SKINTEK LABS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Regulation S-B of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with Notes to Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2000. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001.
The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.
2. Stock Transaction
On March 16, 2001, a newly appointed board member was elected president, and 6,000,000 shares of the Company’s common stock were issued to him as compensation. The stock was valued at $0.20 per share. These shares were issued so the president would have control of the company with 50.3% of the common stock.
3. Restated Financial StatementsThe 2000 consolidated financial statements were restated to include the assets, liabilities, and losses of the former subsidiary Performance Brands, Inc., which was divested on April 30, 2001 and to eliminate the assets, liabilities, and losses of the former subsidiary Ultimate Warlock, Inc., whose acquisition was rescinded on or about February 21, 2001. The 2001 consolidated financial statements were restated to include the results of operations and changes in cash flows for Performance Brands, Inc. through April 30, 2001, the date of divestiture from the Company.
4. Divestiture of Performance Brands, Inc.
On April 30, 2001, the Company agreed to sell its shares in Performance Brands, Inc., the Subsidiary, in consideration of the cancellation of the 1999 employment agreement between Stacy Kaufman, our former sole executive officer and director and the Company and, in addition, the cancellation of options to purchase 500,000 shares of the Company stock because the Subsidiary failed to achieve the projected sales and profits that led to its purchase. Our financial statements for the period ended September 30, 2001 reflect the divestiture of PBI effective April 30, 2001
The Company has determined the fair value of the assets transferred pursuant to the divestiture were substantially similar to their fair value upon purchase, after the adjustment for an increase in accumulated deficit resulting from operating losses. Both parties have agreed to absorb their own expenses in this transaction. The Company did not recognize any gain or loss in connection with this transaction.
We determined that no impairment charge of our long-lived assets and intangible assets should be recorded at December 31, 2000 and March 31, 2001 because: our fundamental analysis of PBI; discussions with management; the results to the Company in absence of PBI; and PBI continued to operate without the parent Company in the same manner that predated its merger with the Company in 1999.
Item 2. Management’s Plan of Operation
Overview
As used in this Quarterly Report, the terms "we", "us", "our", SKNT and the "Company" mean Skintek Labs, Inc., a Delaware corporation. On April 30, 2001 we entered into a Share Transfer Agreement with Performance Brands, Inc. ("PBI") and our former president and sole director, Stacy Kaufman. In the agreement we transferred all PBI shares to Kaufman. As a result of the share transfer transaction, we have become a non-operating company, no longer have any subsidiaries, and we are seeking a business combination or other transaction with a third party including possible sale of stock resulting in a change in control, that we believe will be in the best interests of our shareholders, including our principal shareholders ("Transaction").
Our current activity is limited to seeking a Transaction. We will use our limited personnel and financial resources principally in connection with structuring and consummating a Transaction and it may be expected that any Transaction will involve the issuance of our shares of common stock. To the extent that common stock is used as consideration to effect a Transaction, available cash, if any, of which there can be no assurance, will in all likelihood be used to finance new operations that may result from a Transaction. At September 30, 2001, we had no cash or other current assets.
Forward-Looking Statements
To the extent that we make forward-looking statements in the "Management’s Plan of Operation" in this Quarterly Report, we emphasize that forward-looking statements involve risks and uncertainties and our actual results may differ materially from those expressed or implied by our forward looking statements. All forward looking statements in this Quarterly Report reflect our current views about future events and are based on assumptions and are subject to risks and uncertainties. Generally forward-looking statements include phrases with words such as "expect", anticipate", "intend", "plan", "believe", "seek", "estimate" and similar expressions to identify forward-looking statements. Because these forward-looking statements involve risks and uncertainties, our actual results may differ materially from those expressed or implied by these forward-looking statements. All forward-looking statements in this Quarterly Report reflect our current views about future events and are based on assumptions and are subject to risks and uncertainties.
This Quarterly Report contains reference to our intent to explore and pursue new business opportunities as a result of our becoming a non-operating company following the disposition of PBI, our former wholly-owned subsidiary, pursuant to the Share Transfer Agreement dated April 30, 2001. Any plan to pursue new business opportunities may involve certain estimates and plans related to us, which assumes certain events, trends and activities will occur and the projected information based on those assumptions. We do not know that any assumptions that we may make will be accurate. In particular, we do not know and cannot predict with any degree of certainty the growth in any business or industry in which we may seek to operate. If our assumptions are wrong about any events, trends and activities, and specifically about which business opportunity to pursue, if any, and because of our limited resources, then our efforts regarding and new business opportunity may also be wrong.
During the three months ended September 30, 2001, as a result of our disposition of our former subsidiary, PBI, our statement of operations reflects that we had no revenues from any business operations. Our balance sheet reflects no assets or liabilities, all of which were transferred to PBI in connection with the Share Transfer Agreement. Please read this Quarterly Report together with our amended Form 10-KSB/A for the year ended December 31, 2000, filed with the SEC on November 9, 2001, and our Amended Information Statement on Schedule 14C also filed with the SEC on November 9, 2001, and our Form 10-QSB/A for the periods ended March 31, 2001 and June 30, 2001 also filed on November 9, 2001. This Quarterly Report does not contain any estimates and/or plans related to the industry in which we formerly operated.
