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 The leading web portal for pharmacy resources, news, education and careers May 29, 2017
Pharmacy Choice - Pharmaceutical News - SKINVISIBLE INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations - May 29, 2017

Pharmacy News Article

 5/15/17 - SKINVISIBLE INC - 10-Q - 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.



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.

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. We have also formed a commercial subsidiary, Kintari Int. Inc. with subsidiaries Kintari USA Inc. and Kintari Canada Inc., in order to take our cosmeceutical and select OTC products with Invisicare to market.

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 down-sizing 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.

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Strategic Growth Opportunities



Our growth strategy is to:


1. Generate revenue from direct sales of our cosmeceutical/OTC product line;

2. Generate revenue from online sales and private label / bulk orders of our

    Kintari branded products;



3. Capitalize on the success of current licensees;

4. Increase the value of our current pipeline; and

5. Boost licensing revenues by securing additional licensees globally and develop

    a robust royalty revenue stream that will finance our future growth.



Our Cosmeceutical/OTC Product Line



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Kintari Int. Inc.


Kintari Int. Inc. was incorporated in the Province of Alberta, Canada. The company was formed to develop, market and sell Skinvisible Pharmaceuticals, Inc.'s patented skincare products initially in the United States. Kintari Int. Inc. is our wholly-owned subsidiary.

Previously on April 1, 2016, Skinvisible licensed to Kintari Int. Inc. the exclusive rights to our existing line of cosmeceutical products plus the exclusive rights to any future cosmeceutical products developed by Skinvisible plus the right-of-first-refusal on our existing OTC products plus the right-of-first-refusal to any future OTC products developed by us in exchange for a 100% equity position in Kintari Int. Inc. This inter-company agreement has now been dissolved and all rights still remain with Skinvisible Pharmaceuticals, Inc., as the original intent was for Kintari to operate as its own company; however, this did not transpire. There is no change to the ownership as Skinvisible continues to own 100% of Kintari Int. Inc. and all rights thereof. Kintari USA Inc. and Kintari Canada Inc. both continue to sell Kintari branded products through direct sales and online.

DermSafe, our hand sanitizer formulated with Invisicare and chlorhexidine gluconate has been launched in Canada by our subsidiary Kintari Canada Inc. where it has Health Canada approval. We launched DermSafe in August, 2016 in Canada through our Kintari Canadian website for retail customers only. DermSafe is an alcohol free hand sanitizer that products against 99% of all germs. We are currently seeking licensees and/or distributors to begin the sale of DermSafe in South America and in the EU.



Kintari Products in China:


In the thrid quarter of 2016, Kintari Int. Inc. signed an exclusive distribution agreement with InterSpace Global Inc. InterSpace Global Inc. is an exporter of "Made in USA" products and has offices in Salt Lake City, Utah and Shenzhen, China. This new agreement provides for a more efficient export of Skinvisible's products from the USA and Canada into Greater China (Includes China, Hong Kong, Macau, Taiwan, Singapore, Malaysia and Thailand). It also includes Korea.

According to the agreement, InterSpace Global Inc. will sell Kintari products to Chinese consumers through a network of online shopping malls and other channels.



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In addition to DermSafe, Skinvisible will supply its Kintari -branded portfolio of globally patented skincare products made with its Invisicare delivery technology.

The Kintari product portfolio consists of two anti-aging products to help fight the signs of aging, a broad spectrum sunscreen along with our latest Hand & Body Lotion products. All products are made with our patented Invisicare technology.

Our anti-aging products have been developed using proven anti-aging ingredients with scientific evidence of their effectiveness at reducing the look of fine lines and wrinkles resulting in youthful looking skin. These potent ingredients will be powered by patented Invisicare technology, providing consumers with unique, effective products, which we believe cannot be duplicated.

Our sunscreen is a broad spectrum SPF 30 known as Skinbrella. We completed independent testing in early 2014 to validate our broad spectrum sunscreen claims according to the labeling guidelines of the FDA, which are designed to help reduce the incidents of skin cancer in the U.S. Our claims are as follows:



    Claim # 1 - Broad-Spectrum: According to the FDA, in order for a sunscreen
     to be labeled "broad spectrum" it must prove it protects against both UVA
     and UVB rays by having an SPF (Sun Protection Factor) of at least 15 and a
     critical wave length of at least 370 nm. Our sunscreen has surpassed both
     of these criteria, allowing our broad spectrum sunscreen label to also
     state "prevents sunburn, skin cancer and aging due to the sun."

