”  SFAS 163 requires that an insurance enterprise recognize a claim
liability prior to an event of default (insured event) when there is evidence
that credit deterioration has occurred in an insured financial
obligation.  This Statement also clarifies how Statement 60 applies to
financial guarantee insurance contracts, including the recognition and
measurement to be used to account for premium revenue and claim liabilities.
Those clarifications will increase comparability in financial reporting of
financial guarantee insurance contracts by insurance enterprises. This Statement
requires expanded disclosures about financial guarantee insurance contracts. The
accounting and disclosure requirements of the Statement will improve the quality
of information provided to users of financial statements.  SFAS 163
will be effective for financial statements issued for fiscal years beginning
after December 15, 2008.  We do not expect the adoption of SFAS 163
will have a material impact on our financial condition or results of
operation.




17
 Table of Contents




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





See the
financial statements annexed to this annual report.





Item
9.   Changes In and Disagreements with Accountants on Accounting
and FinancialDisclosure





No events
occurred requiring disclosure under Item 307 and 308 of Regulation S-K during
the fiscal year ending December 31, 2008.





Item 9A(T).  Controls and Procedures




We
carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) as of December 31, 2008.  This evaluation was
carried out under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, Mr. Terry
Howlett.  Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that, as of December 31, 2008, our disclosure
controls and procedures are effective.  There have been no significant
changes in our internal controls over financial reporting during the quarter
ended December 31, 2008 that have materially affected or are reasonably likely
to materially affect such controls.
 
 Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act are recorded, processed, summarized and
reported, within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in our
reports filed under the Exchange Act is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding required disclosure.
 
 Limitations on the
Effectiveness of Internal Controls
 
 Our
management does not expect that our disclosure controls and procedures or our
internal control over financial reporting will necessarily prevent all fraud and
material error. Our disclosure controls and procedures are designed to provide
reasonable assurance of achieving our objectives and our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and
procedures are effective at that reasonable assurance level.  Further,
the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within our company have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
internal control. The design of any system of controls also is based in part
upon certain assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions. Over time, control may become inadequate
because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate.




18
 Table of Contents


Management’s
Annual Report on Internal Control over Financing Reporting
 
 Our
management is responsible for establishing and maintaining adequate control over
financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934. Under the supervision and with the
participation of our principal executive and principal financial officer, we
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the “COSO Framework”). Based on this evaluation under the COSO
Framework, management concluded that its internal control over financial
reporting was effective as of December 31, 2008.
 
 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 temporary rules of the Securities
and Exchange Commission that permit us to provide only management’s report in
this annual report.





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, 2008.





Name
            Age
            Position(s)
      and Office(s) HeldTerry
      Howlett
            61
            Chief
      Executive Officer, Chief Financial Officer, &
  DirectorBrian
      Piwek
            62
            DirectorGreg
      McCartney
            57
            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 & 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. Brian Piwek joined our
board of directors in January, 2008. Mr. Piwek's experience and expertise is in
the international retail industry. He was president of Overwaitea Foods
supermarket from 1991 until 1997. In 1997 Brian accepted the position as Co-CEO
with A&P Canada (The Great Atlantic & Pacific Tea Company Inc.) and in
2000 was appointed Chairman, President and CEO of A&P Canada. In late 2002
he moved to the U.S. as President and Chief Executive Officer of A&P US (New
York Stock Exchange symbol "GAP") where he began the turnaround of North
America's oldest retail food chain. Brian retired from A&P in July 2005.
Brian is an MBA graduate and has served on many voluntary boards.
  Mr. Greg McCartney has been a
member of our board of directors since January 10, 2005. Mr. McCartney is
Managing Director of Taylor, Butterfield & Worth Asset Management
Corporation, a management consulting services firm assisting clients in becoming
fully reporting public companies. Previously Mr. McCartney was the Chairman of
the Board for Genesis Bioventures (formely BioLabs) and also formerly served as
their CEO. Mr. McCartney has over 20 years experience serving as officer and
director of both private and public companies in various manufacturing and
technology industries. Prior to founding BioLabs in 1997, Mr. McCartney was the
founder and director of Aspenwood Holdings Corporation, a business consulting
firm specializing in financing, public relations and venture capital in the
technology and manufacturing industries. From 1986 to 1995 he was the President
of an emerging high technology company and also served as officer and director
of other companies. Previously, he was involved with international real estate
and land development.


19
 Table of Contents




Directors
 
 Our
bylaws authorize no less than one (1) and more than ten (12)
directors.  We currently have three 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 (Honours) 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.
 
 Dr. James A.
Roszell, Ph.D,is
a doctoral chemist with over 35 years' experience in product formulation,
experimental design, analysis, and method validation. Since joining
Skinvisible in 1998, he has been responsible for research and
development of our patented technology, related polymer delivery vehicles,
product formulations and compositions. Dr. Roszell is a joint contributor
to Skinvisible's Patent Number 6.756.059 and responsible for our nine
pending patents in the US. Prior to joining Skinvisible, he worked
as chemist for Supertech Products, Inc. in Florida where his
responsibilities included ensuring compliance with OSHA, EPA and other standards
and regulations, maintenance of quality control, research and development for
new products. Dr. Roszell's background includes work in chemical,
pharmaceutical, environmental and clinical laboratory arenas. His chemical and
scientific expertise makes a significant contribution to our
business.
 
 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 five 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.





20
 Table of Contents




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, 2008, 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, 2008 to be included in this Annual Report on Form
10-Kand 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,
2008, 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, 2008:




Name
      and principal position
            Number
      oflate
      reports
            Transactions
      nottimely
      reported
            Known
      failures tofile
      a required formTerry
      Howlett,CEO,
      CFO & Director
            0
            4
            0Greg
      McCartney,Director
            0
            5
            0Brian
      Piwek,Director
            1
            5
            0Jost
      Steinbruchel,former
      Director
            0
            0
            1




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.





21
 Table of Contents




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, 2008 and
2007.


SUMMARY
      COMPENSATION TABLEName
              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
            2008
              2007
            160,000
              160,000
            -
              -
            -
              -
            110,000
              182,252
            -
              -
            -
              -
            -
              -
            270,000
              342,252




Narrative
Disclosure to the Summary Compensation Table
  On
January 29, 2009, subsequent to the end of the reporting period, we entered into
an employment agreement with our sole executive officer, Terry Howlett. The
agreement is effective retroactively to January 1, 2009, and term of the
agreement is three (3) years.  Unless extended or renewed, the
agreement will terminate on January 1, 2012.  Under the agreement, Mr.
Howlett earns a cash stipend of $13,333.33 per month ($160,000 per year). He
will also receive bonuses based on a percentage of license fees, royalty fees,
and financings; paid vacation or the election to receive vacation benefits in
payment; and reimbursements of expenses, including automobile and limited living
expenses. In addition, the agreement provides for Mr. Howlett to be awarded
stock options at the discretion of the board of directors.
 
