UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-QSB
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[X]
|
Quarterly
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934
|
|
For
the quarterly period ended September
30, 2006
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|
|
[
]
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Transition
Report pursuant to 13 or 15(d) of the Securities Exchange Act of
1934
|
|
For
the transition period __________
to __________
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|
|
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.)
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|
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6320
South Sandhill Road Suite 10, Las Vegas, Nevada
89120
|
|
(Address
of principal executive offices)
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702-433-7154
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(Issuer’s
telephone number)
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_______________________________________________________________
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(Former
name, former address and former fiscal year, if changed since last
report)
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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: 63,027,748 common shares as of September 30,
2006.
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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||
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PART
II - OTHER INFORMATION
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||
PART
I - FINANCIAL INFORMATION
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Our
unaudited
consolidated financial statements included in this Form 10-QSB are
as
follows:
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|
|
|
|
|
|
|
|
|
|
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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
September 30, 2006 are not necessarily indicative of the results that can be
expected for the full year.
|
September
30, 2006
|
||
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ASSETS
|
||
| Current assets | ||
|
Accounts
receivable, net
|
$
|
71,919
|
|
Inventory
|
47,114
|
|
|
Due
from related party
|
88
|
|
|
Prepaid
expense and other current assets
|
4,985
|
|
|
Total
current assets
|
124,106
|
|
| Fixed assets, net |
30,599
|
|
| Intangible and other assets | ||
|
Patents
and trademarks, net
|
43,750
|
|
|
License
and distributor rights
|
50,000
|
|
|
Prepaid
royalty fees
|
720,000
|
|
| Total assets |
$
|
968,455
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
||
| Current liabilities | ||
|
Accounts
payable and accrued liabilities
|
338,917
|
|
|
Bank
draft
|
6,303
|
|
|
Unearned
revenue
|
868,000
|
|
|
Total
current liabilities
|
1,213,220
|
|
| Long-term liabilities |
-
|
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| Total liabilities |
1,213,220
|
|
| Commitments and contingencies |
-
|
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| Stockholders' deficit | ||
|
Common
stock; $0.001 par value; 100,000,000 shares 63,027,748 shares
issued and outstanding |
63,028
|
|
|
Additional
paid-in capital
|
12,941,971
|
|
|
Stock
subscription payable
|
14,000
|
|
|
Accumulated
deficit
|
(13,263,764)
|
|
|
Total
stockholders' deficit
|
(244,765)
|
|
| Total liabilities and stockholders' deficit |
$
|
968,455
|
See
Accompanying Notes to Consolidated Financial
Statements
SKINVISIBLE,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
|
For
the three months ended September
30, 2006 |
For
the three months ended September
30, 2005 |
For
the nine months ended September
30, 2006 |
For
the nine months ended September
30, 2005 |
||||||||
|
Revenues
|
$
|
172,934
|
$
|
156,093
|
$
|
649,378
|
$
|
644,231
|
|||
|
Cost
of revenues
|
38,726
|
2,993
|
73,218
|
122,985
|
|||||||
|
Gross
profit
|
134,208
|
153,100
|
576,160
|
521,246
|
|||||||
|
Operating
expenses
|
|||||||||||
|
Depreciation
and amortization
|
64,799
|
68,924
|
196,395
|
206,657
|
|||||||
|
Selling
general and administrative
|
455,131
|
297,804
|
2,051,399
|
1,102,149
|
|||||||
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Total
operating expenses
|
519,930
|
366,728
|
2,247,794
|
1,308,806
|
|||||||
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Loss
before provision for income taxes
|
(385,722)
|
|
(213,628)
|
|
(1,671,634)
|
|
(787,560)
|
||||
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Other
income (expense)
|
-
|
2,107
|
192
|
2,107
|
|||||||
|
Total
other income (expense)
|
-
|
2,107
|
192
|
2,107
|
|||||||
|
Provision
for income taxes
|
-
|
-
|
-
|
-
|
|||||||
|
Net
loss
|
$
|
(385,722)
|
|
$
|
(211,521)
|
|
$
|
(1,671,442)
|
|
$
|
