UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-QSB
|
[X]
|
Quarterly
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934
|
|
For
the quarterly period ended March
31, 2007
|
|
|
[
]
|
Transition
Report pursuant to 13 or 15(d) of the Securities Exchange Act of
1934
|
|
For
the transition period __________
to __________
|
|
|
Commission
File Number: 000-25911
|
Skinvisible,
Inc.
(Exact
name of small business issuer as specified in its charter)
|
Nevada
|
88-0344219
|
|
|
(State
or other jurisdiction of incorporation or
organization)
|
(IRS
Employer Identification No.)
|
|
|
6320
South Sandhill Road Suite 10, Las Vegas, Nevada
89120
|
|
(Address
of principal executive offices)
|
|
702-433-7154
|
|
(Issuer’s
telephone number)
|
|
_______________________________________________________________
|
|
(Former
name, former address and former fiscal year, if changed since last
report)
|
Check
whether the issuer (1) filed all reports required to be filed by Section
13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or
for such shorter period that the issuer was required to file such reports),
and
(2) has been subject to such filing requirements for the past 90 days [X]
Yes [
] No
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). [ ] Yes [X] No
State
the
number of shares outstanding of each of the issuer’s classes of common stock, as
of the latest practicable date: 64,711,248 common shares as of March 31,
2007.
Transitional
Small Business Disclosure Format (check one): Yes [ ] No [X]
 |
Page
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|
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PART
I - FINANCIAL INFORMATION
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||
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PART
II - OTHER INFORMATION
|
||
PART
I - FINANCIAL INFORMATION
Item
1. Financial
Statements
|
Our
unaudited consolidated
financial statements included in this Form 10-QSB are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These
unaudited consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and the SEC instructions to Form 10-QSB.
In
the opinion of management, all adjustments considered necessary for a fair
presentation have been included. Operating results for the interim period
ended
March 31, 2007 are not necessarily indicative of the results that can be
expected for the full year.
SKINVISIBLE,
INC.
CONSOLIDATED
BALANCE SHEET
|
ASSETS
|
March
31, 2007
|
|
| Current assets | ||
|
Cash
|
$
|
4,116
|
|
Accounts
receivable
|
48,536
|
|
|
Inventory
|
33,141
|
|
|
Due
from related party
|
1,119
|
|
|
Prepaid
expense and other current assets
|
25,486
|
|
|
Total
current assets
|
112,398
|
|
| Fixed assets, net |
27,538
|
|
| Intangible and other assets | ||
|
Patents
and trademarks, net
|
43,273
|
|
|
License
and distributor rights
|
50,000
|
|
|
Prepaid
royalty fees
|
600,000
|
|
| Total assets |
$
|
833,209
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
||
| Current liabilities | ||
|
Accounts
payable and accrued liabilities
|
$
|
440,020
|
|
Loans
from related party
|
95,976
|
|
|
Unearned
revenue
|
750,000
|
|
|
Total
current liabilities
|
1,285,996
|
|
| Long-term liabilities |
--
|
|
| Total liabilities |
1,285,996
|
|
| Commitments and contingencies |
--
|
|
| Stockholders' deficit | ||
|
Common
stock; $0.001 par value; 100,000,000 shares
64,711,248
shares issued and outstanding
|
64,711
|
|
|
Additional
paid-in capital
|
13,411,094
|
|
|
Stock
subscription receivable
|
35,000
|
|
|
Accumulated
other comprehensive loss
|
(909)
|
|
|
Accumulated
deficit
|
(13,962,683)
|
|
|
Total
stockholders' deficit
|
(452,787)
|
|
| Total liabilities and stockholders' equity |
$
|
833,209
|
See Accompanying Report of Independent Registered
Public Accounting Firm and Notes in Consolidated Financial
Statements
|
For
the three months ended
March
31, 2007
|
For
the three months ended
March
31, 2006
(Restated)
|
||||
|
Revenues
|
$
|
183,316
|
$
|
235,167
|
|
|
Cost
of revenues
|
10,154
|
21,321
|
|||
|
Gross
profit
|
173,162
|
213,846
|
|||
|
Operating
expenses
|
|||||
|
Depreciation
and amortization
|
64,671
|
66,692
|
|||
|
Selling
general and administrative
|
381,248
|
1,237,040
|
|||
|
Total
operating expenses
|
445,919
|
1,303,732
|
|||
|
Loss
before provision for income taxes
|
(272,757)
|
|
(1,089,886)
|
||
|
Other
income (expense)
|
--
|
--
|
|||
|
Total
other income (expense)
|
--
|
--
|
|||
|
Provision
for income taxes
|
--
|
--
|
|||
|
Net
loss
|
$
|
(272,757)
|
|
$
|
(1,089,886)
|
|
Other
comprehensive income (loss)
|
|||||
|
Foreign
currency translation adjustment
|
(237)
|
|
--
|
||
|
Comprehensive
loss
|
$
|
(272,994)
|
|
$
|
(1,089,886)
|
|
Basic
income (loss) per common share
|
$
|
(0.00)
|
|
$
|
(0.02)
|
|
Diluted
income (loss) per common share
|
$
|
(0.00)
|
|
$
|
(0.02)
|
|
Basic
weighted average common shares
outstanding
|
64,711,248
|
59,141,998
|
|||
See Accompanying Report of Independent
Registered
Public Accounting Firm and Notes in Consolidated Financial
Statements
SKINVISIBLE,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
For
the three months ended
March
31, 2007
|
For
the three months ended
March
31, 2006
(Restated)
|
||||
| Cash flows from operating activities: | |||||
|
Net
loss
|
$
|
(272,757)
|
|
$
|
(1,089,886)
|
|
Adjustments
to reconcile net loss to net
cash
provided (used) by operating activities:
|
|||||
|
Depreciation
and amortization
|
64,671
|
66,393
|
|||
|
Stock
based compensation
|
49,475
|
839,141
|
|||
|
Changes
in operating assets and liabilities:
|
|||||
|
Change
in inventory
|
(10,239)
|
|
13,923
|
||
|
Change
in accounts receivable
|
(43,655)
|
|
(51,159)
|
||
|
Change
in prepaid expenses and other current assets
|
475
|
382
|
|||
|
Change
in related party receivable
|
--
|
4,551
|
|||
|
Change
in accounts payable and accrued liabilities
|
140,727
|
65,669
|
|||
|
Change
in unearned revenue
|
(100,000)
|
|
58,000
|
||
|
Net
cash provided (used) by operating activities
|
(171,303)
|
|
(92,986)
|
||
| Cash flows from investing activities: | |||||
|
Purchase
of fixed assets and untangible assets
|
(4,662)
|
|
--
|
||
|
Net
cash used by investing activities
|
(4,662)
|
|
--
|
||
| Cash flows from financing activities: | |||||
|
Proceeds
from related party loans
|
70,248
|
-
|
|||
|
Proceeds
from stock subscription receivable
|
35,000
|
4,500
|
|||
|
Purchase
of treasury stock
|
--
|
||||
|
Proceeds
from issuance of common stock
|
25,000
|
137,750
|
|||
|
Net
cash provided by financing activities
|
130,248
|
142,250
|
|||
| Efect of exchange rate changes on cash and assets |
(237)
|
|
-
|
||
| Net change in cash |
(45,954)
|
|
49,264
|
||
| Cash, beginning of period |
50,070
|
30,729
|
|||
| Cash, end of period |
$
|
4,116
|
$
|
79,993
|
|
See Accompanying Report of Independent Registered
Public Accounting Firm and Notes in Consolidated Financial
Statements
| 1. |
DESCRIPTION
OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
|
The
accompanying unaudited financial statements have been prepared in accordance
with Securities and Exchange Commission requirements for interim financial
statements. Therefore, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States
for
complete financial statements. The financial statements should be read in
conjunction with the Form 10-KSB for the year ended December 31, 2006 of
Skinvisible, Inc. (the "Company").
