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 develop innovative polymer delivery vehicles and related compositions that hold active ingredients on the skin for extended periods of time when applied topically. We designed a process for combining water soluble and insoluble polymers that is specifically formulated to carry water insoluble active ingredients in water-based products without the use of alcohol, silicones, waxes, or other organic solvents. This enables active agents the ability to perform their intended functions for an extended period of time. Our polymer delivery vehicles, trademarked Invisicare®, allow normal skin respiration and perspiration. The polymer compositions we develop wear off as part of the natural exfoliation process of the skin's outer layer cells.

We believe Invisicare® offers the following benefits:

††† Displays superior skin adherence for extended time periods

††† Non-occlusive yet resists water wash-off, respiration and perspiration

††† Increased efficacy of active ingredients

††† Allows for lower use levels of actives with increased persistence of effect

††† Offers advantage of controlled and/or sustained time-release

††† Highly compatible with a variety of actives and bases

††† Easy to emulsify

††† Formulates well at a cream, lotion, or spray viscosity

††† Non-irritating emulsion dries quickly with no greasy after-feel

††† Non-occlusive film forms protective barrier against environmental irritants

††† Broad polymer selection to meet application requirements

††† Offers "Life Cycle" management to core products with potential for new patent

††† Simplified manufacturing process

Products that successfully incorporate Invisicare to date include antimicrobial hand sanitizer lotions, suncare products, skincare moisturizers, sunless tanning products as well as various dermatology products for various skin disorders. On an ongoing basis, we are seeking to develop polymer formulations that can successfully be incorporated into other products.

Our primary objective is to license Invisicare to established brand manufacturers and marketers of prescription and over-the-counter products in the dermatological, medical, cosmetic, and skincare markets. With the exception of sales to one vendor, our management's policy is to only sell Invisicare to vendors that have executed a license agreement with us. We conduct our research and development in-house. We engage an outside party that currently handles all of our manufacturing and distribution needs.

Recent Developments

Our core business is the research and development of products formulated with our patented technology Invisicare. This year we have added a strategic focus on the sale and marketing of these products and developing new Invisicare technologies. Our focus has allowed us to expand our reputation amongst key dermatology, consumer goods and medical/surgical companies around the globe. It has also allowed us to branch out beyond dermatology into other medical areas that require topically delivered products.

Product Developments

We intend to expand our product offerings. Currently we have over 30 topical products formulated with Invisicare available for licensing. Our products range from acne formations to sunscreens to surgical products. A key addition to our portfolio in 2008 was our UVA/UVB sunscreen with Parsol 1789. Parsol 1789 is the most used UVA filter in sunscreens in the US and the only ingredient approved by the US FDA that is not proprietary. Our studies show a minimum of eight hour photostability compared to the industry average of two hours. In addition, most sunscreens, even those that indicate they are water resistant, do not remain on the skin after swimming. With our Invisicare technology, sunscreens remain on the skin for 8 to 12 hours and resist wash-off and rub-off. For the international market, we have developed new sunscreens using a proprietary sunscreen UVA filter from CIBA Specialty Chemicals called Tinasorb. While this ingredient is not yet approved for sale in the US, it is used internationally and we are working with sunscreen companies in Europe and Latin America on this new development.

On April 28th we announced that we have developed a hand sanitizing lotion that has proven effective in killing the H1N1 swine flu virus. Retroscreen Virology of London England conducted the studies with our hand sanitizer lotion called DermSafe. The product demonstrated it had a greater than 99.99 % inactivation/kill on the H1N1 swine flu virus.

Previously on April 24th the World Health Organization (WHO) issued its first report on the H1N1 swine flu virus in the United States. Then on April 27th they raised the pandemic threat to a phase 4 - "sustained human to human transmission". The Center for Disease Control states that the virus spreads the same way the regular flu does; "Flu viruses are spread mainly from person to person through coughing or sneezing of people with influenza. Sometimes people may become infected by touching something with flu viruses on it and then touching their mouth or nose." On June 11, 2009, WHO raised their pandemic threat to a Phase 6 - "the virus is contagious, spreading easily from one person to another and from one country to another." On the same date over 30,000 cases were confirmed in 74 countries. Less than one month later, the confirmed cases tripled in number to over 94,000, and the number continues to grow. Since that date the WHO has estimated that over 1/3 of the world's population (over 2 billion people) will come done with the disease while the CDC in the US estimates that over 40% of the US population will come down with the disease (over 120 million people).

