US SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
COMMISSION FILE NUMBER: 0-23532
-------------------------------
SKINTEK LABS, INC.
DELAWARE 65-0636227
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(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation)
959 Shotgun Road, Sunrise, FL 33326
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(Address of Principal Executive Offices)
800-555-8895
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(Issuer's telephone number)
Securities registered under Section 12 (b) of the Exchange Act: NONE
----------------
(Title of class)
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $.001
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(Title of class)
Check whether the issuer: (i) filed all reports required to be
filed 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 (ii) has been subject to the
filing requirements for the past 90 days.
Yes (XX) No
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B is not contained in this form, and
no disclosure will be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
[XX]
The Registrant had revenues of $1,014,997 during its recent
fiscal year ended December 31, 1999. The aggregate market value
of the voting stock held by non-affiliates(a) of the Registrant
based on the average bid and asked prices of $1.75 and $1.69
respectively, of such common stock as of March 28, 2000, is
approximately $4,643,321 based upon an average of $1.72
multiplied by 2,669,605 shares of common stock as of such date
held by non-affiliates. As of March 28, 2000, the Registrant had
a total of 5,921,271 shares of common stock, par value $.001
issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
There are no documents incorporated by reference in this report
on Form 10- KSB except for certain previously filed exhibits
identified in Part III, Item 13, hereof.
(a) Affiliates for the purposes of this Item refer to the
officers, directors and/or persons or firms owning 5% or more of
the Registrant's common stock, both record and beneficially.
TABLE OF CONTENTS
PART I
Page
Item 1. Description of Business. 4
Item 2. Description of Property. 9
Item 3. Legal Proceedings. 10
Item 4. Submission of Matters to a Vote of Security Holders. 10
PART II
Item 5. Market for Common Equity and Related Stockholder Matters. 11
Item 6. Management's Discussion and Analysis or Plan of
Operation. 12
Item 7. Financial Statements. 14
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure. 14
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons. 15
Item 10. Executive Compensation. 16
Item 11. Security Ownership of Certain Beneficial Owners and
Management. 17
Item 12. Certain Relationships and Related Transactions. 18
Item 13. Exhibits and Reports on Form 8-K 19
PART I
ITEM 1. DESCRIPTION OF BUSINESS
===============================
Organization
Skintek Labs, Inc., a Colorado corporation incorporated on
December 13, 1994 under the name, Biologistics, Inc. (hereinafter
the "Company" or the "Registrant"), to engage in the business of
clinical consulting, contract packaging and labeling services for
clinical studies. The Company never commenced business
operations. On April 22, 1997, as a result of a merger into its
subsidiary, Biologistics, Inc., which was incorporated on March
19, 1997, the Company became a Delaware corporation.
Performance Brands, Inc., incorporated on September 21, 1995,
under the laws of the State of the State of Florida. Performance
Brands is engaged in the wholesale and retail distribution and
sale of a variety of products for the skin-care market. See
"Business-Operations" below. On March 31, 1999, the Company
incorporated a wholly owned subsidiary, PBI Acquisition Corp.
("PBI") and on the same date, Performance Brands, Inc. merged
with PBI. This merger involved the exchange of shares, pursuant
to which the sole shareholders of Performance Brands, Inc., Stacy
and Cathy Kaufman, exchanged all of their capital stock of
Performance Brands, Inc. for shares of the Company's common
stock. This exchange was accounted for as a reverse purchase for
reporting and accounting purposes. See the Consolidated Financial
Statements of the Company and its subsidiary, Performance Brands,
Inc., which are attached hereto as Part II, Item 7.
The Company and the Industry
Performance Brands, Inc. has been in business since 1995, engaged
in the sale of products for skin fitness, self-tanning, sun
protection and nutrition. Hereinafter, Performance Brands, Inc.
and its business operations shall be referred to as the
"Company". The skin fitness, self-tanning and sun protection
business is part of the Sun and Body Care Industry, which has
been a growing industry. While the nutritional industry continues
to grow as well. The Company's products are sold though specific
classes of trade: i.e. direct mail, drug chains, mass market
outlets, health food stores, gyms, and tanning, nail and hair
salons, as well as private label sales.
This growth has been the result, in part, of the increasing
public awareness of the potential danger to skin and health from
prolonged exposure to the sun and the fact that the ozone layer
will continue to erode over the next 20 years. It is the opinion
of the Company's management based upon its knowledge of the
industry that there is a trend toward products with higher SPFs
(Sun Protection Factor), which is the measure of the UVB
protection in a sun care product as well as a trend in the US for
the use of sunscreens year-round. As the public becomes more and
more educated on the dangers of excess exposure to the sun, it
will be realized that UVA rays are present the entire year, not
just during the summer, when UVB rays are the strongest.
Notwithstanding the foregoing, there can be no assurance that
such trends will continue or that any future growth in the
industry will benefit the Company, nor that the Company will
share in any increase.
In 1994, the National Weather Service, in its daily weather
reports, started projecting the amount of ultraviolet intensity
expected in 58 different cities in the United Stated between
11:30a.m. and 12:30p.m. the following day. Called the UV Index,
ultraviolet intensity is ranked on a scale of 1 to 15. This
program, created in cooperation with the Environmental Protection
Agency and the Center for Disease Control and Protection, relates
the UV intensity with the SPF or 20 or higher is recommended for
an index over 10.
Page 4
The Company believes that this focus by Federal agencies on the
impact of the sun's intensity, and the daily reporting on
television and radio and other media of the index, should
continue the trend to greater consumption of protective sun care
products. Nevertheless, there can be no assurance that the
Company's business will share in this growth.
In addition to the Company's line of sun-care products, the
Company also markets a line of body washes, which have been
enjoying increasing consumer use and acceptance. Until
approximately four to five years ago, most Americans relied upon
bar soaps and wash clothes for their personal cleansing needs.
Presently, it is estimated that 25% or more of the population
have already changed the way they bathe, using body washes and
cleansing puffs rather than bar soap. In fact, since their wide
introduction in 1994, body washes have become the fastest growing
trend in the personal cleansing category. The Company believes
that the current trend is to liquid soaps.
Products in the sun and body care business consist primarily of
body lotions, oils, and gels designed either to prevent the skin
from sunburning and/or promote sun tanning. In addition, there
are products designed to moisturize the skin after sun bathing
like aloe vera gels or lotions. "Body washes" are a form of skin
cleansers that are either poured or squeezed out of a bottle,
usually in a bath or shower. The appearance is of a thick liquid
like substance with a variety of different colors and fragrances.
A key attribute to body washes are the fact that they lather and
rinse of easily. In addition, body washes are considered by many
persons to serve as a better moisturizer than a traditional soap
bar. However, it should be understood that bar soap is widely
used and accepted by a great majority of users historically and
there can be no assurance that body washes will ever become the
industry standard. The manufacturing process of body washes
allows more oil based ingredients to be incorporated into the
formula, thus providing certain moisturizing benefits to the
skin. This is not the case with bar soaps.
"Cleansing puffs" also known as poufs or sponges are sometimes
used in conjunction with body washes to maximize the amount of
lather. Made of a variety of materials, such as sea sponges,
nylon or a combination of polyurethane/nylon in a form of an
oversized sponge.
