**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **WASHINGTON,
        D.C. 20549**
 
 **FORM
        10-KSB**
  x **ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934**
  **For
        the fiscal year ended** **December 31, 2007**
 
 o **TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
        ACT**
  **For
        the transition period from _____________________ to
        ______________**
 
 **Commission
        File Number: 000-51119**
 
 **SKINS
        INC.**
 (Exact
        name of small business issuer as specified in its charter)
 
 **Nevada**
                (State
                  or other jurisdiction of incorporation)
              
              **20-4711789**
                (I.R.S.
                  Employer IdentificationNo.)**1115
                  Broadway, 12****th****Floor**
                **New
                  York, NY**
                (Address
                  of principal executive offices)
              
              **10010**
                (Zip
                  Code)
 
 **(212)
        710-2712**
 (Registrant's
        telephone number, including area code)
 
 Securities
        registered under section 12(b) of the Exchange Act: (none)
 
 Securities
        registered under Section 12(g) of the Exchange Act: Common Stock, $0.001
        value
        per share
 
 Check
        whether the issuer is not required to file reports pursuant to section 13
        or
        15(d) of the Exchange Act o
 
 Check
        whether the issuer (1) 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 (2) has been
        subject
        to such filing requirements for the past 90 days. Yes x No o
 
 Check
        if
        there is no disclosure of delinquent filers in response to Item 405 of
        Regulation S-B 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. o
 
 Check
        whether the registrant is a shell company (as defined in Rule 12b-2 of the
        Exchange Act). Yes o No x
 
 Issuer’s
        revenues for its most recent fiscal year: $0
 
 As
        of
        April 7, 2007, the aggregate market value of such common stock held by
        non-affiliates was approximately $13,522,000, based on the average of the
        bid
        $.43 and ask $.45 prices of such stock on that date. For purposes of this
        calculation only, all directors, officers, and each holder of a 10% or greater
        beneficial interest in the Company have been deemed affiliates.
 
 As
        of
        April 7, 2007 there were 41,679,088 shares
        of
        the registrant’s common stock issued and outstanding.
 
 Documents
        Incorporated By Reference: The information required by Part III of Form 10-KSB
        incorporated by reference from the Registrant's definitive proxy statement
        on
        Schedule 14A that will be filed no later than the end of the 120-day period
        following the Registrant's fiscal year end, or, if the Registrant's definitive
        proxy statement is not filed within that time, the information will be filed
        as
        part of an amendment to this Annual Report on Form 10-KSB/A, not later than
        the
        end of the 120-day period.
 
 Transitional
        Small Business Disclosure Format (Check one): Yes o No x
  
  SKINS
        INC.
 FORM
        10-KSB ANNUAL REPORT
 TABLE
        OF
        CONTENTS
 
 **PART
                  I**ITEM
                  1.
              
              DESCRIPTION
                  OF BUSINESS
              
              1ITEM
                  2.
              
              DESCRIPTION
                  OF PROPERTY
              
              15ITEM
                  3.
              
              LEGAL
                  PROCEEDINGS
              
              15ITEM
                  4.
              
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS
              
              15**PART
                  II**ITEM
                  5.
              
              MARKET
                  FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
                  ISSUER PURCHASES OF EQUITY SECURITIES
              
              15ITEM
                  6.
              
              MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
              
              18ITEM
                  7.
              
              FINANCIAL
                  STATEMENTS
              
              25ITEM
                  8.
              
              CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                  DISCLOSURE
              
              26ITEM 8A.
              
              CONTROLS
                  AND PROCEDURES
              
              26ITEM 8B.
              
              OTHER
                  INFORMATION
              
              27**PART
                  III**ITEM
                  9.
              
              DIRECTORS,
                  EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSON AND CORPORATE GOVERNANCE;
                  COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
              
              28ITEM
                  10.
              
              EXECUTIVE
                  COMPENSATION
              
              28ITEM
                  11.
              
              SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                  STOCKHOLDER MATTERS
              
              28ITEM
                  12.
              
              CERTAIN
                  RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
              
              28ITEM
                  13.
              
              EXHIBITS
              
              28ITEM
                  14.
              
