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: June
30, 2005
|
|
|
[
]
|
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
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
State
the
number of shares outstanding of each of the issuer’s classes of common stock, as
of the latest practicable date: 57,725,248 common shares as of June 30,
2005
Transitional
Small Business Disclosure Format (check one): Yes [ ] No
[X]
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Page
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PART
I - FINANCIAL INFORMATION
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Item
1:
|
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3
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Item
2:
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4
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Item
3:
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8
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PART
II - OTHER INFORMATION
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||
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Item
1:
|
|
10
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Item
2:
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10
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Item
3:
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11
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Item
4:
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11
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Item
5:
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11
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Item
6:
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11
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PART
I - FINANCIAL INFORMATION
Item
1. Financial
Statements
Our
unaudited consolidated
financial statements included in this Form 10-QSB are as follows:
| (a) |
Consolidated
Balance Sheet as of June 30, 2005.
|
| (b) |
Consolidated
Statements of Operations for the three and six month periods ended
June
30, 2005 and 2004;
|
| (c) |
Consolidated
Statements of Cash Flow for the three and six month periods ended
June 30,
2005 and 2004;
|
| (d) |
Notes
to Consolidated Financial
Statements.
|
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
June 30, 2005 are not necessarily indicative of the results that can be expected
for the full year.
SKINVISIBLE,
INC.
CONSOLIDATED
BALANCE SHEET
|
ASSETS
|
June
30, 2005
|
|||
|
(Unaudited)
|
||||
|
Current
assets
|
||||
|
Cash
|
$
|
78,349
|
||
|
Accounts
receivable
|
65,592
|
|||
|
Inventory
|
71,909
|
|||
|
Due
from related party
|
9,604
|
|||
|
Prepaid
expense and other current assets
|
614
|
|||
|
Total
current assets
|
226,068
|
|||
|
Fixed
assets, net
|
38,033
|
|||
|
Intangible
and other assets
|
||||
|
Patents
and trademarks, net
|
56,545
|
|||
|
License
and distributor rights
|
50,000
|
|||
|
Prepaid
royalty fees
|
1,020,000
|
|||
|
Total
assets
|
$
|
1,390,646
|
||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||
|
Current
liabilities
|
||||
|
Accounts
payable and accrued liabilities
|
$
|
181,574
|
||
|
Unearned
revenue
|
873,000
|
|||
|
Total
current liabilities
|
1,054,574
|
|||
|
Long-term
liabilities
|
--
|
|||
|
Total
liabilities
|
1,054,574
|
|||
|
Commitments
and contingencies
|
--
|
|||
|
Stockholders'
equity
|
||||
|
Common
stock; $0.001 par value; 100,000,000 shares
|
||||
|
57,725,248
shares issued and outstanding
|
57,725
|
|||
|
Additional
paid-in capital
|
11,413,449
|
|||
|
Accumulated
deficit
|
(11,135,102
|
)
|
||
|
Total
stockholders' equity
|
336,072
|
|||
|
Total
liabilities and stockholders' equity
|
$
|
1,390,646
|
||
See
Accompanying Notes to Consolidated Financial Statements
SKINVISIBLE,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
For
the three
months ended |
For
the three
months ended |
For
the six
months ended |
For
the six
months ended |
||||||||||
|
June
30, 2005
|
June
30, 2004
|
June
30, 2005
|
June
30, 2004
|
||||||||||
|
Revenues
|
$
|
233,406
|
$
|
115,926
|
$
|
488,136
|
$
|