Competition and Ease of Entry Into The Sun and Body Care Industry
There are few barriers to entry into the industry. Further, there
exists substantial competition in the sun and body care industry,
virtually of which have longer operating history, far greater
financial, personal and other resources, with substantial product
lines and sales and marketing budgets and proven records of
success. Among other entities that the Company must compete with
include the very large corporations such as Cheeseborough-
Pond's(R), Gillette(R), Proctor & Gamble(R) and Lever
Brothers(R), and the smaller, but well-established companies such
as Tom's of Maine(R) and Freeman Cosmetics(R). These latter two
companies have entered and established themselves in the
specialized body wash product market.
Major corporations as well as individual entrepreneurs and
businesses are capable of modifying existing sun care formulas on
the market and, with a reasonable investment, begin selling
competitive products in a fairly quick time-frame, as large
staffs are not needed to be successful in this industry, provided
that a company has qualified sales and marketing efforts. The
industry is growing in many ways domestically and
internationally, which should continue to serve to attract
competition. There are many new sun care products and many new
consumers, for which the Company must compete.
Page 5
In order for the Company to be competitive, the Company must
devote substantial time, professional and management efforts, and
retain outside marketing experts, to promote its new product
line, SOAPSCREEN(R), which involves a high front-end cost,
presently estimated at approximately $100,000. The Company
projects that initial sales of its body wash and sunscreen
products under the SOAPSCREEN(R) name will commence in the Spring
of 2000. Further, if the Company is successful in establishing
the SOAPSCREEN(R) product line, it may be expected that
competitive products will enter the market, notwithstanding the
fact that the Company has patent pending status of the Company's
10-SBS Polyscreen formulation.
The Company's ability to compete will also be dependent upon its
success in establishing itself in the field of SPF soaps/body
washes, of which there can be no assurance. Sunscreens have been
used as a major ingredient in face creams for several years by
major manufacturers, which entities will be in position to
compete with the Company. With respect to the Company's
professional skin fitness line, sold in gyms and health food
stores, the Company has one principal competitor, Jan Tana.
Notwithstanding the belief of the Company that it will be able to
successfully compete, there can be no assurance that it will be
able to compete with any entities that have established presences
in the markets in which the Company seeks to compete.
The Company will be required to compete with larger, more
established firms, because its primary focus is to market its
products into the niche markets, for specialty products that
include skin care products with sunscreens. The Company's
professional tanning product line, sold under the ProTan(R) name,
is distributed to the professional gym/health club and the health
food markets. These are examples of the niche markets where
competition is not as intense, and where the Company believes
that it will be able to successfully compete. However, there can
be no assurance that the Company is correct in such belief or
that the competitive conditions will not adversely change, with
more intense competition developing in this "niche" market.
The Company's professional line of indoor tanning products,
marketed under the ProTan(R) name, presently competes with six
key producers, including the established Australian Gold(R),
California Tan(R), Swedish Beauty(R), Supre(R), Power Tan(R) and
Most products. While there can
be no assurance, the Company believes that it will be able to
successfully compete on the basis of quality and price in the
market for its ProTan(R) line. However, in order for the Company
to compete, the Company must maintain and increase its
distribution network, which presently relies upon third persons,
in order to maintain and hopefully increase its distribution
network, of which there can be no assurance.
The Company's ability to compete may be adversely effected by its
limited number of employees, which at present number only 5
persons. Further, the Company is dependent upon its continued
success in accessing distribution channels. This will depend upon
the acceptance of its products in the various markets into which
it presently sells as well as those markets into which it hopes
to expand. In order to be successful, of which there can be no
assurance, the Company must be able to devote substantial
resources to its sales and marketing efforts and budget, which
budget the Company projects shall reach $1,000,000 during the
next twelve months.
The Company is dependent upon its ability to generate operating
revenues and/or other sources of revenues, whether debt or
equity, in order to fulfill its plan for its sales and marketing
budget. Futher, the Company to date has not confirmed the
availability of any debt or equity financing or the terms of any
such financing, if available.
Page 6
The Bar and Liquid Soap Industry
Total 1997 sales of bar soaps for all retail outlets in the
country were $1.4 billion, a slight drop of 4% from the prior
year. However, the sales of other soaps and cleansers (body
washes) increased 33% during that year to $670 million. The
current trend in the industry is to liquid soaps. Until three
years ago, most Americans relied on bar soaps and wash clothes
for their personal cleansing needs. Today, approximately one-
quarter have already changed the way they bathe, using body
washes and cleansing puffs instead. Introduced in 1994, they have
become the fastest growing trend in the personal cleansing
category. According to an article in the October, 1997,
Soap/Cosmetics/Chemical Specialties, "The rising popularity of
the body wash can be attributed to two things--body washes are
cleaner and more convenient to use in the shower or bath and they
simplify the skin care process by combining the cleansing and
moisturizing steps."
The significant growth pattern of body washes has attracted a
variety of products from many manufacturers, including the long-
established and financially strong companies such as Cheesebrough-
Pond's(T), Gillette(R), Procter & Gamble(R), and Lever Bros.(R)
The industry also includes established smaller producers such as
Tom's of Maine(R) and Freeman Cosmetics(R), which have also
entered and become competitive in the specialized body wash
products into the market.
Sources of Supply
The component ingredients for the Company's products are
manufactured by third parties. The Company does not believe that
it is dependent upon any single manufacturer, and that other
sources of supply would be available, if necessary. At present,
Cosmetic Corporation of America, located in Medley, FL ("CCA"),
the prime filler for the new product line, is estimated by the
Company to be operating at significantly less than capacity and
the Company believes that it will be able to continue to utilize
the services and components from CCA for the foreseeable future.
The Company also sources other manufacturers, including Custom
Manufacturing Corporation, Medley, FL, Farmanatural, Davie, FL,
Five Star Brands LLC, Grand Rapids, MI and D'Arcy Revolutionarary
Skincare, Boca Raton, FL.
While the Company contemplated during the 1998 fiscal year the
possibility of establishing its own manufacturing facility to
fulfill its need for component ingredients and complete product
manufacture, at present the Company believes that it may continue
to rely upon third party manufacturers, to supply the components
for its product lines. In addition to the use of third party
manufacturers to manufacture and supply the component ingredients
for the Company's products, and to manufacture the packaging for
the display and sale of its finished products, such third parties
also provide the Company, at no additional cost, storage space
for such components and packaging materials, as needed. The
Company believes that this arrangement shall also be satisfactory
for the foreseeable future, and that no additional facilities or
space will be required by the Company.
Sales, Marketing and Distribution of Products
The Company's products are sold through a variety of retail
outlets, including drug chains, grocery/supermarkets, health food
stores, and tanning nail and hair/beauty salons, among other
outlets. The Company owns the following registered or trademarked
proprietary names: ProTan(R), SOAPSCREEN(R), Sunscreen Barrier
System(R), Earthen Naturals(TM), Earthen Treasures(TM), Beauty
Bites(TM), and Meta Slim 2000(TM), Slim Tan(TM), Quick Tan(TM). In
addition, the Company has a patent pending and several PCT
patents pending for its liquid body wash and sunscreen
compositions. The Company presently is marketing and selling
Page 7
products under the names ProTan(R), SOAPSCREEN(R), System(R),
Earthen Naturals(TM), Earthen Treasures(TM), and plans to
commence marketing efforts under the trade names, Beauty
Bites(TM), and Meta Slim 2000(TM). There can be no assurance that
the Company will be able to generate market acceptance for the
new products or be able to continue to develop and grow the
market for existing products. The Company also utilizes
approximately fifty wholesale distributors to market and sell its
products, which distributors also inventory, ship and bill the
Company's customers directly, as part of their distribution
services.