The
interim financial statements present the balance sheet, statements of operations
and cash flows of the Company. The financial statements have been prepared
in
accordance with accounting principles generally accepted in the United States.
The
interim financial information is unaudited. In the opinion of management,
all
adjustments necessary to present fairly the financial position as of March
31,
2007 and the results of operations and cash flows presented herein have been
included in the financial statements. Interim results are not necessarily
indicative of results of operations for the full year.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Description
of business -
Skinvisible, Inc., (referred to as the “Company”) is focused on the development
and manufacture of innovative topical polymer-based delivery system technologies
and formulations incorporating its patent-pending formula/process for combining
hydrophilic and hydrophobic polymer emulsions. The technologies and formulations
have broad industry applications within the pharmaceutical, over-the-counter,
personal skincare and cosmetic arenas. The Company’s antibacterial/antimicrobial
hand sanitizer formulations, available for private label commercialization
opportunities, offer skincare solutions for the healthcare, food service,
industrial, cosmetic and salon industries, as well as for personal use in
the
retail marketplace. The Company maintains manufacturing, executive and sales
offices in Las Vegas, Nevada.
History
-
Skinvisible, Inc. ( referred to as the “Company”) was incorporated in Nevada on
March 6, 1998 under the name of Microbial Solutions, Inc. The Company underwent
a name change on February 26, 1999, when it changed its name to Skinvisible,
Inc. The Company’s subsidiary’s name of Manloe Labs, Inc. was also changed to
Skinvisible Pharmaceuticals, Inc.
Skinvisible,
Inc. together with its subsidiaries shall herein be collectively referred
to as
the “Company”.
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 approximately $13,962,000 since its inception and requires capital for
its
contemplated operational and marketing activities to take place. The company’s
ability to raise additional capital through the future issuances of the common
stock 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. The ability to successfully resolve
these factors raise 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.
Principles
of consolidation -
The
consolidated financial statements include the accounts of the Company and
its
subsidiaries. All significant intercompany balances and transactions have
been
eliminated.
Definition
of fiscal year -
The
Company’s fiscal year end is December 31.
SKINVISIBLE,
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
| 1. |
DESCRIPTION
OF BUSINESS AND SUMMARY OF SIGNIFICANT POLICIES (continued)
|
Use
of
estimates -
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the consolidated financial statements and the reported amounts of revenue
and
expenses during the reporting period. Actual results could differ from those
estimates.
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.
Inventory
-
Substantially all inventory consist of finished goods and are valued based
upon
first-in first-out ("FIFO") cost, not in excess of market. The determination
of
whether the carrying amount of inventory requires a write-down is based on
an
evaluation of inventory.
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).
The
Company periodically evaluates 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. The Company uses 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, the Company adopted Statement of Financial Accounting
Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”. According to
this statement, goodwill and intangible assets with indefinite lives are
no
longer subject to amortization, but rather an annual assessment of impairment
by
applying a fair-value based test. Fair value for goodwill is based on discounted
cash flows, market multiples and/or appraised values as appropriate. Under
SFAS
No. 142, the carrying value of assets are calculated at the lowest level
for
which there are identifiable cash flows.
SFAS
142
requires the Company to compare the fair value of the reporting unit to its
carrying amount on an annual basis to determine if there is potential
impairment. If the fair value of the reporting unit is less than its carrying
value, an impairment loss is recorded to the extent that the fair value of
the
goodwill within the reporting unit is less than its carrying value. Upon
adoption and during 2002, the Company completed an impairment review and
did not
recognize any impairment of goodwill and other intangible assets already
included in the financial statements. The Company expects to receive future
benefits from previously acquired goodwill over an indefinite period of time.
Accordingly, beginning January 1, 2002, the Company has foregone all related
amortization expense. Prior to January 1, 2002, the Company amortized goodwill
over an estimated useful life ranging from 3 to 15 years using the straight-line
method.
Fair
value of financial instruments -
Financial accounting standards Statement No. 107, “Disclosure About Fair Value
of Financial Instruments”, requires the Company to disclose, when reasonably
attainable, the fair market values of its assets and liabilities which are
deemed to be financial instruments. The carrying amounts and estimated fair
values of the Company’s financial instruments approximate their fair value due
to the short-term nature.
Income
taxes -
The
Company accounts for its income taxes in accordance with Statement of Financial
Accounting Standards No. 109, which requires recognition of deferred tax
assets
and liabilities for future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities
and
their respective tax bases and tax credit carry-forwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to
be recovered or settled. The effect on deferred tax assets and liabilities
of a
change in tax rates is recognized in income in the period that includes the
enactment date.
F-5
SKINVISIBLE,
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
| 1. |
DESCRIPTION
OF BUSINESS AND SUMMARY OF SIGNIFICANT POLICIES (continued)
|
Comprehensive
income (loss) -
The
Company has no components of other comprehensive income. Accordingly, net
loss
equals comprehensive loss for all periods.
Segment
information -
The
Company discloses segment information in accordance with Statements of
Financial
Accounting Standards (SFAS) No. 131, “Disclosures about Segments of an
Enterprise and Related Information,” which uses the Management approach to
determine reportable segments. The Company operates under one segment.
Advertising
costs -
Advertising costs incurred in the normal course of operations are expensed
as
incurred. During the quarters ended March 31, 2007 and 2006, the Company
incurred advertising costs totaling $4,261 and $15,860, respectively.
