SKINVISIBLE, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements This quarterly report contains forward-looking statements. Forward-looking statements are projections of events, revenues, income, future economic performance or management’s plans and objectives for our future operations. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” and the risks set out below, any of which may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks include, by way of example and not in limitation: § the uncertainty of profitability based upon our history of losses; § legislative or regulatory changes concerning skincare research and therapies; § risks related to failure to obtain adequate financing on a timely basis and on acceptable terms to continue as going concern; § risks related to our operations and uncertainties related to our business plan and business strategy; § changes in economic conditions; § uncertainty with respect to intellectual property rights, protecting those rights and claims of infringement of other’s intellectual property; § competition; and § cybersecurity concerns. This list is not an exhaustive list of the factors that may affect any of our forward-looking statements. These and other factors should be considered carefully, including those contained in our Annual Report on Form 10-K under “Risk Factors” for the year ended December 31, 2023, and readers should not place undue reliance on our forward-looking statements. Forward looking statements are made based on management’s beliefs, estimates and opinions on the date the statements are made, and we undertake no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results. Our financial statements are stated in United States dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. Company Overview We, through our wholly owned subsidiary Skinvisible Pharmaceuticals Inc., are a pharmaceutical research and development (“R&D”) company that has developed and patented an innovative polymer delivery system, Invisicare® and formulated over forty topical skin products, which we out-license globally. We were incorporated in 1998 and target an estimated $80 billion global skincare and dermatology market and a $30 billion global over-the-counter market as well as other healthcare / medical and consumer goods markets. The Company is also exploring new opportunities in large medical markets outside of the dermatology market such as obesity and other potential markets where a topical or transdermal solution would be a viable alternative. With the research and development complete on forty products and numerous patents issued (technology and product patents), we are ready to monetize our investment. Our business model will continue to be to out-license our patented prescription and over-the-counter (“OTC”) products featuring Invisicare to established manufacturers and marketers of brands internationally and to maximize profits from the products we have already out-licensed. 4 Table of Contents The opportunity for us to license our products continues to be a viable model as the need for pharmaceutical companies to access external R&D companies for new products due to their own downsizing or elimination of internal R&D departments. The demand for our products is enhanced due to the granting of key US and international patents and the completed development of a number of unique products. Our Flagship Product Pivotal to our success is our patented polymer delivery system technology Invisicare. Invisicare is a patented polymer delivery system that enhances the delivery of active ingredients for topically applied skin care products. Its patented technology has a unique formula and process for combining active ingredients with a delivery system that extends the duration of time the product remains on the skin and active. Invisicare is specifically formulated to carry water insoluble active and certain cationic active ingredients in water-based products without the use of alcohol, silicones, waxes, or other organic solvents. Products utilizing Invisicare have the proven ability to bond active ingredients to the skin for up to four hours and longer. They are non-occlusive and allow normal skin respiration and perspiration while moisturizing and protecting against exposure from a wide variety of environmental irritants. When topically applied, these formulated products adhere to the skin's outer layers, forming a protective bond, resisting wash-off, and delivering targeted levels of therapeutic or cosmetic skincare agents to the skin. They allow enhanced delivery performance for a variety of skincare agents resulting in improved efficacy, longer duration of action, reduced irritation and lower dosage of active agent required. The "invisible" polymer compositions wear off as part of the natural exfoliation process of the skin's outer layer cells. The advantage of products formulated with Invisicare is (1) Invisicare’s ability to bind active ingredients (the drug) to the skin, forming a protective bond on the skin, for extended periods of time; (2) Invisicare can deliver targeted levels (high or low) of therapeutic or cosmetic ingredients to the skin in a controlled release; (3) Invisicare can help to reduce the irritation of some active ingredients due to how it controls the slower release of that active ingredient; and (4) Invisicare science proves that it provides a protective skin barrier which helps retain the natural moisture content of the skin, while still allowing it to breathe. These benefits present an excellent opportunity for clear scientific advantages and marketing messages which resonate with physicians and consumers. We generate revenue by: LICENSING : We develop topical prescription and over-the-counter products enhanced with Invisicare to license to pharmaceutical and consumer goods companies around the world for an upfront fee and ongoing royalties. CO-DEVELOPMENT : We assist pharmaceutical clients in the early development of the most optimal formulation, which they then take forward into clinical testing. LIFE CYCLE MANAGEMENT : We provide cost-effective solutions to global pharmaceutical companies by reformulating their products coming off patent with a new Invisicare patent and new product benefits and line extensions. Pharmaceutical companies are under a lot of pressure to develop innovative strategies to counteract the revenue loss from their drugs coming off patent. 