<PAGE>
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 September 30, 1999
[ ] Transition Report pursuant to 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number 0-25911
SKINVISIBLE, INC.
(Exact name of Small Business Issuer as specified in its charter)
Nevada 88-0344219
- ------ ----------
(State or other jurisdiction of (IRS Employer
incorporation ) Identification No.)
3095 East Patrick Road, Suite 1, 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 by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant 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 equity, as of the latest practicable date:
10,209,000 shares of Common Stock as of November 15, 1999.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
PART 1 B FINANCIAL INFORMATION
Item 1. Financial Statements
GENERAL
The Company's unaudited financial statements for the nine months
ending September 30, 1999 are included with this Form 10-QSB. The
unaudited financial statements for the nine months ending September
30, 1999 include:
(a) Consolidated Balance Sheet as of September 30, 1999 and
September 30, 1998;
(b) Consolidated Statement of Operations and Accumulated
Deficit - Nine months ended September 30, 1999 and
September 30, 1998;
(c) Consolidated Statement of Changes in Shareholders' Equity
- - Nine months ended September 30, 1999 and September 30,
1998;
(d) Consolidated Statement of Cash Flows - Nine months ended
September 30, 1999 and September 30, 1998;
(e) Notes to Consolidated Financial Statements.
The unaudited financial statements have been prepared in accordance
with the instructions to Form 10-QSB and, therefore, do not include
all information and footnotes necessary for a complete presentation
of financial position, results of operations, cash flows, and
stockholders' equity in conformity with generally accepted
accounting principles. In the opinion of management, all
adjustments considered necessary for a fair presentation of the
results of operations and financial position have been included and
all such adjustments are of a normal recurring nature. Operating
results for the nine months ended September 30, 1999 are not
necessarily indicative of the results that can be expected for the
year ending December 31, 1999.
FINANCIAL STATEMENTS
2
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SKINVISIBLE, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Page
----
Accountant's Review Report. . . . . . . . . . . . . . . 1
Consolidated Financial Statements:
Consolidated Balance Sheet. . . . . . . . . . . . . . 2
Consolidated Statement of Operations
and Accumulated Equity . . . . . . . . . . . . . . .3
Consolidated Statement of Changes in
Stockholders' Equity. . . . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows. . . . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . 6-10
Supplemental Statements:
Consolidated Statement of Operating
Expenses. . . . . . . . . . . . . . . . . . . . . 12
<PAGE>
To the Board of Directors
Skinvisible, Inc. and Subsidiaries
Las Vegas, Nevada
We have reviewed the accompanying consolidated balance sheet of
Skinvisible, Inc., and subsidiaries, a development stage company,
as of September 30, 1999 and 1998 and the related consolidated
statements of operations and accumulated deficit, changes in
stockholders' equity, and statement of cash flows for the nine months
then ended, in accordance with standards established by the American
Institute of Certified Public Accountants. All information included
in these financial statements is the representation of the management
of Skinvisible, Inc.
A review consists principally of inquiries of Company personnel and
analytical procedures applied to financial data. It is substantially
less in scope than an examination in accordance with generally accepted
auditing standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying financial statements in order
for them to be in conformity with generally accepted accounting
principles.
Our review was made for the purpose of expressing limited assurance
that there are no material modifications that should be made to the
financial statements in order for them to be in conformity with
generally accepted accounting principles. The supplemental
consolidated statement of operating expenses for the nine months
ended September 30, 1999 and 1998 are presented for the purposes
of additional analysis and are not a required part of the basic
financial statements. Such information has been subjected to the
inquiry and analytical procedures applied in the review of the
basic financial statements, and we are not aware of any material
modifications that should be made thereto.