Research
and development costs -
Research and development costs are charged to expense when incurred. Costs
incurred to internally develop the product, including costs incurred during
all
phases of development, are charged to expense as incurred.
Expenses
of offering -
The
Company accounts for specific incremental costs directly to a proposed
or actual
offering of securities as a direct charge against the gross proceeds of
the
offering.
Stock-based
compensation -
On
January 1, 2005, the Company adopted SFAS No. 123 (R) “Share-Based Payment”
which requires the measurement and recognition of compensation expense
for all
share-based payment awards made to employees and directors including employee
stock options and employee stock purchases related to a Employee Stock
Purchase
Plan based on the estimated fair values.
The
Company adopted SFAS No. 123(R) using the modified prospective transition
method, which required the application of the accounting standard as of
January
1, 2005. The accompanying consolidated financial statements as of and for
the
period ended March 31, 2007 reflect the impact of SFAS No. 123(R). Stock
based
compensation expense recognized under SFAS No. 123(R) for the periods ended
March 31, 2007 and 2006 totaled $44,377and $839,171 respectively.
Earnings
(loss) per share
-Basic
earnings (loss) per share exclude any dilutive effects of options, warrants
and
convertible securities.
Basic
earnings (loss) per share is computed using the weighted-average number
of
outstanding common stocks during the applicable period. Diluted earnings
per
share is computed using the weighted-average number of common stock equivalent
shares outstanding during the period. Common stock equivalent shares are
excluded from the computation if their effect is antidilutive.
Recent
accounting pronouncements
- In
June 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109" (FIN 48), which clarifies the
accounting for uncertainty in tax positions. This Interpretation requires
that
we recognize in our financial statements the benefit of a tax position
if that
position is more likely than not of being sustained on audit, based on
the
technical merits of the position. The provisions of FIN 48 become effective
as
of the beginning of our 2008 fiscal year, with the cumulative effect of
the
change in accounting principle recorded as an adjustment to opening retained
earnings. We are currently evaluating the impact that FIN 48 will have
on our
financial statements.
In
September 2006, the FASB issued Statement No. 157, "Fair Value Measurements"
(FAS 157), which defines fair value, establishes a framework for measuring
fair
value, and expands disclosures about fair value measurements. The provisions
of
FAS 157 become effective as of the beginning of our 2009 fiscal year. We
are
currently evaluating the impact that FAS 157 will have on our financial
statements.
SKINVISIBLE,
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
| 1. |
DESCRIPTION
OF BUSINESS AND SUMMARY OF SIGNIFICANT POLICIES (continued)
|
In
September 2006, the FASB issued Statement No. 158 “Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans (“SFAS 158”). SFAS 158
requires companies to recognize the over funded or under funded status
of a
defined benefit postretirement plan as an asset or liability in its statement
of
financial position and to recognize changes in that funded status in
the year in
which the changes occur through comprehensive income. SFAS 158 requires
companies to measure the funded status of a plan as of the date of its
year-end
statement of financial position, with limited exceptions. The Company
adopted
SFAS 158 effective for the fiscal year ending December 31, 2006. Adoption
of
this statement had no impact on the Company’s financial position or results of
operations.
In
September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 108, "Considering the Effects of Prior Year Misstatements
when
Quantifying Misstatements in Current Year Financial Statements" (SAB 108),
which
addresses how to quantify the effect of financial statement errors. The
provisions of SAB 108 become effective as of the end of our 2007 fiscal
year. We
do not expect the adoption of SAB 108 to have a significant impact on our
financial statements.
In
February 2007, the FASB issued Statement No. 159, "The Fair Value Option
for
Financial Assets and Financial Liabilities, including an amendment of FASB
Statement No. 115" (FAS 159). FAS 159 permits companies to choose to measure
many financial instruments and certain other items at fair value that are
not
currently required to be measured at fair value and establishes presentation
and
disclosure requirements designed to facilitate comparisons between companies
that choose different measurement attributes for similar types of assets
and
liabilities. The provisions of FAS 159 become effective as of the beginning
of
our 2009 fiscal year. We are currently evaluating the impact that FAS 159
will
have on our financial statements.
| 2. |
FIXED
ASSETS
|
Fixed
assets consist of the following as of March 31, 2007:
| Machinery and equipment | $ | 55,463 |
| Furniture and fixtures | 113,635 | |
| Computers, equipment and software | 41,880 | |
| Leasehold improvements | 12,569 | |
| Lab equipment | 115,946 | |
| 339,493 | ||
| Less: accumulated depreciation | 311,955 | |
| Fixed assets, net | $ | 27,538 |
SKINVISIBLE,
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
| 3. |
INTANGIBLE
AND OTHER ASSETS
|
Patents
and trademarks are capitalized at its historical cost and are amortized over
their useful lives. As of March 31, 2007, patents and trademarks total $74,894,
net of accumulated amortization of $31,621.
License
and distributor rights (“agreement”) was acquired by the Company in January 1999
and provides exclusive use distribution of polymers and polymer based products.
The Company has a non-expiring term on the license and distribution rights.
Accordingly, the Company annually assesses this license and distribution
rights
for impairment and has determined that no impairment write-down is considered
necessary as of March 31, 2007.
Prepaid
royalties fees are amounts prepaid by the Company related to the license
and
distributor rights. The future royalties payments required by the Company
total
$2,000,000. The royalty fees are to be paid at the equal to the greater of
(a)
$6,000 per month; or (b) 1.5% of net revenues realized by the sale of the
associated polymer products subject to a cap of $2,000,000. The Company will
make payments of $6,000 per month, and by a payment on any royalties in excess
of $72,000 in each year payable on annual basis calculated within 60 days
of
each anniversary date of the agreement. As of March 31, 2007, the Company
has
paid a total of $1,848,000 and accrued a total of $24,000 in accounts payable
of
which a total of $1,248,000 has been expensed and $600,000 has been recorded
as
prepaid royalties which will be expensed in the future in accordance to the
terms of the agreement. The remaining future royalty payments related to
the
agreement approximates $152,000.
| 4. |
LOAN
PAYABLE TO RELATED PARTIES
|
Loans
payable to related parties consist of the following at March 31,
2007:
|
Loan payable due to a officer,
bearing no interest, due on demand
and
unsecured.
|
$ | 85,975 |
| Loan
payable due to a officer,
bearing
no interest, due on demand and unsecured.
|
$ | 10,000 |
| $ | 95,975 |
| 5. |
UNEARNED
REVENUE
|
Unearned
revenue totaling $725,000 as of March 31, 2007, relates to two marketing
and
distribution rights agreements entered into during 2004 for which monies
were
received and not considered earned, see Note 6 for further
discussion.
| 6. |
STOCK
OPTIONS AND WARRANTS
|
Stock
options employees and directors -
During
the periods ended March 31, 2007 and 2006, the Company granted stock options
to
employees and directors totaling -0- and 650,000 shares of its common stock
with
a weighted average strike price of $0.00 and $0 .21 per share, respectively.