 This
agreement replaces a similar employment agreement with Mr. Howlett, which
expired on December 31, 2008. Due to financial constraints, however, we were
only able to actually pay Mr. Howlett $46,667.00 in cash during the fiscal year
ended December 31, 2008.
 
 During
the fiscal year ended December 31, 2008, we granted Mr. Howlett options to
purchase 400,000 shares of our common stock at the exercise price of $0.10 per
share with an expiration date of January 31, 2013, and options to purchase
1,000,000 shares of our common stock at the exercise price of $0.07 per share
with an expiration date of October 20, 2013.  These options are fully
vested and immediately exercisable. The aggregate value of these options, which
totaled $110,000, was computed in accordance with FAS 123R and is reported in
the summary compensation table above in the column titled “Option
Awards.”
 
 At no
time during the last fiscal year was any outstanding option repriced or
otherwise modified.  There was no tandem feature, reload feature, or
tax-reimbursement feature associated with any of the stock options we granted to
our executive officers or otherwise.
 
 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,
2008.




22
 Table of Contents





OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAR-ENDOPTION
      AWARDS
            STOCK
      AWARDSName
            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
            1,000,000
              400,000
              200,000
              1,000,000
            -
              -
              -
              -
            -
              -
              -
              -
            .07
              .10
              0.18
              0.24
            10/19/2013
              1/30/2013
              1/3/2011
              7/29/2012
            -
              -
              -
              -
            -
              -
              -
              -
            -
              -
              -
              -
            -
              -
              -
              -





Director
Compensation





The table
below summarizes all compensation of our directors as of December 31,
2008.





DIRECTOR
      COMPENSATIONName
            Fees
      Earned or
              Paid
      in
              Cash
              ($)
            Stock
      Awards
              ($)
            Option
      Awards
              ($)
            Non-Equity
              Incentive
              Plan
              Compensation
              ($)
            Non-Qualified
              Deferred
              Compensation
              Earnings
              ($)
            All
              Other
              Compensation
              ($)
            Total
              ($)Jost
      Steinbruchel, former director
            1,000
            -
            -
            -
            -
            -
            ?Greg
      McCartney
            14,400
            -
            37,500
            -
            -
            -
            51,900Brian
      Piwek
            13,200
            
            37,500
            -
            -
            -
            50,700


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.
 
 We pay
our independent directors a monthly fee of $1,200. Mr. McCartney received a
total of $14,400, Mr. Steinbruchel received a total of $1,000, and Mr. Piwek
received a total of $13,200 in consideration for services rendered as members of
our board of directors.  In addition, Mr. McCartney and Mr. Piwek each
received options to purchase 200,000 shares of common stock at an exercise price
of $0.10 per share, and options to purchase 250,000 shares of common stock at an
exercise price of $0.07 per share.  These options are fully vested and
immediately exercisable.  The aggregate value of these options, which
totaled $37,500 for each independent director, was computed in accordance with
FAS 123R and is reported in the director compensation table above in the column
titled “Option Awards.”





23
 Table of Contents




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




The
following table sets forth certain information known to us with respect to the
beneficial ownership of our Common Stock as of December 31, 2008, by (1) all
persons who are beneficial owners of 5% or more of our voting securities, (2)
each director, (3) each executive officer, and (4) all directors and executive
officers as a group. The information regarding beneficial ownership of our
common stock has been presented in accordance with the rules of the Securities
and Exchange Commission. Under these rules, a person may be deemed to
beneficially own any shares of capital stock as to which such person, directly
or indirectly, has or shares voting power or investment power, and to
beneficially own any shares of our capital stock as to which such person has the
right to acquire voting or investment power within 60 days through the exercise
of any stock option or other right. The percentage of beneficial ownership as to
any person as of a particular date is calculated by dividing (a) (i) the number
of shares beneficially owned by such person plus (ii) the number of shares as to
which such person has the right to acquire voting or investment power within 60
days by (b) the total number of shares outstanding as of such date, plus any
shares that such person has the right to acquire from us within 60 days.
Including those shares in the tables does not, however, constitute an admission
that the named stockholder is a direct or indirect beneficial owner of those
shares. Unless otherwise indicated, each person or entity named in the table has
sole voting power and investment power (or shares that power with that person’s
spouse) with respect to all shares of capital stock listed as owned by that
person or entity.
 
 The
following table sets forth, as of December 31, 2008, 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 the our common stock and by the executive
officers and directors as a group.  Except as otherwise indicated, all
shares are owned directly and the percentage shown is based on 84,095,888 shares
of common stock issued and outstanding on December 31, 2008.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.





Title
      of class
            Name
      and addressof
      beneficial owner (1)
            Amount
      ofbeneficial
      ownership
            Percentof
      class*Executive
      Officers & Directors:Common
            Terry
      Howlett
            10,823,248
      shares
            12.41%
      (2)Common
            Brian
      Piwek
            948,990
      shares
            1.12%
      (3)Common
            Greg
      McCartney
            1,102,000
      shares
            1.29%
      (4)Total
      of All Directors and Executive Officers:
            12,874,238
      shares
            14.82%More
      Than 5% Beneficial Owners:None




(1)
            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.(2)
            Includes
      options that may be exercised immediately to purchase 1,000,000 shares at
      a price of $0.24, options that may be exercised immediately to purchase
      200,000 shares at a price of $0.18, options that may be exercised
      immediately to purchase 400,000 shares at $0.10, options that may be
      exercised immediately to purchase 1,000,000 shares at $0.07, and warrants
      that may be immediately exercised to purchase 500,000 shares at a price of
      $0.15.(3)
            Includes
      options that may be immediately exercised to purchase 200,000 shares at a
      price of $0.10, options that may be exercised immediately to purchase
      250,000 shares at $0.07, and warrants that may be immediately exercised to
      purchase 125,000 at $0.12.(4)
            Includes
      options that may be exercised immediately to purchase 100,000 shares at a
      price of $0.10, options that may be exercised immediately to purchase
      100,000 shares at a price of $0.18, options that may be exercised
      immediately to purchase 250,000 shares at $0.24, options that may be
      exercised immediately to purchase 200,000 shares at $0.10, and options
      that may be exercised immediately to purchase 250,000 shares at
      $0.07.













24
 Table of Contents




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




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 since the beginning of
our last fiscal year on January 1, 2008 or in any presently proposed transaction
which, in either case, has or will materially affect us.
 
 Our
policy regarding related transactions requires that any director or officer who
has an interest in any transaction disclose the presence and the nature of the
interest to the board of directors prior to any approval of the transaction by
the board of directors. The transaction may then be approved by a majority of
the disinterested directors, provided that an interested director may be counted
in determining the presence of a quorum at the meeting of the board of directors
to approve the transaction.
 As of
December 31, 2007, the Company had an unsecured loan payable due to Terry
Howlett with an interest rate of 10% per annum, due on demand totaling
$68,360.
 
 As of
December 31, 2007, the Company had a receivable due to it from Terry Howlett
totaling $1,196.
 