Sarna & Company
Westlake Village, California
November 2, 1999
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SKINVISIBLE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
ASSETS SEPTEMBER 30
------------
1999 1998
-------------------
Current Assets
Cash $ 52,668 $ 70,110
Accounts Receivable 54,545 6,031
Inventory 148,150 17,096
Prepaid License Fee 50,000 50,000
Advances 620 - 0 -
----------- ----------
Total Current Assets 305,983 143,237
Property and Equipment
Furniture and Equipment 139,468 80,017
Laboratory Build-Out 277,806 - 0 -
----------- ----------
Total Property and Equipment 417,274 80,017
Less Accumulated Depreciation <46,883> <5,270>
----------- ----------
Net Property and Equipment 370,391 74,747
Other Assets - Exclusive Distribution Rights 200,000 200,000
- Prepaid Royalty 1,000,000 - 0 -
- Deposits 6,286 - 0 -
---------- ----------
TOTAL ASSETS $1,882,660 $ 417,984
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable
and Accrued Expenses $ 519,943 $ 119,907
Loan Payable 1,212,675 150,000
---------- ----------
Total Current Liabilities 1,732,618 269,907
Stockholders' Equity
Common Stock, $0.001 par value
100,000,000 shares authorized,
10,209,000 and 8,200,000 shares issued 10,209 8,200
Additional paid in capital 3,447,891 946,400
Accumulated Deficit <3,308,057> <806,523>
---------- ----------
Total Stockholders' Equity 150,043 148,077
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,882,660 $ 417,984
========== ==========
See Notes to Consolidated Financial Statements
2
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SKINVISIBLE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
NINE MONTHS
ENDED SEPTEMBER 30
1999 1998
------------------------
Revenues $ 148,068 $ 9,671
Cost of Sales
Beginning Inventory 47,530 - 0 -
Purchases 40,518 31,245
---------- ---------
Total Available 88,048 31,245
Less: Ending Inventory <148,150> <117,096>
Sample Distribution - 0 - <10,996>
---------- ---------
Total Cost of Sales <60,102> <3,153>
---------- ---------
Gross Profit 87,966 6,518
Operating Expenses <2,130,583> <813,041>
----------- ----------
Loss Before Provision for Income Taxes <2,042,617> <806,523>
Provision for Income Taxes <0> <0>
----------- ----------
Net Loss <2,042,617> <806,523>
Accumulated Deficit,
Beginning of Period <1,265,440> <0>
----------- ----------
Accumulated Deficit, End of Period $<3,308,057> $ <806,523>
=========== ==========
Net Loss per Share $ <.20> $ <.10>
=========== ==========
Weighted Average Shares Outstanding 10,207,000 8,200,000
=========== ==========
See Notes to Consolidated Financial Statements
3
<PAGE>
SKINVISIBLE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS
ENDED SEPTEMBER 30
1999 1998
------------------------
Shares of Common Stock Issued:
Beginning Balance 8,200,000 - 0 -
Issuance Pursuant to:
Stock Offering 1,500,000 8,200,000
Royalty Payment Agreement 500,000 - 0 -
Stock Option Plan 9,000 - 0 -
--------- ---------
Ending Balance 10,209,000 8,200,000
========== =========
Common Stock Par Value
Beginning Balance $ 8,200 $ - 0 -
Issuance Pursuant to:
Stock Offering 1,500 8,200
Royalty Payment Agreement 500 - 0 -
Stock Option Plan 9 - 0 -
---------- ---------
Ending Balance 10,203 8,200
---------- ---------
Additional Paid in Capital
Beginning Balance 936,400 - 0 -
Issuance Pursuant to:
Stock Offering 1,498,500 946,400
Royalty Payment Agreement 999,500 - 0 -
Stock Option Plan 13,491 - 0 -
--------- ---------
Ending Balance 3,447,891 946,400
--------- ---------
Accumulate Deficit
Beginning Balance <1,265,440> - 0 -
Net Loss <2,042,617> <806,523>
--------- ---------
Ending Balance <3,308,057> <806,523>
--------- ---------
Total Stockholders' Equity $ 150,043 $ 148,077
========== =========
See Notes to Consolidated Financial Statements
4
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SKINVISIBLE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS
ENDED SEPTEMBER 30
1999 1998
------------------------
Cash Flows from Operating Activities:
Net Loss $ <2,042,617> $ <806,523>
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating
Activities
Depreciation 38,025 5,270
<Increase> Decrease in:
Accounts Receivable <50,130> <6,031>
Inventory <100,620> <17,096>
Advances <620> - 0 -
Other Assets
- Prepaid Royalty <1,000,000> - 0 -
- Distribution Rights - 0 - <200,000>
- Deposits <5,886> - 0 -
- Prepaid Licensing Fee - 0 - <50,000>
Increase <Decrease> in:
Accounts Payable and
Accrued Expenses 396,220 119,907
---------- ---------
Net Cash Used by Operating Activities <2,766,028> <954,473>
Cash Flows from Investing Activities:
Purchases of Property and Equipment <293,254> <80,017>
--------- ---------
Net Cash Used by Investing Activities <293,254> <80,017>
Cash Flows from Financing Activities:
Payment of Loan Principal 487,674 150,000
Net Proceeds from the Issuance of
Common Stock 2,513,500 954,600
--------- ---------
Net Cash Provided by
Financing Activities 3,001,174 1,104,600
--------- ---------
Net Increase <Decrease> in Cash <58,108> 70,110
Cash at Beginning of Period 110,776 - 0 -
--------- --------
Cash at End of Period $ 52,668 $ 70,110
========= ========
Supplemental Disclosure:
Interest Paid $ 68,258 $ - 0 -
========= ========
See Notes to Consolidated Financial Statements
5
<PAGE>
SKINVISIBLE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
General
- -------
Skinvisible, Inc. (formerly Microbial Solutions, Inc.) was incorporated on
March 6, 1998 in the state of Nevada. Skinvisible, Inc. immediately
acquired 100% ownership of Skinvisible Pharmaceutical, Inc. (formerly
Manloe Labs, Inc.) also a Nevada corporation.