(785,453)
|
|
Basic
income (loss) per common share
|
$
|
(0.00)
|
|
$
|
(0.00)
|
|
$
|
(0.03)
|
|
$
|
(0.01)
|
|
Diluted
income (loss) per common share
|
$
|
(0.00)
|
|
$
|
(0.00)
|
|
$
|
(0.03)
|
|
$
|
(0.01)
|
| Basic weighted average common | |||||||||||
|
shares
outstanding
|
61,495,449
|
57,725,248
|
61,495,449
|
57,725,248
|
|||||||
See
Accompanying Notes to Consolidated Financial
Statements
SKINVISIBLE,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
For
the nine months ended
September
30, 2006
|
For
the nine months ended
September
30, 2005
|
||||
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Cash
flows from operating activities:
|
|||||
|
Net
loss
|
$
|
(1,671,442)
|
|
$
|
(785,453)
|
|
Adjustments
to reconcile net loss to net
cash
used by operating activities:
|
|||||
|
Depreciation
and amortization
|
196,395
|
206,657
|
|||
|
Stock
based compensation
|
725,899
|
198,000
|
|||
|
Changes
in operating assets and liabilities:
|
|||||
|
Change
in inventory
|
26,680
|
36,228
|
|||
|
Change
in accounts receivable
|
56,069
|
(23,481)
|
|||
|
Change
in prepaid expenses and other current assets
|
1,359
|
1,467
|
|||
|
Change
in related party receivable
|
4,677
|
(36,707)
|
|||
|
Change
in bank draft
|
6,303
|
12,287
|
|||
|
Change
in accounts payable and accrued liabilities
|
132,201
|
(73,105)
|
|||
|
Change
in unearned revenue
|
(110,000)
|
|
232,000
|
||
|
Net
cash used by operating activities
|
(631,859)
|
|
(232,107)
|
||
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Cash
flows from investing activities:
|
|||||
|
Purchase
of fixed assets and untangible assets
|
(12,870)
|
|
(4,077)
|
||
|
Net
cash used by investing activities
|
(12,870)
|
|
(4,077)
|
||
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Cash
flows from financing activities:
|
|||||
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Proceeds
from stock subscription payable
|
14,000
|
-
|
|||
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Proceeds
from issuance of common stock
|
600,000
|
143,750
|
|||
|
Net
cash provided by financing activities
|
614,000
|
143,750
|
|||
|
Net
change in cash
|
(30,729)
|
|
(92,434)
|
||
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Cash,
beginning of period
|
30,729
|
92,434
|
|||
|
Cash,
end of period
|
$
|
-
|
$
|
-
|
|
|
Supplemental
disclosure of cash flow information:
|
|||||
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Cash
paid for interest
|
$
|
-
|
$
|
-
|
|
|
Stocks
issued for stock subscription receivable
|
$
|
-
|
$
|
10,000
|
|
See
Accompanying Notes to Consolidated Financial Statements
1.
DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT
POLICIES
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.
During
1999, the Company also formed a subsidiary titled Skinvisible International,
Inc. and Skinvisible Pharmaceuticals (Canada), Inc. On January 1, 2000, the
Company decided to discontinue operations of its subsidiary, Skinvisible
International, 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 $13,264,000 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.
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.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.
DESCRIPTION
OF BUSINESS AND SUMMARY OF SIGNIFICANT POLICIES (continued)
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.
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 and common stock equivalent shares outstanding during the period.
Common stock equivalent shares are excluded from the computation if their
effect
is antidilutive.
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.
Comprehensive
income (loss) -
The
Company has no components of other comprehensive income. Accordingly, net
loss
equals comprehensive loss for all periods.
SKINVISIBLE,
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.
DESCRIPTION
OF BUSINESS AND SUMMARY OF SIGNIFICANT POLICIES (continued)
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 years ended September 30, 2006 and 2005, the Company
incurred advertising costs totaling $35,946 and $16,240, 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 -
The
Company applies Accounting Principles Board (“APB”) Opinion No. 25, Accounting
for Stock Issued to Employees, and Related Interpretations, in accounting
for
stock options issued to employees. Under APB No. 25, employee compensation
cost
is recognized when estimated fair value of the underlying stock on date of
the
grant exceeds exercise price of the stock option. For stock options and warrants
issued to non-employees, the Company applies SFAS No. 123, Accounting for
Stock-Based Compensation, which requires the recognition of compensation
cost
based upon the fair value of stock options at the grant date using the
Black-Scholes option pricing model.