175,439
|
|||||
|
Cost
of revenues
|
49,925
|
27,938
|
119,990
|
50,394
|
|||||||||
|
Gross
profit
|
183,481
|
87,988
|
368,146
|
125,045
|
|||||||||
|
Operating
expenses
|
|||||||||||||
|
Depreciation
and amortization
|
69,050
|
11,477
|
137,733
|
25,524
|
|||||||||
|
Stock
based compensation
|
--
|
--
|
198,000
|
--
|
|||||||||
|
Selling
general and administrative
|
291,573
|
302,565
|
606,344
|
497,430
|
|||||||||
|
Total
operating expenses
|
360,623
|
314,042
|
942,077
|
522,954
|
|||||||||
|
Loss
before provision for income taxes
|
(177,142
|
)
|
(226,054
|
)
|
(573,931
|
)
|
(397,909
|
)
|
|||||
|
Other
income (expense)
|
--
|
--
|
--
|
--
|
|||||||||
|
Total
other income (expense)
|
--
|
--
|
--
|
--
|
|||||||||
|
Provision
for income taxes
|
--
|
--
|
--
|
--
|
|||||||||
|
Net
loss
|
$
|
(177,142
|
)
|
$
|
(226,054
|
)
|
$
|
(573,931
|
)
|
$
|
(397,909
|
)
|
|
|
Basic
income (loss) per common share
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
|
|
Diluted
income (loss) per common share
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
|
|
Basic
weighted average common
|
|||||||||||||
|
shares
outstanding
|
57,725,248
|
54,475,440
|
57,725,248
|
54,475,440
|
|||||||||
See
Accompanying Notes to Consolidated Financial Statements
SKINVISIBLE,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
For
the six months ended
|
For
the six months ended
|
||||||
|
|
June
30, 2005
|
June
30, 2004
|
|||||
|
Cash
flows from operating activities:
|
|||||||
|
Net
loss
|
$
|
(573,931
|
)
|
$
|
(397,909
|
)
|
|
|
Adjustments
to reconcile net loss to net
|
|||||||
|
cash
used by operating activities:
|
|||||||
|
Depreciation
and amortization
|
137,733
|
25,524
|
|||||
|
Stock
based compensation
|
198,000
|
28,150
|
|||||
|
Changes
in operating assets and liabilities:
|
|||||||
|
Change
in inventory
|
40,733
|
(17,249
|
)
|
||||
|
Change
in accounts receivable
|
(45,652
|
)
|
(74,364
|
)
|
|||
|
Change
in prepaid expenses and other current assets
|
1,308
|
(3,370
|
)
|
||||
|
Change
in related party receivable
|
(36,813
|
)
|
--
|
||||
|
Change
in accounts payable and accrued liabilities
|
(116,408
|
)
|
(469,222
|
)
|
|||
|
Change
in loan payable
|
--
|
--
|
|||||
|
Change
in unearned revenue
|
250,000
|
450,000
|
|||||
|
Net
cash used by operating activities
|
(145,030
|
)
|
(458,440
|
)
|
|||
|
Cash
flows from investing activities:
|
|||||||
|
Purchase
of fixed assets and untangible assets
|
(2,805
|
)
|
(9,218
|
)
|
|||
|
Proceeds
from disposal of fixed assets
|
--
|
--
|
|||||
|
Net
cash used by investing activities
|
(2,805
|
)
|
(9,218
|
)
|
|||
|
Cash
flows from financing activities:
|
|||||||
|
Proceeds
from notes payable
|
--
|
80,967
|
|||||
|
Proceeds
from additional paid in capital
|
132,750
|
||||||
|
Proceeds
from issuance of common stock
|
1,000
|
547,895
|
|||||
|
Principal
payments on notes payable
|
--
|
--
|
|||||
|
Net
cash provided by financing activities
|
133,750
|
628,862
|
|||||
|
Net
change in cash
|
(14,085
|
)
|
161,204
|
||||
|
Cash,
beginning of period
|
92,434
|
--
|
|||||
|
Cash,
end of period
|
$
|
78,349
|
$
|
161,204
|
|||
|
Supplemental
disclosure of cash flow information:
|
|||||||
|
Cash
paid for interest
|
$
|
--
|
$
|
4,051
|
|||
See
Accompanying Notes to Consolidated Financial
Statements
SKINVISIBLE,
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
1.
BASIS
OF PRESENTATION
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, 2004 of
Skinvisible, Inc. (the "Company").
The
interim financial statements present the condensed balance sheet, statements
of
operations, stockholders' equity and cash flows of Skinvisible, Inc. 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 June
30,
2005 and the results of operations, stockholders' equity 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.
2.
SIGNIFICANT
ACCOUNTING POLICIES
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 received.
Costs and expenses are recognized during the period in which they are
incurred.
Inventory
- Substantially all inventories 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.
3.
