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 September 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)     Consolidated Balance Sheet as of September 30, 2004 (unaudited);  
     (b)     Consolidated Statements of Operations for the three and nine months ended September 30, 2004, and September 30, 2003 (unaudited);

     (c)     Consolidated Statement of Stockholders’ Equity - January 1, 2004 to September 30, 2004 (unaudited);

     (d)     Consolidated Statement of Cash Flow - nine months ended September 30, 2004 and 2003 (unaudited); 

     (e)     Notes to Unaudited Financial Statements. 

 

 

 

See Accompanying Notes to Consolidated Financial Statements

	F-2

 

 

For the three                For the three                For the nine                  For the nine                                                                                                                  months ended               months ended             months ended               months ended
September 30, 2004    September 30, 2003    September 30, 2004 September 30, 2003
Revenues	$	205,550		$	25,851		$	380,989		$	171,484
Cost of revenues		2,461			29,195			59,133			97,763
Gross profit		203,089			(3,344	)		321,856			73,721
Operating expenses
Depreciation and amortization		14,363			16,395			36,675			49,185
Selling general and administrative		340,563			246,400			841,684			643,298
Total operating expenses		354,926			262,795			878,359			692,483
Loss before provision for income taxes		(151,837	)		(266,139	)		(556,503	)		(618,762)
Other income (expense)		--			100,000			--			106,531
Provision for income taxes		--			--			--			--
Net loss	$	(151,837	)	$	(166,139	)	$	(556,503	)	$	(512,231)
Basic income (loss) per common share	$	(0.00	)	$	(0.00	)	$	(0.01	)	$	(0.01)
Diluted income (loss) per common share	$	(0.00	)	$	(0.00	)	$	(0.01	)	$	(0.01)
Basic weighted average common
shares outstanding		54,475,440			42,404,808			54,475,440			42,404,808

 

See Accompanying Notes to Consolidated Financial Statements

	F-3

 

 

Total
Common Stock                         Additional          Accumulated        Stockholders'
Shares                Amount          Paid-in Capital           Deficit                   Equity
Balance, December 31, 2003	48,714,618			48,715			10,450,665			(9,756,199	)		743,181
Issuance of stock for cash, weighted average	5,478,944			5,479			542,416			-			547,895
price of $0.10 per share
Issuance of stock for services, $ 0.10 per share	281,500			281			27,869			-			28,150
Net loss	--			--			--			(556,503	)		(556,503)
Balance, September 30, 2004	54,475,062		$	54,475		$	11,020,949		$	(10,312,702	)	$	762,722

See Accompanying Notes to Consolidated Financial Statements

	F-4

 

SKINVISIBLE, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004

For the nine                For the nine                                                                                                                                                                                        months ended              months ended
September 30, 2004  September 30, 2003
Cash flows from operating activities:
Net loss	$	(556,503	)	$	(512,231)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization		36,675			49,185
Stock based compensation		28,150			--
Changes in operating assets and liabilities:
Change in inventory		(36,259	)		18,510
Change in accounts receivable		(90,986	)		(16,795)
Change in deposits					225
Change in prepaid expenses and other current assets		76,887			2,232
Change in stock subscription receivable		--			(35,000)
Change in accounts payable and accrued liabilities		(450,711	)		232,628
Change in unearned revenue		575,000			--
Net cash used by operating activities		(417,747	)		(261,246)
Cash flows from investing activities:
Purchase of fixed assets		(51,764	)		--
Net cash used by investing activities		(51,764	)		--
Cash flows from financing activities:
Proceeds from notes payable		-
Proceeds from issuance of common stock		547,895			385,754
Principal payments on notes payable		--			(129,252)
Net cash provided by financing activities		547,895			256,502
Net change in cash		78,384			(4,744)
Cash, beginning of period		--			4,622
Cash, end of period	$	78,384		$	(122)
Supplemental disclosure of cash flow information:
Cash paid for interest	$	4,051		$	5,236

See Accompanying Notes to Consolidated Financial Statements

	F-5

 

 

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 topical polymer-based delivery systems and finished products that are produced using our topical polymer-based delivery system as a component. 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 applications of our topical polymer-based delivery systems 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 topical polymer-based delivery systems and finished products that are produced using our topical polymer-based delivery system as a component. 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 March 2004, 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. 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. Currently, we have not entered into a formalized licensing agreement with Dermal Defense and are continuing to negotiate a definitive agreement. We received Dermal Defense’s first two scheduled payments each in the amount of $75,000. We have also received minimum royalty payments as set forth in the letter of intent in the amount of $5,000 for the quarter ended June 30, 2004 and $10,000 for the quarter ended September 30, 2004,

In furtherance of our plan to expand the distribution of our 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 first quarter of the next 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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Sunless Tanning Products

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 provided 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 also paid the first scheduled payment in the amount of $200,000 during the three month period ended September 30, 2004. The remaining balance is to be made in payments in the amount of $200,000 on 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 first quarter in the next 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 completed the development of a product to treat acne that incorporates our topical polymer-based delivery systems. We are seeking to license the rights to this product.

 

We 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 sell on a contract basis private label opportunities for our clinically tested sunscreen formulation. 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 third quarter ended September 30, 2004 were $205,550, compared to $25,831 for the third quarter of 2003. The increase in revenues is primarily attributable to our receipt of payments due under the Distribution Agreement with Cross Global and the Letter of Intent with Dermal Defense.

Gross profit for the third quarter ended September 30, 2004 was $203,089 versus a loss of $3,344 for the third quarter ended September 30, 2003. The cost of revenues for the third quarter ended September 30, 2004 was $2,461 versus $29,195 for the third quarter ended September 30, 2003. The increase in gross profit and decrease in the cost of revenue from the third quarter of 2003 to 2004 is primarily attributable to the receipt of revenues from the payments due under the Distribution Agreement with Cross Global and the Letter of Intent with Dermal Defense.  

Our operating expenses increased to $354,926 for the third quarter ended September 30, 2004 from $262,795 for the third quarter ended September 30, 2003. The increase in operating expenses from the third quarter of 2003 to 2004 is primarily attributable to legal fees associated with protecting out intellectual property rights.

We had a net loss of $151,837 for the third quarter ended September 30, 2004, as compared to a net loss of $166,139 for the quarter in the prior year.

As of September 30, 2004, we maintained $78,384 in cash and had total current assets of $322,745. Our total current liabilities as of September 30, 2004 were $799,743. As a result, on September 30, 2004 we had a working capital deficit of $476,998.

 

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 September 30, 2004, there were no off balance sheet arrangements.

	6

Going Concern

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 $10,313,000 as of December 31, 2003 and September 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.

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 September 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.

	7

 

 

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.

 

 

None.

 

None.

 

 

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

 

 

None.

 

Exhibit   Number	Description
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

	8

 

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:      November 12, 2004                                                                               /s/ Terry Howlett                                                                             

                                                                                                                            Terry Howlett                        

                                                                                                                            Chief Executive Office, Chief Financial

                                                                                                                            Officer, and Director

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