The
following table represents the effect on net loss and loss per share if the
Company had applied the fair value based method and recognition provisions
of
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation", to stock-based employee compensation:
|
September
30, 2006
|
September
30, 2005
|
||||
|
Net
loss, as reported
|
$ | (1,576,442) | $ | (785,453) | |
|
Add:
Stock-based employee compensation
expense
included in reported loss,
net
of related tax effects
|
-0- | -0- | |||
|
Deduct:
Total stock-based employee
compensation
expense determined under
fair
value based methods for all awards,
net
of related tax effects
|
-0- | -0- | |||
|
Pro
forma net
loss
|
$ | (1,576,442) | $ | (785,453) | |
|
Net
loss per common share
Basic
and diluted loss, as
reported
|
$ | (0.02) | $ | (0.01) | |
| Basic and diluted loss, pro forma | $ | (0.02) | $ | (0.01) | |
SKINVISIBLE,
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.
DESCRIPTION
OF BUSINESS AND SUMMARY OF SIGNIFICANT POLICIES (continued)
As
required, the pro forma disclosures above include options granted for periods
ended September 30, 2006 and 2005. Consequently, the effects of applying
SFAS
123 for providing pro forma disclosures may not be representative of the
effects
on reported net income for future years until all options outstanding are
included in the pro forma disclosures.
In
May
2005, the FASB issued SFAS No. 154, “Accounting Changes and Error
Corrections” (“SFAS 154”). SFAS 154 replaces Accounting Principles
Board Opinion No. 20 “Accounting Changes” and SFAS No. 3,
“Reporting Accounting Changes in Interim Financial Statements-An Amendment
of
APB Opinion No. 28.” SFAS 154 provides guidance on the accounting for
and reporting of accounting changes and error corrections. SFAS 154
requires “retrospective application” of the direct effect of a voluntary change
in accounting principle to prior periods’ financial statements where it is
practicable to do so. SFAS 154 also redefines the term “restatement” to
mean the correction of an error by revising previously issued financial
statements. SFAS 154 is effective for accounting changes and error
corrections made in fiscal years beginning after December 15, 2005 unless
adopted early. We do not expect the adoption of SFAS 154 to have a material
impact on its consolidated financial position, results of operations or cash
flows, except to the extent that the statement subsequently requires
retrospective application of a future item.
In
February 2006, the FASB issued Statement of Financial Accounting Standards
No. 155, Accounting
for Certain Hybrid Financial Instruments
(“SFAS
No. 155”), which amends Statement of Financial Accounting Standards
No. 133, Accounting
for Derivative Instruments and Hedging Activities
(“SFAS
No. 133”) and Statement of Financial Accounting Standards No. 140,
Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities
(“SFAS
No. 140”). SFAS No. 155 permits fair value measurement for any hybrid
financial instrument that contains an embedded derivative that otherwise
would
require bifurcation, establishes a requirement to evaluate interests in
securitized financial assets to identify interests that are freestanding
derivatives or hybrid financial instruments containing embedded derivatives.
We expect the adoption of SFAS 155 to have a material impact on
its consolidated financial position, results of operations or cash
flows.
In
March
2006, the FASB issued Statement of Financial Accounting Standards No. 156,
Accounting
for Servicing of Financial Assets (“SFAS
No. 156”), which amends FASB Statement No. 140 (“SFAS No. 140”). SFAS 156 may be
adopted as early as January 1, 2006, for calendar year-end entities, provided
that no interim financial statements have been issued. Those not choosing
to
early adopt are required to apply the provisions as of the beginning of the
first fiscal year that begins after September 15, 2006 (e.g., January 1,
2007,
for calendar year-end entities). The intention of the new statement is to
simplify accounting for separately recognized servicing assets and liabilities,
such as those common with mortgage securitization activities, as well as
to
simplify efforts to obtain hedge-like accounting. Specifically, the FASB
said FAS No. 156 permits a service using derivative financial instruments
to
report both the derivative financial instrument and related servicing asset
or
liability by using a consistent measurement attribute, or fair value. We
do not expect the adoption of SFAS 155 to have a material impact on its
consolidated financial position, results of operations or cash
flows.
2.
FIXED
ASSETS
Fixed
assets consist of the following as of September 30, 2006:
| Machinery and equipment | $ | 55,463 |
| Furniture and fixtures | 113,635 | |
| Computers, equipment and software | 40,620 | |
| Leasehold improvements | 12,569 | |
| Lab equipment | 115,946 | |
| 338,233 | ||
| Less: accumulated depreciation | 307,634 | |
| Fixed assets, net | $ | 30,599 |
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3.