Skinvisible, Inc. and its subsidiaries, (collectively referred to as the
"Company" or "SKVI") develops and sells various licensed anti-bacterial and
anti-viral protectants and formulations to numerous industries. The
Company maintains manufacturing, executive and sales offices at Las Vegas,
Nevada.
Name Change
- -----------
On February 26, 1999, the company completed the legal process of changing
its name from Microbial Solutions, Inc. to Skinvisible, Inc. The
subsidiaries name of Manloe Labs, Inc. was also changed on February 26,
1999 to Skinvisible Pharmaceutical, Inc.
During 1999, the Company formed subsidiaries titled Skinvisible
International, Inc., Skinvisible Canada to encompass Canadian and other
international ventures.
Basis of Presentation
- ---------------------
The consolidated financial statements include the accounts of Skinvisible,
Inc. and it's subsidiaries, Skinvisible Pharmaceutical, Inc., Skinvisible
International, Inc., and Skinvisible Canada. All material intercompany
balances have been eliminated.
The Company reports revenue and expenses using the accrual method of
accounting for financial and tax reporting purposes. The Company records
registration fee income from its multi-level marketing associates ratably
over an estimated useful benefit period. All reported amounts are in US
dollars.
6
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SKINVISIBLE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
- ---------------------------------------------------------------
Use of Estimates
- ----------------
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting principles.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses.
Development Stage Company
- -------------------------
SKVI meets the guidelines of SFAS No. 7 and as such is classified as a
development stage company.
Pro Forma Compensation Expense
- ------------------------------
SKVI accounts for costs of stock-based compensation in accordance with APB
No. 25, "Accounting for Stock Based Compensation" instead of the fair value
based method in SFAS No. 123. Stock options issued by SKVI carry exercise
prices in excess of prices that shares can currently be purchased for.
Management feels that the exercise of any substantial amount of options is
unlikely until the company emerges from its development stage.
Accordingly, no pro forma compensation expense is reported in these
financial statements with the exception of the expense recorded on the
exercise of options on 9000 shares during the period ended September 30,
1999.
Inventories
- -----------
Inventories are accounted for on an average cost basis. Inventory at any
given time consists of raw materials and products and packaging held for
resale.
Property and Equipment
- ----------------------
Property and equipment are stated at historical cost.
7
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SKINVISIBLE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
- ---------------------------------------------------------------
Depreciation, Amortization and Capitalization
- ---------------------------------------------
The Company records depreciation and amortization using both straight-line
and declining balance methods over the estimated useful life of the assets
(five to seven years).
Expenditures for maintenance and repairs are charged to expense as
incurred. Additions, major renewals and replacements that increase the
property's useful life are capitalized. Property sold or retired, together
with the related accumulated depreciation, is removed from the appropriate
accounts and the resultant gain or loss is included in net income.
Income Taxes
- ------------
The company accounts for its income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".
Under Statement 109, a liability method is used whereby deferred tax assets
and liabilities are determined based on temporary differences between basis
used for financial reporting and income tax reporting purposes. Income
taxes are provided based on tax rates in effect at the time such temporary
differences are expected to reverse. A valuation allowance is provided for
certain deferred tax assets if it is more likely than not, that the Company
will not realize the tax assets through future operations.