LETTER
OF INTENT AND DEFINITIVE AGREEMENT
In
March 2004, the Company entered into a letter of intent with Dermal Defense,
Inc. (“Dermal Defense”) whereby, the Company would provide exclusive marketing
and distribution rights to its patented Antimicrobial Hand Sanitizer product
for
North America to Dermal Defense. Terms of the LOI require Dermal Defense
to pay
a fee of $1 million comprising of a non-refundable deposit of $250,000 with
the
balance of $750,000 payable as to $75,000 per calendar quarter or 5% of product
sales (whichever is greater) until the entire $750,000 is received. The $1
million fee will be recognized as revenue ratably over a five year period.
As of
June 30, 2005, the Company has received $614,000 and has reflected $303,000
as
unearned revenue and $300,000 as revenue in the accompanying consolidated
financial statements. In addition and further to the payment fee of $1 million
Dermal Defense agrees to pay a royalty fee of 5% on product sales of the
Antimicrobial Hand Sanitizer.
In
April 2005 Dermal Defense sold the exclusive marketing rights for North America
to JD Nelson & Associates, LLC. As this is a sublicense the Company
continues to work with Dermal Defense. All terms of the agreement with Dermal
Defense remain as is.
SKINVISIBLE,
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
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 require
Cross Global to pay a fee of $1 million comprising of a non-refundable deposit
of $200,000 with the balance of $800,000 payable as $200,000 due August 30,
2004, November 30, 2004, February 28, 2005 and May 30, 2005. The $1 million
fee
will be recognized as revenue ratably over a five year period. As of June
30,
2005, the Company has received $800,000 and has reflected $575,000 as unearned
revenue and $225,000 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% or $25,000 per calendar quarter
beginning in the 3rd
quarter of 2005 on product sales of the Sunless Tanning Spray
Formulation.
In
May 2005, the Company entered into a distribution agreement with Safe4Hours,
Inc. (“Safe4Hours”) whereby, the Company would provide exclusive marketing and
distribution rights to its proprietary antimicrobial hand sanitizer for all
countries of the world except Canada, United States, and Mexico. Terms of
the
agreement require Safe4Hours to pay a fee of $1 million comprising of a
non-refundable deposit of $25,000 with the balance of $975,000 payable as
recognized as revenue ratably over a five year period. As of June 30, 2005,
the
Company has received $75,000 and has reflected $20,000 as unearned revenue
and
$50,000 as revenue in the accompanying consolidated financial statements.
In
addition and further to the payment fee of $1 million Safe4Hours agrees to
pay a
royalty fee of 5% on product sales of the antimicrobial hand sanitizer beginning
in the 3rd
quarter of 2005.
4.
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 $11,135,102 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.
Item
2. Management’s Discussion and
Analysis
Forward-Looking
Statements
Historical
results and trends should not be taken as indicative of future operations.
Management’s statements contained in this report that are not historical facts
are forward-looking statements within the meaning of Section 27A of
the
Securities Act of 1933, as amended, and Section 21E of the Securities and
Exchange Act of 1934 (the “Exchange Act”), as amended. Actual results may differ
materially from those included in the forward-looking statements. The Company
intends 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 is including this statement for purposes
of
complying with those safe-harbor provisions. Forward-looking statements, which
are based on certain assumptions and describe future plans, strategies and
expectations of the Company, are generally identifiable by use of the
words “believe,”“expect,”“intend,”“anticipate,”“estimate,”“project,”“prospects,”
or similar expressions. The Company’s 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 the operations and future prospects
of
the Company 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 be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. Further
information concerning the Company and its business, including additional
factors that could materially affect the Company’s financial results, is
included herein and in the Company’s 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 topically
applied. 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 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
our polymer delivery vehicles to
date
include antimicrobial hand sanitizers, sunscreen products, skincare
moisturizers, sunless tanning sprays and lotions, anti-fungals, and anti-acne.
We are in the process of developing polymer formulations that can successfully
be utilized in insect repellents and liquid bandages.
Our
primary objective is to license our polymer delivery vehicles 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 our polymers to vendors that have executed a
license agreement with us. We conduct our research and development in-house
and
continuously are engaged in developing additional applications for our polymer
delivery vehicles.