The Company also generates sales via mail order, from direct mail
and Internet marketing by the Company. In addition, the Company
uses the services of independent sales brokers nationwide, who
are paid commissions equal to 5% of the sales generated. These
independent brokers primarily sell the Company's products to the
drug, mass retail and grocery/supermarket markets. The Company
also generates sales under a private label program for products
designed and marketed exclusively for a select group of national
direct mail order merchants.
The Company's ability to successfully market and sell its
products will be dependent upon the acceptance of its products in
the various markets into which it presently sells as well as
those markets into which it hopes to expand. In order to be
successful, of which there can be no assurance, the Company must
be able to devote substantial resources to its sales and
marketing efforts and budget, which budget the Company projects
shall reach $1,000,000 during the next twelve months. As noted,
the Company presently sells its products through fifty
distributors, which market to ten thousand outlets, several
national drug and mass market chains and over 200 independent
drug stores, as well as several national catalogs.
Government Regulations
At present, there are no specific regulations or approvals
required by or from the Federal or state government or any agency
for the products manufactured by the Company. Further, all of the
Company's products are manufactured under GRAS ("Generally
Recognized as Safe") for the cosmetic industry.
Generally Recognized as Safe is a category of food additives
established in 1958 by the Food and Drug Administration as part
of a revised Food, Drug, and Cosmetic Act of l938. The original
Generally Regarded as Safe list included approximately 700 food
additives that had "stood the test of time", meaning that they
had been subject to human use and or consumption and were
believed to be harmless. A current revision by the FDA to
reevaluate and reclassify all Generally Regarded as Safe
additives is underway, with the potential for the FDA banning any
additives deemed hazardous. While the FDA governs the GRAS
standards, the ongoing revisions are specifically related to the
raw materials which are additives, not to the finished cosmetic
product, which the Company's products are considered.
Also, while the skin care industry is basically self-regulated,
the FDA regulations do apply to fragranced personal care
products, perfumes and cosmetics. Since there are limitless skin
care formulations recognized as "trade secrets" the actual impact
of the FDA regulation is limited. However, by law, all the
ingredients of a product must be listed on the label. These are
listed in order of predominance, which means the percentage of
the make-up or composition of each product.
At present, the FDA does not require safety testing on any
ingredient that goes into cosmetics or perfumes. Only once the
product is on the market does the FDA have any regulatory
authority. The FDA must prove in court that the product is unsafe
before it can require the product to be removed from the
marketplace. Nevertheless, on many occasions, manufacturers will
voluntarily recall a product that is in question, either as a
result of the manufacturer's own determination or any public
report, or otherwise. The FDA does not require companies to
register with the FDA, file the ingredients used, or even keep a
record of injuries related to use of their products. In the event
Page 8
of any recall of one or more of the Company's products, the
potential adverse impact would be based on the revenues lost from
a particular product that would be recalled. No other actions or
impact should result against the overall business of the Company.
None of the Company's products are hazardous or contain any
hazardous additives and therefore, the Company does not believe
that there could exist any claim from consumers or any businesses
that buy and use the Company's products.
In addition, samples of each of the Company's products that have
been produced are retained for three years, which samples are not
part of inventory and not for resale. As a result, there are no
present or anticipated regulations that have or may have any
effect upon the Company or its business.
Item 2. Description of Property
===============================
The Company presently leases approximately 5400 square feet of
executive office space at 959 Shotgun Road, Sunrise, FL, for
$3,100 per month. The condition of the Company's leased
facilities in Sunrise, FL are excellent, and are sufficient for
its use for the foreseeable future. The Company, as noted above,
also has available from third party manufacturers of the
components used to manufacture the Company's products and the
manufacturer/suppliers of the packaging for its products the use
of storage space to store such components and materials at no
cost. This arrangement is also adequate for the Company's
purposes for the foreseeable future. For the foreseeable future,
the Company's business will not require any additional space for
such uses as packaging, distribution or storage. The Company
previously leased approximately 6000 square feet of space in
Plantation, FL. at a monthly rate of $3,500. However, the present
facility provides a more centralized distribution area for more
efficient delivery to the Company's customer base.
Page 9
Item 3. Legal Proceedings
=========================
The Company is not a party to any litigation that is material.
The Company is a defendant in an action pending in the Circuit
Court in and for Broward County, Florida. The action alleges a
claim for $15,000, which is the minimum amount necessary for
jurisdictional purposes in order to commence an action in such
court. The claim of the plaintiff, a model, alleges that the
Company used plaintiff's image without a consent. The Company
does not believe that the action, if adjudicated against the
Company, will not have a material adverse impact upon the Company
or its financial condition. Further, the Company believes that it
will be able to settle this action through negotiations with the
plaintiff, at terms satisfactory to the Company, which it does
not believe will exceed $5,000. The Company is a defendant in an
action pending in the Civil Court in and for Lehigh County, PA.
The action alleges a claim for $50,000, which is the minimum
amount necessary for jurisdictional purposes in order to commence
an action in such court. The claim of the plaintiff, a model,
alleges that the Company used plaintiff's image without a
consent. The Company does not believe that the action, if
adjudicated against the Company, will not have a material adverse
impact upon the Company or its financial condition. Consequently,
the company is an innocent third party and has no liability.
Item 4. Submission of Matters to a Vote of Security Holders.
============================================================
No matters were submitted to a vote of security holders during
the year ending 1999.
Page 10
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
================================================================
The Company's common stock is traded over-the-counter in what is
referred to as the NASDAQ Bulletin Board". As of March 28, 2000,
there were 6 market makers in the Company's stock. The following
information with respect to the high and low market prices was
obtained from the Company's records. The Company's shares on May
12, 1999 had a 1 for 6 reverse split, and the table below
reflects such information.
<TABLE>
<S> <C> <C>
Bid Prices
1997 High Low
Quarter Ending June 30 $ 4.50 $ 3.00
Quarter Ending Sept. 30 $ 5.25 $ 2.25
Quarter Ending Dec. 31 $ 3.38 $ 3.00
1998 High Low
Quarter Ending March 31 $ 4.13 $ 2.75
Quarter Ending June 30 $ 3.75 $ 2.00
Quarter Ending Sept. 30 $ 3.38 $ 2.63
Quarter Ending Dec. 31 $ 1.50 $ 0.31
1999
Quarter Ending March 31 $ 4.25 $ 0.19
Quarter Ending June 30 $ 4.25 $ 3/16
Quarter Ending Sept. 30 $ 2.38 $ 1.12
Quarter Ending Dec. 31 $ 1.44 $ 0.19
2000
Period Ending March 30 $ 2.13 $ 0.88
</TABLE>
The Company is filing this Form 10-KSB for the year ended
December 31, 1999, which is the first report filed by the Company
under the Securities Exchange Act of 1934 (the "Exchange Act"),
since the effective date of the Company's Form 10-SB/12/A. The
Form 10-SB/12g/A enabled the Company to reapply to NASDAQ for the
purpose of having its shares again trade on the NASDAQ Bulletin
Board. Effective October 7, 1999, the Company's shares ceased to
trade on the NASDAQ:OTC bulletin board, because the Company was
not reporting under the Exchange Act. The Company's shares were
traded on the NASDAQ:OTC:Bulletin Board on February 15, 2000. As
of March 28, 2000 there were 150 holders of the Company's common
stock. The Company has never paid a dividend and does not
anticipate that any dividends will be paid in the near future.