 As of
December 31, 2008, the Company had an unsecured loan payable due to Terry
Howlett with an interest rate of 10% per annum, due on demand totaling
$2,136.




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
      Fees2008
            $27,170
            $0
            $0
            $02007
            $31,990
            $0
            $0
            $0





25
 Table of Contents




PART IV





Item 15.   Exhibits, Financial Statements
Schedules





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





Audited
      Financial Statements:F-1
            Report of Independent Registered Public Accounting
      FirmF-2
            Consolidated Balance Sheets as of December 31,
      2008  and 2007;F-3
            Consolidated Statements of Operations for the years ended
      December 31, 2008 and 2007;F-4
            Consolidated Statement of Stockholders’ Equity for the years
      ended December 31, 2008 and 2007;F-5
            Consolidated Statements of Cash Flows for the years ended
      December 31, 2008 and 2007;F-6
            Notes to Consolidated Financial
    Statements








Exhibit
              Number
            Description3.1
            Articles
      of Incorporation, as amended (1)3.2
            Bylaws,
      as amended (1)3.3
            Certificate
      of Amendment to The Company’s Articles of Incorporation(2)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 200231.2
            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 200232.1
            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.





26
 Table of Contents





SIGNATURES





In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.





Skinvisible,
Inc.





By:
            /s/Terry HowlettTerry
      Howlett
              President,
      Chief Executive Officer, Principal Executive Officer,
              Chief
      Financial Officer, Principal Financial Officer, Principal Accounting
      Officer and DirectorApril
      14, 2009





In accordance with Section 13 or 15(d)
of the Exchange Act, 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
            By:
            /s/Brian PiwekTerry
      Howlett
            
            Brian
  PiwekDirector
            
            DirectorApril 14,
    2009
            
            April 14,
    2009By:
            /s/Greg McCartneyGreg McCartneyDirectorApril 14,
    2009




Table of Contents




REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 
 
 To the
Board of Directors
 Skinvisible,
Inc.
 Las
Vegas, Nevada
 
 We have
audited the accompanying consolidated balance sheet of Skinvisible, Inc. as of
December 31, 2008 and
2007, and the related consolidated statements of operations,
stockholders’ equity (deficit), and cash flows for the years then ended.These consolidated financial
statements are the responsibility of the Company’s management.  Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.




We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Skinvisible, Inc. as of
December 31, 2008 and
2007, and the consolidated results of its operations and cash
flows for the yearsthen endedin conformity with accounting
principles generally accepted in the United States.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has suffered recurring losses from operations, which
raise substantial doubt about its ability to continue as a going concern.
Management's plans regarding those matters also are described in Note 1. Absent
the successful completion of one of these alternatives, the Company’s operating
results will increasingly become uncertain.  The financial statements
do not contain any adjustments that might result from the outcome of this
uncertainty.


Sarna
& Company, CPA’s
 April 6,
2009
 Westlake
Village, California


F-1
 Table of Contents




CONSOLIDATED BALANCE SHEETS






December
      31, 2008
              
              December
      31, 2007ASSETSCurrent
      assetsCash
              $
              6,062
              
              $
              63,168Accounts
      receivable
              
              9,553
              
              
              42,088Inventory
              
              17,796
              
              
              20,455Due
      from related party
              
              986
              
              
              1,196Financing
      cost, net of accumulated amortization of $-0- and $344,respectively
              
              55,562
              
              
              53,484Prepaid
      royalty fees - current portion
              
              180,000
              
              
              240,000Prepaid
      expense and other current assets
              
              4,182
              
              
              5,137Total
      current assets
              
              274,141
              
              
              425,528Fixed
      assets, net of accumulated depreciation of $322,734 and
              
              16,593
              
              
              22,440$317,657,
      respectivelyIntangible
      and other assetsPatents
      and trademarks, net of accumulated amortization of $51,561and
      $40,021, respectively
              
              23,333
              
              
              34,873License
      and distributor rights
              
              50,000
              
              
              50,000Prepaid
      royalty fees - long term portion
              
              --
              
              
              180,000Total
      assets
              $
              364,067
              
              $
              712,841LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      liabilitiesAccounts
      payable and accrued liabilities
              $
              469,151
              
              $
              479,554Accrued
      interest payable
              
              23,209
              
              
              6,948Loans
      from related party
              
              2,136
              
              
              78,860Convertible
      notes payable, net of unamortized debt discount of $-0-and
      $95,557, respectively
              
              --
              
              
              54,443Convertible
      notes payable related party
              
              120,627
              
              
              --Unearned
      revenue
              
              50,000
              
              
              450,000Total
      current liabilities
              
              665,123
              
              
              1,069,805Total
      liabilities
              
              665,123
              
              
              1,069,805Commitments
      and contingencies
              
              --
              
              
              --Stockholders'
      deficitCommon
      stock; $0.001 par value; 100,000,000 shares authorized;
and84,095,888
      and 70,739,248 shares issued and outstanding, respectively
              
              84,098
              
              
              70,739Additional
      paid-in capital
              
              16,552,571
              
              
              14,869,145Accumulated
      deficit
              
              (16,937,725)
              
              
              (15,296,848)Total
      stockholders' deficit
              
              (301,056)
              
              
              (356,965)Total
      liabilities and stockholders' deficit
              $
              364,067
              
              $
              712,841


F-2
 Table of Contents




CONSOLIDATED STATEMENTS OF
OPERATIONS






For
      the year endedDecember 31,
      2008
              
              For
      the year endedDecember 31,
      2007Revenues
              $
              767,600
              
              $
              777,685Cost
      of revenues
              
              23,122
              
              
              140,875Gross
      profit
              
              744,478
              
              
              636,810Operating
      expensesDepreciation
      and amortization
              
              17,537
              
              
              18,176Selling
      general and administrative
              
              2,070,494
              
              
              1,983,779Total
      operating expenses
              
              2,088,031
              
              
              2,001,955Loss
      before provision for income taxes
              
              (1,343,553)
              
              
              (1,365,145)Other
      income (expense)Gain
      on settlement of debt
              
              3,000
              
              
              --Interest
      expense
              
              (300,324)
              
              
              (241,777)Total
      other income (expense)
              
              (297,324)
              
              
              (241,777)Provision
      for income taxes
              
              --
              
              
              --Net
      loss
              $
              (1,640,877)
              
              $
              (1,606,922)Basic
      loss per common share
              $
              (0.02)
              
              $
              (0.02)Basic
      weighted average commonshares
      outstanding
              
              77,675,313
              
              
              66,150,436


F-3
 Table of Contents




CONSOLIDTED STATEMENT OF
STOCKHOLDERS' DEFICIT






Common
      Stock
              
              Additional
              
              Treasury
              
              Accumulated
              
              TotalStockholders'Shares
              
              Amount
              
              Paid-in
      Capital
              
              Stock
              
              Deficit
              
              DeficitBalance,
      December 31, 2006
              64,443,748
              
              $
              64,444
              
              $
              13,363,317
              
              $
              --
              
              $
              (13,689,926)
              