              PRINCIPAL
                  ACCOUNTANT FEES AND SERVICES
              
              29SIGNATURES
              
              
              30
  
 
 **SPECIAL
        NOTE REGARDING FORWARD-LOOKING STATEMENTS**
  In
        addition to historical information, this report contains statements relating
        to
        our future business and/or results, including, without limitation, the
        statements under the captions “Risk Factors,” “Management's Discussion and
        Analysis or Plan of Operation” and “Description of Business.” These statements
        include certain projections and business trends that are “forward-looking.”
Forward-looking statements can include statements containing a projection
        of
        revenues, income (including income loss) , earnings (including earnings loss)
        per share, capital expenditures, dividends, capital structure, or other
        financial items; a statement of the plans and objectives of management for
        future operations, including plans or objectives relating to the products
        or
        services of the issuer; a statement of future economic performance, including
        any such statement contained in a discussion and analysis of financial condition
        by the management or in the results of operations included pursuant to the
        rules
        and regulations of the SEC; any report issued by an outside reviewer retained
        by
        an issuer, to the extent that the report assesses a forward-looking statement
        made by the issuer; or a statement containing a projection or estimate of
        such
        other items as may be specified by rule or regulation of the SEC. You can
        identify these statements by the use of words like “may,” “will,” “could,”
“should,” “project,” “believe,” “anticipate,” “expect,” “plan,” “estimate,”
“forecast,” “potential,” “intend,” “continue” and variations of these words or
        comparable words. Forward-looking statements do not guarantee future performance
        and involve risks and uncertainties. Actual results will differ, and may
        differ
        materially, from projected results as a result of certain risks and
        uncertainties. These risks and uncertainties include, without limitation,
        those
        described under “Risk Factors” and those detailed from time to time in our
        filings with the SEC, and include, among others, the following:
 
 ·
              Our
                  limited operating history;
 
 ·
              Our
                  lack of profits from operations;
 
 ·
              Our
                  recent restatement of our financial statements*;*
 
 ·
              Our
                  ability to raise additional funds on acceptable terms or at
                  all;
 
 ·
              Our
                  ability to successfully design, manufacture and commercialize our
                  proposed
                  product;
 
 ·
              Our
                  reliance on one unproven and undeveloped product
                  type;
 
 ·
              Rapidly
                  changing consumer demands for footwear
                  products;
 
 ·
              Our
                  unestablished brand;
 
 ·
              The
                  degree and nature of our
                  competition;
 
 ·
              Our
                  ability to employ and retain qualified
                  employees;
 
 ·
              The
                  limited trading market for our common stock;
 
 ·
              Current
                  market conditions; and
 
 ·
              The
                  other factors referenced in this report, including, without limitation,
                  under the sections entitled “Risk Factors,” “Management's Discussion and
                  Analysis or Plan of Operation,” and “Description of
                  Business.”
  The
        assumptions used for purposes of the forward-looking statements specified
        in the
        following information represent estimates of future events and are subject
        to
        uncertainty as to possible changes in economic, legislative, industry, and
        other
        circumstances. As a result, the identification and interpretation of data
        and
        other information and their use in developing and selecting assumptions from
        and
        among reasonable alternatives require the exercise of judgment. To the extent
        that the assumed events do not occur, the outcome may vary substantially
        from
        anticipated or projected results, and, accordingly, no opinion is expressed
        on
        the achievability of those forward-looking statements. We cannot guarantee
        that
        any of the assumptions relating to the forward-looking statements specified
        in
        the following information are accurate, and we assume no obligation to update
        any such forward-looking statements.
  
  **PART
        I**
  **ITEM
        1: DESCRIPTION OF BUSINESS**
 
 **Overview**
 
 We,
        Skins
        Inc. and subsidiary (“we,” “us,” “our,” or “Company”), a Nevada corporation with
        our corporate office located in New York City, have designed and continue
        to
        develop a patented two-part, footwear structure consisting of an outer
        collapsible “Skin” and an inner orthopedic support section called the “Bone.”
The design is intended to allow consumers to purchase one inner section,
        the
        Bone, and numerous outer Skins, resulting in multiple style variations from
        the
        same pair of shoes, with the same feel and fit despite which Skin is being
        worn.
        We have initially designed and manufactured men's and women's footwear and
        distributed to a test market through a soft commercial launch during the
        third
        quarter of 2007. Due to technological advances in the product, we announced
        an
        updated design of the Bone to be launched in first half of 2008 for the
        Spring/Summer 2008 season. The Bone is designed such that it can only be
        worn
        once it is inside the Skin and not on its own. As a result of the product
        enhancements and advanced technologies, we agreed to replace the existing
        Bones
        at retail and will replace the Skins as well, to ensure an ideal fit and
        match
        for the Skins and Bone. The improvements to the product, rendered inventory
        to
        be obsolete for the year ended December 31, 2007.
 
 Our
        corporate offices are located at 1115 Broadway, 12th Floor, New York, New
        York
        10010.
 