    Claim # 2 - Water-Resistant 80 Minutes: The FDA sunscreen water resistant
     claim requires that a sunscreen must have the same SPF after being in water
     or sweating for 40 or 80 minutes. Our testing was conducted at an
     independent laboratory specializing in sunscreen testing. The test involved
     human subjects that applied sunscreen to their arm, followed by the
     immersion of the arm into a Jacuzzi for 80 minutes (10 minutes in / 10
     minutes out). Our sunscreen successfully completed this testing and is
     allowed to use "Water-resistant for 80 Minutes" on its sunscreen label, the
     longest length of time allowed by the FDA.

    Claim # 3 - Unique Patented Technology / Eight-Hour Photostability: As
     previously announced, we were granted a patent from the United States
     Patent and Trademark Office entitled "Sunscreen Composition with Enhanced
     UVA Absorber Stability and Methods", which provides protection until
     November 2029. Skinvisible successfully formulated a unique Invisicare
     delivery system specifically for stabilizing avobenzone; the key sunscreen
     used in the USA. Data submitted to the US patent office proved that our
     sunscreen provides a minimum of eight hours of photostability.

Our Hand & Body Lotion is formulated with five moisturizers including aloe, shea butter, glycerin, coconut oil and jojoba oil, and to help smooth your skin the powerful antioxidant Vitamin E. These ingredients restore and nourish your skin from head to toe.

Topical and Transdermal Cannabis:

On September 15, 2016, we licensed the exclusive world rights to our topical and transdermal cannabis products formulated with Invisicare to CannaSkin, LLC, a cannabis product licensing company with international contacts in the medical marijuana industry. Skinvisible will be an ancillary business to this industry, providing Invisicare polymers and formulations to licensed producers.

CannaSkin has the exclusive license to manufacture, market and sub-license our new cannabis products. Their targets will initially include facilities in the 29 United States jurisdictions currently approved for medical marijuana. Skinvisible has successfully formulated high-quality topical and transdermal cannabinoid products containing CBD and in the near future will add THC. CBD has proven to have many therapeutic effects and it does not produce the "high" associated with THC. Cannabinoids have been used for pain management and to treat many skin conditions, from acne, eczema, psoriasis, skin cancer, to anti-aging, due to their anti-oxidant and anti-inflammatory properties. Our Invisicare technology allows for the superior binding of these products to the skin, a controlled release of the cannabinoids both topically and transdermally, as well as providing patent protection. Cannabis is being touted as a groundbreaking health solution and Skinvisible plans to bring science-based, patent protected products into this emerging market.



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Capitalize On Current Licensees:

We have: Avon Products globally and Women's Choice Pharmaceuticals in the United States.

We continue to work diligently with our licensees to ensure they have a smooth manufacturing process, ongoing R&D support and marketing feedback.



Avon Products, Inc.


Product: We have a long-term contract with Avon globally for over ten years to provide Invisicare polymer for their long-lasting lipsticks.

Sales: Invisicare polymers are purchased directly from Skinvisible.

Women's Choice Pharmaceuticals

Product: ProCort, long lasting prescription hemorrhoid cream launched in the United States August 2011. Sales and Royalties: Skinvisible receives a royalty based on net sales of ProCort. This past year Women's Choice Pharmaceuticals LLC partnered with Advanced Medical Enterprises, LLC to market ProCort in Puerto Rico. With over thirty pharmaceutical sales reps calling on OBGYNs in the US, Women's Choice has been successfully growing their sales of ProCort and we look forward to continued increased growth in 2017. Women's Choice is seeking to form other strategic alliances in order to increase its sales efforts by targeting new territories and targeting medical specialists which previously were not called upon

Additional Skinvisible Products



Sunless Tanning Products


We have developed a new sunless tanning mousse / foam which uses a unique foam with Invisicare, developed specifically for its foaming properties. This adds to Skinvisible's line of sunless tanning products which includes sunless tanning lotions (light, medium and dark), pre-sun moisturizer and after-sun moisturizer along with sunless tanning spray products for commercial use. The addition of a sunless tanning mousse enhances this line of products.



