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. 16 Table of Contents Results of Operations for the Years Ended December 31, 2022 and 2021 Revenues Our revenue, which we combine from product sales, royalties on patent licenses and license fees (product development fees), was $279,296for the year ended December 31, 2022, an decrease from $663,426 for the same period ended December 31, 2021. The revenue for 2022 was mainly from license fees with Quoin and the revenue for 2021 was mainly from license fees with Quoin and Ovation. We hope to generate more revenues from our licenses with Quoin and Ovation in2023. Gross Profit We had $4,808 in cost of revenues for the year ended December 31, 2022, as compared with $3,300 in cost of revenues for the year ended December 31, 2021, so our gross profit was $274,488, or 98% of sales for 2022 and $660,126, or 99% of sales for 2021. Our gross profit decreased in 2022 due to less revenues from our license with Quoin, We hope to generate more revenues from our licenses with Quoin and Ovation in2023. Operating Expenses Operating expenses decreased to $512,919 for the year ended December 31, 2022 from $472,046 for the same period ended December 31, 2021. Our operating expenses for all periods consisted mainly of selling, general and administrative expenses. Our selling, general and administrative expenses for the year December 31, 2022 consisted mainly of accrued salaries and wages of $328,769 and audit and accounting of $53,638. In comparison, our selling, general and administrative expenses for the year ended December 31, 2021 consisted mainly of accrued salaries and wages of $316,769, audit and accounting of $49,712. Other Expenses We had other expenses of $986,455 for the year ended December 31, 2022, as compared with other expenses of $1,260,833 for the year ended December 31, 2021. Our other expenses for the year ended December 31, 2022 consisted mainly of interest expense, netted against a gain on forgiveness of debt and gain on derivative liability changes. Our other expenses for the year ended December 31, 2021 consisted mainly of interest expense and a loss on the changes in derivative liability, offset by a gain on the settlement of debt. Net Loss We recorded a net loss of $1,224,887 for the year ended December 31, 2022, as compared with a net loss of $1,072,753 for the year ended December 31, 2021. 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 $36,998,048 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. 17 Table of Contents As of December 31, 2022, we had total current assets of $109,946 and total assets in the amount of $246,793. Our total current liabilities as of December 31, 2022 were $3,644,986. We had a working capital deficit of $3,535,040 as of December 31, 2022, compared with a working capital deficit of $2,987,049 as of December 31, 2022. Operating activities provided $45,170 in cash for the year ended December 31, 2022, as compared with $374,605 provided for the year ended December 31, 2021. Our positive operating cash flows for 2022 and 2021 was largely the result of changes in operating assets and liabilities, amortization of debt discount offset mainly by the net loss for the periods. We used cash of $2.530 and $20,864 in investing activities for the years ended December 31, 2022 and 2021, respectively, for the purchase of fixed and intangible assets. Cash flows used by financing activities during the year ended December 31, 2022 amounted to $27,299, as compared with cash used of $323,600 for the year ended December 31, 2021. Our negative financing cash flow for the year ended December 31, 2022 resulted from payments on related party loans. Our negative financing cash flow for the year ended December 31, 2021 resulted from the repayments of debt. 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 addition Off Balance Sheet Arrangements As of December 31, 2022, there were no off-balance sheet arrangements. Critical Accounting Policies In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Product sales – Revenues from the sale of products (Invisicare® polymers) are recognized when title to the products are transferred to the customer and only when no further contingencies or material performance obligations are warranted, and thereby have earned the right to receive reasonably assured payments for products sold and delivered. Royalty sales – We also recognize royalty revenue from licensing our patented product formulations only when earned, with no further contingencies or material performance obligations are warranted, and thereby have earned the right to receive and retain reasonably assured payments. Distribution and license rights sales – We also recognize revenue from distribution and license rights only when earned (and are amortized over a five-year period), with no further contingencies or material performance obligations are warranted, and thereby have earned the right to receive and retain reasonably assured payments. Costs of Revenue – Cost of revenue includes raw materials, component parts, and shipping supplies. Shipping and handling costs is not a significant portion of the cost of revenue. Accounts Receivable – Accounts receivable is comprised of uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. The carrying amount of accounts receivable is reviewed periodically for collectability. If management determines that collection is unlikely, an allowance that reflects management’s best estimate of the amounts that will not be collected is recorded. Management reviews each accounts receivable balance that exceeds 30 days from the invoice date and, based on an assessment of creditworthiness, estimates the portion, if any, of the balance that will not be collected. As of December 31, 2022, we had not recorded a reserve for doubtful accounts. 18 Table of Contents 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.