We have a series of studies demonstrating that DermSafe kills a host of viruses and bacteria, including several influenza viruses such as H1N1 ("swine flu"), H3N2 and H5N1 ("avian bird flu virus"). The active ingredient in DermSafe is chlorhexidine, which has been used in hospitals worldwide for over fifty years as a pre-surgical hand scrub. DermSafe is available for licensing both commercially in healthcare and food services as well as for personal use (retail) worldwide. DermSafe has been approved for distribution by Health Canada and the company is implementing a plan to seek FDA approval in the US and worldwide.

Patent Developments

We intend to continually generate new patents (intellectual property) on our dermatology and medical products. Every product we formulate is protected by one or more patents. Patent approvals are sought (initially in the U.S. and later internationally) for all products developed. Currently there are 5 patents approved including the US (3), Australia, India, Japan and China with 9 U.S. patents pending in addition to 34 PCT's internationally, with more to be filed. Some of these PCT patents cover up to 5 products. All patents with Invisicare are owned by Skinvisible.

Patent protection is important to our company. Pharmaceutical companies are pursuing new or improved revenue streams along with protecting their own intellectual properties. Invisicare allows companies to sell a patent-protected product that has been revitalized with new benefits, giving them a new story to help combat generic competitors. A prescription dermatology product can generate $100 plus million per year; some even $200 plus million - and that is why we believe the investment into a license with an Invisicare formulation is a very viable option for these companies.

We continue to submit for patent protection worldwide for products formulated with Invisicare.

License Agreements

Our current licensees: JD Nelson with Safe4Hours®, DRJ Group with Stopain® and Sunless Beauty with Solerra® all remain focused on expanding their markets in the US and Solerra globally. In 2008, we added two new licensees. Our first addition was for two acne formulations made with adapalene for Panalab Internacional S.A. for the territory of Latin America. Panalab is a multi-national dermatology company headquartered in Panama with subsidiaries and partners in most Latin American countries. Under the terms of the agreement, Panalab will be responsible for filing and obtaining marketing approval in the countries they have licensed. We received a research and development fee plus a licensing fee allocated as an upfront fee plus milestone payments. In addition, we will receive royalties based on revenues generated by the sale of the products. According to the agreement, Panalab will have the right to manufacture, distribute, market, sell and promote the Adapalene formulations in the specified territory. Panalabs expect to receive regulatory government approval in the fall of 2009 and be selling in the spring of 2010.

In addition, two more prescription acne products (clindamycin and retinoic acid) were licensed to Embil Pharmaceuticals for Turkey, parts of Asia (Indonesia, Malaysia, and the Philippines) and Azerbaijan, Kazakhstan, Kyrgyzstan, Turkmenistan, and Uzbekistan. Embil is a multi-national dermatology company headquartered in Instanbul, Turkey with subsidiaries and partners in S.E. Asia. Under the terms of the agreement, Embil will be responsible for filing and obtaining marketing approval in the countries they have licensed. We have received a research and development fee plus a licensing fee allocated as an upfront fee plus milestone payments. In addition, we will receive royalties based on revenues generated by the sale of the products. According to the agreement, Embil will have the right to manufacture, distribute, market, sell and promote the Clindamycin HCL and Retinoic Acid formulations for acne in the specified territory.

In January 2009, we signed an agreement with RHEI Pharmaceuticals NV, a Belgium based pharmaceutical company that in-licenses pharmaceutical products for sale in China. This agreement gives RHEI the first option to license the exclusive rights for Skinvisible's dermatology products for the territory of China, Hong Kong and Taiwan. Specifically the agreement is for over-the-counter and prescription dermatology products formulated with Invisicare that have been approved in a reference country. As part of the agreement, RHEI will augment its existing product lines by seeking approval and then marketing and manufacturing Skinvisible's Invisicare dermatology products in the approved territory.

The Chinese pharmaceutical market represents a huge opportunity with an estimated $22.6 billion spent on pharmaceutical drugs in 2007 and growing at an annual rate of nearly 20%. To address this huge growth, the Chinese government has implemented a more effective approval process, one that fits advantageously into the strategic plans of both Skinvisible and RHEI.