5 Table of Contents License Agreement with Quoin On October 17, 2019, we entered an Exclusive License Agreement with Quoin Pharmaceuticals, Inc., a Delaware corporation (“Quoin”) pursuant to which we granted Quoin a license to certain patents for the development of products for commercial sale. In exchange for the license, Quoin paid us a license fee of one million USD dollars (USD $1,000,000) (the “License Fee”) and will additionally pay 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 a milestone payment of $5 million to us upon achieving the first to occur of either FDA or European Union regulatory approval for one product licensed. In addition, and upon the successful approval in the US or European Union, whichever occurs first, Skinvisible is entitled to receive a single digit royalty percentage of Quoins net sales revenues for any licensed product covered by the patent rights licensed under the License Agreement. Plus, Quoin also agreed to pay Skinvisible 25% of any revenues they receive as royalties in the event that they sublicense any licensed products to a third party. On June 6, 2022, the Company announced that its licensee Quoin and its product QRX003, was the first Invisicare delivery technology product to receive U.S. FDA Acceptance of Investigational New Drug Application and that Quoin was actively working towards obtaining necessary FDA and other regulatory approvals for marketing the product in the United States and other countries. On February 14, 2024, the Company announced that there was significant progress in Quoin's clinical trials for product formulations containing Invisicare targeting Netherton Syndrome. The trials focus on the innovative formulation "QRX003," powered by Skinvisible’s Invisicare® proprietary drug delivery technology. The updates include: Positive Initial Data and Clean Safety Profile: The trials have demonstrated positive initial data and a clean safety profile, leading to the implementation of an optimization plan. Optimization Plan Implementation: Quoin has increased the size of both clinical trials significantly and adjusted dosing frequency to twice-daily from once-daily for both trials. Elimination of Lower Dose: In the blinded trial, a lower dose has been eliminated based on the positive outcomes observed. Protocol Amendments: Quoin's press release highlights protocol amendments aimed at enhancing the data set and potentially expediting regulatory approval. We believe these protocol amendments could ultimately result in the generation of a highly compelling data set, which could support regulatory filings and approval for QRX003 as the first treatment for Netherton Syndrome. On March 4, 2024, Quoin announced a further milestone: it received FDA Clearance to recruit teen subjects into both ongoing Netherton Syndrome clinical studies. We believe this announcement is important as: Clearance to include teen patients in both Quoin’s open label and placebo-controlled studies are expected to significantly expand the number of eligible subjects, potentially expedite recruitment and lead to a more robust data set. This development represents the first ever inclusion of non-adult subjects in Netherton Syndrome clinical studies conducted under an open Investigational New Drug Application. It is believed that the inclusion of this patient population in Quoin’s studies will be a critical component of the development of a robust data set that could result in regulatory approval with a broad label as QRX003 is being tested both as monotherapy and in conjunction with off-label treatments. 6 Table of Contents License Agreement with Ovation Science On February 3, 2020, we entered into a License Agreement with Ovation Science Inc. pursuant to which Skinvisible granted to Ovation Science Inc. a license for the manufacture and distribution rights to its hand sanitizer product, DermSafe. In exchange for the license, Ovation Science Inc. agreed to pay to Skinvisible a royalty percentage on all net sales on the licensed products subject to adjustment in certain situations plus a license fee payable in year 3 of the agreement if it chooses to continue the license. On June 10, 2020, Ovation Science paid us the fee otherwise due in year 3 and in exchange we extended the term of Ovation Science’s license to 6-years and granted Ovation additional rights to its hand sanitizer products and assigned Canadian Identification Numbers 02310589 and 02355558, all DermSafe Trademarks, DermSafe clinical data and the right to patent DermSafe where not currently patented. In exchange for these rights, Ovation Science paid a $100,000 license fee. We completed the required assignments during the year ending December 31, 2020 and recognized $100,000 in revenue. Patent Applications for Transdermal Delivery for Obesity and Glucose-Controlling Agents In May and June of 2024, we filed provisional patent applications covering formulations that leverage Invisicare for the transdermal administration of obesity drugs and glucose-controlling agents for diseases such as diabetes. The patents are titled "Transdermal Delivery Composition for Delivery of CB-1 Receptor Antagonists and/or GLP-1 Receptor Agonists, and Method of Delivery” and “Transdermal Delivery Composition for Delivery of at Least One Glucose Controlling Agent, and Method of Delivering at Least One Glucose