INTANGIBLE
AND OTHER ASSETS
Patents
and trademarks are capitalized at its historical cost and are amortized over
their useful lives. As of September 30, 2006, patents and trademarks total
$70,232, net of accumulated amortization of $26,482.
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 September 30, 2006.
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 royalties 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 September 30, 2006, the Company
has paid a total of $1,610,000 of which $890,000 has been expensed and $720,000
has been recorded as prepaid royalties which will expense in the future in
accordance to the terms of the agreement. The remaining future royalties
payments related to the agreement approximates $300,000.
4.
STOCK
OPTIONS AND WARRANTS
Stock
options -
During
the periods ended September 30, 2006 and 2005, the Company granted stock
options
totaling -0- and -0- shares of its common stock with a weighted average strike
price of $-0- and $-0- per share, respectively. Certain stock options were
exercisable upon grant and have a life ranging from 3 months to 5 years.
As of
September 30, 2006, stock options outstanding totaled 9,587,525 with a weighted
average strike price of $0.11 per share.
Stock
warrants -
During
the periods ended September 30, 2006 and 2005, the Company granted stock
warrants totaling -0- and -0- shares of its common stock with a weighted
average
strike price of $-0- and $-0- per share, respectively. As of September 30,
2006,
stock warrants outstanding totaled 2,610,000 with a weighted average strike
price of $0.11 per share.
5.
MARKETING
AND DISTRIBUTION AGREEMENTS
In
February 2005, the Company entered into an agreement with Dermal Defense,
Inc.
for the exclusive marketing and distribution rights to its patented
Antimicrobial Hand Sanitizer product for North America. Terms of the agreement
require Dermal Defense, Inc. 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 September 30, 2006, the Company
has received $918,000 and has reflected $368,000 as unearned revenue and
$150,000 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
June
2004, the Company entered into an 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 September 30,
2006,
the Company has received $1,000,000 and has reflected $500,000 as unearned
revenue and $150,000 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.
SKINVISIBLE,
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5.
MARKETING
AND DISTRIBUTION AGREEMENTS (continued)
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 September 30,
2006,
the Company has received $110,000 and has reflected $50,000 as revenue in
the
accompanying consolidated financial statements. The Company has yet to receive
$110,000 as reflected under the contract. This amount that is due to the
Company
has been record as an accounts receivable. In addition and further to the
payment fee of $1 million Safe4Hours, Inc. agrees to pay a royalty fee of
5% on
product sales of the antimicrobial hand sanitizer beginning in the 3rd
quarter
of 2005. In
June
2006, the Company decided to terminate the relationship due to lack of payment
under the terms of the distribution agreement.
In
October 2005, the Company entered into a distribution agreement with EMD
Chemicals Inc. (“EMD”) whereby, the Company would provide exclusive marketing
and distribution rights to its proprietary polymer delivery system “Invisicare”
for all countries of the world. Terms of the agreement states that the Company
would grant EMD options to purchase shares of their common stock. A stock
option
agreement was executed on February 27, 2006, where the Company granted EMD
the
option to purchase 5,817,525 shares of common stock at the exercise price
of
$0.172 per share until December 31, 2006.
6.
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 September 30, 2006 are
as
follows:
| 2006 | $ | $23,205 |
Rental
expense, resulting from operating lease agreements, approximated $70,632
for the
period ended September 30, 2006.
7.
STOCK
SUBSCRIPTION PAYABLE
During
September 2006, the Company entered into an agreement to convert debt of
$14,000
for the shares issued in the year ending December 31, 2006.
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 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 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 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. 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.
Part
of
the consideration of the Agreement is that we would grant EMD options to
purchase shares of our common stock. The terms for the issuance of options
were
established and 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.
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
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. Negotiations on ongoing with a
party that is seeking to acquire these rights, but can provide no assurance
that
these negotiations will result in an agreement.
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.
At
the present time, Cross Global is delinquent in making its royalty payments.
We
are negotiating with Cross Global regarding this matter. 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.
Sunscreen
and Skin Care Products
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 our polymer delivery
vehicles
for incorporation into these products on a private label basis and have multiple
agreements in place.
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
|
| · |
Anti-fungal
|
| · |
Hydro-gels
|
| · |
New
antibacterial/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. 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 the Agreement with EMD entered into
on
October 7, 2005. 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.