 **Development
        Stage and Going Concern**
  The
        Company is still in the development stage. Since its formation the Company
        has
        not realized any revenues from its planned operations. The Company intends
        to design, manufacture and market high quality men's and women's footwear.
        The
        Company's primary activities since incorporation have been conducting research
        and development, performing business, strategic and financial planning, and
        raising capital.
  The
        financial statements contained in this report have been prepared using
        accounting principles generally accepted in the United States of America
        applicable for a going concern which assumes that the Company will realize
        its
        assets and discharge its liabilities in the ordinary course of business.
        As of
        December 31, 2007, the Company had no established material source of revenues
        and has accumulated losses of $11,397,491 since its inception. Its ability
        to
        continue as a going concern is dependent upon achieving production or sale
        of
        goods, the ability of the Company to obtain the necessary financing to meet
        its
        obligations and pay its liabilities arising from normal business operations
        when
        they come due and upon profitable operations. The outcome of these matters
        cannot be predicted with any certainty at this time and raise substantial
        doubt
        that the Company will be able to continue as a going concern.
  Management
        intends to sell its products to selected retail stores and chains throughout
        the
        United States in April 2008. This marks our first main stream consumer
        launch after completing a test soft launch to a select 20 retailers this
        past
        fall season. In addition, the Company has a factor financing facility in
        place
        and will also seek to continue to raise additional capital through private
        equity placements and, or other financing means.
  **The
        Skins Product Concept**
 
 We
        believe that there are few, if any, methods for a consumer to change the
        look of
        their shoe other than buying multiple pairs, in multiple colors, or multiple
        styles. With the average price of high quality shoes ranging anywhere from
        $150
        and up, the purchase of new shoes can be a costly proposition for
        consumers.
 
 Other
        markets have already launched products that exploit the concept of cost and
        style in terms of interchangeability. Within the watch market, companies
        offer
        cost effective, fashionable watches that have interchangeable straps and
        faces.
        Within the sunglasses market, some companies have many fashion-focused models
        with interchangeable lenses. Even in the cellular phone market, cellular
        phone
        manufacturers offer interchangeable covers that are purely a fashion
        statement.
 
 ***The
        Bi-Sectional System***
 
 We
        have
        designed and continue to develop a line of footwear products based on our
        patented modular shoe system built with two sections: the Bone and the Skin.
        The
        Skins products are designed to be easy to use, comfortable, and employ quality
        craftsmanship. The inner section - or the Bone - is made from a mold utilizing
        advanced light-weight and resilient synthetic material. The Bone is designed
        to
        be a consistent source of comfort and support, without regard to changing
        styles
        and fashions. The outer section - or the Skin - is expected to represent
        our
        core product. It is expected that Skins will be created with various
        combinations of toe shapes, materials, fabrics, leather and outsole treads.
        We
        expect to launch numerous styles per season for each targeted consumer
        group.
  1
  ***Design
        and Development***
 
 Our
        principal goal in product design is to generate new and exciting interchangeable
        footwear with classic contemporary and progressive styles. All of our footwear
        is designed with an active lifestyle in mind. We design most of our styles
        to be
        fashionable and marketable to the 18 to 35 year-old consumer, with most lines
        appealing to the broad cross-section of the population. Any success of the
        Skins
        product may be related to:
  ·
              The
                  unique interchangeable Skin
                  concept,
 
 ·
              A
                  constant fit and feel of the bone,
 
 ·
              Collapsibility
                  of the Skin, allowing ease of
                  travel,
 
 ·
              Ease
                  of purchase over the internet,
 
 ·
              Catalog
                  and other non-traditional methods of
                  distribution,
 
 ·
              Our
                  ability to recognize trends in the footwear market,
                  and
 
 ·
              A
                  product design that anticipates and accommodates consumers' ever-evolving
                  preferences.
 
 Our
        technology is designed to allow consumers to continually change Skins to
        fit
        their respective fashion and functional needs. We will attempt to identify,
        interpret and translate current and emerging lifestyle trends in the design
        of
        our footwear. We expect to obtain lifestyle trend information through various
        methods intended to monitor changes in the culture and society,
        including:
 
 ·
              Review
                  and analysis of modern music, television, cinema, clothing and
                  other
                  trend-setting media,
 
 ·
              Travel
                  to domestic and international fashion markets to identify and confirm
                  current trends,
 
 ·
              Consultation
                  with retail customers and end-consumers for information on current
                  retail
                  selling trends,
 
 ·
              Fit
                  trials to ensure maximum comfort for
                  consumers,
 
 ·
              Participation
                  in major footwear tradeshows to stay abreast of popular brands,
                  fashions
                  and styles, and
 
 ·
              Subscription
                  to various fashion and color information
                  services.
  We
        expect
        that our footwear design process will typically begin approximately nine
        months
        prior to the start of a season. Our products will be designed and developed
        by
        our in-house staff and freelance design agencies. To promote innovation and
        brand relevance, we expect to utilize dedicated design teams that focus on
        each
        of the men's, women's, and children's categories and report to our chief
        design
        executive, once we are able to locate and hire a person for this position.
        We
        anticipate that the design process will be collaborative whereby design staff
        will meet with retail and merchandising and sales and production personnel
        to
        refine the design to our perceived demand of the markets. After the designers
        arrive at a consensus regarding the fashion themes for the coming season,
        the
        designers then translate these themes into products. These variations will
        include variations in product color, material, structure and decoration,
        which
        are arrived at after close consultation with those involved in design and
        production.
 
