UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-QSB

[X]    QUARTLERLY REPORT UNDER SECTION 13 OR 15(d) OF THE

          SECURITIES EXCHANGE ACT OF 1934

 

                                                                                                                                                                     For the quarterly period ended June 30, 2004

[ ]    TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES

        EXCHANGE ACT OF 1934

               

                                                                                                 For the transition period from __________ to __________

 

                                                 Commission File Number 000-25911

 

(Exact name of Small Business Issuer as specified in its charter)

 

NEVADA                                                                                                                                                            88-0344219

(State or other jurisdiction of incorporation)                                                                                              (IRS Employer Identification No.)

(Address of principal executive offices)

(Issuer's telephone number)

_________________________________________________________________

(Former name, former address and former fiscal year if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section13 or 15(d) of the Exchange Act during the 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.

Yes [X] No [ ]

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

 

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Item 1.       Financial Statements.

Our general unaudited financial statements included with the Form 10QSB are as follows:

(a)     Balance Sheet as of June 30, 2004 (unaudited);

(b)     Statements of Operations for the three and six months ended June 30, 2004, and June 30, 2003;

(c)     Statement of Stockholders’ Equity – January 1, 2004 to June 30, 2004 (unaudited);

(d)     Statement of Cash Flow – six months ended June 30, 2004 and 2003 (unaudited);

(e)     Notes to Unaudited Financial Statements.

The unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-QSB. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for this interim period are not necessarily indicative of the results that can be expected for the full year.

 

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Item 2.       Management’s Discussion and Analysis or Plan of Operation.

Historical results and trends should not be taken as indicative of future operations. Management’s statements contained in this report that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may differ materially from those included in the forward-looking statements. The Company intends such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," "prospects," or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on the operations and future prospects of the Company on a consolidated basis include, but are not limited to: changes in economic conditions generally, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Company and its business, including additional factors that could materially affect the Company’s financial results, is included herein and in the Company’s other filings with the Securities and Exchange Commission.

We were organized as a Nevada corporation on March 5, 1998 under the name "Microbial Solutions, Inc." On February 26, 1999, we changed our name to "Skinvisible, Inc."

We are focused on the development of innovative topical polymer-based delivery systems and technologies, incorporating our proprietary process for combining hydrophilic and hydrophobic polymers into stable water emulsions. When topically applied, products incorporating our delivery systems adhere to the skin's outer layers, forming a protective bond, resisting wash-off, and delivering targeted levels of therapeutic or cosmetic skincare agents to the skin. Proven or potential applications identified to date include antimicrobial hand sanitizers, suncare and lipcare formulations, skincare moisturizers, anti-fungals, insect repellents, acne, eczema, and psoriasis treatment applications.

We are focused on the development of innovative topical polymer-based delivery systems and technologies, incorporating our proprietary process for combining hydrophilic and hydrophobic polymers into stable water emulsions. Our primary business objective is to license our technologies and/or sell our delivery systems to established brand manufacturers and marketers of topical prescription Rx, over-the-counter, cosmetic and skincare products that provide enhanced performance capabilities.

Our plan for the next twelve months is as follows:

 

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In the previous three month period we signed a letter of intent with Dermal Defense, Inc. ("Dermal Defense"), a Michigan corporation, to grant Dermal Defense the exclusive marketing and distribution rights to the antimicrobial hand sanitizer product we manufacture that is identified as Triclosan 1% formula (the "Product") in the North American countries of Canada, United States, and Mexico in exchange for $1,000,000 USD plus a 5.0% royalty fee on gross revenues received from sales of the product. Under the terms of this letter of intent, we received a non-refundable deposit in the amount of $250,000 and the remaining $750,000 of the purchase price is payable quarterly in an amount determined to be the greater of $75,000 or 5% of product sales for the quarterly period provided that the parties are successful in negotiating a formalized licensing agreement. Under the terms agreed upon in the letter of intent, the rights to market and distribute the antimicrobial hand sanitizer product in the North American countries of Canada, United States, and Mexico were transferred and assigned to Dermal Defense upon the signing of the letter of intent and payment of the $250,000 non-refundable deposit. We received Dermal Defense’s first scheduled payment of $75,000. Currently, we have not entered into a formalized licensing agreement with Dermal Defense, but we are continuing to negotiate a definitive agreement.