Status
of Research and Development for New Applications
We
are
continuing our research and development toward developing additional
applications for our polymer delivery vehicles. We are currently researching
whether the following potential applications are suitable to incorporate our
polymer delivery vehicles:
| · |
Insect
repellents
|
| · |
Liquid
bandages
|
| · |
New
antibacterial/antimicrobial hand
sanitizer
|
In
the
event that we proceed with studies to determine whether we can successfully
incorporate our topical polymer-based delivery system into any of these products
set forth above, we will move forward to secure all appropriate governmental
approvals for the distribution of this product in the United States. It is
our
anticipation that the process to complete all studies and secure all government
approvals will take approximately twelve (12) to eighteen (18) months from
the
beginning of each study. The approximate cost of the outside study is $100,000
and our management is seeking to negotiate a license agreement with a third
party where they would pay the cost of the study in exchange for certain
licensing rights. We expect to commence outside studies on this product once
a
deal is in place to provide funding for an outside study. Our management does
not believe that any such agreement will be in place prior to the end of the
third quarter.
New
Antibacterial/Antimicrobial Hand Sanitizer
We
have
developed and sold the exclusive marketing and distribution rights to an
antimicrobial hand sanitizer product that utilizes the active ingredient
Triclosan 1%. We have developed and a currently testing a new antimicrobial
hand
sanitizer product that utilizes the active ingredient Chlorhexadine.
Chlorhexadine is the active agent in scrub soaps currently used
in the operating rooms of most hospitals throughout the world.
We
have
received positive results from the first study we commissioned and completed
a
second study. During the reporting period, we received the results of the second
study and those results indicated that further improvement of the product was
warranted to improve its effectiveness. Our management will implement the
appropriate improvements and commence a third study during the fourth quarter.
We anticipate that the results of the third study will be available before
the
end of fiscal 2005.
This
product may require us filing of a New Drug Application with the US FDA because
the drug Chlorhexadine is not an approved drug for Hand Sanitizers in the US
under the FDA Tentative Final Monograph. If we are required to file a New Drug
Application with the US FDA, the development of this product may be both time
and cost prohibitive for us. Under such circumstance, we would seek a
pharmaceutical partner to fund the remaining studies.
Summary
of Current Distribution Agreements
Antibacterial/Antimicrobial
Hand Sanitizer
On
February 21, 2005, we entered into a definitive distribution agreement with
Dermal Defense, Inc. (“Dermal Defense”). Pursuant to this agreement, the parties
finalized the terms of Dermal Defense, Inc.’s acquisition of the exclusive
marketing and distribution rights in the United States of America, Canada and
Mexico for our antimicrobial hand sanitizer 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. Dermal
Defense has already paid $614,000 of this purchase price. The remaining balance
is due and payable quarterly through September 30, 2006 in the amount of $75,000
or 5% of the gross revenues generated by Dermal Defense from sales of the
Product in the Territory in the prior quarter, whichever is greater. Under
the
terms of this agreement, Dermal Defense is also 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 reporting period 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 that it possessed to
distribute, market, and sell our antimicrobial hand sanitizer 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 Skinvisible 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
as
agreed and up to date. Dermal Defense is
prohibited under this agreement form manufacturing, marketing, distributing,
or
selling any competing product while the Distribution Agreement is in full force
and effect.
Also
during the reporting period on May 4, 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 that utilizes the active ingredient Triclosan 1% in every country
in
the world except Canada, the United States, and Mexico. As set forth above,
the
rights to distribute, market, sell, and promote our antimicrobial hand sanitizer
in Canada, the United States, and Mexico are held by Dermal Defense. Safe4Hours
acquired these rights for an up-front fee of $1,000,000, of which $75,000 has
been received and the remaining $925,000 is payable in quarterly installments
based upon a predetermined formula until the balance is received, and a royalty
fee of no less than 5% of gross revenue of all sales. Currently, all required
fees and royalties due in accordance with this agreement are paid as agreed
and
up to date. Safe4Hours is
prohibited under this agreement from manufacturing, marketing, distributing,
or
selling any competing product while the Distribution Agreement is in full force
and effect.
Sunless
Tanning Spray Products
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 utilizing our proprietary polymer formula to manufacture nine
additional suncare related products.
The
Distribution Agreement provides that Cross Global must pay us a license fee
in
the amount of $1,000,000. Currently, Cross Global has paid us $800,000. The
remaining principal was originally due on May 30, 2005, but we entered into
an
agreement with Cross Global to revise the payments terms of the remaining
$200,000. Under our agreement, Cross Global will now pay the remaining balance
in four monthly instalments of $50,000.