 After
        a
        design is complete, we will create prototype blueprints and specifications
        and
        forward them to our third-party manufacturers, which will then forward the
        design prototypes back to our design team. We plan to allow our major retail
        customers, if any, to review upcoming design concepts prior to release. We
        believe that input from these retailers could assist us in predicting consumer
        reaction to our latest designs and afford us an opportunity to foster
        collaborative relationships with our customers. Our design teams will be
        able to
        modify and refine a design based on customer input.
  2
  **Business
        Strategy**
 
 Footwear
        manufacturers may expect a limited number of purchases from consumers since
        footwear is commonly viewed by consumers as functional attire. The Skins
        product
        concept is designed to change the consumer view of footwear from a functional
        requirement to a fashionable accessory. The consequence is that we may be
        able
        to market, sell and distribute in a similar manner as an apparel entity.
        In
        essence, we expect that the non-traditional concept of our footwear will
        be
        ground breaking and disruptive to lifestyle and the footwear and fashion
        industry specifically.
  We
        will
        concentrate on our core design and development of the Skin and Bone product,
        while outsourcing the production requirements to third parties. We plan an
        initial strategy of developing our own brand. In the future, we intend to
        license to existing brands to maximize our market exposure and product
        distribution, in addition to working with the orthopedic market in supplying
        Bones without foot-beds to orthopedic insole manufacturers to allow for
        orthopedic fitted Bones for individuals with orthopedic needs. We expect
        to act
        as a wholesaler, marketing our products to specialty, department and Internet
        retail locations via marketing and branding efforts.
 
 We
        intend
        to begin with both men and women's high-end footwear. We plan to introduce
        our
        product in the high-end market to mavens, trendsetters and early adopters,
        in an
        attempt to build brand equity and focus on exclusive specialty shops that
        sell
        high-fashion quality apparel and footwear. We plan on conducting promotional
        activities such as celebrity product placement and Skins Inc. sponsored events,
        in addition to fashion and business press editorial coverage to increase
        the
        brand visibility and credibility. We will be working with a fashion, footwear
        and accessory specific public relations firm to assist and produce these
        events
        and undertakings. After establishing our brand, we plan to broaden our
        distribution with more mainstream middle-market retailers, and then begin
        to
        enter the children's market and license our technology to other
        manufacturers.
  **Marketing
        Strategy**
 
 We
        expect
        that our marketing strategy will consist of the following elements:
 
 ***Product
        Diversity***
 
 We
        expect
        that product diversity will be a key marketing strategy. Initially, we plan
        to
        invest only the required time and money for the design and development of
        our
        initial line of products. Following the initial stages of our market
        penetration, if any, we plan to expand our product line and increase the
        number
        of retail channels through which our products are sold. We believe that the
        strategy of continuously diversifying our products will occur as we build
        and
        develop our retail distribution channels.
 
 ***Branding***
 
 We
        believe that a well-recognized brand is an important element for success
        in the
        footwear and apparel industry. We will attempt to position our footwear as
        a
        lifestyle brand that encompasses innovation and design while maintaining
        quality
        and a holistic fit. Our senior management will be directly involved in shaping
        our image and the conception, development and implementation of its advertising
        and marketing activities. We intend to aggressively promote our brand through
        a
        comprehensive marketing campaign. We hope that this campaign, which will
        be
        image-oriented and product specific, will eventually result in a high level
        of
        recognition of the Skins brand across a variety of footwear and apparel
        categories.
 
 We
        engaged the services of Robert Burke Associates Inc., Banfi Zambrelli, Sportie
        LA Media, Factory PR, Tronic Studio, Design Quadrant and Studio Dror to provide
        our management with strategic advisory services to assist in the positioning
        of
        the Skins brand and to review and analyze the product lines. Frank Zambrelli,
        the President of Design Quadrant, is also a member of the Board of Directors
        of
        the Company.
 
 ***Advertising***
 
 We
        anticipate that our advertisements will generally seek to build and increase
        brand awareness by linking the Skins brand to contemporary lifestyles and
        attitudes, rather than exclusively marketing a particular Skins footwear
        product. We will market the Skins name to represent flexibility, managing
        the
        brand and product design towards evolving footwear and apparel fashions and
        consumer lifestyle preferences.
 