Controlling Agent.” The patent applications focus on the use of Invisicare in a transdermal delivery technology designed to incorporate CB-1 receptor antagonists and/or GPL-1 receptor agonists, with drugs known for their potential in obesity management and for glucose-controlling agents, into a lotion that is applied topically to the skin using a metered applicator. Studies have demonstrated the superior transdermal penetration and controlled release of other active compounds using Invisicare's innovative technology, with certain actives exhibiting up to a tenfold increase in transdermal delivery effectiveness. By utilizing Invisicare, we aim to not only offer patients a convenient and effective alternative to traditional oral or injectable therapies but to also enhance drug efficacy and potentially significantly reduce side effects as transdermal delivery avoids first-pass metabolism. Additionally, for long-term treatment of obesity and glucose controlling agents, a transdermal delivery system could feasibly provide a convenient method for administering maintenance doses for these medications. We are actively pursuing strategic partnerships with pharmaceutical and/or biotech companies to facilitate the introduction of the first transdermal obesity therapies to market and to explore the application of its delivery platform across diverse disease domains. Results of Operations for the Three and Six Months Ended June 30, 2024 and 2023 Revenues Our revenue, which we combine from product sales, royalties on patent licenses and license fees (product development fees), was $5,000 for the three months ended June 30, 2024 and $5,000 for the same period ended June 30, 2023. Our revenue, which we combine from product sales, royalties on patent licenses and license fees (product development fees), was $10,000 for the six months ended June 30, 2024. We hope to generate more revenues from our licenses with Quoin and Ovation for the rest of 2024. We also plan to enter into commercial arrangements with pharma and biotech companies to exploit our patent applications that were recently filed, and we hope to generate revenue from these efforts in the future. 7 Table of Contents Gross Profit We had $0 in cost of revenues for the three and six months ended June 30, 2024, compared with $0 in cost of revenues for the three and six months ended June 30, 2023, so our gross profit was $5,000 and $10,000 for the three and six months ended June 30, 2024, respectively, as compared with gross profit of $5,000 and $10,000 for the three and six ended June 30, 2023, respectively. Operating Expenses Operating expenses increased to $147,693 for the three months ended June 30, 2024, from $117,823 for the same period ended June 30, 2023. Operating expenses increased to $275,877 for the six months ended June 30, 2024, from $250,727 for the same period ended June 30, 2023. Our operating expenses for all periods consisted mainly of selling, general and administrative expenses. Our selling, general and administrative expenses for the six months ended June 30, 2024, consisted mainly of accrued salaries and wages of $175,885 and audit and accounting of $31.638. In comparison, our selling, general and administrative expenses for the six months ended June 30, 2023, consisted mainly of accrued salaries and wages of $180,365 and audit and accounting of $25,419. Other Expenses We had other expenses of $160,756 for the three months ended June 30, 2024, as compared with other expenses of $163,252 for the three months ended June 30, 2023. We had other expenses of $327,944 for the six months ended June 30, 2024, as compared with other expenses of $1,550,404 for the six months ended June 30, 2023. Our other expenses for the three and six months ended June 30, 2024 consisted mainly of interest expense, netted against a gain on settlement of debt and gain on derivative liability changes. Net Loss We recorded a net loss of $303,449 for the three months ended June 30, 2024, as compared with a net loss of $276,075 for the three months ended June 30, 2023. We recorded a net loss of $593,821 for the six months ended June 30, 2024, as compared with a net loss of $1,791,131for the six months ended June 30, 2023. 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 $39,974,309 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 June 30, 2024, we had total current assets of $35,882 and total assets in the amount of $163,058. Our total current liabilities as of June 30, 2024 were $4,023,571. We had a working capital deficit of $3,987,689 as of June 30, 2024, compared with a working capital deficit of $3,476,947 as of December 31, 2023. 8 Table of Contents Operating activities used $40,380 in cash for the six months ended June 30, 2024, as compared with $68,496 used for the six months ended June 30, 2023. Our negative operating cash flows for 2023 and 2024 was largely the result of our net loss for those quarter, mainly offset by changes in operating assets and liabilities and the amortization of debt discount. We used cash of $9,218 and $9,334 in investing activities for the six months ended June 30, 2024 and 2023, respectively, for the purchase of intangible assets. Cash flow provided from financing activities was $55,700 for the six months ended June 30, 2024, as compared with no cash flows for financing activities during the six months ended June 30, 2023. 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 capital. Off Balance Sheet Arrangements As of June 30, 2024, 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 June 30, 2024, we had not recorded a reserve for doubtful accounts. 9 Table of Contents Recently Issued Accounting Pronouncements We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow. Item 3. Quantitative and Qualitative Disclosures About Market Risk A smaller reporting company is not required to provide the information required by this Item.