Under
the
terms of this agreement, we will receive a royalty fee of no less than 5% of
gross revenue of all sales of our
proprietary sunless tanning spray products. Cross Global is prohibited under
this agreement form manufacturing, marketing, distributing, or selling any
competing product while the Distribution Agreement is in full force and
effect.
Results
of Operations
For
the
three month period ended June 30, 2005, we generated total revenue of $233,406,
compared to revenue of $115,926 for the same three month period in the prior
year. For the six month period ended June 30, 2005, we generated total revenue
of $488,136, compared to revenue of $175,439 for the same six month period
in
the prior year. Our increase in revenue for the three and six month period
ended
June 30, 2005 when compared to the same reporting periods in the prior year
is
primarily attributable to a significant increase the receipt of payments under
our distribution agreements entered into with Dermal Defense and Cross Global.
During the three month period ended June 30, 2005, we generated $156,000 from
distribution and licensing rights. During the three month period ended June
30,
2005, we generated $75,846 of revenue through product sales.
Our
cost
of revenues for the three months ended June 30, 2005 increased to $49,925 from
the same reporting period in the prior year when cost of revenues was $27,938.
Our cost of revenues for the six months ended June 30, 2005 increased to
$119,990 from the same reporting period in the prior year when cost of revenues
was $50,394. The increase in our cost of revenues is attributable to increased
product sales.
Gross
profit for the second quarter ended June 30, 2005 was $183,481 compared to
$87,988 for the second quarter ended June 30, 2004. Gross profit for the six
months ended June 30, 2005 was $368,146, compared to $125,045 for six months
ended June 30, 2004. The increase in gross profit for the three and six months
ended June 30, 2005 is primarily attributable to the receipt of monies for
distribution and licensing rights for which we incur no costs.
For
the
three month period ended June 30, 2005 we incurred operating expenses in the
amount of $360,623 compared to operating costs of $314,042 in the same three
month period in the prior year. For the six month period ended June 30, 2005
we
incurred operating expenses in the amount of $942,077, compared to operating
costs of $522,954 in the same six month period in the prior year. The increase
in our operating expenses is primarily attributable to depreciation and
amortization expense reporting during the reporting period. We incurred $69,050
in depreciation and amortization expenses for the three month period ended
June
30, 2005, compared to $11,477 for the same three month period in the prior
year.
Depreciation and amortization expenses for the six month ended June 30, 2005
was
$137,733, compared to $25,524 for the six month ended June 30, 2004. Our
depreciation and amortization expenses relate to proprietary product rights
to
the antimicrobial hand lotion that we purchased from Jazor Laboratory Group
Inc.
in 1998 for $2,000,000. To date, we have paid $1,522,000 and continue to pay
$6,000 per month under the terms of the agreement until the entire $2,000,000
is
paid in full. This asset is being depreciated at a rate of $60,000 per quarter.
For
the
three month period ended June 30, 2005, we had a net loss of $177,142. Our
net
loss for the three month period ended June 30, 2004 was $226,054. The decrease
in our net loss for the three month period ended June 30, 2005 when compared
to
the same reporting period in the prior year is primarily attributable to
increased revenue received for distribution and licensing rights.
For
the
six month period ended June 30, 2005, we had a net loss of $573,931. Our net
loss for the six month period ended June 30, 2004 was $573,931. The increase
in
our net loss for the six month period ended June 30, 2005 when compared to
the
same reporting period in the prior year is primarily
attributable
to increased depreciation and amortization expenses and the payment of
compensation related expenses for the issuance of stock to our directors and
payroll expenses during the three month period ended March 31, 2005.
Assets
As
of
June 30, 2005, we had current assets of $78,349 and total assets in the amount
of $226,068.
Liquidity
and Capital Resources
As
of
June 30, 2005, we had total current assets of $226,068 of which $78,349
consisted of cash on hand. Our total current liabilities as of June 30, 2005
were $1,054,574. Included in our current liabilities is $873,000 in unearned
revenue due from our distribution agreements entered into with Dermal Defense,
Inc., Cross Global, Inc., and Safe4Hours, Inc. We had a working capital deficit
of $828,506 as of June 30, 2005.