Sunscreen Products


We have developed 3 broad spectrum sunscreens, with SPF 15, 30 and 50 (the highest SPF allowed by the FDA). All are formulated with Avobenzone, the only UVA sun filter allowed under the US FDA monograph. This UVA/UVB sunscreen was granted a patent from the United States patent office in 2013. Avobenzone is known for breaking down in the sun after only two hours - thus the requirement to reapply every 2 hours. Skinvisible's patent was granted based on Invisicare's minimum 8 hour photo stability. For countries outside the United States, Skinvisible has additionally patented UVA/UVB sunscreens formulated with Tinosorb S.

Increasing The Value of Skinvisible's Pipeline:

We have a pipeline of over forty products which are available for licensing. Testing is conducted in-house generating proof of concept including release of the active ingredient as well as long term shelf life (stability). Additional studies conducted on specific products including skin sensitivity, toxicity and product efficacy are outsourced to FDA compliant laboratories. These studies are critical in attracting potential licensees. Our clinical strategy is to:



    Our clinical strategy is to find a partner for our prescription product
     portfolio. This would allow for a partner to seek FDA approval using the
     505b2 pathway for one or more of our products.

    Launch of our DermSafe hand sanitizer in Canada either under Kintari or a
     licensee. In 2013, we commissioned an independent laboratory to further
     analyze the long-term effectiveness of DermSafe when put in contact with
     two bacteria; the "super bug" MRSA and E. coli, the "restaurant bug" since
     it is often transmitted by food and food handlers. The long-term
     effectiveness of two bacteria; Methicillin-resistant Staphylococcus aureus
     or MRSA (ATCC #33591) and Escherichia coli or E. coli (ATCC #43888") were
     tested up to four hours after application. The results showed that the
     individual arms of subjects which had DermSafe applied and were even
     rinsed prior to each bacteria challenge, showed a 95.83% reduction at the 4
     hour time point for MRSA and 99.38% for E. coli. In 2013, we obtained the
     registration rights for DermSafe in Belgium. This designation allows for
     the sale and/ or registration of DermSafe in most EU countries. A strategy
     is being developed along with a larger global strategy to bring DermSafe to
     the EU and. Skinvisible has also commissioned further testing of DermSafe
     against the (Middle East Respiratory Syndrome Coronavirus (MERS-CoV); a
     SARS-like virus and the avian influenza A virus, H7N9.

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    We have developed two cannabis-based products with CBD from imported hemp
     (non-psychoactive) and will continue to develop an entire line of
     cannabis-based products which will include CBD and THC from marijuana. The
     cannabis market that Skinvisible has entered is vast and one of the fastest
     growing markets. There is a growing positive public opinion regarding the
     cannabis industry due to the increasing amount of encouraging scientific
     research proving the benefits and the increasingly supportive cannabis
     laws. The legal marijuana industry (medical and recreational) in the USA
     has reached over $6 billion in annual sales and is expected to increase to
     over $20 billion by 2020. In Canada, where the entire country is primed to
     add recreational marijuana nationally next year, the market is projected to
     reach $2.5 billion, with some future estimates at a staggering $10 to $22
     billion annually. Skinvisible is poised to be a part of this expanding
     market by providing ancillary products (Invisicare) and services. It is
     part of the ancillary cannabis market as Skinvisible does not sell or touch
     cannabis; it sells its proprietary Invisicare polymers coupled with proven
     product formulations and services to its licensees. Skinvisible will help
     bring science-based, patent protected products into this emerging industry.

Secure Additional Licensees:

We are in discussions and undergoing internal discussions with various pharmaceutical companies for licenses.

To facilitate further expansion, we are seeking an exclusive license with a proven US or global based Pharmaceutical Company for our existing Rx product formulations. The licensee would be expected to pay all costs in getting FDA approval. The licensee would pay Skinvisible for the license in milestone payments as Clinical Phases are proven.

Results of Operations for the Three Months Ended March 31, 2017 and 2016



Revenues


Our revenue from product sales, royalties on patent licenses and license fees for the three months ended March 31, 2017 was $12,512, a decrease from $28,337 for the same period ended March 31, 2016.