Anti-fungal
We
have
an oral agreement with a pharmaceutical company relating to the research and
development of an anti-fungal product that incorporates our topical
polymer-based delivery systems with an active compound they provided. This
company paid for our research and development activities as it relates to this
product in exchange for the ability to acquire the exclusive worldwide licensing
rights to distribute and sell the product should our research and development
prove successful. We have completed our initial research and development,
but further testing remains to be conducted. The company is presently
conducting certain skin sensitivity testing. In the event that the skin study
is
successfully completed and we execute a licensing agreement with the company,
the company agreed to commence a filing with the FDA for a new drug approval
in
the United States. A definitive licensing agreement would require the company
to
pay us an upfront license fee plus ongoing royalty payments based on worldwide
sales of the anti-fungal product. There can be no assurance that we will
successfully complete the research and development of this product or that
this
product will receive FDA approval to market and sell this potential product
in
the United States.
During
the three months ended June 30, 2006, we developed a hydro-gel product that
incorporates our topical polymer-based delivery system 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.
New
Antibacterial/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 foreign jurisdiction.
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.
Results
of Operations for the three and nine months ended September 30, 2006 and
2005
Revenues
Our
total
revenue reported for the three months ended September 30, 2006 was $172,934,
a
10% increase from $156,093 for the three months ended September 30, 2005. During
the three months ended September 30, 2006, $120,000 of the revenue generated
was
attributable to payments for royalties
and distribution and licensing rights of
our
products and $52,935 of the revenue generated was attributable to product sales.
For
the
three months ended September 30, 2005, we generated revenue of $6,093 from
product sales and $150,000 from royalty and licensing fees. The increase in
our
total revenue for
the
three months ended September 30, 2006 from the same reporting period in the
prior year is primarily attributable to increase product sales.
Our
total
revenue reported for the nine months ended September 30, 2006 was $649,378,
a 1%
increase from $644,231 for the nine months ended September 30, 2005. During
the
nine months ended September 30, 2006, $415,000 of the revenue generated was
attributable to payments for royalties and distribution and licensing rights
of
our products, $24,000 was attributable to product development fees, and $210,378
of the revenue generated was attributable to product sales. During the nine
months ended September 30, 2005, $406,000 of the revenue generated was
attributable to payments for royalties and distribution and licensing rights
of
our products and $234,809 of the revenue generated was attributable to product
sales.
Cost
of Revenues
Our
cost
of revenues for the three months ended September 30, 2006 increased to $38,726
from the same reporting period in the prior year when cost of revenues was
$2,993. The increase in cost of revenues for the for the three months ended
September 30, 2006 from the same reporting period in the prior year is
attributable to increased product sales.
Our
cost
of revenues for the nine months ended September 30, 2006 decreased to $73,218
from the same reporting period in the prior year when cost of revenues was
$122,985. The decrease in our cost of revenues is attributable to a shift in
our
business during fiscal 2006 where we primarily sold our polymers and not
packaged products that incorporate our polymers. The cost to produce our
polymers is significantly less than the costs associated with producing packaged
products that incorporate our polymers.
Gross
Profit
Gross
profit increased to $134,208, or approximately 77% of sales, for the three
months ended September 30, 2006. This is a decrease from a gross profit of
$153,100, or approximately 98% of sales for the three months ended September
30,
2005. The decrease in gross profit for the for the three months ended September
30, 2006 from the same reporting period in the prior year is attributable to
increased product sales and less revenue generated from royalties and
distribution and licensing rights which have no associated cost of
revenues.
Gross
profit increased to $576,160, or approximately 88% of sales, for the nine months
ended September 30, 2006. This is an increase from a gross profit of $521,246,
or approximately 81% of sales for the nine months ended September 30, 2005.
The
increase in gross profit for the nine months ended September 30, 2006 is
primarily attributable increased sales of our polymers that have higher profit
margins. In prior reporting periods, our product sales consisted primary of
packaged products that incorporate our polymers which have lower profit margins.
Operating
Expenses
Operating
expenses increased to $519,930 for the three months ended September 30, 2006
from $366,728 for the three months ended September 30, 2005. Our operating
expenses for the three months ended September 30, 2006 consisted of depreciation
and amortization expenses of $64,799 and selling, general and administrative
expenses of $455,131. Our operating expenses for the three months ended
September 30, 2005 consisted of depreciation and amortization expenses of
$68,924 and selling, general and administrative expenses of $297,804. The
increase in operating expenses for the three months ended September 30, 2006
from the prior year is primarily attributable to expenditures associated with
the research and development of the Chlorhexidine antimicrobial hand sanitizer
lotion.