In furtherance of our plan to expand the distribution of our innovative topical polymer-based delivery systems in the European market, we have retained two consultants to assist us in this endeavor. We have developed a new antimicrobial hand sanitizer for use by food service providers and health care providers in European hospitals. Currently, we are in the process of testing this product. We have received positive results from the first study we commissioned and are in the process of a second study. We anticipate that the results of the second study should be available during the third quarter of the current fiscal year. In the event that this second study is successful, we will likely be able to secure governmental approval to distribute this product to food service providers; however, a third study will be required prior to any distribution this product for use in hospitals by health care providers. In the event that this second study is successful, we will attempt to secure an agreement with a hospital in Europe for a third study which entails use of the product on a trial basis. The cost of the third study would be approximately $50,000.

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We have recently developed sunless tanning products which are sold as both lotions and spray-ons for air brush tanning that incorporate our topical polymer-based delivery systems. On June 9, 2004 through our wholly-owned subsidiary, Skinvisible Pharmaceuticals, Inc., we entered into a Trademark License Agreement and Distribution Agreement ("Distribution Agreement") with Cross Global, Inc. ("Cross Global"), a Delaware corporation, to grant Cross Global the exclusive right to distribute, market, sell, and promote our proprietary sunless tanning products in Canada, the United States, Mexico, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Luxembourg, Netherlands, Portugal, Spain, Sweden, United Kingdom, and Israel.

The Distribution Agreement provides that Cross Global must pay Skinvisible an up-front royalty in the amount of $1,000,000. Cross Global paid $200,000 upon signing the Distribution Agreement and the remaining balance is to be made in payments in the amount of $200,000 on August 30, 2004, November 30, 2004, February 28, 2003, and May 30, 2005. Cross Global will also be responsible for the payment of a running royalty in order to maintain the exclusivity granted under the Distribution Agreement. Under the terms of the Distribution Agreement, Cross Global is prohibited from manufacturing, marketing, distributing, or selling any competing product while the Distribution Agreement is in full force and effect.

We are in the process of developing a mosquito repellant that incorporates our topical polymer-based delivery systems. We expect to commence outside studies on this product before the end of the current fiscal year. The approximate cost of the outside study is $100,000 and it is the expectation of management that we will have sufficient resources to satisfy this payment. In the event that the studies on this product are successful, we will move forward to secure all appropriate governmental approvals for the distribution of this product in the United States. It is our anticipation that the process to complete all studies and secure all government approvals will take approximately twelve (12) to eighteen (18) months.

We are in the process of developing a product to treat acne that incorporates our topical polymer-based delivery systems. Currently, we have developed a formula for this product and expect to commence studies on this product before the end of the current fiscal year.

 

We have developed a clinically tested sunscreen formulation which allows labeling as "Very Water Resistant with an SPF of 30" in accordance with FDA Final Sunscreen Monograph requirements. We currently offer private label opportunities for our clinically tested sunscreen formulation on a contract basis. In addition, we also manufacture other skincare products such as moisture creams.

On January 4 2000, we filed a patent application for our antimicrobial dermal barrier composition, which utilized one of the Invisicare delivery systems. We received patent approval (US Patent No. 6,582,683) for our antimicrobial dermal barrier formulation in February 2003 and received the patent certificate in June 2003.

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We filed a patent application on August 20, 2001 for our Invisicare topical compositions and our methodology for manufacturing and utilization of numerous delivery systems and related applications. We received patent approval (US Patent No. 6,756,059) for this application in October 2003 and received the patent certificate on June 29, 2004.

In January 2002, we received trademark approval in the United States for the name "Invisicare" to identify our family of polymer delivery systems. We have filed this trade name with the Cosmetic, Fragrance and Toiletries Association ("CFTA") as an ingredient for use in skincare and cosmetic formulations.