 We
        intend
        to employ a multi-phased advertising strategy that we hope will expand with
        our
        advertising requirements and investment capabilities. Initially, we plan
        to
        utilize cost sensitive and effective means to reach our targeted customer
        base.
        We expect to use this marketing phase within our first phase of growth and
        expansion strategy, initially targeting the fashion centers within the US
        and
        later within Europe, and Asia/Australia.
  Once,
        and
        if, we reach certain predetermined levels of sales, we plan to invest monetary
        and human capital to expand our advertising campaigns into a traditional
        portfolio marketing campaign that is based on management of our marketing
        and
        advertising portfolio.
  3
  ***Promotional
        Activities***
 
 We
        plan
        on implementing product placement with well-known celebrities, hosting events
        to
        help enhance the Skins image in the coming years, and to focus marketing
        efforts
        for our products among specific consumer groups. We anticipate that high
        profile
        and diverse appeal of celebrities may be able to assist the Skins brand to
        reach
        new markets.
 
 On
        July
        19, 2006 we appointed Factory PR as our public relations firm. Factory PR
        will
        develop all consumer and press focused communication platforms, as well as
        other
        brand building initiatives.
 
 Entertainment
        Promotions: Our promotional strategies are expected to include retail
        collaborations, in-store specials, product tie-ins and giveaways, and other
        special events.
 
 **Sourcing,
        Production and Development**
 
 ***Outsourcing***
 
 We
        entered into a sourcing and buying agent agreement with Atsco Footwear, LLC
        (“Atsco”) pursuant to which Atsco was to be responsible for sourcing,
        commercialization and product line review. According to the agreement, Atsco
        would be the exclusive sourcing and development agent for us and would assist
        us
        in developing a fit-and-wear tested marketable product. Atsco was to be
        responsible for the factory development and output as well as delivery,
        scheduling, supplier deadlines and other related matters. We were to pay
        commissions to Atsco for its services under the agreement primarily based
        on
        merchandise sourced by Atsco and shipped to us. This agreement with Atsco
        was
        terminated as of February 2007.
 
 On
        November 28, 2007, the Company executed a new Buying Agency and Sourcing
        Agreement with Atsco. Pursuant to the Agreement, Atsco will serve as the
        Company’s non-exclusive buying and sourcing agent and will be responsible for
        sourcing, commercialization and product line review. The Company will pay
        Atsco
        a commission of 7% of the first $5 million and 5% for the amounts above the
        first $5 million at the FOB country of origin price for merchandise sourced
        by
        Atsco and shipped to the Company. The Agreement has an initial term of one
        year,
        from November 15, 2007 through November 15, 2008, and each party has the
        option
        to extend the initial term of the Agreement for an additional year upon
        providing written notice to the other party no less than thirty days prior
        to
        the expiration of the initial term. Either party may terminate the Agreement
        at
        any time upon providing the other party with three months written notice.
        Mark
        Itzkowitz, the President of Atsco, is also an advisory member of the Board
        of
        Directors of the Company.
 
 ***Development***
 
 On
        October 1, 2006, we entered into a product development, engineering and
        consulting agreement with TLD Asia Pacific, LLC (“TLD”), where TLD is
        responsible for all order placements, production planning, quality control
        of
        finished products, monitoring and enforcing timeliness in all development
        sampling, facilitating prototypes, pullovers, and sample requests, and assisting
        in negotiating FOB costs, and delivery of fit test samples in the Far East.
        We
        are also in the process of amending our engineering and consulting agreement
        with TLD. Pursuant to which TLD will continue to be responsible for engineering
        and further developing Skins and Bones and responsible for overseeing all
        of the
        Bone production and a portion of the Skins production
 
 ***Production***
 
 Our
        goods
        as well as, our packaging and displays are balance of the collection is being
        produced in China as well as our packaging and displays.
 
 ***Inventory
        Risks***
 
 Due
        to
        the nature of our planned “high level” of style and fashion, inventory risks
        will be higher, since fashions can change quickly and past styles can be
        rapidly
        considered obsolete. We will attempt to reduce the risk of overstocking
        by:
 
 ·
              Assessing
                  demand for our products by soliciting input from our customers
                  and
                  monitoring retail sell-through
                  processes,
 
 ·
              Analyzing
                  historical and current sales and market data to develop internal
                  product
                  quantity forecasts,
 
 ·
              Seeking
                  to share inventory risks with retail channels as much as possible,
                  and
 
 ·
              Investing
                  in core and basics inventory that can be held for more than one
                  season.
  4
  **Growth
        and Expansion Strategy**
 
 We
        plan
        to expand our operations in three primary segments:
 
 ***Region
        by Region***
 
 We
        will
        launch our operations in the U.S. and attempt to maintain those operations
        throughout the planned growth period. We expect sell direct to the consumer
        in
        addition to expanding into developed countries in Western Europe and throughout
        the world. This expansion process may be expedited via licensing agreements
        with
        multinational apparel brands and distributors.
 