              $
              (262,165)Issuance
      of stock for cash, $0.20 per share
              775,000
              
              
              775
              
              
              154,225
              
              
              --
              
              
              --
              
              
              155,000Issuance
      of stock for services, $0.20 per share
              242,500
              
              
              242
              
              
              50,758
              
              
              --
              
              
              --
              
              
              51,000Issuance
      of stock upon exercise of options for cash,$0.10 per
      share
              300,000
              
              
              300
              
              
              29,700
              
              
              --
              
              
              --
              
              
              30,000Return
      of stock for accounts receivable
              --
              
              
              --
              
              
              --
              
              
              (48,931)
              
              
              --
              
              
              (48,931)Issuance
      of 150,000 shares of  treasury stock for services,$0.25 per
      share
              --
              
              
              --
              
              
              (11,431)
              
              
              48,931
              
              
              --
              
              
              37,500Issuance
      of stock upon exercise of options foraccounts payable,
      $0.05 per share
              200,000
              
              
              200
              
              
              9,800
              
              
              --
              
              
              --
              
              
              10,000Issuance
      of stock for accounts payable, $0.10 per share
              130,000
              
              
              130
              
              
              12,870
              
              
              --
              
              
              --
              
              
              13,000Issuance
      of stock for accounts payable $0.20 share
              70,000
              
              
              70
              
              
              13,930
              
              
              --
              
              
              --
              
              
              14,000Issuance
      of stock upon exercise of options for cash,$0.05 per
      share
              260,000
              
              
              260
              
              
              12,740
              
              
              --
              
              
              --
              
              
              13,000Issuance
      of stock for services, $0.10 per share
              160,000
              
              
              160
              
              
              15,840
              
              
              --
              
              
              --
              
              
              16,000Issuance
      of stock upon exercise of warrants in lieu of debt,$0.05 per
      share
              500,000
              
              
              500
              
              
              24,500
              
              
              --
              
              
              --
              
              
              25,000Issuance
      of stock in lieu of debt, $0.10 per share
              750,000
              
              
              750
              
              
              74,250
              
              
              --
              
              
              --
              
              
              75,000Issuance
      of stock for conversion of loan, $0.10 per share
              250,000
              
              
              250
              
              
              24,750
              
              
              --
              
              
              --
              
              
              25,000Issuance
      of stock upon exercise of warrants for conversionof loan, $0.10 per
      share
              210,000
              
              
              210
              
              
              10,290
              
              
              --
              
              
              --
              
              
              10,500Issuance
      of stock for conversion of loan, $0.15 per share
              863,000
              
              
              863
              
              
              128,587
              
              
              --
              
              
              --
              
              
              129,450Issuance
      of stock for conversion of loan, $0.20 per share
              500,000
              
              
              500
              
              
              99,500
              
              
              --
              
              
              --
              
              
              100,000Issuance
      of stock for services, $0.25 per share
              20,000
              
              
              20
              
              
              4,980
              
              
              --
              
              
              --
              
              
              5,000Issuance
      of stock for accounts payable, $0.25 per share
              40,000
              
              
              40
              
              
              9,960
              
              
              --
              
              
              --
              
              
              10,000Issuance
      of stock for donation, $0.20 per share
              25,000
              
              
              25
              
              
              4,975
              
              
              --
              
              
              --
              
              
              5,000Issuance
      of stock for salaries owed, $0.10 per share
              1,000,000
              
              
              1,000
              
              
              99,000
              
              
              --
              
              
              --
              
              
              100,000Beneficial
      Conversion feature related toconvertible notes
      payable
              --
              
              
              --
              
              
              311,655
              
              
              --
              
              
              --
              
              
              311,655Financing
      costs related to convertible notes payable
              --
              
              
              --
              
              
              54,443
              
              
              --
              
              
              --
              
              
              54,443Vesting
      of employee stock options
              --
              
              
              --
              
              
              78,441
              
              
              --
              
              
              --
              
              
              78,441Issuance
      of stock options for services
              --
              
              
              --
              
              
              292,065
              
              
              --
              
              
              --
              
              
              292,065Net
      loss
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (1,606,922)
              
              
              (1,606,922)Balance,
      December 31, 2007
              70,739,248
              
              
              70,739
              
              
              14,869,145
              
              
              --
              
              
              (15,296,848)
              
              
              (356,965)Issuance
      of stock for cash
              1,275,000
              
              
              1,275
              
              
              121,225
              
              
              -
              
              
              -
              
              
              122,500Issaunce
      of stock for services
              160,000
              
              
              160
              
              
              15,840
              
              
              -
              
              
              -
              
              
              16,000Issuance
      of stock for conversion of debts
              9,273,640
              
              
              9,274
              
              
              771,090
              
              
              -
              
              
              -
              
              
              780,364Issuance
      of stock for accounts payable
              400,000
              
              
              400
              
              
              39,600
              
              
              -
              
              
              -
              
              
              40,000Issuance
      of stock for salaries owed
              548,000
              
              
              548
              
              
              54,252
              
              
              -
              
              
              -
              
              
              54,800Issuance
      of stock upon exercise of options for salaries owed
              1,200,000
              
              
              1,200
              
              
              58,800
              
              
              -
              
              
              -
              
              
              60,000Issuance
      of stock upon exercise of warrants in lieu of debt
              500,000
              
              
              500
              
              
              24,500
              
              
              -
              
              
              -
              
              
              25,000Beneficial
      conversion feature related to convertible notes
              -
              
              
              -
              
              
              45,085
              
              
              -
              
              
              -
              
              
              45,085Financing
      costs related to convertible notes payable
              -
              
              
              -
              
              
              44,386
              
              
              -
              
              
              -
              
              
              44,386Vesting
      of employee stock options
              -
              
              
              -
              
              
              68,912
              
              
              -
              
              
              -
              
              
              68,912Issuance
      of employee stock optrions
              -
              
              
              -
              
              
              110,515
              
              
              -
              
              
              -
              
              
              110,515Issuance
      warrants related to conversion of debts
              -
              
              
              -
              
              
              86,758
              
              
              -
              
              
              -
              
              
              86,758Issuance
      of stock options/warrants for services
              -
              
              
              -
              
              
              242,463
              
              
              -
              
              
              -
              
              
              242,463Net
      loss
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (1,640,877)
              
              
              (1,640,877)Balance,
      December 31, 2008
              84,095,888
              
              $
              84,095
              
              $
              16,552,571
              
              $
              -
              
              $
              (16,937,725)
              
              $
              (301,058)


F-4
 Table of Contents




CONSOLIDATED STATEMENTS OF CASH
FLOWS






For
      the year endedDecember 31,
      2008
              
              For
      the year endedDecember 31,
      2007Cash
      flows from operating activities:Net
      loss
              $
              (1,640,877)
              
              $
              (1,606,922)Adjustments
      to reconcile net loss to netcash
      used by operating activities:Depreciation
      and amortization
              