Certain stock options were exercisable upon grant and have a life ranging
from 3
months to 5 years. The Company has recorded an expense of $13,475 for the
period
ended March 31, 2007 based upon the vested portion of employee stock options
relating to options issued in 2006.
Stock
options non-employees -
During
the periods ended March 31, 2007 and 2006, the Company granted stock options
for
services totaling -0- and 395,000 and shares of its common stock with a
weighted
average strike price of $0.00 and $0 .19 per share, respectively. Certain
stock
options were exercisable upon grant and have a life ranging from 3 months
to 5
years.
As
of
March 31, 2007 stock options outstanding totaled 4,050,000 with a weighted
average strike price of $0.12
Stock
warrants
- During
the year period ended March 31, 2007, the Company granted stock warrants
related
to common stock issued through a private placement totaling 37,500 with
a strike
price of $0.30 per share. As of March 31, 2007 stock warrants outstanding
totaled 3,067,500 with a weighted average strike price of $0.11 per share.
F-8
SKINVISIBLE,
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
| 7. |
LETTER
OF INTENT AND DEFINITIVE AGREEMENT
|
In
March
2004, the Company entered into a letter of intent (“LOI”) with Dermal Defense,
Inc. for the exclusive marketing and distribution rights to its patented
Antimicrobial Hand Sanitizer product for North America. Terms of the LOI
require
Dermal Defense, Inc. to pay a fee of $1 million. The $1 million fee will
be
recognized as revenue ratably over a five year period. As of March 31, 2007,
the
Company has received $1,000,000 and has reflected $350,000 as unearned revenue
and $650,000 as revenue in the accompanying consolidated financial statements.
In addition and further to the payment fee of $1 million, Dermal Defense,
Inc.
agrees to pay a royalty fee of 5% on product sales of the Antimicrobial Hand
Sanitizer. In April 2005 Dermal Defense sold their exclusive marketing and
distribution rights for North America to JD Nelson and Associates, LLC. Under
the terms of the agreement JD Nelson purchase polymer from the Company and
pay
the 5% royalty on product sales of the Antimicrobial Hand Sanitizer to the
Company.
In
June
2004, the Company entered into a definitive agreement with Cross Global,
Inc.
(“Cross Global”) whereby, the Company would provide exclusive marketing and
distribution rights to its proprietary "Sunless Tanning Spray Formulation"
for
Canada, the United States, Mexico, Austria, Belgium, Denmark, Finland, France,
Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain,
Sweden, United Kingdom and Israel. In addition CGI is granted the right to
use
the name "Solerra(TM)" within the territory. Terms of the agreement required
Cross Global to pay a fee of $1 million over a defined time period..The $1
million fee will be recognized as revenue ratably over a five year period.
As of
March 31, 2007, the Company has received $1,000,000 and has reflected $400,000
as unearned revenue and $600,000 as revenue in the accompanying consolidated
financial statements. In addition and further to the payment fee of $1 million
Cross Global agrees to pay a royalty fee of 5% on product sales of the Sunless
Tanning Spray Formulation.
| 8. |
COMMITMENTS
AND CONTINGENCIES
|
Lease
obligations
- The
Company has operating leases for its offices. Future minimum lease payments
under the operating leases for the facilities as of March 31, 2007 are as
follows:
| 2007 | $ | $69,249 |
| 2008 | 97,028 | |
| 2009 | 98,622 |
Rental
expense, resulting from operating lease agreements, approximated $26,215 for
the
period ended March 31, 2007.
| 9. |
STOCK
SUBSCRIPTIONS RECEIVABLE
|
During
March 2007, the Company received $35,000 for shares issued in the period ending
June 30, 2007.
|
10.
|
SUBSEQUENT
EVENTS
|
On
April
11, 2007, the company entered into a Licensing Agreement (“Agreement”) with DRJ
Group, Inc. (“DRJ”), a California corporation. Under the terms of this
Agreement, they granted DRJ the exclusive right to distribute, market, sell,
and
promote a formula specific topical analgesic that incorporates the company’s
proprietary and patented Invisicare polymer in North America. DRJ manufactures
STOPAIN®, a cream product topically applied which is designed to provide relief
to people suffering from muscle stiffness, arthritis or muscle strains. Under
the terms of the Agreement, the company will generate revenues from polymer
sales to DRJ and be entitled to receive royalties from all product sales
generated by DRJ.
|
11.
|
RESTATEMENTS
|
For
the
period ended March 31, 2006, the Company did not properly account for stock
options granted to its consultants, the valuation resulted in an additional
expense of $115,742 to operations. The change in value was included in
the
previously filed December 31, 2006 statements.
Item
2. Management’s
Discussion and
Analysis
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.
Overview
We
develop innovative polymer delivery vehicles and related compositions that
hold active ingredients on the skin for up to four hours 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.
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.
Description
of Current Products and Agreements
Cosmetics
and Personal Care Markets
On
October 7, 2005, we entered into a Master Sales, Collaboration and Distribution
Agreement (“Agreement”) with EMD Chemicals Inc. (“EMD”), a New York corporation
and affiliate of Merck KGaA of Darmstadt, Germany. Under the terms of this
Agreement, we granted EMD the exclusive right to distribute and sell our
patented polymer delivery system, Invisicare, for the cosmetics and personal
care markets in the entire world. EMD will be entitled to commission income
based upon the gross revenues from the sale of sublicensing agreements as well
as the polymers. The initial term of this Agreement is until December 31,
2008 and this Agreement will automatically renew for successive three year
terms
unless either party provides fourteen months advance notice of its intention
to
terminate or not renew the Agreement.
As
part
of the consideration of the Agreement, we granted EMD options to purchase shares
of our common stock. We executed a stock option agreement on February 27, 2006
where we granted EMD the option to purchase 5,817,525 shares of common stock
at
the exercise price of $0.172 per share exercisable until December 31, 2006.
These options expired and were not exercised.
Antibacterial/Antimicrobial
Hand Sanitizer Lotion
On
February 21, 2005, we entered into a definitive distribution agreement with
Dermal Defense, Inc. (“Dermal Defense”). Pursuant to this agreement, Dermal
Defense acquired the exclusive marketing and distribution rights in the United
States of America, Canada and Mexico for our antimicrobial hand sanitizer lotion
composition which utilizes the active ingredient Triclosan 1% and incorporates
our patented Invisicare®
polymer
delivery system (the “Product”).
