SKINVISIBLE, INC. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. COVID-19 The full extent of the impact of the COVID-19 pandemic on our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict at the present time. In an effort to contain COVID-19 or slow its spread, governments around the world have enacted various measures, including orders to close all businesses not deemed “essential,” isolate residents to their homes or places of residence, and practice social distancing when engaging in essential activities. We anticipate that these actions and the global health crisis caused by COVID-19 will negatively impact business activity across the globe. While we have not observed any noticeable impact on our revenue related to these conditions in the past fiscal year, or through the date of this filing, we cannot estimate the impact COVID-19 will have in the future as business and consumer activity decelerates across the globe. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, customers, partners and stockholders. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, partners, or vendors, or on our financial results. Results of Operations for the Years Ended December 31, 2021 and 2020 Revenues Our revenue, which we combine from product sales, royalties on patent licenses and license fees (product development fees), was $663,426 for the year ended December 31, 2021, an increase from $275,566 for the same period ended December 31, 2020. The revenue for 2021 was mainly from license fees with Quoin and the revenue for 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 2022. Gross Profit We had $3,300 in cost of revenues for the year ended December 31, 2021, as compared with no cost of revenues for the year ended December 31, 2020, so our gross profit was $660,126, or 99% of sales for 2021 and $275,556, or 100% of sales for 2020, respectively. We had some product sales resulting in a increased 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, and we hope to generate more revenues from our licenses with Quoin and Ovation for the rest of 2022, which do not have a cost of revenue component. 18 Table of Contents Operating Expenses Operating expenses decreased to $472,046 for the year ended December 31, 2021 from $529,221 for the same period ended December 31, 2020. Our operating expenses for the year ended December 31, 2021 consisted of selling, general and administrative expenses of $454,107 and depreciation and amortization of $17,939. In comparison, our operating expenses for the year ended December 31, 2020 consisted mainly of selling, general and administrative expenses of $497,199 and depreciation and amortization of $32,022. Other Expenses We had other expenses of $1,260,833 for the year ended December 31, 2021, as compared with other expenses of $1,193,947 for the year ended December 31, 2020. Our other expenses for the year ended December 31, 2021 consisted 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 year ended December 31, 2020 consisted of interest expense. Net Loss We recorded a net loss of $1,072,753 for the year ended December 31, 2021, as compared with a net loss of $1,447,612 for the year ended December 31, 2020. Liquidity and Capital Resources Going concern – The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred cumulative net losses of $35,773,161 since its inception and requires capital for its contemplated operational and marketing activities to take place. The Company’s ability to generate the necessary funds through licensing of its core products or the ability to raise additional capital through the future issuances of common stock or debt is unknown. The obtainment of additional financing, the successful development of the Company’s contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. These factors, among others, raises substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties. As of December 31, 2021, we had total current assets of $74,244 and total assets in the amount of $227,299. Our total current liabilities as of December 31, 2021 were $3,061,293. We had a working capital deficit of $2,987,049 as of December 31, 2021, compared with a working capital deficit of $2,668,871 as of December 31, 2020. Operating activities provided $374,605 in cash for the year ended December 31, 2021, as compared with $45,765 used for the year ended December 31, 2020. Our positive operating cash flow for 2021 was largely the result of the amortization of debt discount, loss on derivative liabilities, and an increase in accrued interest, offset mainly by our net loss for the year. For 2020, our net loss was the main component of our negative operating cash flow, offset mainly by an increase in accrued interest, amortization of debt discount and an increase in accounts payable and accrued liabilities. We used cash of $20,864 and $16,767 in investing activities for the year ended December 31, 2021 and 2020, respectively, for the purchase of fixed and intangible assets. Cash flows used by financing activities during the year ended December 31, 2021 used $323,600, as compared with cash provided of $5,600 for the year ended December 31, 2020. Our negative financing cash flow for the year ended December 31, 2021 resulted from the repayments of debt. Cash flows for the year ended December 31, 2020 consisted of $26,900 in proceeds from related party debt offset by $21,300 paid on notes payable. 19 Table of Contents 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. Off Balance Sheet Arrangements As of December 31, 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 7A. Quantitative and Qualitative Disclosures About Market Risk A smaller reporting company is not required to provide the information required by this Item. 20 Table of Contents