Fair Value of Financial Instruments
- -----------------------------------
Financial accounting Standards Statement No. 107, "Disclosures 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 Company's financial
instruments consist primarily of cash and certain investments.
Per Share Information
- ---------------------
The Company computes per share information by dividing the net loss for the
period presented by the weighted average number of shares outstanding
during such period. The effect of common stock equivalents would be
antidilutive and is not included in net loss per share calculations.
8
<PAGE>
SKINVISIBLE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
- ---------------------------------------------------------------
Year 2000 Compliance
- --------------------
The Year 2000 issue is the result of computer programs having been written
using two digits (rather than four) to define years. Computers or other
equipment with date-sensitive software may recognize "00" as 1900 rather
than 2000. This could result in system failure or miscalculations. If the
Company or significant customers, suppliers, or other third parties fail to
correct Year 2000 issues, the Company's ability to operate could be
affected.
The following disclosure is pursuant to the Year 2000 Readiness and
Disclosure Act.
The Company's Year 2000 program is designed to minimize the possibility of
Year 2000 interruptions. Any such interruption may have a material adverse
impact on the Company's future operating results. In 1999, the Company
established procedures to identify and assess systems and processes
vulnerable to Year 2000 problems. The Company also developed procedures to
monitor levels of compliance within its stated goals of compliance. In
each area of vulnerability, various testing and readiness methodologies are
being used to identify and correct suspect systems, processes or supplier
interfaces. The Company projects to meet its Year 2000 compliance goals
prior to the end of 1999.
Recently Issued Accounting Pronouncements
- -----------------------------------------
Recently issued accounting pronouncements will have no significant impact
on the Company and its reporting methods.
NOTE 2 - PROVISION FOR INCOME TAXES
- -----------------------------------
The provision for income taxes for the periods ended June 30, 1999 and 1998
represents the minimum state income tax expense of the Company, which is
not considered significant.
NOTE 3 - LOAN PAYABLE
- ---------------------
Loan payable at September 30, 1999 consists of monies advanced as a short
term operating loan. This loan is unsecured and bears interest at the rate
of 10% per annum.
9
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SKINVISIBLE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
Operating Leases
- ----------------
The company leases 8556 square feet of manufacturing and office space under
a noncancelable operating lease. This operating lease terminates on April
14, 2002. In connection with the lease arrangement, the Company is
obligated to make rental payments of $6123 per month with annual increases
of 3%.
On June 6, 1999 the company entered into an additional lease for
approximately 3,772 square feet of office space. This lease terminates on
June 30,2001 with minimum monthly rental payments starting at $3,590 and
subject to annual cost of living increases.
Future annual minimum rental commitments are as follows:
Year
----
1999 $ 59368
2000 $ 121032
2001 $ 101832
2002 $ 24122
Litigation
- ----------
The Company is not presently involved in any litigation.
Licensing, Royalty and Consulting Agreements
- --------------------------------------------
The Company has currently entered into, and will continue to enter into,
product licensing, royalty and consulting agreements that the Company's
board of directors determine will enhance the Company's ability to market
innovative products in a competitive field.
Note 4 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
- --------------------------------------------------
At September 30, 1999, the company has future royalty payment commitments
totaling approximately $1,000,000.
NOTE 5 - STOCK OPTIONS
- ----------------------
During the period ended September 30, 1999 the company issued stock options
with exercise prices ranging from $1.50 to $4.00 per share, as incentives
for employee and consultant performance. Options on 1,263,500 shares of
common stock were outstanding at September 30, 1999. The exercise of any
or all of these options would cause reported losses per share to decrease.