Page 11
Item 6. Management's Discussion and Analysis of Finical Condition
and Results of Operations
=================================================================
Results of Operations
During the Company's fiscal years ended December 31, 1999 and
1998, respectively, the Company
had sales of $1,014,997 and $429,914, respectively. The reason
for the increase in sales from fiscal 1998 o 1998 was principally
due to the introduction and commencement of marketing of the
Company's new product, SOAPSCREEN(R), following the completion of
clinical testing, patent registration and packaging. The
SOAPSCREEN(R) product accounted for approximately 40% of the
increased sales from 1998 to 1999 or approximately $234,000. The
Company also generated sales of its new Slim Tan(R) product and
increased sales of its existing Pro-Tan(R) product line. In
addition, the Company has developed and introduced several
private label products for key customers that generated orders
during the 1999 fiscal to increase sales. Private label sales
accounted for approximately 30% of the increased sales from 1998
to 1999 or approximately $175,000. The Company also experienced
additional sales in 1999 from its ProTan(R) and SlimTan(R)
products.
Notwithstanding the impact upon the Company's sales growth during
the 1999 year from SOAPSCREEN(R) and from private label products,
the Company does not believe that it shall be dependent upon any
single product for a material percentage of its sales during the
year 2000 because it is continuing to introduce new products and
expand the products in its existing lines. The Company was able
to introduce these products and expand its line and marketing as
a result of increased cash flow from financing activities, which
increased from $305,272 during 1998 to $450,265 during 1999.
The Company incurred a net loss of $185,822 ($0.04 per Share)
during 1999 compared to a net loss of $416,771 ($0.12 per Share)
during 1998. The Company's net loss for the year ended December
31, 1999 decreased from the prior year as a result of higher
sales, without a corresponding increase in total operating
expenses.
The Company's selling, general and administrative expenses were
$657,528 in 1999 compared to $636,136 in 1998. Its selling
expense expense in fact declined from $279,681 in 1998 to and
$254,960 in 1999 and its administrative expense declined from
$284,810 in 1998 and to $266,891 in 1999.
The Company was able to keep its selling, general and
administrative expenses from increasing significantly by: using
outside personnel for selling efforts; by eliminating the need
for temporary personnel, which in prior periods were used to
office and warehouse operations; and from increased experience of
the Company's staff and employees. The Company intends to
increase the number of personnel during 2000 as it achieves
further sales growth. However, there can be no assurance as to
the timing or amount of sales growth during 2000 or any
subsequent period.
The Company's general expense increased from $71,645 in 1998 to
$135,677 in 1999. This increase resulted primarily from the costs
associated with being a public company and fees related to
compliance with SEC reporting requirements under the Securities
Exchange Act of 1934.
Liquidity and Capital Resources
The Company, at December 31, 1999 had current assets of $729,563,
compared to current assets of $189,703 at December 31, 1998. The
increase in current assets is the result of increased accounts
receivable, from $16,889 in 1998 to $47,679 in 1999, increased
inventory from $83,099 in 1998 to $192,539, increase in amount
Page 12
due from stockholder from $60,767 in 1998 to $107,311 in 1999 and
significantly, an increase in stock subscriptions receivable from
$0 in 1998 to $374,287 in 1999. The Company's accounts receivable
are all current and collectible, with no return privileges, and
the inventory is all ready for sale. The increase in inventory
consists of both finished products and components used for
manufacturing finished products. The Company's sales policies do
not provide any customers with any return privileges and sales
are not contingent.
The Company's stock subscriptions receivable are fully
collectible, and the Company reasonably expects to collect this
amount during the fiscal year 2000 as well as the amount due from
stockholders.
The Company's current liabilities declined from $514,473 at
December 31, 1998 to $241,202 at December 31, 1998. The Company
achieved this improvement principally as a result of the
reduction in notes payable, from $234,593 in 1998 to $11,654 in
1999, which was achieved by the reduction in notes payable from
the conversion of debt to equity. See Notes to Consolidated
Financial Statements.
During 1998 and 1999, a merger consultant advanced the Company
$199,000, and $440,000, respectively and paid an additional
$106,272 and $11,823 in merger related expenses for the Company,
respectively.
There are no trends that the Company is aware of that would
adversely impact upon its liquidity and the Company has no plans
for any large capital expenditures. There is a trend, as
discussed above under Description of Business, as a result of the
increased public awareness of the risks associated with excess
exposure to the sun, of the need for skin protection products,
such as those of the Company. There can be no assurance, however,
of the Company's ability to exploit this increased public
awareness, notwithstanding the growing demand.
The season for the Company's sun protection products is from
January through August. The Company believes that as it adds to
its product line, it would hope to increase the use of its
products year round. Material events that would effect the
Company's financial condition relate directly to the market
acceptance for existing and new products. Any decline in
acceptance would adversely effect the Company's ability to
increase its distribution, which in turn would increase its
sales. The Company's liquidity and future success shall be
dependent upon the market acceptance of the Company's proprietary
liquid body wash with sunscreen, which the Company believes is
the only product of its kind on the market. The Company recently
introduced the Beauty Bites snack bar into the professional salon
arena, which has received initial market acceptance as the
product's quality and uniqueness. Initial sales have begun and
the Company expects to continue at a steady pace. The
participation of trade shows throughout the year along with the
publicity campaign should make ease of entry into salons more
accessible. However, there can be no assurance that the Company
will be successful in launching the above products and continuing
to achieve growth in sales levels.
Year 2000
The Company acquired its computer systems with an objective to
being Year 2000 compliant and has experienced no consequences to
date following the end of the year. The Company has engaged the
services of a qualified technician to determine the extent to
which it may be vulnerable to third party Year 2000 issues. As a
relatively new corporation, all computer equipment was purchased
in 1998 or later and all such equipment and software is Year 2000
compliant. The Company uses Microsoft software and has installed
all the available updates to this software. Further, Microsoft
updates will be installed if any further software shall become
available from Microsoft. The Company has expended approximately
$5,000 on hardware and software to become Year 2000 compliant.
Page 13
The Company has assessed and continues to assess whether its
information and non-information technology systems will be
effected by the Year 2000 issues. The Company has investigated
its third party communications suppliers such as the telephone
company and its Internet service provider and found to date based
upon the Company's experience that all were in Year 2000
compliant. Based upon current information, management believes
that the necessary modifications have been made internally to
effectively continue the Company into the Year 2000. However,
management is continuing to monitor internal systems, and to
assess the readiness of its systems, to ensure continued Year
2000 compliance. As a contingency, the Company has identified
other communication suppliers who could provide the necessary
service at a minimal cost to the Company, and a minimal effect on
the operations of the Company during the Year 2000. Based upon
current information, the Company does not believe that the costs
associated with Year 2000 compliance shall be material for the
Company. The Company, prior to the year ended December 31, 1999,
and to the date of this report on Form 10-KSB, has not
experienced any technical problems related to Year 2000 matters.
Except for the historical information herein, the matters
discussed in this Annual Report includes forward-looking
statements that may involve a number of risks and uncertainties.
Actual results may vary based upon a number of factors,
including, but not limited to, risks in product and product
development, market acceptance of new products and continuing
demand, the impact of competitive products and pricing, changing
economic conditions and other risk factors contained in the
Company's Form 10-SB/12g/A which was filed with the Securities
and Exchange Commission on February 1, 2000.
