SKINVISIBLE, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC. Overview COVID-19 The full extent of the impact of the COVID-19 pandemic on our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict at the present time. In an effort to contain COVID-19 or slow its spread, governments around the world have enacted various measures, including orders to close all businesses not deemed “essential,” isolate residents to their homes or places of residence, and practice social distancing when engaging in essential activities. We anticipate that these actions and the global health crisis caused by COVID-19 will negatively impact business activity across the globe. While we have not observed any noticeable impact on our revenue related to these conditions in the past fiscal year, or through the date of this filing, we cannot estimate the impact COVID-19 will have in the future as business and consumer activity decelerates across the globe. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, customers, partners and stockholders. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, partners, or vendors, or on our financial results. Recent Developments On October 17, 2019, we entered an Exclusive License Agreement with Quoin Pharmaceuticals, Inc., a Delaware corporation (“Quoin”) pursuant to which we granted to Quoin a license to certain patents for the development of products for commercial sale. In exchange for the license, Quoin agreed to pay to us a license fee of $1,000,000 (the “License Fee”) and a single digit royalty interest of all net sales on the licensed products subject to adjustment in certain situations. The agreement also requires that Quoin make certain milestone payments to us upon achieving regulatory approval milestones for certain drug products. The agreement was subject to termination, if among other things, 50% of the license fee is not paid by December 31, 2019 and if the full License Fee is not paid by March 31, 2020. No payments were made by Quoin and the agreement was terminated. Both Parties subsequently determined that they continue to see the value in a partnership and therefore on May 8, 2020 and again on July 31, 2020 the companies agreed to extend the Exclusive License Agreement under the same terms to expire on September 30, 2020, and on January 27, 2021 the companies agreed to revise the milestone payments due under the agreement and to extend the agreement indefinitely. 4 Table of Contents On June 14, 2021, the Company entered into an amendment to change the terms of the license Fee as shown below. As partial consideration for the rights conveyed by Skinvisible under this Agreement, Licensee agrees to pay to Skinvisible a one-time, non-refundable, non-creditable license issue fee of one million USD dollars (USO $1,000,000) (''License Fee''). To date, Licensee has paid three hundred ninety-two thousand five hundred US dollars (USD $392,500) of this fee as part of the First Half Payment of the License Fee. The balance due of the First Half Payment is one hundred seven thousand five hundred US dollars (USD $107,500) which was received on July 7. A further payment of two hundred and fifty thousand dollars ($250,000) is due no later than ten (10) business days after receipt by Licensee of additional funding from Altium Capital which coincides with the approval from the SEC on Quoin’s merger with a NASDAQ listed company, which closed in October. The remaining balance of two hundred and fifty thousand dollars ($250,000) will be paid on December 31, 2021. Additionally, the milestones in the initial agreement were changed as shown below: (i) Successful completion of Phase 2 testing: $0 (ii) Successful completion of Phase 3 testing: $0 (iii) Regulatory approval in either 1· the US or EU, whichever happens first: $5,000,000 Results of Operations for the Three and Nine Months Ended September 30, 2021 and 2020 Revenues Our revenue, which we combine from product sales, royalties on patent licenses and license fees (product development fees), was $111,421 for the three months ended September 30, 2021, an increase from $6,816 for the same period ended September 30, 2020. Our revenue was $410,571 for the nine months ended September 30, 2021, an increase from $142,838 for the same period ended September 30, 2020. The revenue for both periods in 2021 was mainly from license fees with Quoin and the revenue for both periods in 2020 was mainly from license fees with Ovation. We hope to generate more revenues from our licenses with Quoin and Ovation for the rest of the year. Gross Profit We had $3,300 in cost of revenues for the nine months ended September 30, 2021, no cost of revenues for the three months ended September 30, 2021, and no cost of revenues for the three and nine months ended September 30, 2020, so our gross profit was $111,421 and $407,271 for the three and nine months ended September 30, 2021, respectively, as compared with gross profit of $6,816 and $142,838 for the three and nine months ended September 30, 2020, respectively. We had some product sales resulting in a reduced gross profit for 2021 as compared with 2020. Our gross profit increased in 2021 due to more revenues from our licenses with Quoin and Ovation expected for the rest of the year, which do not have a cost of revenue component. Operating Expenses Operating expenses increased to $119,274 for the three months ended September 30, 2021 from $125,438 for the same period ended September 30, 2020. Operating expenses decreased to $366,731 for the nine months ended September 30, 2021 from $404,214 for the same period ended September 30, 2020. Our operating expenses for all periods consisted mainly of selling, general and administrative expenses. 