10
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SUPPLEMENTAL INFORMATION
<PAGE>
SKINVISIBLE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATING EXPENSES
NINE MONTHS
ENDED SEPTEMBER 30
1999 1998
------------------------
Operating Expenses
Advertising $123,202 $ 53,292
Automobile Expense 26,839 - 0 -
Bad Debt Expense 839 - 0 -
Bank Charges 1,134 1,075
Consulting - Investor Relations 140,419 - 0 -
Consulting - Sales 74,540 - 0 -
Consulting - Technical 59,334 - 0 -
Data Processing 39,499 - 0 -
Depreciation 38,025 5,270
Director Fees 34,000 - 0 -
Discounts - Credit Cards 468 - 0 -
Donations 75 - 0 -
Dues and Subscriptions 10,420 950
Equipment Leases - 0 - 29,892
Expenses - Canadian Operations 40,744 - 0 -
Insurance 38,183 15,615
Interest 68,285 - 0 -
Janitorial 2,880 - 0 -
Office Expenses 24,580 40,554
Outside Labor 5,115 - 0 -
Lab Expenses 14,080 - 0 -
Management Fees 106,043 157,000
Meals & Entertainment 47,521 - 0 -
Payroll Taxes 41,780 11,440
Postage and Freight Out 19,476 2,847
Printing 41,794 5,497
Professional Fees 213,717 64,305
Rent 92,279 24,448
Repair & Maintenance 1,367 - 0 -
Research and Development 19,192 238,009
Royalties 54,000 30,000
Security 1,740 1,278
Tax & License 1,143 3,039
Telephone 42,005 8,484
Trade Show Expenses 6,472 15,535
Utilities 5,827 1,551
Wages 492,959 102,960
Warehouse Expense 944 - 0 -
----------- ----------
Total Operating Expenses $2,130,583 $ 813,041
See Notes to Consolidated Financial Statements
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
GENERAL
Skinvisible, Inc. (the "Company") is in the business of developing,
manufacturing and selling anti-microbial skin protection products
designed to control the effects of occupational hand disease, as
well as prevent the cross contamination of pathogens. The Company
has completed the development of its products and has commenced
limited production and sales. The Company continues to research
and develop potential additional products.
During the quarter ended September 30, 1999, the Company cancelled
an agreement with Aquastel Pacific Environmental Technology Limited
of Hong Kong for the commercial sale and distribution of
Skinvisible products in Hong Kong, Taiwan, Singapore, Malaysia and
Thailand. The Company had executed this agreement on May 24, 1999
and terminated it under its termination rights; the Company has no
further obligations under this agreement.
The Company's subsidiary, Skinvisible Pharmaceuticals, Inc.
("SVP"), entered into an agreement dated July 28, 1999 with
Essentially Yours Industries Corp. of Surrey, British Columbia,
Canada ("Essentially Yours") for the exclusive distribution of
Skinvisible's proprietary family of skin protection products to the
retail marketplace within Canada and the United States (the "EYI
North American Agreement"). Additionally, SVP signed an agreement
dated July 28, 1999 with EYI International Limited ("EYI
International") under similar terms and conditions for the
exclusive distribution of its product line internationally in the
retail market within the fourteen countries in which EYI
International presently operates (the "EYI International
Agreement").
The EYI North American Agreement gives Essentially Yours the
exclusive right to market the Skinvisible name and its existing
product line in North America. The EYI North American Agreement
also gives EYI a right of first refusal on new products developed
under the Skinvisible label for the retail marketplace.
Essentially Yours is obligated to purchase a minimum of 50,000 oz
of Skinvisible Product by December 31, 1999. Essentially Yours is
also obligated to purchase a minimum of 1,000,000 oz for the year
ending December 31, 2000, 1,250,000 oz for the year ending December
31, 2001, and 1,560,000 oz for the year ending December 31, 2002.
Failure of Essentially Yours to meet these minimum purchase
requirements will give the Company the right to terminate both the
North American Agreement and the International Agreement. The
Company received a orders from EYI for 113,864 ounces of product in
third quarter of 1999.
The EYI International Agreement gives EYI International the
exclusive right to market Skinvisible's existing product line and
the same right of first refusal on new Skinvisible label products
to the retail marketplace in the following fourteen countries in
which EYI International presently operates: Brazil, United Kingdom,
Israel, Lebanon, Egypt, Jordan, Palestinian Authority Region,
Indonesia, Thailand, Hong Kong, Singapore, Philippines, Mexico, and
Taiwan. The EYI International Agreement also gives EYI
International a right of first refusal for other international
countries outside of North America. EYI International also has the
option to expand the territory for the international market to
include additional countries by purchasing 25,000 oz of product for
each additional country and paying the
3
<PAGE>
Company's cost of achieving regulatory approvals for sales of products
in the additional country.
A copy of each of the EYI North American Agreement and the EYI
International Agreement were attached to the Form 10-SB as amended.
The discussion herein regarding the EYI North American Agreement
and the EYI International Agreement is qualified in its entirety by
reference to the agreement as a whole.