ITEM 7. FINANCIAL STATEMENTS
============================
The financial statements for the year ended December 31, 1999 are
attached hereto with comparative financial statements for 1998.
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
==============================================================
None
Page 14
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
====================================================================
(a) The directors and executive officers are:
<TABLE>
<S> <C> <C>
Name Age Title
Stacy Kaufman 34 President, Chief Executive Officer,
and a Director
Cathy Kaufman 41 Secretary, Treasurer and a Director
</TABLE>
All directors hold office until the next annual meeting of
stockholders of the Company and until their successors have been
elected and shall qualify. Officers serve at the discretion of
the Board of Directors, but the Company effective March 30, 1999
entered into a five year employment agreement with Stacy Kaufman.
See Item 10. Executive Compensation below.
The Company also utilizes the services of a key outside
consultant, Michael Dulak, as chief chemist, but has no
employment agreement with Mr. Dulak
Stacy Kaufman has served as President, Chief Executive Officer
and a Director of the Company from its inception, having
organized the Company in September, 1995. Mr. Kaufman serves the
Company in a full time capacity. Mr. Kaufman formulated and
developed SkinTek(R) brand of products in 1985 and developed the
PRO TAN(R) instant tanning products in 1986. Mr. Kaufman has
worked for the Company and its predecessor for more than the past
five years. Effective March 30, 1999, the Company entered into a
five (5) year executive employment agreement with Stacy Kaufman.
See "Executive Compensation" below.
Cathy Kaufman has been Secretary, Treasurer and a Director of the
Company since September, 1995. During the five years prior to her
employment by the Company, Cathy Kaufman, who is married to Stacy
Kaufman, served as comptroller of a private company engaged in
the mail order business.
Compliance with Section 16(a) of the Exchange Act. The Company
only recently became subject to the requirements of the
Securities Exchange Act of 1934 and its officers and directors
will file reports required by the Exchange Act immediately
following the filing of this Annual Report on Form 10-KSB for the
year ended December 31, 1999.
Page 15
Item 10. Executive Compensation
===============================
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(a) (b) (c) (d) (e) (f) (g) (h) (i)
All other
Name and Other Re- Securitiess LTIP Compen-
Principal Annual stricted Underlying Payouts sation
Position Year Salary Bonus($) Compen- Stock Option/ ($) ($)
(*) sation($) Awards SAR's#
Stacy
Kaufman 1999 101,923 0 0 0 0 0 0
President,
CEO
Stacy
Kaufman 1998 65,942 0 80,000 0 0 0 0
President,
CEO
Stacy
Kaufman 1997 1,200 0 0 0 0 0 0
President,
CEO
Cathy
Kaufman
Secretary, 1999 16,000 0 0 0 0 0 0
Treasurer
Cathy
Kaufman
Secretary, 1998 6,350 0 0 0 0 0 0
Treasurer
Cathy
Kaufman
Secretary, 1997 0 0 0 0 0 0 0
Treasurer
</TABLE>
Page 16
Stacy Kaufman has served as the Company's chief executive officer
and president during the respective years set forth above. On
March 30 ,1999, the Company entered into a five (5) year
executive employment agreement with Mr. Kaufman, which provides
for annual base salary of $100,100, subject to an annual increase
of 10%, a bonus based upon performance determined by the board of
directors, consisting presently of Mr. Kaufman and his wife,
Cathy Kaufman, and incentive compensation in the form of stock
options, under the Company's 1999 Stock Option Plan. This plan
provides for the right to purchase 2,500,000 shares ("Option
Shares"), exercisable until the close of business on March 29,
2009, at an exercise price of $.50 per Option Share, which was in
excess of 110% of the fair market value of the Company's shares
on the date of the agreement and grant. The right to exercise the
options shall be contingent upon the Company's receipt of
revenues, as follows: if and when the cumulative revenues reach
$700,000, the right to exercise 500,000 Option Shares; $1,540,000
in revenues, and additional 500,000 Option Shares; $2,548,000 in
revenues, an additional 500,000 Option Shares; $3,757,600 in
revenues, and additional 500,000 Option Shares, and $5,209,120,
the last 500,000 in Option Shares. Cathy Kaufman has served as
Secretary and Treasurer during the respective years set forth
above.
Item 11. Security Ownership of Certain Beneficial Owners and Management
========================================================================
As of March 30, 2000, the security ownership of the
following persons and entities, who were either executive
officers of the Company or were known to the Company to own more
than five percent (5%) of the Company's outstanding voting
securities was as follows:
<TABLE>
<S> <C> <C> <C>
(1) (2) (3) (4)
Title of Class Name and Amount and Percent of
Address of Nature of Class(1)
Beneficial Beneficial
Owner Ownership
- -------------- ------------- ------------ ----------
Common Stock Stacy Kaufman 3,871,666 (2) 60.3%
1750 NW 65th
Avenue
Plantation, FL
33313
Common Stock Cathy Kaufman 3,083, 333 (3) 47.3%
1750 NW 65th
Avenue
Plantation, FL
33313
(1) Based upon 6,421,271 shares issued and outstanding at January
25, 2000, which includes 500,000 shares underlying a stock option
by Stacy Kaufman as discussed below.
(2) Includes 3,083,333 shares jointly owned of record and
beneficially by Stacy Kaufman and Cathy Kaufman, 288,333 shares
solely owned of record and beneficially by Stacy Kaufman, with
respect to which Cathy Kaufman disclaims any beneficial interest,
and 500,000 shares underlying the option granted to Stacy
Kaufman, presently exercisable at $.50 per share, with respect to
which Cathy Kaufman disclaims any beneficial interest. See the
discussion of the Option in the paragraph below and under Item 6,
Executive Compensation.
(3) A total of 3,083,333 shares are owned of record and
beneficially by Stacy Kaufman and Cathy Kaufman, jointly.
On March 30, 1999, the Company entered into an employment
agreement with Stacy Kaufman, the Company's president and
majority stockholder, in which was included an incentive
compensation stock option plan. This plan allows the president to
purchase up to 2,500,000 shares of common stock by March 29,
2009, provided that certain annual revenue levels were reached,
beginning at December 31, 1999. Based upon this employment
agreement, Mr. Kaufman has the right to exercise the initial
portion of the option to purchase 500,000 shares at $.50 per
share, based upon the Company having achieved cumulative sales
revenues of $700,000. These shares were not included in the
diluted shares for the earnings per share calculation. See the
Consolidated Financial Statements attached hereto.
Page 17
Item 12. Certain Relationships and Related Transactions
=======================================================
During fiscal 1999 and 1998 and to date, the Company has
had no transactions with related parties, except for the
executive employment agreement between the Company and its
president and chief executive officer, Stacy Kaufman. See the
discussion following the table under Item 10. Executive
Compensation above.
Page 18
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
==========================================
(a) Exhibits:
Exhibit No Document Description
3.1 Articles of Incorporation
(filed as Exhibits 3.1, 3.2 and
3.3 to the Company's
Registration Statement on Form
10-SB/12g and incorporated
herein by reference)
3.2 Bylaws (filed as Exhibit 3.4 to
the Company's Registration
Statement on Form 10-SB/12g and
incorporated herein by reference)
10(iii) Material Contracts-Consulting
Agreements and Employment
Agreement (filed as Exhibits to
Registration Statements on Form
10-SB/12g and incorporated
herein by reference)
23 Consent of Grassano Accounting,
P.A., CPA's
27 Financial Data Schedule
(b) During 1999, the Company did not file any Reports on Form 8-K.