Dermal
Defense acquired these rights for the purchase price of $1,000,000 which has
been paid in full. Under the terms of this agreement, Dermal Defense is
obligated to pay us a royalty fee quarterly in the amount of $20,000 or 5%
of
gross revenues generated by Dermal Defense from sales of the product in the
quarter, whichever is greater.
During
the second quarter of 2005 and with our approval, Dermal Defense entered into
an
exclusive sub-distribution agreement with JD Nelson & Associates of Columbus
Ohio (“JD Nelson”) and transferred all of its rights to distribute, market, and
sell our antimicrobial hand sanitizer lotion in the United States of America,
Canada and Mexico. Under the terms of the sub- distribution agreement, JD Nelson
will pay a license fee and royalty on product sales to Dermal Defense and Dermal
Defense will continue to pay us as agreed in the Distribution Agreement of
February
21, 2005. As a result, the fees and royalties that we are due under this
agreement remain unchanged. Currently, all required fees and royalties due
in
accordance with this agreement are paid and current. Dermal Defense and JD
Nelson & Associates are prohibited under this agreement from manufacturing,
marketing, distributing, or selling any competing product while the Distribution
Agreement is in full force and effect.
In
December 2006, we entered into an Amended Distribution Agreement to revise
the
terms of the marketing and distribution rights granted to Dermal Defense and
those rights provided to JD Nelson as a sub-distributor. In the Amended
Distribution Agreement, we expanded the product for which rights were conferred
to include our antimicrobial hand sanitizer lotion composition which utilizes
the active ingredient Triclosan 1% and any other active ingredients included
in
the FDA Monograph exclusive of Chlorhexidine, Chlorhexidine gluconate or iodine
or any combinations of iodine or Chlorhexidine gluconate or Chlorhexidine.
In
accordance with the Amended Distribution Agreement, JD Nelson must now pay
all
royalties under this arrangement directly to us.
In
May
2005, we entered into a Distribution Agreement (“Agreement”) with Safe4Hours,
Inc. (“Safe4Hours”), a Nevada corporation. Under the terms of this Agreement, we
granted Safe4Hours the exclusive right to distribute, market, sell, and promote
our antimicrobial hand sanitizer lotion that utilizes the active ingredient
Triclosan 1% in every country in the world except Canada, the United States,
and
Mexico. The Agreement prohibited Safe4Hours from manufacturing, marketing,
distributing, or selling any competing product while the Agreement was in full
force and effect. Safe4Hours acquired these rights for an up-front fee of
$1,000,000, of which only $100,000 was received. The remaining $900,000 balance
was to be paid in quarterly installments based upon a predetermined formula
until the remaining balance is received, and a royalty fee of no less than
5% of
gross revenue of all sales. Safe4Hours did not pay any quarterly installments
under the terms of the Agreement and we were negotiating with Safe4Hours
to revise the payment terms for the remaining $900,000 due under this Agreement.
Following these negotiations, we were unable to reach an agreement and
terminated the Agreement as a result of Safe4Hours’ failure to materially
perform its obligations under the Agreement.
We
are
currently negotiating with JD Nelson to acquire these rights. We offered to
JD
Nelson these acquisition rights in exchange for $500,000 and a 10% royalty
payment. We further extended the termination date of our offer to JD Nelson
to
acquire these rights to August 31, 2007. We can provide no assurance that we
will execute an agreement with JD Nelson for these rights.
Sunless
Tanning Spray Product
On
June
9, 2004, our wholly-owned subsidiary, Skinvisible Pharmaceuticals, Inc., entered
into a Trademark License Agreement and Distribution Agreement ("Distribution
Agreement") with Cross Global, Inc. ("Cross Global"), a Delaware corporation,
to
grant Cross Global the exclusive right to distribute, market, sell, and promote
our proprietary sunless tanning spray products in Canada, the United States,
Mexico, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland,
Luxembourg, Netherlands, Portugal, Spain, Sweden, United Kingdom, and
Israel.
Cross Global is also utilizing our proprietary polymer formula to manufacture
nine additional sun care related products.
Pursuant
to the terms of the Distribution Agreement, Cross Global paid us the license
fee
of $1,000,000. Under the terms of this agreement, we are to receive a minimum
royalty fee quarterly of not less than 5% of gross revenue of all sales of
our
proprietary sunless tanning spray products or $25,000, whichever is greater.
We
extended the minimum royalty payments terms on 3 different occasions in an
effort to accommodate and assist Cross Global in the early stage of their
operations. Despite our efforts, Cross Global remains delinquent for the minimum
payments due at the present time in the amount of $120,000. We have the ability
to terminate the Distribution Agreement as a result of this material breach
upon
providing notice to Cross Global. Cross Global is prohibited under this
agreement from manufacturing, marketing, distributing, or selling any competing
product while the Distribution Agreement is in full force and
effect.
We
are
negotiating with Cross Global regarding this matter. We have offered to release
and forever discharge Cross Global from the $120,000 delinquency and requirement
to pay a minimum royalty payment monthly in exchange for Cross Global
relinquishing its exclusivity to utilize our proprietary polymer formula in
connection with the distribution, marketing, and sale of sunless tanning
products in the applicable territory with the exception of the mit-tan product.
Cross Global has verbally agreed to these terms and we are in the process of
memorializing this agreement in writing. There can be no assurance that we
will
successfully be able to execute a written agreement with these terms.
Sunscreen
and Skin Care Products
We
developed and successfully tested the application of Invisicare in sunscreen
products with SPF 15 and SPF 30, sunless tanning lotions, moisturizing creams,
aloe after-sun products, and other skin care products. We currently offer
Invisicare for incorporation into these products on a private label basis and
have multiple agreements in place.
During
the reporting period, we developed two additional sunscreen products. One of
the
products utilizes the active ingredient Parsol 1789. The other product utilizes
the active ingredient Tinasorb which has been approved for distribution in
Europe, Japan, Australia and recently Canada. Tinasorb has not yet have approval
in the US. Tinasorb is a broad spectrum UVA/UVB ingredient. The manufacturer
of
Tinasorb is Ciba Chemicals. It is our intention to license out the distribution
of both of these formulas where approved.
Topical
Analgesic
On
April
11, 2007, we entered into a Licensing Agreement (“Agreement”) with DRJ Group,
Inc. (“DRJ”), a California corporation. Under the terms of this Agreement, we
granted DRJ the exclusive right to distribute, market, sell, and promote a
topical analgesic that incorporates our proprietary and patented Invisicare
polymer in North America. DRJ manufactures STOPAIN®, a cream product topically
applied which is designed to provide relief to people suffering from muscle
stiffness, arthritis or muscle strains. Under the terms of the Agreement, we
will generate
revenues
from product sales to DRJ and be entitled to receive royalties from all product
sales generated by DRJ.