5 Table of Contents Our selling, general and administrative expenses for the nine months ended September 30, 2021 consisted mainly of accrued salaries and wages of $243,826, audit and accounting of $43,102. In comparison, our selling general and administrative expenses for the nine months ended September 30, 2020 consisted mainly of accrued salaries and wages of $263,827 and audit and accounting of $55,089. Other Expenses We had other expenses of $195,499 for the three months ended September 30, 2021, as compared with other expenses of $291,137 for the three months ended September 30, 2020. We had other expenses of $947,911 for the nine months ended September 30, 2021, as compared with other expenses of $891,260 for the nine months ended September 30, 2020. Our other expenses for the three months ended September 30, 2021 consisted mainly of interest expense and a loss on the changes in derivative liability, offset by a gain on the settlement of debt. Our other expenses for the nine months ended September 30, 2021 consisted mainly of interest expense and a loss on the changes in derivative liability, offset by a gain on the settlement of debt. Our other expenses for the nine months ended September 30, 2020 consisted mainly of a loss on the settlement of debt and interest expense. Net Loss We recorded a net loss of $203,352 for the three months ended September 30, 2021, as compared with a net loss of $409,759 for the three months ended September 30, 2020. We recorded a net loss of $907,371 for the nine months ended September 30, 2021, as compared with a net loss of $1,152,636 for the nine months ended September 30, 2020. Liquidity and Capital Resources As of September 30, 2021, we had total current assets of $58,021 and total assets in the amount of $215,771. Our total current liabilities as of September 30, 2021 were $3,108,168. We had a working capital deficit of $3,050,147 as of September 30, 2021, compared with a working capital deficit of $2,668,871 as of December 31, 2020. Operating activities provided $220,791 in cash for the nine months ended September 30, 2021, as compared with $15,588 provided for the nine months ended September 30, 2020. Our positive operating cash flow for each period was largely the result of the amortization of debt discount and changes in accounts payable and accrued liabilities and accrued interest. We used cash of $20,864 and $16,767 in investing activities for the nine months ended September 30, 2021 and 2020, respectively, for the purchase of fixed and intangible assets. Cash flows used by financing activities during the nine months ended September 30, 2021 amounted to $186,600, as compared with cash provided of $11,700 for the nine months ended September 30, 2020. Our negative financing cash flow for the nine months ended September 30, 2021 resulted from the repayments of debt. Our positive financing cash flow for the nine months ended September 30, 2020 consisted of proceeds from related party loans, offset by repayments on the same. The features of the debt instruments and payables concerning our financing activities are detailed in the footnotes to our financial statements. 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. 6 Table of Contents 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 $35,607,779 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 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. These consolidated financial statements do not include any adjustments that may result from the outcome of these aforementioned uncertainties. Off Balance Sheet Arrangements As of September 30, 2021, there were no off balance sheet arrangements. Critical Accounting Policies The discussion and analysis of our financial condition and results of operations is based upon the accompanying financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States of America and are expressed in United States dollars. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financial statements. Recently Issued Accounting Pronouncements In August 2020, FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity; Own Equity (“ASU 2020-06”), as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Among other changes, the new guidance removes from GAAP separation models for convertible debt that require the convertible debt to be separated into a debt and equity component, unless the conversion feature is required to be bifurcated and accounted for as a derivative or the debt is issued at a substantial premium. As a result, after adopting the guidance, entities will no longer separately present such embedded conversion features in equity, and will instead account for the convertible debt wholly as debt. The new guidance also requires use of the “if-converted” method when calculating the dilutive impact of convertible debt on earnings per share, which is consistent with the Company’s current accounting treatment under the current guidance. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, but only at the beginning of the fiscal year. The Company is currently evaluating the impact the adoption of ASU 2020-06 will have on the Company’s financial statements. Item 3. Quantitative and Qualitative Disclosures About Market Risk A smaller reporting company is not required to provide the information required by this Item. 7 Table of Contents