Operating
expenses increased to $2,152,794 for the nine months ended September 30, 2006
from $1,308,806 for the nine months ended September 30, 2005. Our operating
expenses for the nine months ended September 30, 2006 consisted of depreciation
and amortization expenses of
$196,395
and selling, general and administrative expenses of $1,956,399. Stock-based
compensation of $725,899 was a significant component of our general and
administrative expenses for the three months ended September 30, 2006. Our
operating expenses for the nine months ended September 30, 2005 consisted of
depreciation and amortization expenses of $206,657 and selling, general and
administrative expenses of $1,102,149. Stock-based compensation accounted for
$198,000 of our general and administrative expenses for the three months ended
September 30, 2006. The increase in operating expenses for the nine months
ended
September 30, 2006 from the prior year is primarily attributable to expenditures
associated with the research and development of the Chlorhexidine antimicrobial
hand sanitizer lotion and stock based compensation related to the stock options
issued to EMD during the first quarter of 2006.
Net
Loss
Net
loss
for the three months ended September 30, 2006 was $385,722, compared to net
loss
of $211,521 for the three months ended September 30, 2005. Net loss for the
nine
months ended September 30, 2006 was $1,576,442, compared to a net loss of
$785,453 for the nine months ended September 30, 2005. The increase in our
net
loss was primarily attributable to increased expenditures for research and
product development.
Our
loss
per common share for the three months ended September 30, 2006 was $0.00,
compared to a loss per common share of $0.00 for the three months ended
September 30, 2005. Our loss per common share for the nine months ended
September 30, 2006 was $0.03, compared to a loss per common share of $0.01
for
the nine months ended September 30, 2005.
Liquidity
and Capital Resources
As
of
September 30, 2006, we had total current assets of $219,106 and total assets
in
the amount of $1,063,455. Our total current liabilities as of September 30,
2006
were $1,213,220. Included in our current liabilities is $868,000 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 $994,114 as of September 30, 2006.
Operating
activities used $631,859 in cash for the nine months ended September 30, 2006.
Our net loss of $1,576,442 was the primary component of our negative operating
cash flow. There were no investing activities during the nine months ended
September 30, 2006. Cash flows provided by financing activities during the
nine
months ended September 30, 2006 consisted of $600,000 as proceeds from the
issuance of common stock and $14,000 for proceeds from stock subscriptions
receivable.
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
September 30, 2006, there were no off balance sheet arrangements.
Going
Concern
We
have
incurred cumulative net losses of approximately $13,264,000 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.
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.
Fixed
assets
Fixed
assets are stated at cost less accumulated depreciation. Depreciation is
provided principally on the straight-line method over the estimated useful
lives
of the assets, which are generally 3 to 10 years. The cost of repairs and
maintenance is charged to expense as incurred. Expenditures for property
betterments and renewals are capitalized. Upon sale or other disposition of
a
depreciable asset, cost and accumulated depreciation are removed from the
accounts and any gain or loss is reflected in other income (expense).
We
periodically evaluate whether events and circumstances have occurred that may
warrant revision of the estimated useful life of fixed assets or whether the
remaining balance of fixed assets should be evaluated for possible impairment.
We use an estimate of the related undiscounted cash flows over the remaining
life of the fixed assets in measuring their recoverability.
Recently
Issued Accounting Pronouncements
In
May
2005, the FASB issued SFAS No. 154, “Accounting Changes and Error
Corrections” (“SFAS 154”). SFAS 154 replaces Accounting Principles
Board Opinion No. 20 “Accounting Changes” and SFAS No. 3,
“Reporting Accounting Changes in Interim Financial Statements-An Amendment of
APB Opinion No. 28.” SFAS 154 provides guidance on the accounting for
and reporting of accounting changes and error corrections. SFAS 154
requires “retrospective application” of the direct effect of a voluntary change
in accounting principle to prior periods’ financial statements where it is
practicable to do so. SFAS 154 also redefines the term
“restatement”
to mean the correction of an error by revising previously issued financial
statements. SFAS 154 is effective for accounting changes and error
corrections made in fiscal years beginning after December 15, 2005 unless
adopted early. We do not expect the adoption of SFAS 154 to have a material
impact on our consolidated financial position, results of operations or cash
flows, except to the extent that the statement subsequently requires
retrospective application of a future item.