Page 19
SIGNATURES
In accordance with Section 12 or 15(d) of the Exchange Act, the
Registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
SKINTEK LABS, INC.
By: /s/ Stacy Kaufman
Stacy Kaufman, President, Chief Executive Officer
and Director
Dated: March 30, 2000
Sunrise FL
In accordance with the Exchange Act, this report has been signed
below by the following person on behalf of the Registrant and in
the capacities and on the dates indicated.
/s/ Cathy Kaufman
Cathy Kaufman, Secretary, Treasurer and Director
Page 20
SKINTEK LABS, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Page 21
SKINTEK LABS, INC.
AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 23
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets 24-25
Consolidated Statements of Operations 26-27
Consolidated Statements of Cash Flows 28-29
Consolidated Statements of Stockholders' Equity (Deficit) 30
Notes to Consolidated Financial Statements 31-37
Page 22
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Board of Directors and Stockholders of
Skintek Labs, Inc.
Sunrise, Florida
We have audited the accompanying consolidated balance sheets of
Skintek Labs, Inc. and Subsidiary (the Company) as of December
31, 1999 and December 31, 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows
for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audit. The consolidated financial statements give retroactive
effect to the merger of Skintek Labs, Inc. and Performance
Brands, Inc. (the Subsidiary), which has been accounted for as a
reverse purchase as described in Note 1 of the accompanying notes
to consolidated financial statements.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Skintek Labs, Inc. and Subsidiary at December 31,
1999 and 1998, and the results of its operations and its cash
flows for the years then ended, in conformity with generally
accepted accounting principles.
/s/ Grassano Accounting, P.A.
Boca Raton, Florida
March 30, 2000
Page 23
SKINTEK LABS, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
1999 1998
CURRENT ASSETS
Cash $ 7,747 $ -
Accounts Receivable 47,679 16,889
Inventory 192,539 83,099
Income Tax Receivable 28,948
Stock Subscriptions Receivable 374,287
Due from Stockholders 107,311 60,767
------- -------
TOTAL CURRENT ASSETS 729,563 189,703
------- -------
PROPERTY AND EQUIPMENT
Machinery and Equipment 28,860 13,140
Furniture and Fixtures 6,966 3,066
Office Equipment 16,148 11,003
Website 4,654 -
------ ------
56,628 27,209
Less: Accumulated Depreciation 31,170 24,375
------ ------
NET PROPERTY AND EQUIPMENT 25,458 2,834
------ ------
OTHER ASSETS
Security Deposits 6,745 4,885
Patent & Trademarks (Less:
Accumulated Amortization
of $385 in 1999) 24,054 -
------ -----
TOTAL OTHER ASSETS 30,799 4,885
------ -----
TOTAL ASSETS $785,820 $197,422
======== ========
Page 24
</TABLE>
SKINTEK LABS, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
<S> <S> <S>
1999 1998
CURRENT LIABILITIES
Accounts Payable $224,854 $265,268
Payroll Taxes Payable 4,694 5,612
Income Taxes Payable 9,000
Notes Payable 11,654 234,593
------- -------
TOTAL CURRENT LIABILITIES 241,202 514,473
------- -------
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock, $0.001 Par Value,
50,000,000 Shares
Authorized, 5,921,271 Shares
Issued & Outstanding
in 1999 and 3,803,000 Shares
Issued & Outstanding
in 1998 5,921 3,803
Preferred Stock, $0.001 Par
Value, Non-Voting,
1,000,000 Shares Authorized,
0 Shares Issued &
Outstanding - -
Additional Paid in Capital 1,022,731 (22,642)
Retained Earnings (Acc. Deficit) (484,034) (298,212)
------- -------
TOTAL STOCKHOLDERS' EQUITY
(DEFICIT) 544,618 (317,051)
------- -------
TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY (DEFICIT) $785,820 $197,422
======== ========
</TABLE>
Page 25
SKINTEK LABS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONSBALANCE SHEETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
SALES $1,014,997 $429,914
COST OF SALES 584,708 262,744
------- -------
GROSS PROFIT 430,289 167,170
------- -------
OPERATING EXPENSES
Selling 254,960 279,681
General 135,677 71,645
Administrative 266,891 284,810
------- -------
TOTAL OPERATING EXPENSES 657,528 636,136
------- -------
INCOME (LOSS) FROM
OPERATIONS (227,239 (468,966)
------- -------
OTHER INCOME AND EXPENSE
Miscellaneous Income 38,351 8,029
Interest Income 5,280 2,312
Interest Expense (2,214) (2,317)
------ -----
TOTAL OTHER INCOME (EXPENSE) 41,417 8,024
------ -----
NET INCOME (LOSS) BEFORE
PROVISION FOR (BENEFIT
FROM) INCOME TAXES (185,822) (460,942)
Provision for (Benefit from) Income Taxes - (44,171)
------- --------
NET INCOME $(185,822)$(416,771)
========= ========
NET INCOME (LOSS)
COMMON SHARE
Basic $(.04) $(.12)
====== ======
Diluted $(.04) $(.12)
====== ======
SHARES USED IN COMPUTING
NET INCOME (LOSS) PER
COMMON SHARE
Basic 5,123,921 3,479,052
========= =========
Diluted 5,291,044 3,479,052
========= =========
Page 26
SKINTEK LABS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income (Loss) $(185,822) $(416,771)
Adjustments to Reconcile Net
Income
(Loss) to Net Cash Provided by
(Used in) Operating Activities
Depreciation and Amortization 7,180 630
Decrease ( Increase)
in Accounts Receivable (30,790) 7,833
Increase in Inventory (109,440) (58,351)
Decrease (Increase) in Income
Taxes Receivable 28,948 (28,948)
Increase in Security Deposits (1,860) (2,150)
Increase (Decrease) in
Accounts Payable (40,414) 249,709
Increase (Decrease) in Payroll
Taxes Payable (918) 4,533
Decrease in Income
Taxes Payable (9,000) (53,707)
------- -------
NET CASH USED IN
OPERATING ACTIVITIES (342,116) (297,222)
------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Loan Repayments from (Advances
to) Stockholders (Net) (46,544) 101,078
Purchases of Machinery and (29,419) (3,464)
Equipment
Purchases of Intangible Assets (24,439)
------ -------
NET CASH USED IN
INVESTING ACTIVITIES (100,402) 97,614
------- ------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from Note Payable 450,265 199,000
------- -------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 450,265 199,000
------- -------
NET INCREASE (DECREASE) IN CASH 7,747 (608)
CASH, BEGINNING OF PERIOD 0 608
------- -------
CASH, END OF PERIOD $7,747 $0
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the period for:
Interest $2,214 $2,317
====== ======
Income Taxes $7,424 $13,968
====== =======
</TABLE>
SUPPLEMENTARY DISCLOSURE OF NON-CASH OPERATING ACTIVITIES
On November 13, 1998, $82,333 of merger consultant's note was converted into
164,667 shares of common stock. 208,333 shares of Rule 144 common stock were
also issued.
On March 13, 1999, $541,667 of merger consultant's note was converted into
1,083,338 shares of common stock.
On July 6, 1999, $96,252 of merger consultant's note was converted into
192,503 shares of common stock. Also, an additional 842,430 shares of common
stock were issued to the merger consultant for a subscrition of $421,215.