              17,536
              
              
              18,176Stock
      issued for donation
              
              --
              
              
              5,000Stock
      based compensation
              
              437,892
              
              
              475,006Interest
      expense related to beneficial conversion feature
              
              199,151
              
              
              217,056Loss
      on disposal of assets
              
              1,927
              
              
              --Changes
      in operating assets and liabilities:(Increase)
      in inventory
              
              2,658
              
              
              2,447(Increase)
      decrease in accounts receivable
              
              32,535
              
              
              (37,207)Decrease
      in prepaid expenses and other current assets
              
              955
              
              
              13,324(Increase)
      decrease in related party receivable
              
              210
              
              
              (77)Decrease
      in prepaid royalty fees
              
              240,000
              
              
              240,000Increase
      in accounts payable and accrued liabilities
              
              144,397
              
              
              317,927Increase
      in accrued interest
              
              16,261
              
              
              11,398Decrease
      in unearned revenue
              
              (400,000)
              
              
              (400,000)Net
      cash used in operating activities
              
              (947,355)
              
              
              (743,872)Cash
      flows from investing activities:Purchase
      of fixed assets and untangible assets
              
              (2,076)
              
              
              (4,662)Net
      cash used in investing activities
              
              (2,076)
              
              
              (4,662)Cash
      flows from financing activities:Proceeds
      from (Payments to) related party loans
              
              (76,724)
              
              
              153,132Proceeds
      from convertible notes payable
              
              846,548
              
              
              410,500Proceeds
      from issuance of common stock
              
              122,500
              
              
              198,000Net
      cash provided by financing activities
              
              892,324
              
              
              761,632Net
      change in cash
              
              (57,107)
              
              
              13,098Cash,
      beginning of period
              
              63,168
              
              
              50,070Cash,
      end of period
              $
              6,061
              
              $
              63,168






F-5
 Table of Contents


SKINVISIBLE,
INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (AUDITED)






1.
              DESCRIPTION OF
      BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT
    POLICIES
 
 Description of business- Skinvisible, Inc., (referred to as the “Company”) is focused on the
development and manufacture of innovative topical polymer-based delivery system
technologies and formulations incorporating its patent-pending formula/process
for combining hydrophilic and hydrophobic polymer emulsions. The technologies
and formulations have broad industry applications within the pharmaceutical,
over-the-counter, personal skincare and cosmetic arenas. The Company’s
antibacterial/antimicrobial hand sanitizer formulations, available for private
label commercialization opportunities, offer skincare solutions for the
healthcare, food service, industrial, cosmetic and salon industries, as well as
for personal use in the retail marketplace. The Company maintains manufacturing,
executive and sales offices in Las Vegas, Nevada.
 
 History-
Skinvisible, Inc. ( referred to as the “Company”) was incorporated in Nevada on
March 6, 1998 under the name of Microbial Solutions, Inc. The Company underwent
a name change on February 26, 1999, when it changed its name to Skinvisible,
Inc. The Company’s subsidiary’s name of Manloe Labs, Inc. was also changed to
Skinvisible Pharmaceuticals, Inc.
 
 Skinvisible,
Inc. together with its subsidiary shall herein be collectively referred to as
the “Company”.
 
 Going concern- The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The Company has incurred cumulative net losses
of $16,663,497 since its inception and requires capital for its contemplated
operational and marketing activities to take place. The Company’s ability to
raise additional capital through the future issuances of common stock is
unknown. The obtainment of additional financing, the successful development of
the Company’s contemplated plan of operations, and its transition, ultimately,
to the attainment of profitable operations are necessary for the Company to
continue operations. The ability to successfully resolve these factors raise
substantial doubt about the Company’s ability to continue as a going concern.
The consolidated financial statements of the Company do not include any
adjustments that may result from the outcome of these aforementioned
uncertainties.
 
 Principles of consolidation- The consolidated financial statements include the accounts of the
Company and its subsidiary. All significant intercompany balances and
transactions have been eliminated.
 
 Definition of fiscal year- The Company’s fiscal year end is December 31.
 
 Use of estimates-
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
 
 Revenue
recognition
 Product sales -
Revenues from the sale of products are recognized when title to the products are
transferred to the customer and only when no further contingencies or material
performance obligations are warranted, and thereby have earned the right to
receive reasonably assured payments for products sold and
delivered.
 
 Royalty sales – The
Company also recognizes royalty revenue from licensing its patent and
trademarks, only when earned, with no further contingencies or material
performance obligations are warranted, and thereby have earned the right to
receive and retain reasonably assured payments.
 
 Distribution and license
rights sales – The Company also recognizes revenue from distribution and
license rights only when earned, with no further contingencies or material
performance obligations are warranted, and thereby have earned the right to
receive and retain reasonably assured payments.
  F-6
 Table of Contents


SKINVISIBLE,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (AUDITED)


1.    DESCRIPTION OF BUSINESS AND
SUMMARY OF SIGNIFICANT POLICIES(continued)
 
 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.  At December 31, 2008,
the Company had not recorded a reserve for doubtful accounts.
 
 Inventory-
Substantially all inventory consists of finished goods and are valued based upon
first-in first-out ("FIFO") cost, not in excess of market. The determination of
whether the carrying amount of inventory requires a write-down is based on an
evaluation of inventory.
 
 Fixed assets- Fixed
assets are stated at cost less accumulated depreciation. Depreciation is
provided principally on the straight-line method over the estimated useful lives
of the assets, which are generally 3 to 10 years. The cost of repairs and
maintenance is charged to expense as incurred. Expenditures for property
betterments and renewals are capitalized. Upon sale or other disposition of a
depreciable asset, cost and accumulated depreciation are removed from the
accounts and any gain or loss is reflected in other income
(expense).
 
 The
Company periodically evaluates whether events and circumstances have occurred
that may warrant revision of the estimated useful life of fixed assets or
whether the remaining balance of fixed assets should be evaluated for possible
impairment. The Company uses an estimate of the related undiscounted cash flows
over the remaining life of the fixed assets in measuring their
recoverability.
 
 Advertising costs-
Advertising costs incurred in the normal course of operations are expensed as
incurred. During the twelve months ended December 31, 2008 and 2007,
the Company incurred advertising costs totaling $9,414 and $14,478,
respectively.
 
 Research and development
costs - Research and development costs are charged to expense when
incurred. Costs incurred to internally develop the product, including costs
incurred during all phases of development, are charged to expense as
incurred.
 
 Expenses of offering- The Company accounts for specific incremental costs directly to a
proposed or actual offering of securities as a direct charge against the gross
proceeds of the offering.
 
 Goodwill and intangible
assets- Beginning January 1, 2002, the Company adopted Statement of
Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible
Assets”. According to this statement, goodwill and intangible assets with
indefinite lives are no longer subject to amortization, but rather an annual
assessment of impairment by applying a fair-value based test. Fair value for
goodwill is based on discounted cash flows, market multiples and/or appraised
values as appropriate. Under SFAS No. 142, the carrying value of assets are
calculated at the lowest level for which there are identifiable cash
flows.
 