The decrease in revenue for the three months ended March 31, 2017 was mainly due to a reduction in product sales. We hope to achieve increased revenues for the rest of 2017, as a result of our distribution agreement with Interspace Global and our license agreement in the cannabis industry, along with our direct and online sales of Kintari products.



Cost of Revenues


Our cost of revenues for the three months ended March 31, 2017 decreased to $1,561 from the prior year period when cost of revenues was $4,627. Our cost of revenues decreased for the three months ended March 31, 2017 over the prior year period as a result of decreased product sales. We expect our cost of revenues to increase as we continue to push sales from Kintari USA and Canada.



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Gross Profit


Gross profit for the three months ended March 31, 2017 was $10,951, or approximately 88% of sales. Gross profit for the three months ended March 31, 2016 was $23,710, or approximately 83% of sales.



Operating Expenses


Operating expenses decreased to $165,177 for the three months ended March 31, 2017 from $337,787 for the same period ended March 31, 2016.

Our operating expenses for the three months ended March 31, 2017 consisted mainly of accrued salaries and wages of $95,240, consulting fees of $28,585, depreciation and amortization expenses of $14,008, rent of $12,557 and insurance of $7,301. In comparison, our operating expenses for the three months ended March 31, 2016 consisted mainly of consulting fees of $145,952, accrued salaries and wages of $93,240, accounting and audit expenses of $17,046, depreciation and amortization expenses of $14,477, salaries and wages of $11,250, rent of $10,786, travel fees of $6,245 and legal fees of $6,228.



Interest Expense


We had interest expense of $324,758 for the three months ended March 31, 2017, compared with other expenses of $315,276 for the three months ended March 31, 2016.

We expect to continue to experience high interest payments in the future as a result of our outstanding liabilities. Moreover, as of the date of this report, there are a number of secured promissory notes with an aggregate principal amount of approximately $3,444,010 that have matured. In addition, we also have a number of unsecured promissory notes with an aggregate principal amount of $144,880 that have matured. If we are unable to generate sufficient revenues and/or additional financing to service this debt, there is a risk the lenders will call the notes, secure our assets, as to those applicable secured notes, and demand payment. If this happens, we could go out of business.



Net Loss


We recorded a net loss of $478,984 for the three months ended March 31, 2017, as compared with a net loss of $629,353 for the three months ended March 31, 2016.

Liquidity and Capital Resources

As of March 31, 2017, we had total current assets of $90,077 and total assets in the amount of $321,834. Our total current liabilities as of March 31, 2017 were $6,882,887. We had a working capital deficit of $6,792,810 as of March 31, 2017.

Operating activities used $27,344 in cash for the three months ended March 31, 2017, as compared with $77,500 for the three months ended March 31, 2016. Our net loss of $478,984 was the main component of our negative operating cash flow for the three months ended March 31, 2017, offset mainly by an increase in accounts payable and accrued liabilities of $165,322, amortization of debt discount of $167,247, an increase in accrued interest of $76,722 and stock based compensation of $24,000. Our net loss of $629,353 was the main component of our negative operating cash flow for the three months ended March 31, 2016, offset mainly by amortization of debt discount of $162,890, an increase in accounts payable and accrued liabilities of $183,921 and stock based compensation of $133,445.

Cash flows provided by financing activities during the three months ended March 31, 2017 amounted to $27,930, as compared with $77,500 for the three months ended March 31, 2017. Our cash flows for the three months ended March 31, 2017 consisted of $15,000 in proceeds from convertible notes payable and $2,930 in related party debt. Our cash flows for the three months ended March 31, 2016 consisted of $83,000 in proceeds from convertible notes payable, $57,000 in proceeds from notes payable and $9,000 in related party loans, offset by $47,500 in payments on convertible notes payable and $24,000 on notes payable.



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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 March 31, 2017, 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.

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 $30,361,183 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.

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



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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 March 31, 2017, the Company had not recorded a reserve for doubtful accounts. The Company has $1,000,000 in convertible notes payable which are secured by the accounts receivable of a license agreement the Company has with Women's Choice Pharmaceuticals, LLC on its proprietary prescription product, ProCort.

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.




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