The Company will continue to market directly, or through other
distribution channels, to the corporate, commercial and industrial
marketplace in North American and international markets not covered
by any distribution agreement.
RESULTS OF OPERATIONS
Sales. Net sales for the nine months ended September 30, 1999
increased to $148,068 from $9,671 for the nine months ended
September 30, 1998. The increase in sales was the result of the
Company commencing sales of its Skinvisible products upon
completion of research and development of the Skinvisible products,
increased marketing, and two distribution agreements: the EYI North
American Agreement and the EYI International Agreement.
The Company anticipates that sales of its Skinvisible products will
continue increasing in future quarters as the Company is now
marketing its Skinvisible products and has entered into
distribution agreements for its products, as described above. This
is a forward looking statement and actual results may differ. As
previously mentioned, the Company has already received orders from
EYI for 113,864 ounces.
Gross Profit. Gross profit for the nine months ended September 30,
1999 increased to $87,966 or 59.4% of sales from $6,518 or 67.4% of
sales for the nine months ended September 30, 1998. The increase
in net profit is directly attributable to the increase in sales of
the Company's Skinvisible products. The decrease in gross profit
as a percentage of sales is due to increased cost of sales due to
its marketing efforts, particularly network marketing. The Company
anticipates cost of sales to decrease as network marketing efforts
are phased out. This is a forward-looking statement and actual
results may differ.
Operating Expenses. The Company's operating expenses increased to
$2,130,583 for the nine months ended September 30, 1999 from
$813,041 for the nine months ended September 30, 1998.
The Company incurred marketing and selling expenses in the amount
of $724,037 for the nine months ended September 30, 1999 in
connection with the establishment of a network marketing
distribution system for the Company's Skinvisible products. The
Company anticipates that marketing and selling expenses
attributable to network marketing will decrease as the Company has
entered into distribution agreements with Essentially Yours and EYI
International for the retail market rather than pursuing the
establishment of its own network marketing system. The Company
continues to pursue its marketing efforts to sell products to the
commercial market.
4
<PAGE>
The Company incurred general and administrative costs of $871,807
for the nine months ended September 30, 1999. These general and
administrative costs included professional fees in the amount of
$413,470.
Salaries and wages increased to $534,739 for the nine months ended
September 30, 1999, compared with $114,400 for the nine months
period ended September 30, 1998. The increase of $420,339 in
salaries and wages reflects the growth in the Company's operations
and research and development and production activities.
The Company anticipates that operating expenses will decrease in
future quarters. This is a forward-looking statement and actual
results may differ. The Company plans to reduce marketing
expenses, salaries and general and administrative costs based on
the determination by the Company not to proceed with the
establishment of its own network marketing system and the Company's
streamlining of operations.
The increased operating expenses also reflect the Company's
increased research and development activities. The Company has
made an application for patent protection of its proprietary
polymer structure and certain products developed using the
proprietary polymer structures. The Company's research and
development activities include research on two new products, a sun
screen product and an anti-fungal foot cream for athlete's foot.
The Company expects to do further testing of these potential
products at independent laboratories during the fourth quarter.
Net Loss. The Company's net loss increased to $2,042,617 for the
nine months ended September 30, 1999 compared to $806,523 for the
nine months ended September 30, 1998. The increase in the net loss
is attributable to the Company's increased operating expenses. The
increase in operating expenses was not matched by increases in
revenues as the Company has only recently begun to achieve sales of
its Skinvisible products.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have been financed principally through a
combination of private sales of the Company's equity securities and
short-term loans.
The Company had cash of $52,668 as of September 30, 1999,
representing a decrease of $58,108 from cash as of December 31,
1998.
The Company had accounts payable of $396,220 as of September 30,
1999, compared to $119,907 as of September 30, 1998. The Company
has a loan outstanding in the amount of $1,212,675 as of September
30, 1999. This loan is an unsecured loan which is payable on
demand and remains outstanding.
Cash used in operating activities for the nine months ended
September 30, 1999 was $2,766,028 compared to $954,473 for the nine
months ended September 30, 1998. The Company realized net proceeds
of $2,513,500 from the sales of its equity securities during the
nine months ended September 30, 1999. These proceeds were used to
finance the Company's operating activities.