 ***Demographics***
 
 We
        believe that the Skins core product concept is suitable for all ages. We
        believe
        that the key advantages of the product concept will initially attract the
        most
        fashion-savvy age group - the 18 to 35 year olds. When and if the product
        concept becomes more widely known, we plan to expand our demographic focus
        of
        the product concept to the 5 to 55 year old market segments.
 
 ***Distribution***
 
 Initially,
        we will market our products to specialty high end retail stores and chains
        in
        the U.S. Our sales strategy includes setting sales meetings with the retail
        stores in which we hope to have our product carried. We will exhibit and
        participate in international industry tradeshows and events and establish
        close
        connections with the retailers we intend to do business with, including them
        at
        times in pre-selection and viewing of upcoming collections for the purpose
        of
        their review and comment. When and if our brand becomes more widely known
        and
        the product concept is more widely accepted, we will seek to establish licensing
        agreements with branded apparel companies. The third phase of distribution
        may
        include self-managed Skins concept stores in the heart of major metropolitan
        shopping areas acting primarily as a marketing tool and serving as examples
        for
        future licensed retail.
 
 ***Pricing
        Strategy***
 
 Initially
        we will target our Skins footwear products to the purchasers of higher end
        lifestyle oriented and casual footwear and are aiming to the higher end of
        the
        market.
 
 **Competition**
 
 We
        will
        face intense direct and indirect competition.
 
 ·
              Direct
                  Competition: We will primarily offer lifestyle, athletic and dress-casual
                  shoes. Consequently, all footwear companies that can be defined
                  within
                  those categories will be our
                  competition.
 
 ·
              Indirect
                  Competition: In addition, due to the unique Skins product concept
                  that
                  involves interchangeability, we should be able to utilize the distribution
                  patterns of the apparel market, including Internet and catalog
                  sales, and
                  via specialty retail distribution without the requirement of a
                  footwear
                  department. This opportunity widens our competition to include
                  apparel
                  companies that do or potentially will offer footwear products with
                  their
                  respective brand. These companies are defined as indirect competition,
                  since we will target these companies as potential retail distribution
                  points and for possible licensing
                  agreements.
 
 The
        apparel and footwear industries are extremely competitive and highly fragmented.
        This is most likely due to low barriers to entry. All that is required to
        enter
        the industries are clothing designs that appeal to department store and/or
        specialty store buyers. If a designer receives orders, he or she can contract
        the production of the item to a low-cost, independent manufacturer, usually
        outside the United States. In many areas, the barriers to entry are
        insignificant. These industries are characterized by simple technologies,
        low
        fixed assets per employee and ease of expansion through the use of
        contractors.
 
 Although
        entering into the apparel and footwear industry may be relatively simple,
        being
        successful in the industry is much more difficult. The strength of large
        retailers is a major challenge to many designers, including us. As retailers
        shrink their inventories and place orders closer to the time that merchandise
        will be needed, designers and manufacturers are forced to assume more inventory
        risk.
 
 **Employees**
 
 As
        a
        development stage company, and even as we begin selling our product, we plan
        to
        rely on outside consultants and resources in an attempt to control our costs
        and
        expenses. Accordingly, as of December 31, 2007, we employed eight full-time
        employees. None of our employees are covered by a collective bargaining
        agreement.
 
 **Patent
        and Patent Applications**
 
 We
        own
        one issued United States patent claiming the modular shoe system; this patent
        issued February 6, 2007 as U.S. patent number 7,171,768 (the ‘768 patent). 
Additionally we have two pending U.S. patent applications also claiming certain
        aspects of the modular shoe system: U.S. patent application serial number
        (USPASN) 11/638,166 filed December 13, 2006, which is a continuation of the
‘768 patent, and USPASN 11/578,741 which is a national phase application of
        Patent Cooperation Treaty (PCT) international application serial number
        PCT/US04/033446 (the '446 application).  The '446 application has also been
        nationalized in Australia, Canada, China (PRC), Europe, Hong Kong, Israel,
        Japan, Korea, New Zealand and the Russian Federation.
  5
  **RISK
        FACTORS**
  Any
        investment in our common stock involves a high degree of risk. Skins Inc.
        is the
        100% parent of Skins Footwear Inc. and Skins Inc.'s sole business operation
        consists of the operations of Skins Footwear Inc. The discussion below refers
        to
        the registrant, Skins Inc., and its wholly-owned subsidiary, Skins Footwear
        Inc,
        which are referred to in the discussion below as Skins, the Company, we,
        us, and
        our. Investors should carefully consider the risks described below and all
        of
        the information contained in this report before deciding whether to make
        an
        equity investment in our company. Our business, financial condition or results
        of operations could be materially adversely affected by these risks if any
        of
        them actually occur. The trading price of our common stock could decline
        due to
        any of these risks, and an investor may lose all or part of his or her
        investment. Some of these factors have affected our financial condition and
        operating results in the past or are currently affecting us. This report
        also
        contains forward-looking statements that involve risks and uncertainties.
        Our
        actual results could differ materially from those anticipated in these
        forward-looking statements as a result of certain factors, including the
        risks
        faced by our company described below and elsewhere in this report.
  **RISKS
        RELATED TO OUR BUSINESS**
 