 SFAS 142
requires the Company to compare the fair value of the reporting unit to its
carrying amount on an annual basis to determine if there is potential
impairment. If the fair value of the reporting unit is less than its carrying
value, an impairment loss is recorded to the extent that the fair value of the
goodwill within the reporting unit is less than its carrying value. Upon
adoption and during 2002, the Company completed an impairment review and did not
recognize any impairment of goodwill and other intangible assets already
included in the financial statements. The Company expects to receive future
benefits from previously acquired goodwill over an indefinite period of time.
Accordingly, beginning January 1, 2002, the Company has foregone all related
amortization expense. Prior to January 1, 2002, the Company amortized goodwill
over an estimated useful life ranging from 3 to 15 years using the straight-line
method.




F-7
 Table of Contents


SKINVISIBLE,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (AUDITED)




1.
              DESCRIPTION OF
      BUSINESS AND SUMMARY OF SIGNIFICANT POLICIES
      (continued)
 
 Fair value of financial
instruments- Financial accounting standards Statement No. 107,
“Disclosure About Fair Value of Financial Instruments”, requires the Company to
disclose, when reasonably attainable, the fair market values of its assets and
liabilities which are deemed to be financial instruments. The carrying amounts
and estimated fair values of the Company’s financial instruments approximate
their fair value due to the short-term nature.
 
 Income taxes- The
Company accounts for its income taxes in accordance with Statement of Financial
Accounting Standards No. 109, which requires recognition of deferred tax assets
and liabilities for future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and tax credit carry-forwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
 
 Segment information-
The Company discloses segment information in accordance with Statements of
Financial Accounting Standards (SFAS) No. 131, “Disclosures about Segments of an
Enterprise and Related Information,” which uses the Management approach to
determine reportable segments. The Company operates under one
segment.
 
 Stock-based compensation- On January 1, 2005, the Company adopted SFAS No. 123 (R) “Share-Based
Payment” which requires the measurement and recognition of compensation expense
for all share-based payment awards made to employees and directors including
employee stock options and employee stock purchases related to a Employee Stock
Purchase Plan based on the estimated fair values.
 
 The
Company adopted SFAS No. 123(R) using the modified prospective transition
method, which required the application of the accounting standard as of January
1, 2005.  The accompanying consolidated financial statements as of and
for the three months ended March 31, 2008 reflect the impact of SFAS No.
123(R).  In accordance with the modified prospective transition
method, the Company’s accompanying consolidated financial statements for the
prior periods have not been restated, and do not include the impact of SFAS No.
123(R).  Stock based compensation expense recognized under SFAS No.
123(R) for the nine months ended  September 30, 2008 and 2007 totaled
$372,626 and $97,950, respectively.
 
 Earnings (loss) per
share - The Company reports earnings (loss) per share in accordance with
SFAS No. 128, "Earnings per Share." Basic earnings (loss) per share is computed
by dividing income (loss) available to common shareholders by the weighted
average number of common shares available. Diluted earnings (loss) per share is
computed similar to basic earnings (loss) per share except that the denominator
is increased to include the number of additional common shares that would have
been outstanding if the potential common shares had been issued and if the
additional common shares were dilutive. Diluted earnings (loss) per share has
not been presented since the effect of the assumed exercise of options and
warrants to purchase common shares (common stock equivalents) would have an
anti-dilutive effect.
 
 Reclassification–
The financial statements from 2007 reflect certain reclassifications, which will
have no effect on net income, to conform to classifications in the current
year.
 
 Recent accounting
pronouncements – In December 2007, the FASB issued SFAS No. 141 (Revised
2007), “Business Combinations - Revised 2007”. SFAS 141 (R) provides guidance on
improving the relevance, representational faithfulness, and comparability of
information that a reporting entity provides in its financial reports about a
business combination and its effects. SFAS 141R applies to business combinations
where is the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. The Company does not
expect the adoption of SFAS No. 141 to have a material impact on its
financial statements.




F-8
 Table of Contents


SKINVISIBLE,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (AUDITED)




1.
              DESCRIPTION OF
      BUSINESS AND SUMMARY OF SIGNIFICANT POLICIES(continued)
 
 Recent accounting
pronouncements (continued)
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements - an Amendment of Accounting Research Bulletin
No. 51” (“SFAS No. 160”), which establishes accounting and reporting standards
for ownership interests in subsidiaries held by parties other than the parent,
the amount of consolidated net income attributable to the parent and to the
noncontrolling interest, changes in a parent’s ownership interest and the
valuation of retained noncontrolling equity investments when a subsidiary is
deconsolidated. SFAS No. 160 also establishes reporting requirements that
provide sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the non-controlling owners. SFAS
No. 160 is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008.  The Company is
currently evaluating the effect of this pronouncement on its financial
statements.
 
 In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement No. 133,”
(SFAS “161”) as amended and interpreted, which requires enhanced disclosures
about an entity’s derivative and hedging activities and thereby improves the
transparency of financial reporting.  Disclosing the fair values of
derivative instruments and their gains and losses in a tabular format provides a
more complete picture of the location in an entity’s financial statements of
both the derivative positions existing at period end and the effect of using
derivatives during the reporting period.  Entities are required to
provide enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under Statement 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows.  SFAS No. 161 is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008.  Early adoption is
permitted.  At September 30, 2008, the Company did not have any
derivative instruments or hedging activities. Management is aware of the
requirements of SFAS 161 and will disclose when
appropriate.
 
 In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.”  SFAS 162 will provide framework for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with U.S. generally accepted accounting principles
(GAAP) for nongovernmental entities.  SFAS 162 will be effective 60
days following the Securities and Exchange Commission’s approval of the Public
Company Accounting Oversight Board (“PCAOB”) amendments to AU Section
411.  The Company does not expect the adoption of SFAS 162 will have a
material impact on its financial condition or results of operation.
 
 In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts – an interpretation of FASB Statement No.
60.”  SFAS 163 requires that an insurance enterprise recognize a claim
liability prior to an event of default (insured event) when there is evidence
that credit deterioration has occurred in an insured financial
obligation.  This Statement also clarifies how Statement 60 applies to
financial guarantee insurance contracts, including the recognition and
measurement to be used to account for premium revenue and claim liabilities.
Those clarifications will increase comparability in financial reporting of
financial guarantee insurance contracts by insurance enterprises. This Statement
requires expanded disclosures about financial guarantee insurance contracts. The
accounting and disclosure requirements of the Statement will improve the quality
of information provided to users of financial statements.  SFAS 163
will be effective for financial statements issued for fiscal years beginning
after December 15, 2008.  The Company does not expect the adoption of
SFAS 163 will have a material impact on its financial condition or results of
operation.