Results of Operations
The discussion below is as of September 30, 2001 and reflects our disposition of PBI in the Share Transfer Agreement on April 30, 2001. Reference is made to the Notes to the Financial Statements included in this Form 10-QSB/A for the period ended September 30, 2001, which reflects the disposition of PBI and that we have no assets or liabilities and no operations.
Revenues: During the three-month period ended September 30, 2001, we had no revenues compared to revenues of $356,464 for the same period in the prior year.
Operating Expenses: During the three-month period ended September 30, 2001, we had operating expenses of $4,358, compared to operating expenses of $121,728 during the same period of the prior year. During the nine-month period ended September 30, 2001, we had operating expenses of $1,387,702 which includes a non-cash expense of $1,200,000 related to the sale of 6 million restricted shares to our new president on March 16, 2001. The 6 million shares were issued for compensation. The closing bid price of the SKNT shares on the date of issuance was $.20 per share. This non-recurring expense was in connection with the sale of voting control which was disclosed in our Schedule 14C Information Statement filed with the SEC.
Net Loss: During the three-month periods ended September 30, 2001 and 2000, our net loss was $4,358 and $22,086, respectively. Our net loss for the nine-month periods ended September 30, 2001 and 2000, were $1,213,084 and $34,327, respectively.
Liquidity and Capital Resources
At September 30, 2001, we had no assets and had only limited liabilities of $4,358, which represents an amount due to our sole officer/director for advances made to pay our administrative expenses. At December 31, 2000, we had $373,290 in assets, which reflects the assets of our subsidiary PBI. We had $164,713 of liabilities at December 31, 2000. All of PBI assets and liabilities were transferred to PBI and Kaufman in the April 30, 2001 Share Transfer Agreement. Our accumulated deficit at September 30, 2001 was $1,243,543 compared to $518,081 at December 31, 2000. A significant component of our increased accumulated deficit at September 30, 2001 was the result of the non-cash expense of $1,200,000 related to the issuance of 6 million restricted shares to our president, a non-recurring expense, as discussed above.
While we have been dependent upon limited interim advances of $4,358 made on our behalf by Mr. Baker to pay professional fees, principally related to accounting expenses, we have no written finance agreement with Mr. Baker to provide any continued funding. Mr. Baker is presently negotiating on our behalf with our attorney and our corporate securities compliance firm, CR Capital Services, Inc. to be paid for services in shares. No determination has been made regarding the amount or value of the shares.
We may determine to seek to raise funds from the sale of equity or debt securities, from bank or other borrowings or a combination thereof as part of any consideration in effecting a business combination or other Transaction. However, we have no commitments as of the date hereof to issue any securities, and cannot at this time predict whether equity or debt financing will become available at terms acceptable to us, if at all. We anticipate that in connection with a Transaction, we will, in all likelihood, issue a substantial number of additional shares and to the extent that such additional shares are issued, our shareholders will experience a dilution in their ownership interest. Additionally, if a substantial number of our shares are issued in connection with the consummation of a Transaction, a change in control may be expected to occur.
There currently are no contractual limitations on our ability to borrow funds to effect a Transaction. However, our limited resources may make it difficult to borrow funds. The amount and nature of any borrowing by us will depend on numerous factors, including our capital requirements, potential lenders' evaluation of our ability to meet debt service on borrowing and the then prevailing conditions in the financial markets, as well as general economic conditions. We do not have any arrangements with any bank or financial institution to secure additional financing and there can be no assurance that such arrangements if required or otherwise sought, would be available on terms commercially acceptable or otherwise in our best interests. Our inability to borrow funds required to effect or facilitate a Transaction, or to provide funds for an additional infusion of capital into any target business, may have a material adverse effect on our financial condition and future prospects, including the ability to effect a Transaction. To the extent that debt financing ultimately proves to be available, any borrowing will subject us to various risks traditionally associated with indebtedness, including the risks of interest rate fluctuations and insufficiency of cash flow to pay principal and interest. Furthermore, a target business may have already incurred debt financing and, therefore, subject us to all the risks inherent thereto.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Part I, Item 3, "Legal Proceedings" in our Form 10-KSB/A filed on February 27, 2002. All assets of liabilities of PBI were transferred in connection with the Share Transfer Agreement dated April 30, 2001, including any liabilities or claims under any pending proceeding.
Item 2. Changes in Security
During the three-month period ended September 30, 2001, we did not issue any restricted shares.
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of our security holders. However, reference is made to our amended Schedule 14C Preliminary Information Statement filed on February 27, 2002, regarding the divestiture of PBI by SKNT by the action taken by our board of directors and the consent of shareholders owning a majority of our issued and outstanding shares.
Item 5. Other Information
None