 **We
        are a development stage company with a limited operating history on which
        to
        evaluate our business.**
  Our
        business prospects are difficult to predict because of our limited operating
        history, early stage of development, unproven business strategy and unproven
        product. We are a development stage company that has yet to generate any
        revenue
        since our inception. Since our inception in May 2004, it has been our business
        plan to design, develop, manufacture and distribute our sole product
        type--footwear with an interchangeable outer skin. Our Skins shoe product
        has
        only been introduced to selected test markets and there is no guarantee that
        our
        product will be able to generate any significant revenues. To the extent
        that we
        are able to implement our business plan, our business will be subject to
        all of
        the problems that typically affect a business with a limited operating history,
        such as unanticipated expenses, capital shortfalls, delays in design and
        manufacturing and possible cost overruns.
 
 **We
        have a history of losses and we anticipate that our expenses will dramatically
        increase as we execute our business plan. Thus, we will likely experience
        continued losses in the near future and may not ever achieve or maintain
        profitability.**
 
 We
        have
        yet to initiate sales or demonstrate that it can generate sufficient sales
        to
        become profitable. We incurred significant net losses since its inception
        in May
        2004, including a net loss of $6,612,193 and $4,100,278 for the years ended
        December 31, 2007 and 2006, respectively. As of December 31, 2007, we had
        an
        accumulated deficit of approximately $11,021,633. We expect to continue to
        incur
        operating losses in the future. Further, we expect operating expenses to
        increase as we seek to finalize our designs, build relationships with
        manufacturers and a distribution channel for product introductions, continue
        design and development projects, and increase administrative activities to
        support our planned growth. The extent of our future operating losses and
        the
        timing of our profitability are highly uncertain, and we may never generate
        sufficient revenues to achieve or sustain profitability.
 
 **We
        will need to raise additional funds in the future to continue our operations
        and
        these funds may not be available on acceptable terms or at
        all.**
 
 In
        May
        2007 the Company sold a total of 4,000,000 units in a private offering for
        aggregate proceeds of $3,000,000, and in April 2008, the Company conducted
        another private placement that raised approximately $ 1,975,645 in gross
        proceeds. The Company has also raised approximately $705,000 by issuing secured
        promissory notes entered into from December 2007 through March 2008, all
        of
        which were invested in the April 2008 private placement in lieu of repayment.
 
 We
        anticipate raising additional funds through public or private financing,
        strategic relationships or other arrangements in the near future to support
        our
        business operations; however we currently do not have commitments from
        third parties for additional capital. We cannot be certain that any such
        financing will be available on acceptable terms, or at all, and our failure
        to
        raise capital when needed could limit our ability to continue and expand
        our
        business. We intend to overcome the circumstances that impact our ability
        to
        remain a going concern through a combination of the commencement of revenues,
        with interim cash flow deficiencies being addressed through additional equity
        and debt financing. Our ability to obtain additional funding in year 2008
        and
        thereafter will determine our ability to continue as a going concern. There
        can
        be no assurances that these plans for additional financing will be successful.
        Failure to secure additional financing in a timely manner and on favorable
        terms
        if and when needed in the future could have a material adverse effect on
        our
        financial performance, results of operations and stock price and require
        us to
        implement cost reduction initiatives and curtail operations. Furthermore,
        additional equity financing may be dilutive to the holders of our common
        stock,
        and debt financing, if available, may involve restrictive covenants, and
        strategic relationships, if necessary to raise additional funds, may require
        that we relinquish valuable rights.
  6
  **Our
        independent registered public accountants indicate that they have substantial
        doubts that we can continue as a going concern, which may negatively affect
        our
        ability to raise additional funds and otherwise operate our business. If
        we fail
        to raise sufficient capital, we will not be able to implement our business
        plan,
        we may have to liquidate our business, and you may lose your
        investment.**
  Mahoney
        Cohen & Company, CPA, P.C., our independent registered public accountants,
        has added an explanatory paragraph to their audit opinion issued in connection
        with the financial statements for the year ended December 31, 2007 indicating
        that it has substantial doubt about our ability to continue as a going concern
        given our recurring losses from operations and deficiencies in working capital
        and equity. This opinion could materially limit our ability to raise additional
        funds by issuing new debt or equity securities or otherwise. If we fail to
        raise
        sufficient capital, we will not be able to implement our business plan, we
        may
        have to liquidate our business and you may lose your investment. You should
        consider our independent registered public accountants' comments when
        determining if an investment in us is suitable.
 