Our revenues for the second quarter ended June 30, 2004 were $115,926, compared to $80,123 for the second quarter of 2003. The increase in revenues is attributable to our receipt of royalty payments due under the Distribution Agreement with Cross Global and the Letter of Intent with Dermal Defense and an increase in product sales.

Gross profit for the second quarter ended June 30, 2004 was $87,988 versus $26,421 for the second quarter ended June 30, 2003. The cost of revenues for the second quarter ended June 30, 2004 was $27,938 versus $53,702 for the second quarter ended June 30, 2003. The increase in gross profit and decrease in the cost of revenue from the second quarter of 2003 to 2004 is primarily attributable to the receipt of revenues from the royalty payments due under the Distribution Agreement with Cross Global and the Letter of Intent with Dermal Defense and sales of our sunless tanning products which have a higher gross profit margin than other products we sell.

Our operating expenses decreased slightly to $314,042 for the second quarter ended June 30, 2004 from $317,673 for the second quarter ended June 30, 2003.

We had a net loss of $226,054 for the second quarter ended June 30, 2004, as compared to a net loss of $284,721 for the quarter in the prior year. The increase in income was primarily attributable to the royalty payments due under the Distribution Agreement with Cross Global and the Letter of Intent with Dermal Defense and increased product sales.

As of June 30, 2004, we maintained $161,204 in cash and had total current assets of $369,220. Our total current liabilities as of June 30, 2004 were $656,230. As a result, on June 30, 2004 we had a working capital deficit of $287,010.

 

Management believes that we will have sufficient capital to finance our operations for the next twelve months based upon revenues anticipated to be received in the current fiscal year and royalty payments due under the Distribution Agreement with Cross Global and the Letter of Intent with Dermal Defense.

As of June 30, 2004, there were no off balance sheet arrangements.

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Our independent auditors have stated in their Auditor’s Report included in the Form 10-KSB that the Company has incurred operating losses, accumulated deficit, and negative cash flow from operations. We had incurred cumulative net losses of approximately $9,638,000 and $10,154,000 as of December 31, 2003 and June 30, 2004 respectively.

Revenues are recognized during the period in which the revenues are received. Costs and expenses are recognized during the period in which they are incurred.

Item 3.        Controls and Procedures.

The Company carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2004. This evaluation was carried out under the supervision and with the participation of the Company's management, including Mr. Terry Howlett, the Company's Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective. There have been no significant changes in the Company's internal controls or in other factors, which could significantly affect internal controls subsequent to the date the Company carried out its evaluation.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company's Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

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Item 1.       Legal Proceedings

 

We are not aware of any pending litigation against the Company, its officers, directors, controlling shareholders or affiliates that we believe are of a material nature or that could negatively affect the net worth of the Company.

 

Item 2.        Changes in Securities

 

None.

Item 3.       Defaults upon Senior Securities

 

None.

 

Item 4.        Submission of Matters to a Vote of Security Holders

 

No matters were submitted for a vote to our security holders during the reporting period.

 

Item 5.       Other Information

 

None.

 

Item 6.       Exhibits and Reports on Form 8-K.

 

(a)    Exhibits

Exhibit   Number	Description
10.1	Distribution Agreement with Cross Global 1
31.1	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to   Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to   Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to   Section 906 of the Sarbanes-Oxley Act of 2002

¹       Previously filed as an exhibit to a Current Report on Form 8-K filed on June 17, 2004.

 

(b)     Reports on Form 8-K

We filed a Current Reports on Form 8-K June 17, 2004 to disclose that our wholly-owned subsidiary, Skinvisible Pharmaceuticals, Inc. entered into a Trademark License Agreement and Distribution Agreement with Cross Global, Inc., a Delaware corporation.

We have not filed any Current Reports on Form 8-K since June 30, 2004.

 

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In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

                   

                                                                                                                            SKINVISIBLE, INC.

Date:   August 13, 2004                                                                                                    /s/ Terry Howlett                                                        

                                                                                                                                         Terry Howlett                       

                                                                                                                                         Chief Executive Office, Chief Financial

                                                                                                                             Officer, and Director

 

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