Status
of Research and Development for New Applications
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:
|
·
|
Insect
repellent
|
|
·
|
Sunscreens
|
|
·
|
Antifungal
|
|
·
|
Acne
|
|
·
|
Atopic
dermatitis
|
|
·
|
Antimicrobial
hand sanitizer
|
Insect
Repellents
We
are in
the process of developing an insect repellent with an active ingredient that
incorporates our topical polymer-based delivery systems and are presently
undergoing in-house research. We anticipate that our research will be completed
during the second quarter of 2007. Our current research efforts are being
devoted to producing a stick application for this product. In the event that
we
are successful in developing an effective insect repellent that incorporates
our
topical polymer-based delivery systems, the rights to distribute and sell the
developed product will be subject to the terms of an Agreement with EMD
Chemicals, the owner of the active ingredient. There can be no assurance that
we
will be successful in developing a viable insect repellent that incorporates
our
topical polymer-based delivery systems and the active ingredient.
Sunscreen
We
developed and successfully tested the application of our polymer delivery
vehicles in sunscreen products with SPF 15 and SPF 30, sunless tanning lotions,
moisturizing creams, aloe after-sun products, and other skin care products.
We
currently offer Invisicare for incorporation into these products on a private
label basis and have multiple agreements in place.
During
the reporting period, we developed two additional sunscreen products. One of
the
products utilizes the active ingredient Parsol 1789. The other product utilizes
the active ingredient Tinasorb which has been approved for distribution in
Europe, Japan, Australia and recently Canada. Tinasorb has not yet have approval
in the US. Tinasorb is a broad spectrum UVA/UVB ingredient. The manufacturer
of
Tinasorb is Ciba Chemicals. It is our intention to license out the distribution
of both of these formulas.
Antifungal
We
have
an oral agreement with a pharmaceutical company relating to the development
of
an antifungal product that incorporates Invisicare with the active ingredient
Clotrimazole. We have
completed
our initial research and development of this product and are awaiting the
results of this study. If this pharmaceutical company is satisfied with
the study, we would expect to execute a licensing agreement with this company.
A
definitive licensing agreement would require the company to pay us an upfront
license fee plus ongoing royalty payments based on territorial sales of the
product. There can be no assurance that we will be successful in executing
a license agreement for this product.
Acne
We
have
an oral agreement with a pharmaceutical company relating to the development
of
an acne product that incorporates Invisicare with the active ingredient retinoic
acid. We have completed our initial research and development of this product
and
are waiting the results of this study. If this pharmaceutical company is
satisfied with the study, we would expect to execute a licensing agreement
with
this company. A definitive licensing agreement would require the company to
pay
us an upfront license fee plus ongoing royalty payments based on territorial
sales of the product. There can be no assurance that we will be successful
in executing a license agreement for this product.
Non-steroidal
atopic dermatitis
During
the three months ended June 30, 2006, we developed a non-steroidal atopic
dermatitis product, also referred to as hydro-gel, for atopic dermatitis that
incorporates Invisicare for a pharmaceutical company. In July 2006, we were
notified of a change in the FDA’s approval process and the pharmaceutical
company declined to proceed forward following this change. We are now seeking
to
make this product available to a pharmaceutical company that can successfully
secure FDA approval for the marketing and distribution of this product. There
can be no assurance that this product will receive FDA approval. We are
presently working with a pharmaceutical company in Canada to obtain approval
to
market and distribute this product in Canada.
Antimicrobial
Hand Sanitizer Lotion
We
have
developed and are currently testing a new antimicrobial hand sanitizer lotion
that utilizes the active ingredient Chlorhexidine (“Chlorhexidine antimicrobial
hand sanitizer”). Chlorhexidine is the active agent in scrub
soaps currently used in the operating rooms of most hospitals worldwide.
As
a part
our development efforts to develop the Chlorhexidine antimicrobial hand
sanitizer lotion, we developed a research plan that comprises of several
studies. The first and second studies were in-vitro tests designed to
gauge the effectiveness of the Chlorhexidine antimicrobial hand sanitizer lotion
when exposed to certain bacteria. We received positive results from the
first study. The results of the second study indicated that further
strengthening of the product could improve the product’s effectiveness.
Our research department implemented the appropriate improvements and commenced
a
third study on viruses during the fourth quarter. The third study was
conducted by Retroscreen Virology Ltd. (“RVL”), a research company that is a
division of St. Bartholomew's Hospital and the Royal London Hospital based
in
London,
England,
and designed to test the effectiveness of the Chlorhexidine antimicrobial hand
sanitizer lotion in killing the H5N1 virus also known as the bird flu virus
or
avian flu. In-vitro testing conducted by RVL confirmed that the Chlorhexidine
antimicrobial hand sanitizer lotion got a greater than 99.9% inactivation/kill
on the H5N1 virus at the following four points: 15 seconds, 30 seconds, 1
minute, and 5 minutes following contact. This in-vitro study was conducted
by
placing the Chlorhexidine antimicrobial hand sanitizer lotion in a dish and
then
exposing the H5N1 virus at the forgoing time intervals. Based upon these
positive results, we retained RVL to conduct a further ex-vivo study to provide
data on the effectiveness of the Chlorhexidine antimicrobial hand sanitizer
when
exposed to the H5N1 virus over an extended period of time. This ex-vitro
study was conducted by applying the Chlorhexidine antimicrobial hand sanitizer
lotion to dead skin specimens, simulating normal conditions of wash-off and
skin
perspiration, and then exposing the H5N1 virus to the skin specimen at various
extended time intervals.
This
ex-vivo study confirmed that the Chlorhexidine antimicrobial hand sanitizer
lotion got a greater than 98% inactivation/kill on the H5N1 virus at various
intervals following application up to four hours. This study verifies that
the
patented polymer delivery system Invisicare® successfully holds the active
ingredient Chlorhexidine on the skin for extended periods of time. Additional
in-vitro studies performed by RVL using the Chlorhexidine antimicrobial hand
sanitizer lotion confirmed a greater than 99.9% inactivation/kill on the
seasonal flu virus Influenza A (H1 and H3) as well as Influenza B. We have
suspended further studies until such time that we are able to enter into an
agreement with a potential licensee for this product.
We
also
commissioned another study referred to as a human repeat insult patch test
(HRIPT). This study exposes a minimum of 100 persons to the Chlorhexidine
antimicrobial hand sanitizer to determine if continued use and exposure to
the
product will result in skin complications or sensitivities. This study was
completed and indicated that 5 people out of the 100 tested experienced a mild
sensitization to the product. This study used a method that kept the product
moist and occluded which was inconsistent with the product’s intended use. We
are preparing a further study to test the product under normal use conditions.