Page 29
SKINTEK LABS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Retained Total
Number Number Additional Earnings Stockhol
of of Paid-in (Accumu- Equity
Shares Shares Common Preferred Captial lated (Deficit)
Common Preferred Stock Stock Deficit)
- --------------------------------------------------------------------------------------------
Balance at Dec. 3,430,000 0 3,430 0 1,670 118,559 123,659
31, 1997
November 13,
1998
converted
$82,333 of
merger
consultant's
note
into 164,667
shares of
common stock and
issued an
additional
208,333 of
Sec. 144 common 373,000 - 373 - 81,960 - 82,333
shares
Merger Costs - - - - (106,272) - (106,272)
Net Loss - - - - - (416,771) (416,771)
- --------------------------------------------------------------------------------------------
Balance at Dec. 3,803,000 0 3,803 - (22,642) (298,212) (317,051)
31, 1998
March 31, 1999
converted
$541,667 of
merger
consultant's
note into
1,083,338 shares
of
common stock 1,083,338 - 1,083 - 540,584 - 541,667
Additional - - - - (11,643) - (11,643)
Merger Costs
July 6, 1999
issued
1,034,933 shares
of
common stock to
merger
consultant for
$96,252 of
consultant's
note and
$421,215 cash 1,034,933 - 1,035 - 516,432 - 517,467
due
Net Loss - - - - - (185,822) (185,822)
- --------------------------------------------------------------------------------------------
Balance at Dec. 5,921,271 - 5,921 - 1,022,731 (484,034) 544,618
31, 1999
============================================================================================
</TABLE>
Page 30
SKINTEK LABS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
On December 13, 1994, Skintek Labs, Inc. (the "Company") under
the name of Biologistics, Inc. was incorporated under the laws of
Colorado, to engage in the business of clinical consulting,
contract packaging and labeling services for clinical studies.
The Company issued stock but never had any operations. On April
22, 1997, the Company became a Delaware corporation when it
merged itself into its subsidiary, Biologistics, Inc.,
incorporated under the laws of Delaware on March 19, 1997.
Performance Brands, Inc. (the "Subsidiary") was incorporated
September 21, 1995 under the laws of the State of Florida. The
Company is engaged in the wholesale and retail distribution and
sale of various products in the skin-care market. Currently,
these products are being manufactured, to the Company's
specifications, in South Florida by several independent fillers
and by the Company.
On March 31, 1999, the Company incorporated a wholly-owned
subsidiary PBI Acquisition Corp. On the same day Performance
Brands, Inc. merged with PBI Acquisition Corp. when the sole
stockholder exchanged his stock in Performance Brands, Inc. for
18,500,000 shares of Skintek Labs, Inc. Then PBI Acquisition
Corp. was dissolved, leaving Performance Brands, Inc. as the
surviving subsidiary of Skintek Labs, Inc. This stock-for-stock
transfer was accounted for as a reverse purchase.
Basis of Presentation and Consolidation
The consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and
include the accounts of Skintek Labs, Inc. and its wholly-owned
subsidiary Performance Brands, Inc. All material intercompany
transactions and balances have been eliminated in consolidation.
As described in Organization above, effective March 31, 1999, the
Company acquired all of the common stock of Performance Brands,
Inc. The business combination was accounted for as a purchase and
accordingly, the Company's financial statements have been
presented to include the results of Performance Brands, Inc. as
though the business combination occurred as of January 1, 1997.
The May 12, 1999 reverse stock split (Note 4) was also presented
as though it occurred on January 1, 1997.
Page 31
SKINTEK LABS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounts Receivable
All accounts receivable are due from unaffiliated third parties.
The Company considers all accounts receivable to be fully
collectible; accordingly, no allowance for doubtful accounts is
required. If amounts become uncollectible, they will be charged
to operations when that determination is made.
Inventory
Inventory is stated at the lower of cost or market, using the
first-in, first-out (FIFO) method and consists of bottles of
product, empty bottles, displays, and boxes. The raw materials
are expensed as purchased because their inventoried value would
be immaterial.
Property, Equipment and Depreciation
Property additions, major renewals and betterments are included
in the assets accounts at cost. Maintenance, repairs and minor
renewals are charged to earnings when incurred.
Depreciation is computed using the modified accelerated cost
recovery system and the straight-line method over the estimated
useful lives of the assets. The Company has elected to expense,
rather than depreciate, the cost of certain depreciable personal
property under Section 179 of the Internal Revenue Code.
Although, these methods are not generally accepted accounting
principles, the difference between them and any other acceptable
method is immaterial to the current financial statements.
Patent & Trademarks
During the year ending December 31, 1999, the Company paid
$17,149 in patent fees and expenses and $7,290 for trademark fees
and expenses, which are being amortized over seventeen years.
Long-Lived Assets
The Company periodically reviews the values assigned to long-
lived assets, such as property and equipment and acquired
customer bases, to determine whether any impairments are other
than temporary. Management believes that the long-lived assets in
the accompanying balance sheets are appropriately valued.
Revenue Recognition
Revenue from sales is recognized in the period in which the
products are shipped and invoiced to the customer. Sales are
final upon the shipment of the goods to customers. The customers
are generally the fifty independent distributors throughout the
world and an additional approximately eighteen hundred wholesale
accounts, principally in the U.S.A.
Page 32
SKINTEK LABS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Advertising
Costs associated with advertising are expensed in the year
incurred. Advertising expenses, which are comprised primarily of
print media, were $118,513 and $194,053 for the years ending on
December 31, 1999 and 1998, respectively.
Income Taxes
Since inception, the Company has maintained a fiscal year ending
on each 31st day of December. Provisions for income taxes have
not been presented as there is no taxable income after
consideration of net operating losses, and there are no timing
differences.
Earnings Per Common Share
The Company adopted Statement of Financial Accounting Standard
No. 128 ("FAS 128"), Earnings Per Share for the period of these
financial statements. Basic earning per common share is computed
using the weighted average number of common shares outstanding.
Diluted earnings per common share is computed using the weighted
average number of shares outstanding adjusted for the incremental
shares attributed to the potential officer's stock option of
500,000 shares of common stock as of August 31, 1999. There was
no dilution in the prior periods. The shares were also numbered
as though the May 12, 1999 reverse stock split occurred on
January 1, 1997.
Recent Accounting Pronouncements
In 1999, the Company was subject to the provisions of Statement
of Financial Accounting Standards No. 130 ("SFAS 130"),
"Reporting Comprehensive Income" and Statement of Financial
Accounting Standards No. 131 ("SFAS 131"), "Disclosures about
Segments of an Enterprise and Related Information." Neither
statement had any impact on the Company's financial statements as
the Company does not have any "comprehensive income" type
earnings (losses) and its financial statements reflect how the
"key operating decisions maker" views the business. The Company
will continue to review these statements over time, in particular
SFAS 131, to determine if any additional disclosures are
necessary based on evolving circumstances.
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Page 33
SKINTEK LABS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash,
accounts receivable, accounts payable and accrued expenses
approximated fair value because of the immediate or short-term
maturity of these instruments.
NOTE 2 - DUE FROM STOCKHOLDERS
As of December 31, 1997, the Company had advanced the
stockholders $157,440. These advances were evidenced by an
unsecured promissory note at an interest rate of 6%, principal
and accrued interest due on demand or on December 31, 1998.