5
<PAGE>
Cash used in investing activities for the nine months ended
September 30, 1999 and 1998, was $293,254 and $80,017,
respectively, resulting primarily from the purchase of property and
equipment in connection with the Company's research and development
and production facilities.
The Company anticipates that future issuances of its equity or debt
securities will be required in order for the Company to continue to
finance its operations as the Company's present revenues are
insufficient to meet operating expenses.
The Company is presently in negotiations for the sale of up to
1,450,000 shares of the Company's Common Stock with a Warrant to
purchase one share of Common Stock for each two shares of Common
Stock purchased in the Offering. In addition, the Company may
distribute out warrants to brokers or finders in this offering for
the purchase of up to 362,500 shares on the same terms and
conditions as apply to the warrants issued to purchasers. The net
proceeds to the Company from the sale of the Common Stock will be
approximately $2,936,250 US, assuming all Shares are sold. Such
proceeds will be utilized generally to repay outstanding loans and
trade payables, fund research and development and to support the
marketing and distribution of the Company's Products. This
Offering is made pursuant to Rule 506 of Regulation D of the United
States Securities Act of 1933. The selling period for this
Offering began on October 15, 1999 and will continue until January
1, 2000. There is no assurance that the Company will complete all
or any portion of this Offering or any future sale of its equity
securities.
YEAR 2000 RISK
Background. Computer systems, software packages, and
microprocessor dependent equipment may cease to function or
generate erroneous data when the Year 2000 arrives. The problem
affects those systems or products that are programmed to accept a
two-digit code in date code fields. To correctly identify the Year
2000, a four-digit date code field will be required to be what is
commonly termed "Year 2000 compliant."
Readiness. The Company has completed an assessment of all internal
systems and operations to determine Year 2000 compliance. The
Company's assessment has included an assessment of computer
hardware systems and computer software. The Company has determined
that its internal computer hardware systems are Year 2000
compliant. As such, the Company does not anticipate any material
adverse operational issues to arise from the Year 2000 problem
affecting internal systems and operations.
The Company has relied upon the written representations of each of
the third parties from whom the Company licenses third party
software that the Company's licensed software is Year 2000
compliant. While the Company has relied upon representations by
third parties, the Company cannot give any assurance that all third
party licensed software will be Year 2000 compliant.
The Company has relied upon representations by hardware
manufacturers that all computer hardware purchased by the Company
since commencement of operations is Year 2000 compliant. While the
Company has relied upon representations by manufacturers, the
Company cannot give any assurance that all computer hardware will
be Year 2000 compliant.
6
<PAGE>
There is no assurance that the Company will not be affected by Year
2000 problems arising from problems with the supply of the
necessary products required to manufacture the Company's
Skinvisible products.
Risks. The Company may realize exposure and risk if the systems
for which it is dependent upon to conduct day-to-day operations are
not year 2000 compliant. The Company's worst case scenario would be
the inability of the Company to continue production of its
Skinvisible products pending resolution of systems problems. In a
worst case scenario, the Year 2000 problem would result in
increased expense to the Company and decreased revenues being
earned from operations or delay the realization of revenues from
the sale of Skinvisible products.
Estimated Year 2000 Costs. The Company has not incurred any
external cost in ensuring Year 2000 compliance in view of the fact
that the Company has only recently commenced operations and has
purchased computer hardware and software on the basis of
representations by manufacturers as to Year 2000 compliance.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no legal proceedings pending or threatened against the
Corporation.
Item 2. Changes in Securities and Use of Proceeds
The Company issued a total of 6,000 shares of the Company's common
stock during the period from July 1, 1999 to September 30, 1999,
the period covered by this report. Three thousand (3,000) shares
were issued to Mr. Bryan Campbell, a consultant to the Company,
upon the exercise by Mr. Campbell of stock options granted to Mr.
Campbell pursuant to the Company's Stock Option Plan. Mr. Campbell
purchased 3,000 shares at $1.50 per share, for a total purchase
price of $4,500. Three thousand (3,000) shares were also issued to
James Gabriel at $1.50 per share, for a total purchase price of
$4,500.
Item 3. Defaults Upon Senior Securities: None.
Item 4. Submission of Matters to a Vote of Security Holders:
None.
Item 5. Other Information: None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K: None
7
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SKINVISIBLE, INC.
\s\ Terry Howlett
Date: November 12, 1999 By:_____________________
Terry Howlett
President
8
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S QUARTERLY
REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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