We
believe that we will have sufficient capital to finance our operations over
the
next twelve months. We anticipate that our revenue will continue to increase
during the current fiscal year due to royalty payments due under agreements
entered into with Cross Global and Dermal Defense as well as increased product
sales.
Going
Concern
Our
independent auditors have stated in their Auditor’s Report that we have suffered
recurring losses and negative cash outflows from operations. Our ability to
raise additional capital through future issuance of common stock is unknown.
To
successfully develop and attain profitable operations is unknown. As a result,
our auditor’s concluded that there is a substantial doubt about our ability to
continue as a going concern.
Revenue
Recognition
Revenues
are recognized during the period in which the revenues are received. Costs
and
expenses are recognized during the period in which they are
incurred.
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 June 30, 2005. 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 June
30, 2005, our disclosure controls and procedures are effective. There have
been
no significant changes in our internal controls over financial reporting during
the quarter ended June 30, 2005 that have materially affected or are reasonably
likely to materially affect such controls.
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. An internal control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. 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
On
March
8, 2005, we initiated litigation in the U.S. District Court for the District
of
Nevada against Health First Distributors North America, Inc., a British Columbia
corporation (“HFD”). The complaint seeks declaratory relief to the effect
that the parties must arbitrate a dispute between them in Las Vegas, Nevada,
as
required by the parties’ July 9, 2003, letter of intent as amended by a
subsequent letter dated October 29, 2003. The underlying dispute concerns
whether we must return what we contend was a non-refundable deposit of $100,000
USD towards North American distribution rights for our products. HFD
has
claimed in demand letters that we must return the deposit and has threatened
to
bring suit in British Columbia if we fail to do so. We disagree with
HFD’s
position and have demanded that the dispute be arbitrated in Las Vegas, Nevada,
as required by the parties’ agreement. HFD has refused. Our lawsuit
seeks only a declaration from the court that arbitration is required and that
it
must take place in Las Vegas, Nevada. We served the summons and complaint
on March 17, 2005. As of June 30, 2005, HFD had not answered or otherwise
responded to the litigation.
Skinvisible
Pharmaceuticals, Inc. and our Chief Executive Officer, Terry Howlett, were
named
as defendants in a lawsuit initiated in the U.S. District Court for the Eastern
District of Michigan on March 11, 2005. The lawsuit seeks a judgment against
all
defendants jointly and severally in the amount of $1,025,000 plus other costs,
interest and expenses as the court finds appropriate. The underlying dispute
concerns the circumstances under which the plaintiffs purchased common stock
in
Dermal Defense, Inc., a Nevada corporation. We believe that the lawsuit against
Skinvisible Pharmaceuticals, Inc. and our Chief Executive Officer is without
merit. We filed a motion to dismiss the case against Skinvisible
Pharmaceuticals, Inc. and our Chief Executive Officer and a motion for summary
judgment. This motion was heard on July 27, 2005 and the court has not issued
a
decision.
Other
than as set forth above, there have been no material developments on the ongoing
legal proceedings previously reported in which we are a party. A complete
discussion of our legal proceedings is discussed in our annual report on Form
10-KSB for the year ended December 31, 2004.
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 of 1933 during the three months ended
June
30, 2005.
During
the reporting period, we issued 100,000 shares of restricted common stock to
an
employee in settlement of salary due for services rendered. These shares were
issued pursuant to Section 4(2) of the Securities Act. We did not engage in
any
general solicitation or advertising. We issued the stock certificates and
affixed the appropriate legends to the restricted stock.
During
the reporting period, we issued 1,000,000 shares of common stock to a creditor.
We remained obligated to pay this creditor $130,000 in connection with our
acquisition of certain intellectual property rights and this debt was converted
into shares of common stock. These shares were issued pursuant to Section 4(2)
of the Securities Act. We did not engage in any general solicitation or
advertising. We issued the stock certificates and affixed the appropriate
legends to the restricted stock.
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 June
30,
2005.
Item
5. Other
Information
None
Item
6. Exhibits
|
Exhibit
Number
|
Description
of Exhibit
|
|
31.1
|
|
|
31.2
|
|
|
32.1
|
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:
|
August
12, 2005
|
|
By:/s/ Terry
Howlett
Terry Howlett
Title: President
and Chief Executive Officer
|
12