Status of Research and Development for New Applications

We believe that the enhancement and extension of our existing products and the development of new product categories have contributed significantly to our growth to date and are necessary for our continued growth. Our management evaluates new ideas and seeks to develop new products and improvements to existing products to satisfy industry requirements and changing consumer preferences. We seek to identify trends in consumer preferences and to generate new product ideas. Specific to the objective of generating new products, we are continuing our research and development toward developing additional applications with Invisicare. We are currently at various development stages for the following potential applications using Invisicare:

Skinvisible's Formulas with                           [[Image Removed: graphic2]]
Invisicare:
         ACTIVE INGREDIENT                TYPE         Availability      Patent
Acne
 Adapalene Cream & Gel (0.1% & 0.3%)              Rx             yes*       pending
Clindamycin Hydrochloride Cream (1%)              Rx             yes*       pending
          Retinoic Acid Cream (0.1%)              Rx             yes*       pending
       Benzoyl Peroxide (2.5%) Cream        Rx / OTC   In development       pending
Actinic Keratosis
           Imiquimod Lotion (2%, 3%)              Rx              yes       pending
Analgesics
Topical Spray with Menthol (6% & 8%)             OTC              yes    technology
  Topical Roll-On with Menthol (6% &
                                 8%)             OTC              yes    technology
 Topical Cream with Salicylate (10%)             OTC              yes    technology
Anti-Aging
                Retinol Cream (0.3%)        Cosmetic              yes    technology
Anti-Fungal
         Terbinafine Cream, Gel (1%)             OTC              yes       pending
                Naftifine Cream (1%)              Rx              yes       pending
Naftifine (1%) & Hydrocortisone (1%)
                               Cream              Rx              yes       pending
             Clotrimazole Cream (1%)             OTC              yes       pending
Anti-Inflammatory
           Hydrocortisone Cream (1%)             OTC              yes    technology
                  Triamcinolone (1%)              Rx              yes    technology
        Triamcinolone Acetonide (1%)              Rx              yes    technology
     Clobetasole Proprionate (0.05%)              Rx      in-progress    technology
                  Betamethasone (1%)              Rx              yes    technology
Antimicrobial Lotions
          Triclosan Lotion (1%) with                             yes*
                         Nonoxynol-9             OTC                        granted
  Triclosan Lotion (1%) with Tomadol                             yes*
                                 901             OTC                        granted
Benzalkonium Chloride Lotion (0.13%)             OTC             yes*       granted
 Chlorhexidine Gluconate Lotion (4%)       OTC / NDA              yes       pending
        Chlorhexidine Gluconate (2%)
                   Pre-Surgical Prep             NDA              yes       pending
Atopic Dermatitis / Super
Moisturizers
     Non-Steroidal Atopic Dermatitis
            Cream 1% Hyaluronic Acid   Rx / Cosmetic              yes    technology
         Skin Protectant Lotion with
                      Allantoin (1%)             OTC              yes    technology
       Super Moisturizer with Ectoin        Cosmetic              yes    technology
        Urea Moisturizer (25% & 30%)        Cosmetic              yes    technology
UVA / UVB Sunscreen
      Parsol 1789 - SPF 15 / 30 / 50
                              Lotion             OTC              yes       pending
Tinosorb S - SPF 15 / 30 / 50 Lotion             OTC              yes       pending
Other
         Scar Lotion with Onion Bulb        Cosmetic              yes    technology
        Fragrance - Long Lasting Gel        Cosmetic              yes    technology
  Long-lasting Sunless Tanner (2.5%,
                            5% & 9%)        Cosmetic              yes    technology
              After Sun (Aloe) Cream        Cosmetic              yes    technology

*some territories already licensed

Results of Operations for the Three and Six Months Ended June 30, 2009 and 2008

Revenues

Our total revenue reported for the three months ended June 30, 2009 was $69,023, compared to $181,953 for the three months ended June 30, 2008. Our total revenue reported for the six months ended June 30, 2009 was $146,976, compared to $331,364 for the six months ended June 30, 2008. The decrease in revenues for the three and six months ended June 30, 2009 from the prior periods is attributable to decreased revenue on license fees.

Cost of Revenues

Our cost of revenues for the three months ended June 30, 2009 increased to $14,139 from the prior period when cost of revenues was $10,674. Our cost of revenues for the six months ended June 30, 2009 increased to $15,560 from the prior period when cost of revenues was $5,798. The increase in our cost of revenues for the three and six months ended June 30, 2009 from the prior periods is attributable to the revenue base being mainly polymer sales and not licence fees, which have no cost of goods to them.