In
February 2006, the FASB issued Statement of Financial Accounting Standards
No. 155, Accounting
for Certain Hybrid Financial Instruments
(“SFAS
No. 155”), which amends Statement of Financial Accounting Standards
No. 133, Accounting
for Derivative Instruments and Hedging Activities
(“SFAS
No. 133”) and Statement of Financial Accounting Standards No. 140,
Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities
(“SFAS
No. 140”). SFAS No. 155 permits fair value measurement for any hybrid
financial instrument that contains an embedded derivative that otherwise would
require bifurcation, establishes a requirement to evaluate interests in
securitized financial assets to identify interests that are freestanding
derivatives or hybrid financial instruments containing embedded derivatives.
We expect the adoption of SFAS 155 to have a material impact on
our consolidated financial position, results of operations or cash
flows.
In
March
2006, the FASB issued Statement of Financial Accounting Standards No. 156,
Accounting
for Servicing of Financial Assets (“SFAS
No. 156”), which amends FASB Statement No. 140 (“SFAS No. 140”). SFAS 156 may be
adopted as early as January 1, 2006, for calendar year-end entities, provided
that no interim financial statements have been issued. Those not choosing to
early adopt are required to apply the provisions as of the beginning of the
first fiscal year that begins after September 15, 2006 (e.g., January 1, 2007,
for calendar year-end entities). The intention of the new statement is to
simplify accounting for separately recognized servicing assets and liabilities,
such as those common with mortgage securitization activities, as well as to
simplify efforts to obtain hedge-like accounting. Specifically, the FASB
said FAS No. 156 permits a service using derivative financial instruments to
report both the derivative financial instrument and related servicing asset
or
liability by using a consistent measurement attribute, or fair value. We
do not expect the adoption of SFAS 155 to have a material impact on our
consolidated financial position, results of operations or cash
flows.
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 September 30, 2006. 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 September 30, 2006, our disclosure controls and procedures are
effective. There have been no changes in our internal controls over financial
reporting during the quarter ended September 30, 2006.
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.
There
have been no material developments in the ongoing legal proceedings previously
reported in which we are a party. A complete discussion of our ongoing legal
proceedings is discussed in our annual report on Form 10-KSB for the year ended
December 31, 2005.
None
None
During
the reporting period on August 31, 2006, we held the annual meeting of our
security holders. The meeting was called for the purpose of electing directors,
confirming the appointment of Sarna & Company as the company’s independent
certified public accountant for the fiscal year ended December 31, 2006, and
for
approval of the adoption of the 2006 Skinvisible, Inc. Stock Incentive Plan.
The
total number of shares of common stock outstanding on the record date, July
17,
2006, was 63,027,748 shares. The number of votes represented at the meeting
was
39,405,374 shares, or 62.5% of the shares eligible to vote.
The
following individuals were elected as directors with the votes being as
follows:
|
Nominee
|
Votes
Cast For
|
Votes
Cast Against
|
Votes
Withheld
|
|||
|
Terry
Howlett
|
32,269,375
|
1,018,219
|
100
|
|||
|
Jost
Steinbruchel
|
33,259,294
|
27,300
|
100
|
|||
|
Greg
McCartney
|
33,259,294
|
27,300
|
100
|
The
appointment of Sarna & Company as the Company’s independent certified public
accountant for the fiscal year ended December 31, 2006 was confirmed, with
the
votes cast being as follows:
|
Votes
Cast For
|
Votes
Cast Against
|
Votes
Withheld
|
||
|
33,909,994
|
29,800
|
7,200
|
With
respect to the approval of the adoption of the 2006 Skinvisible, Inc. Stock
Incentive Plan,
votes
were cast for confirmation as follows:
|
Votes
Cast For
|
Votes
Cast Against
|
Votes
Withheld
|
Not
Voted
|
||
|
2,615,100
|
1,142,619
|
314,700
|
35,332,955
|
No
other
matters were acted upon by our security holders at our annual meeting.
None
|
Exhibit
Number
|
Description
of Exhibit
|
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:
|
November
14, 2006
|
|
By: /s/
Terry Howlett
Terry
Howlett
Title: Chief
Executive Officer, Chief Financial Officer and
Director
|