F-9
 Table of Contents


SKINVISIBLE,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (AUDITED)




1.
              DESCRIPTION OF
      BUSINESS AND SUMMARY OF SIGNIFICANT POLICIES(continued)
 
 In
September 2006, the United States Securities and Exchange Commission (“SEC”)
adopted SAB No. 108, “Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements.” This SAB
provides guidance on the consideration of the effects to prior year
misstatements in quantifying current year misstatements for the purpose of a
materiality assessment. SAB 108 establishes an approach that requires
quantification of financial statement errors based on the effects of each of the
company’s balance sheet and statement of operations financial statements and the
related financial statement disclosures. The SAB permits existing public
companies to record the cumulative effect of initially applying this approach in
the first year ending after November 15, 2006 by recording the necessary
correcting adjustments to the carrying values of assets and liabilities as of
the beginning of that year with the offsetting adjustment recorded to the
opening balance of retained earnings. Additionally, the use of the cumulative
effect transition method requires detailed disclosure of the nature and amount
of each individual error being corrected through the cumulative adjustment and
how and when it arose. The company is currently evaluating the impact, if any,
that SAB 108 may have on the company’s results of operations or financial
position.
 
 2.    
FIXED
ASSETS
 
 Fixed
assets consist of the following as of December 31, 2008:
   Machinery and
      equipment
              $
              55,463Furniture
      and fixtures
              
              113,635Computers, equipment
      and software
              
              41,714Leasehold
      improvements
              
              12,569Lab
    equipment
              
              115,946339,327Less: accumulated
      depreciation
              
              322,734Fixed assets, net of
      accumulated depreciation
              $
              16,593
  Depreciation
expense for the years ending December 31, 2008 and 2007 was $5,996 and $7,023,
respectively.
 
 3.
              INTANGIBLE AND OTHER
      ASSETS
 
 Patents
and trademarks are capitalized at its historical cost and are amortized over
their useful lives. As of December 31, 2008 and 2007, patents and trademarks
totaled $23,333 and $74,894, respectively, and  amortization expense
for the years ended December 31, 2008 and 2007 were $11,540 and $10,963,
respectively.
 
 License
and distributor rights (“agreement”) was acquired by the Company in January 1999
and provides exclusive use distribution of polymers and polymer based products.
The Company has a non-expiring term on the license and distribution rights.
Accordingly, the Company annually assesses this license and distribution rights
for impairment and has determined that no impairment write-down is considered
necessary as of December 31, 2008.
 
 Future
amortization expense for patents and trademarks as of December 31, 2008 are as
follows:
  2009
              $ 11,5262010
              3,2232011
              3,2232012
              3,2232013
              3,223
  Prepaid
royalties fees are amounts prepaid by the Company related to the license and
distributor rights. The future royalties payments required by the Company total
$2,000,000. The royalties fees are to be paid in an amount equal to the greater
of (a) $6,000 per month; or (b) 1.5% of net revenues realized by the sale of the
associated polymer products subject to a cap of $2,000,000. The Company will
make payments of $6,000 per month, and by a payment on any
  F-10
 Table of Contents


SKINVISIBLE,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (AUDITED)




royalties
in excess of $72,000 in each year payable on an annual basis calculated within
60 days of each anniversary date of the agreement. The future royalties payments
are to be amortized over eight years, which is the life of the
agreement.  As of December 31, 2008, the Company has paid a total
of  $2,000,000 of which $1,460,000 has been expensed and $180,000 has
been recorded as prepaid royalties.  The Company will expense the
prepayment in the future in accordance to the terms of the
agreement.
 
 4.
              UNEARNED
      REVENUE
 
 Unearned
      revenue totaling $50,000 as of December 31, 2008 relates to two marketing
      and distribution rights agreements entered into during 2004 for which
      monies were received and not considered earned. (See Note 6 for further
      discussion.)
 
 5.
              STOCK OPTIONS AND
      WARRANTS
 
 Stock options employees and
directors– During the years ended December 31, 2008 and 2007, the
Company granted stock options to employees and directors
totaling  3,295,000 and -0-  shares of its common stock with
a weighted average strike price of $0.09 and $-0- per share, respectively.
Certain stock options were exercisable upon grant and have a life ranging from 3
months to 5 years. The stock options have been valued at $232,892 using the
Black-Scholes option pricing model based upon the following assumptions: term of
5 years,  risk free interest rates ranging from 3.5% to 4.5%, a
dividend yield of 0% and volatility rates ranging from 109 % to
110%.  The Company has recorded an expense of $68,912and
$78,441  for the years ended December 31, 2008 and 2007, respectively
all of which is based upon the vested portion of employee stock options related
to options issued in 2007.
 
 Stock options non-employees
and directors– During the years ended December 31, 2008 and 2007, the
Company granted stock options for services totaling  875,000 and
-0-  shares of its common stock with a weighted average strike price
of $0.13 and $-0- per share, respectively. All stock options were exercisable
upon grant. The stock options have been valued at $120,086 using the
Black-Scholes option  pricing model based upon the following
assumptions: term of 5 years,  risk free interest rates ranging from
3.5% to 4.5%, a dividend yield of 0% and volatility rates ranging
from  109% to 112%.
 
 The
following is a summary of option activity during the years ended December 31,
2008 and 2007:
  NumberOfShares
              
              WeightedAverage
                Exercise
                PriceBalance,
      December 31, 2006
              4,200,000
              
              $
              0.11Options granted and assumed
              2,075,000
              
              
              0.24Options expired
              --
              
              
              --Options canceled
              --
              
              
              --Options exercised
              760,000
              
              
              0.05Balance,
      December 31, 2007
              5,515,000
              
              $
              0.17Options granted and assumed
              4,170,000
              
              
              0.24Options expired
              1,690,000
              
              
              0.18Options canceled
              --
              
              
              --Options exercised
              1,200,000
              
              
              0.05Balance,
      December 31, 2008
              6,795,000
              
              $
              .14
  As of
December 31, 2008, 6,795,000 stock options are exercisable.




F-11
 Table of Contents


SKINVISIBLE,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (AUDITED)




5.
              STOCK OPTIONS AND
      WARRANTS (continued)
  Stock warrants
-
 
 The
following is a summary of warrants activity during the years ended December 31,
2008 and 2007:
 
 NumberOfShares
              
              WeightedAverage
                Exercise
                PriceBalance,
      December 31, 2006
              3,030,000
              
              $
              0.11Warrants granted and assumed
              1,911,500
              
              
              0.25Warrants expired
              --
              
              
              --Warrants canceled
              --
              
              
              --Warrants exercised
              710,000
              
              
              0.05Balance,
      December 31, 2007
              4,231,500
              
              $
              0.15Warrants granted and assumed
              6,437,500
              
              
              0.10Warrants expired
              1,820,000
              
              
              0.14Warrants canceled
              --
              
              
              --Warrants exercised
              500,000
              
              
              0.05Balance,
      December 31, 2008
              8,349,000
              
              $
              0.16
  All
warrants outstanding as of December 31, 2008 are exercisable.
 