Gross Profit

Gross profit for the three months ended June 30, 2009 was $54,884, or approximately 80% of sales. Gross profit for the three months ended June 30, 2008 was $171,279, or approximately 94% of sales. The decrease in total gross profit for the three and six months ended June 30, 2009 from the prior periods is attributable to the increase in cost of revenues.

Operating Expenses

Operating expenses decreased to $454,884 for the three months ended June 30, 2009 from $565,615 for the three months ended June 30, 2008. Our operating expenses for the three months ended June 30, 2009 consisted of depreciation and amortization expenses of $4,003 and selling, general and administrative expenses of $450,881. Our operating expenses for the three months ended June 30, 2008 consisted of depreciation and amortization expenses of $4,424, and selling, general and administrative expenses of $565,615.

Operating expenses decreased to $835,137 for the six months ended June 30, 2009 from $1,230,533 for the three months ended June 30, 2008. Our operating expenses for the six months ended June 30, 2009 consisted of depreciation and amortization expenses of $8,007 and selling, general and administrative expenses of $827,130. Our operating expenses for the six months ended June 30, 2008 consisted of depreciation and amortization expenses of $9,779, and selling, general and administrative expenses of $1,230,533.

Other Expenses

We paid more in interest expenses for the three months ended June 30, 2009 than in the prior period ended 2008, resulting in total other expenses of $113,563 as compared with $54,321 for the prior period. We paid less in interest expenses for the six months ended June 30, 2009 than in the prior period ended 2008, resulting in total other expenses of $175,900 as compared with $216,744 for the prior period.

Net Loss

Net loss for the three months ended June 30, 2009 was $513,563, compared to net loss of $448,657 for the three months ended June 30, 2008. Net loss for the six months ended June 30, 2009 was $879,621, compared to net loss of $1,121,711 for the six months ended June 30, 2008.

Liquidity and Capital Resources

As of June 30, 2009, we had total current assets of $115,702 and total assets in the amount of $195,938. Our total current liabilities as of June 30, 2009 were $746,484. We had a working capital deficit of $630,782 as of June 30, 2009.

Operating activities used $80,500 in cash for six months ended June 30, 2009. Our net loss of $879,621 combined with a decrease in unearned revenue of $50,000 was the primary component of our negative operating cash flow, offset mainly by stock based compensation of $354,881, decrease in prepaid royalty fees of $120,000, interest expenses paid with common stock of $292,657, and increase in accounts payable and accrued liabilities of $91,094. There were no cash flows used or provided by investing activities during the six months ended June 30, 2009. Cash flows provided by financing activities during the six months ended June 30, 2009 amounted to $74,915 and consisted of $59,051 as proceeds from the issuance of convertible notes payable, $15,000 as proceeds from the issuance of stock, and $864 as proceeds from related party loans.

In order to preserve needed cash to operate our business, we have sought to and have been successful in converting certain of our debt into equity of our company. During the six months ended June 30, 2008, a total of $251,000 represented by loans, accrued compensation and expenses, has been converted into equity under various rates and terms. We can provide no assurance that we will be able to convert other debt in our company under similar arrangements, or at all, in the future. If we are unable to convert our debt into equity, or raise capital to cover our liabilities, we may not be able to continue as a going concern.

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 June 30, 2009, there were no off balance sheet arrangements.

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 approximately $17,817,346 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 the 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. Our consolidated financial statements do not include any adjustments that may result from the outcome of these aforementioned uncertainties.

Critical Accounting Policies

In December 2001, the SEC requested that all registrants list their three to five 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. We believe that the following accounting policies fit this definition.

Revenue Recognition

Revenues are recognized during the period in which the revenues are earned. Costs and expenses are recognized during the period in which they are incurred.

Product sales - Revenues from the sale of products 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 - The Company also recognizes royalty revenue from licensing its patent and trademarks, 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 - The Company also recognizes revenue from distribution and license rights 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.

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.

Fixed Assets

Fixed assets are stated at cost less accumulated depreciation. Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets, which are generally 3 to 10 years. The cost of repairs and maintenance is charged to expense as incurred. Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in other income (expense).

We periodically evaluate whether events and circumstances have occurred that may warrant revision of the estimated useful life of fixed assets or whether the remaining balance of fixed assets should be evaluated for possible impairment. We use an estimate of the related undiscounted cash flows over the remaining life of the fixed assets in measuring their recoverability.

Goodwill and Intangible Assets

Beginning January 1, 2002, we adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets". According to . . .