In
the
event that the Chlorhexidine antimicrobial hand sanitizer lotion proves to
be a
viable product, we may be required to file a New Drug Application with the
US
FDA because the drug Chlorhexidine is not presently an approved drug under
the
FDA Tentative Final Monograph (TFM) for Hand Sanitizers. We may also be required
to seek similar regulatory approvals in other foreign jurisdictions. If we
are
required to file a New Drug Application with the US FDA, further development
of
this product may be both time and cost prohibitive for us. It is our intention
to seek a pharmaceutical partner to fund there additional studies required
to
obtain FDA approval. There can be no assurance that we will successfully
complete the research and development of this product and/or receive approval
to
make the Chlorhexidine antimicrobial hand sanitizer lotion available for sale
in
the United States or other foreign jurisdictions.
We
filed
a patent application on the Chlorhexidine Hand Sanitizer Lotion formula with
the
United States Patent and Trademark Office. We can provide no assurance that
we
will receive patent approval for the Chlorhexidine Hand Sanitizer Lotion
formula.
We
have
retained a consultant in China to assist us in securing regulatory approval
for
this product within China. Our efforts to secure regulatory approval for this
product in China are ongoing and we can provide no assurance that we will
successfully receive the required approval to market and distribute this product
within China.
In
December 2006, the Chlorhexidine antimicrobial hand sanitizer has received
approval for marketing in Canada.
We
have
reached a verbal agreement with EMD Chemicals of Hawthorne, NY, an affiliate
of
Merck KGaA of Darmstadt, Germany, to joint venture the distribution of this
product in Southeast Asia and are presently seeking to memorialize this
agreement in a written contract.
Results
of Operations for the three months ended March 31, 2007 and
2006
Revenues
Our
total
revenue reported for the three months ended March 31, 2007 was $183,316, a
22%
decrease from $235,167 for the three months ended March 31, 2006. During the
three months ended March 31, 2007, $101,193 of the revenue generated was
attributable to payments for royalties and distribution and licensing rights
of
our products, $56,465 of the revenue generated was attributable to product
sales, and we received fees of $25,657 in connection with product research
we
conducted. For the three months ended March 31, 2006, we generated revenue
of
$35,511 from product sales and $175,000 from distribution and licensing rights.
The decrease in revenues for the three months ended March 31, 2007 as compared
to the same reporting period in the prior year is attributable to lower revenues
from distribution and licensing rights of our products.
Cost
of Revenues
Our
cost
of revenues for the three months ended March 31, 2007 decreased to $10,154
from
the prior three months when cost of revenues was $21,231. The decrease in our
cost of revenues for the three months ended March 31, 2007 as compared to the
same reporting period in the prior year is attributable to a shift in our
business during the reporting period where we primarily sold Invisicare and
not
completed/packaged products that incorporate Invisicare. Subsequent to the
first
quarter in 2006, we granted our 2 major licensees the rights to manufacture
the
finished product formulations themselves. This resulted in a significant
decrease in our cost of revenues.
Gross
Profit
Gross
profit for the three months ended March 31, 2007 was $173,162, or approximately
94% of sales. Gross profit for the three months ended March 31, 2006 was
$213,846, or approximately 91% of sales. The increase in total gross profit
for
the for the three months ended March 31, 2007 from the prior three months is
attributable to sales of Invisicare which have a higher associated gross profit
margin as opposed to sales of completed/packaged products that incorporate
Invisicare which carry a loss gross profit margin.
Operating
Expenses
Operating
expenses decreased to $445,919 for the three months ended March 31, 2007 from
$1,303,040 for the three months ended March 31, 2006. Our operating expenses
for
the three months ended March 31, 2007 consisted of depreciation and amortization
expenses of $64,671 and selling, general and administrative expenses of
$381,248. Our operating expenses for the three months ended March 31, 2006
consisted of depreciation and amortization expenses of $66,692 and selling,
operating expenses of $1,237,040. The decrease in operating expenses for the
three months ended March 31, 2007 as compared to the three months ended March
31, 2006 is primarily attributable to stock based compensation related to the
stock options issued to EMD during the first quarter of 2006. We incurred stock
based compensation expenses of $723,399 for the three months ended March 31,
2006.
Net
Loss
Net
loss
for the three months ended March 31, 2007 was $272,757, compared to net loss
of
$1,089,886 for the three months ended March 31, 2006. The decrease in our net
loss was primarily attributable to significantly lower expenditures incurred
on
stock based compensation during the reporting period.
Liquidity
and Capital Resources
As
of
March 31, 2007, we had total current assets of $112,398 and total assets in
the
amount of $833,209. Our total current liabilities as of March 31, 2007 were
$1,285,996. We had a working capital deficit of $1,173,598 as of March 31,
2007.
Operating
activities used $171,303 in cash for the three months ended March 31, 2007.
Our
net loss of $272,757 was the primary component of our negative operating cash
flow. Cash flows used by investing activities during the three months ended
March 31, 2007 was $4,662 for the purchase of fixed assets and intangible
assets. Cash flows provided by financing activities during the three months
ended March 31, 2007 was $130,248. We received $70,248 as proceeds from related
party loans and $25,000 as proceeds from the issuance of common stock during
the
three months ended March 31, 2007.
Based
upon our current financial condition, we have insufficient 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, 2007, 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 $13,957,000 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 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.
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 this statement,
goodwill and intangible assets with indefinite lives are no longer subject
to
amortization, but rather an annual assessment of impairment by applying a
fair-value based test. Fair value for goodwill is based on discounted cash
flows, market multiples and/or appraised values as appropriate. Under SFAS
No.
142, the carrying value of assets are calculated at the lowest level for which
there are identifiable cash flows.
SFAS
142
requires us to compare the fair value of the reporting unit to its carrying
amount on an annual basis to determine if there is potential impairment. If
the
fair value of the reporting unit is less than its carrying value, an impairment
loss is recorded to the extent that the fair value of the goodwill within the
reporting unit is less than its carrying value. Upon adoption and during 2002,
we
completed an impairment review and did not recognize any impairment of goodwill
and other intangible assets already included in the financial statements. We
expect to receive future benefits from previously acquired goodwill over an
indefinite period of time. Accordingly, beginning January 1, 2002, we have
foregone all related amortization expense. Prior to January 1, 2002, we
amortized goodwill over an estimated useful life ranging from 3 to 15 years
using the straight-line method.
Research
and Development Costs
Research
and development costs are charged to expense when incurred. Costs incurred
to
internally develop the product, including costs incurred during all phases
of
development, are charged to expense as incurred.