Interest of $7,835 was accrued as of December 31, 1997 and added
to the balance, resulting in a due from stockholders of $165,275.
During the year ended December 31, 1998, the stockholders repaid
$130,000 and borrowed an additional $25,492. Interest of $2,317
was accrued as of December 31, 1998, resulting in a balance of
$60,767 and evidenced by an unsecured promissory note at an
interest rate of 6%, principal and accrued interest due on demand
or on December 31, 1999.
During the year ending December 31, 1999, the stockholders repaid
$42,000 and borrowed an additional $83,264. Interest of $5,280
was accrued, resulting in a balance of $38,150 and evidenced by
an unsecured promissory note at an interest rate of 6%, principal
and accrued interest due on demand or on December 31, 2000.
NOTE 3 - NOTES PAYABLE
On September 1, 1996, the Company purchased a forklift for
$12,954, financing $11,654 of the balance owed with a note
secured by the forklift at an interest rate of 12%. The monthly
installments are $338 through December 1, 1999. No payments have
ever been made; consequently, the note is in default, although no
demands for payment have ever been made.
During 1998 and 1999, a merger consultant advanced the Subsidiary
$657,000 and paid an additional $118,095 in merger expenses for
the Company. As of December 31, 1999, the Company had converted
all of the consultant's advances into common stock and had issued
additional common stock to the consultant resulting in stock
subscriptions receivable of $374,287.
Page 34
SKINTEK LABS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - STOCK TRANSACTIONS AND OPTIONS
Common Stock
The Company initially authorized 50,000 shares of $0.001 par
value common stock. On April 22, 1997 the Company re-incorporated
in Delaware through a merger with its wholly owned Delaware
subsidiary. The Company changed its authorized capital to
30,000,000 shares of $0.001 par value. As of December 31, 1998,
the Company had issued 4,318,000 shares of common stock. On March
31, 1999, 18,500,000 shares were issued to effect the merger with
Performance Brands, Inc. and 6,500,000 shares were issued to
settle $541,667 of debt. On May 12, 1999, the Company declared a
6 to 1 reverse stock split, leaving par at $.001, and changing
the number of shares authorized to 50,000,000. On July 6, 1999,
the Company issued an additional 1,034,933 shares of its common
stock for $.50 per share. As of December 31, 1999, the Company
had issued 5,921,271 shares of its common stock.
Preferred Stock
The Company has authorized 1,000,000 preferred shares $0.001 par
value, non-voting, the rights and preferences of which to be
determined by the Board of Directors at the time of issuance.
Currently, there are no preferred shares outstanding.
The Company has declared no dividends through June 30, 1999.
Stock Options
On March 30, 1999, the Company signed a convertible promissory
note agreement with the aforementioned merger consultant (See
Note 3.) in which all of the funds advanced to the Company and
its Subsidiary are convertible into shares of the Company's
common stock: 2 shares of stock for every $1 advanced. As of
December 31, 1999, 2,282,933 shares of common stock had been
issued for $775,095 of advances.
On March 30, 1999, the Company entered into an employment
agreement with the president and majority stockholder, in which
was included an incentive compensation stock option plan. This
plan allows the president to purchase up to 2,500,000 shares of
common stock by March 29, 2009 when certain annual revenue levels
are reached for the year ending December 31, 1999. The first
level of revenue was reached as of August 31, 1999, and 500,000
shares were included in the diluted shares for the earnings per
share calculation.
Page 35
SKINTEK LABS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - PROVISION FOR (BENEFIT FROM) INCOME TAXES
The provision for (benefit from) income taxes consists of the
following for the years ended December 31:
<TABLE>
<S> <C> <C>
1999 1998
Federal
Current Provision $ - -
Current Benifit - (44,171)
Deferred - -
---- --------
- (44,171)
---- --------
State
Current Provision - -
Current Benifit - -
Deferred - -
---- ------
Total $ - (44,171)
==== ======
</TABLE>
As of December 31, 1999, the Company's Federal and State NOL
carryovers are as follows:
<TABLE>
<S> <C> <C>
Federal State
NOL Carryover Expiring 2013 $ 268,332 $ 447,428
NOL Carryover Expiring 2014 186,449 186,449
--------- -------
$ 454,781 $ 633,877
========= =======
</TABLE>
Page 36
NOTE 6 - COMMITMENTS
The Company presently rents office and warehouse space under a
monthly lease. On August 25, 1999, the Company signed a new
thirty-six month office lease, commencing on February 1, 2000
with monthly payments starting at $1,858. The amounts due under
this lease are as follows for the years ending December 31:
2000 $ 20,438
2001 23,604
2002 24,912
------
$ 68,954
======
The Subsidiary also agreed to repay the new landlord for the
overage in the build-out of the new office, as evidenced by an
unsecured note of $14,606 with monthly payments, principal and
interest at an annual rate of 8.5%, of $429.95 beginning on
February 1, 2000 and ending April 1, 2003.
The Company is obligated for an automobile lease which is
properly treated as a non-cancelable operating lease. The term of
the lease is 36 months with monthly payments of $466. The amounts
due under this operating lease are as follows for the years
ending December 31:
2000 $ 2,329
-------
$ 2,329
=======
NOTE 7 LITIGATION
During the year ending December 31, 1999, a model for a
Subsidiary promotion sued the Subsidiary for compensation from
the product line advertised. Since the product line produced
approximately $3,000 in sales, the management of the Subsidiary
believes that there may be a nominal liability from this suit
since the model can only be entitled to a small percentage of the
profit, if anything.
During the year ending December 31, 1999, a model sued the
Subsidiary. The Subsidiary believes that it is an innocent third
party and has no liability.
As of the date of this report, the had been no resolution of
either lawsuit.
Exhibit 23
We hereby consent to the use of our report of independent
certified public accountants dated March 22, 2000 in the form 10
KSB for Skintek Labs, Inc. and Subsidiary for the year ended
December 31, 1999.
/s/ Grassano Accounting, P.A.
Boca Raton, Florida
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET (AUDITED) AS OF DECEMBER 31, 1998 AND 1999, AND STATEMENT OF OPERATIONS
(AUDITED)FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999, AND IS QUALIFIED IN ITS
ENTIRETY BYREFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 7,747 0
<SECURITIES> 0 0
<RECEIVABLES> 47,679 16,889
<ALLOWANCES> 0 0
<INVENTORY> 192,539 83,099
<CURRENT-ASSETS> 729,563 189,703
<PP&E> 56,628 27,209
<DEPRECIATION> 31,170 24,375
<TOTAL-ASSETS> 785,820 197,422
<CURRENT-LIABILITIES> 241,202 514,473
<BONDS> 0 0
0 0
0 0
<COMMON> 1,028,652 (18,839)
<OTHER-SE> (484,034) (298,212)
<TOTAL-LIABILITY-AND-EQUITY> 785,820 197,422
<SALES> 1,014,997 429,914
<TOTAL-REVENUES> 1,014,997 429,914
<CGS> 584,708 262,744
<TOTAL-COSTS> 430,289 167,170
<OTHER-EXPENSES> 657,528 636,136
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,214 2,317
<INCOME-PRETAX> (185,822) (460,942)
<INCOME-TAX> 0 (44,171)
<INCOME-CONTINUING> (185,822) (416,771)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (185,822) (416,771)
<EPS-BASIC> (.00) (.00)
<EPS-DILUTED> (.00) (.00)
</TABLE>