 6.   
LETTER OF INTENT AND
DEFINITIVE AGREEMENT
 
 In March
2004, the Company entered into a letter of intent (“LOI”) with Dermal Defense,
Inc. for the exclusive marketing and distribution rights to its patented
Antimicrobial Hand Sanitizer product for North America. Terms of the LOI require
Dermal Defense, Inc. to pay a fee of $1 million comprising of a non-refundable
deposit of $250,000 with the balance of $750,000 payable as to $75,000 per
calendar quarter or 5% of product sales (whichever is greater) until the entire
$750,000 is received. The $1 million fee will be recognized as revenue ratably
over a five year period. As of December 31, 2008, the Company has received
$1,000,000 and has reflected $1,000,000 as revenue on cumulative basis of which
$200,000 and $200,000, respectively, have been recorded as revenue for the years
ended December 31, 2008 and 2007. In addition and further to the payment fee of
$1 million, Dermal Defense, Inc. agrees to pay a royalty fee of 5% on product
sales of the Antimicrobial Hand Sanitizer.
 
 In June
2004, the Company entered into a definitive agreement with Cross Global, Inc.
(“Cross Global”) whereby, the Company would provide exclusive marketing and
distribution rights to its proprietary "Sunless Tanning Spray Formulation" for
Canada, the United States, Mexico, Austria, Belgium, Denmark, Finland, France,
Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain,
Sweden, United Kingdom and Israel. In addition CGI is granted the right to use
the name "Solerra(TM)" within the territory. Terms of the agreement require
Cross Global to pay a fee of $1 million comprising of a non-refundable deposit
of $200,000 with the balance of $800,000 payable as $200,000 due August 30,
2004, November 30, 2004, February 28, 2005 and May 30, 2005. The $1 million fee
will be recognized as revenue ratably over a five year period. As of December
31, 2008, the Company has received $1,000,000 and has reflected $50,000 as
unearned revenue and $950,000 as revenue on a cumulative basis of which $250,000
has been recorded as revenue for both years ended December 31, 2008 and
2007.  In addition and further to the payment fee of $1 million, Cross
Global agrees to pay a royalty fee of 5% on product sales of the Sunless Tanning
Spray Formulation.




F-12
 Table of Contents


SKINVISIBLE,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (AUDITED)


6.   
LETTER OF INTENT AND
DEFINITIVE AGREEMENT(continued)
 
 We have
negotiated a new agreement with Sunless Beauty Inc. (“Sunless Beauty”), a
company with the same shareholder base as Cross Global, which will replace the
existing agreement with Cross Global regarding this matter. The new agreement
releases and forever discharges Cross Global from the $120,000 delinquency and
requirement to pay a minimum royalty payment monthly. The new agreement offers
Sunless Beauty the exclusive right to utilize our proprietary polymer formula in
connection with the distribution, marketing, and sale of sunless tanning
products in the applicable territory, but only for use in their proprietary
product called Solerra Mitt, which is a sunless tanning mitt. They are required
to purchase the Invisicare exclusively form Skinvisible and pay a royalty of 5%
on Mitt sales within the territory.
 
 7.      CONVERTIBLE NOTES
PAYABLE
 
 During
2008, the Company issued an aggregate of $115,000 consisting of promissory
convertible notes to three individuals. Two of the notes are due by May 5, 2008
and one note is due by May 29, 2008, accruing interest at 10% per annum. At the
investor’s option until the repayment date, and the note can be converted to
shares of the Company’s common stock at  a fixed price of $0.10 per
share along with additional warrants to purchase one share per every twoshares issued at the
exercise price of $0.25 per share if exercised in year one and $0.30 per share
if exercised in year two and available only upon conversion of the note
payable.   As of December 31, 2008, $115,000 plus accrued
interest of $199 were converted into 1,001,990 shares.
 
 In
accordance with EITF 00-27, the Company has determined the value associated with
the conversion feature and detachable warrants issued in connection with these
convertible notes payable. The Company has determined the debentures to have a
beneficial conversion feature totaling $34,914.  The beneficial
conversion feature has been fully expensed as of June 30, 2008.  The
beneficial conversion feature is valued under the intrinsic value method and
warrants were valued under the Black-Scholes option pricing model using the
following assumptions: a stock price of  $0.12, life of  3
years, a dividend yield of 0%, volatility raging from 111% to 112%, and a debt
discount rate of 4.50%.   The investor shall have three years
from February 5, 2008 and February 29, 2008 to exercise 450,000
warrants.  The warrant strike price shall be $0.12 per
share.  The Company has determined the warrants to have a value of
$18,619 which has been fully expensed as of December 31, 2008.
 
 During
2008, the Company issued an aggregate of $249,127 consisting of promissory
convertible notes to five individuals. Two of the notes are due by July 2008,
one note is due by August 2008, and three notes are due by
September  2008, accruing interest at 10% per annum. At the investor’s
option until the repayment date, and the note can be converted to shares of the
Company’s common stock at  a fixed price of $0.10 per share along with
additional warrants to purchase one share per every twoshares issued at the
exercise price ranging from $0.12 to $0.15 per share if exercised within three
years upon conversion of the note payable.   As of December 31,
2008, $249,127 convertible notes payable were converted into 2,400,000
shares.
 
 In
accordance with EITF 00-27, the Company has determined the value associated with
the conversion feature and detachable warrants issued in connection with these
convertible notes payable. The Company has determined the debentures to have a
beneficial conversion feature totaling $7,599.  The beneficial
conversion feature has been fully expensed as of June 30, 2008.  The
beneficial conversion feature is valued under the intrinsic value method and
warrants were valued under the Black-Scholes option pricing model using the
following assumptions: a stock price of  $0.12, life of  3
years, a dividend yield of 0%, volatility raging from 111% to 112%, and a debt
discount rate of 4.50%.   The investor shall have three years
from February 5, 2008 and February 29, 2008 to exercise 450,000
warrants.  The warrant strike price shall be $0.12 per
share.  The Company has determined the warrants to have a value of
$26,634 which has been fully expensed as of December 31,
2008.




F-13
 Table of Contents


SKINVISIBLE,
INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (AUDITED)






7.      
RELATED PARTY
TRANSACTIONS
 
 As of
December 31,  2007, the Company had an unsecured loan payable due to
the CEO with an interest rate of 10% per annum, due on demand totaling
$68,360.
 
 As of
December 31, 2007, the Company had an unsecured loan payable due to a
shareholder, bearing no interest, due on demand totaling $10,500.
 
 As of
December 31, 2007, the Company had a receivable due to them from a shareholder
totaling $1,196.
 
 As of
December 31, 2008, the Company had an unsecured loan payable due to the CEO with
an interest rate of 10% per annum, due on demand totaling $2,136.
 
 8.   
 COMMITMENTS AND
CONTINGENCIES
 
 Lease obligations –
The Company has operating leases for its offices.  The lease for its
offices expires on December 29, 2009.  Future minimum lease payments
under the operating leases for the facilities as of December 31, 2008 are as
follows:
 
 2009                                               $           98,622
 
 Rental
expense, resulting from operating lease agreements for the years ended December
31, 2008 and 2007, was $97,028 and $102,539,
respectively.