Recently
Issued Accounting Pronouncements
In
June
2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
No. 48, "Accounting for Uncertainty in Income Taxes - an interpretation of
FASB
Statement No. 109" (FIN 48), which clarifies the accounting for uncertainty
in
tax positions. This Interpretation requires that we recognize in our financial
statements the benefit of a tax position if that position is more likely than
not of being sustained on audit, based on the technical merits of the position.
The provisions of FIN 48 become effective as of the beginning of our 2008 fiscal
year, with the cumulative effect of the change in accounting principle recorded
as an adjustment to opening retained earnings. We are currently evaluating
the
impact that FIN 48 will have on our financial statements.
In
September 2006, the FASB issued Statement No. 157, "Fair Value Measurements"
(FAS 157), which defines fair value, establishes a framework for measuring
fair
value, and expands disclosures about fair value measurements. The provisions
of
FAS 157 become effective as of the beginning of our 2009 fiscal year. We are
currently evaluating the impact that FAS 157 will have on our financial
statements.
In
September 2006, the FASB issued Statement No. 158, "Employer's Accounting for
Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB
Statements No. 87, 88, 106, and 132(R)" (FAS 158). FAS 158 requires that
employers recognize the funded status of their defined benefit pension and
other
postretirement plans on the balance sheet and recognize as a component of other
comprehensive income, net of tax, the plan-related gains or losses and prior
service costs or credits that arise during the period but are not recognized
as
components of net periodic benefit cost. We will prospectively adopt FAS 158
on
April 30, 2007. Based on the funded status of our plans as of the date of our
most recent actuarial valuation, we expect the adoption of FAS 158 to reduce
reported stockholders' equity by approximately $100 million. However, the actual
impact of adopting FAS 158 is highly dependent on a number of factors, including
the discount rates in effect at the next measurement date, and the actual rate
of return on pension assets during fiscal 2007. These factors could
significantly increase or decrease the expected impact of adopting FAS 158.
In
September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 108, "Considering the Effects of Prior Year Misstatements
when
Quantifying Misstatements in Current Year Financial Statements" (SAB 108),
which
addresses how to quantify the effect of financial statement errors. The
provisions of SAB 108 become effective as of the end of our 2007 fiscal year.
We
do not expect the adoption of SAB 108 to have a significant impact on our
financial statements.
In
February 2007, the FASB issued Statement No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities, including an amendment of FASB
Statement No. 115" (FAS 159). FAS 159 permits companies to choose to measure
many financial instruments and certain other items at fair value that are not
currently required to be measured at fair value and establishes presentation
and
disclosure requirements designed to facilitate comparisons between companies
that choose different measurement attributes for similar types of assets and
liabilities. The provisions of FAS 159 become effective as of the beginning
of
our 2009 fiscal year. We are currently evaluating the impact that FAS 159 will
have on our financial statements.
Item
3. Controls
and Procedures
We
carried out an evaluation of the effectiveness of the design and operation
of
our disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) as of March 31, 2007. This evaluation was carried
out
under the supervision and with the participation of our Chief Executive Officer
and Chief Financial Officer, Mr. Terry Howlett. Based upon that evaluation,
our
Chief Executive Officer and Chief Financial Officer concluded that, as of March
31, 2007, our disclosure controls and procedures are effective. There have
been
no changes in our internal controls over financial reporting during the quarter
ended March 31, 2007.
Disclosure
controls and procedures are controls and other procedures that are designed
to
ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act are recorded, processed, summarized and
reported, within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in
our
reports filed under the Exchange Act is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding required disclosure.
Limitations
on the Effectiveness of Internal Controls
Our
management does not expect that our disclosure controls and procedures or our
internal control over financial reporting will necessarily prevent all fraud
and
material error. Our disclosure controls and procedures are designed to provide
reasonable assurance of achieving our objectives and our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and
procedures are effective at that reasonable assurance level. Further, the design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and
that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be
circumvented
by the individual acts of some persons, by collusion of two or more people,
or
by management override of the internal control. The design of any system of
controls also is based in part upon certain assumptions about the likelihood
of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time,
control may become inadequate because of changes in conditions, or the degree
of
compliance with the policies or procedures may deteriorate.
PART
II - OTHER INFORMATION
Item
1. Legal
Proceedings
We
are
not a party to any pending legal proceeding. We are not aware of any pending
legal proceeding to which any of our officers, directors, or any beneficial
holders of 5% or more of our voting securities are adverse to us or have a
material interest adverse to us.
Item
2. Unregistered
Sales of Equity
Securities and Use of Proceeds
The
information set forth below relates to our issuances of securities without
registration under the Securities Act during the reporting period which were not
previously included in a Current Report on Form 8-K.
During
the three months ended March 31, 2007, we issued 92,500 restricted shares of
our
common stock as a result of entering into debt conversion agreements with two
lenders to convert total principal balances of $21,000 into equity. These shares
were issued pursuant to Section 4(2) of the Securities Act. The lenders
represented their intention to acquire the securities for investment only and
not with a view towards distribution. The lenders were given adequate
information about us to make an informed investment decision. We did not engage
in any general solicitation or advertising. We directed our transfer agent
to
issue the stock certificates with the appropriate restrictive legend affixed
to
the restricted stock.
During
the three months ended March 31, 2007, we issued 75,000 shares of our common
stock, par value $0.001, at $0.20 per share. The gross proceeds we received
from
this offering were $15,000. We completed this offering pursuant to
Regulation S of the Securities Act. Each investor represented to us that
he was a non-US person as defined in Regulation S. We did not engage in a
distribution of this offering in the United States. Each investor
represented his intention to acquire the securities for investment only and
not
with a view toward distribution. We requested our stock transfer agent to
affix appropriate legends to the stock certificate issued to each investor
in
accordance with Regulation S and the transfer agent affixed the appropriate
legends. Each investor was given adequate access to sufficient information
about us to make an informed investment decision.
Item
3. Defaults
upon Senior
Securities
None
Item
4. Submission
of Matters to a Vote
of Security Holders
No
matters have been submitted to our security holders for a vote, through the
solicitation of proxies or otherwise, during the quarterly period ended March
31, 2007.
Item
5. Other
Information
None
Item
6. Exhibits
|
Exhibit
Number
|
Description
of Exhibit
|
|
10.1
|
Licensing Agreement with DRJ Group, Inc. (1) |
(1)
Previously filed an an exhibit to the Amended Current Report on Form 8-K/A
filed
on May 8, 2007
SIGNATURES
In
accordance with the requirements of the Securities and Exchange Act of 1934,
the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
Skinvisible,
Inc.
|
|
|
Date:
|
May
14, 2007
|
|
By: /s/
Terry Howlett
Terry
Howlett
Title: Chief
Executive Officer and
Director
|