See accompanying Notes to Consolidated Financial Statements

See accompanying Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 5) was also presented as though it occurred on January 1, 1997.

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 six months ending June 30, 2000, the Company paid $686 in patent 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.

Advertising

Costs associated with advertising are expensed in the year incurred. Advertising expenses, which are comprised primarily of print media, were $27,534 and $43,763 for the six months ending on June 30, 2000 and 1999, 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 periods 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 2000 and 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.

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

During the six months ending June 30, 2000, the stockholders repaid $50,000 and borrowed an additional $12,820. Interest of $2,321 was accrued, resulting in a balance of $72,452 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.

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 June 30, 2000, 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 $356,619 at June 30, 2000.

As noted on the Consolidated Statement of Cash Flows, the Subsidiary issued an unsecured 8.5% promissory note to its landlord for excess built-out expenses. The following is the amortization of principal payments:

NOTE 4 – DUE TO VENDOR

The Subsidiary owes a vendor $104,245 for advertising purchased during 1998. The vendor has sued to get its money. The Subsidiary, however, believes that it did not get effective advertising and is trying to settle the claim with a promissory note for one-half of the balance.

NOTE 5 – 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 June 30, 2000, 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, 2000.

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 June 30, 2000, 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.

NOTE 6 – PROVISION FOR (BENEFIT FROM) INCOME TAXES

The provision for (benefit from) income taxes consists of the following for the six months ended June 30:

As of December 31, 1999, the Company’s Federal and State NOL carryovers are as follows:

NOTE 7 – COMMITMENTS

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:

NOTE 8 – 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, there had been no resolution in either lawsuit.

The Company has entered into a Letter of Intent to acquire another subsidiary. Due diligence is in process. The Company is also negotiating a spin-off of its current operating subsidiary, Performance Brands, Inc.