 **We
        face risks related to our accounting restatements.**
 
 In
        August
        and September 2006, we determined that we had accounting inaccuracies in
        previously reported financial statements and decided to restate our financial
        statements for the year ended December 31, 2005 and the three months and
        six
        months ended March 31, 2006 and June 30, 2006, respectively. The restatements
        related to our determination that we misapplied accounting principles generally
        accepted in the United States of America in relation to (i) options granted
        on
        October 24, 2005 that were cancelled and replaced on March 16, 2006, (ii)
        derivative instruments that existed at December 31, 2005, March 31, 2006
        and
        June 30, 2006, and (iii) 122,000 fully vested common stock shares granted
        to two
        of the Company's shareholders on April 3, 2006 for consulting services to
        be
        provided over a two year term. Such restatement of our financial statements
        could lead to litigation claims and/or regulatory proceedings against us.
        The
        defense of any such claims or proceedings may cause the diversion of
        management's attention and resources, and we may be required to pay damages
        if
        any such claims or proceedings are not resolved in our favor. Any litigation
        or
        regulatory proceeding, even if resolved in our favor, could cause us to incur
        significant legal and other expenses. We also may have difficulty raising
        equity
        capital or obtaining other financing, such as lines of credit or otherwise.
        We
        may not be able to effectuate our current operating strategy, including our
        ability effect the initial launch of our product and obtain additional financing
        in the future. The occurrence of any of the foregoing could harm our business
        and reputation and cause the price of our securities to decline.
 
 **Our
        business is based on a single unproven and undeveloped product, and we may
        not
        be able to generate significant revenue if our product
        fails.**
 
 We
        are a
        development stage company with no current line of products. Our business
        and
        ability to generate revenue will depend on our ability to successfully develop
        and commercialize our only product type--the Skins and Bone shoe--which is
        currently in development and testing stages. We have conducted various wear,
        fit
        and abrasion testing on our product, but there is no guarantee that the product
        will ever be fully and successfully developed. We may experience unforeseen
        difficulties during our testing and development of our product, which may
        require us to expend a significant amount of resources in an attempt to address
        any faults that are discovered. Such faults may be related to comfort,
        durability, appearance and any other characteristics that would affect the
        commercial viability of the product.
 
 Further,
        even if we are able to develop and release our product, there can be no
        assurance that it will be well-received by the market or that it will generate
        any substantial revenue. Accordingly, our failure to generate revenue from
        our
        sole product type will have a significant negative impact on our business
        and
        results of operation, and shareholders in our company may lose all or part
        of
        their investment.
  **Our
        management has a limited amount of senior management experience in manufacturing
        footwear and apparel industry and limited design experience in the
        industry.**
 
 Our
        company is new to the footwear industry and our management has limited
        experience conducting business with overseas manufactures. The lack of
        experience in footwear management and the non-traditional design of our footwear
        may make it difficult to compete against companies that have more senior
        management and are manufacturing conventional footwear designs. We expect
        to add
        additional key personnel in the near future. Our failure to attract and fully
        integrate our new employees into our operations or successfully manage such
        employees could have a material adverse effect on our business, financial
        condition and results of operations.
 
 **Our
        future success depends on our ability to respond to changing consumer demands,
        to identify and to interpret fashion trends and successfully to market new
        products.**
 
 The
        footwear industry is subject to rapidly changing consumer demands and fashion
        trends, particularly in the “high fashion” market that we intend to market our
        product. Accordingly, we must identify and interpret fashion trends and respond
        in a timely manner. Demand for and market acceptance of new products are
        uncertain and achieving market acceptance for new products generally requires
        substantial product development and marketing efforts and expenditures. If
        we do
        not meet changing consumer demands or are unable to continually develop styles
        that appeal to current consumer demands, our results of operations will be
        negatively impacted. In addition, we will have to make decisions about product
        designs and marketing expenditures several months in advance of the time
        when
        consumer acceptance can be determined, which makes it more difficult to appeal
        to current demands. If we fail to anticipate, identify or react appropriately
        to
        changes in styles and trends or are not successful in marketing our products,
        we
        could experience excess inventories, higher than normal markdowns or an
        inability to sell our products once and if the products are
        available.
  7
  **Our
        business and the success of our products could be harmed if we are unable
        to
        establish and maintain a brand image.**
 
 We
        believe that establishing the Skins brand is critical to achieving acceptance
        of
        our footwear products and to establishing key strategic relationships. As
        a new
        company with a new brand, we believe that we have little to no brand recognition
        with the public. We may experience difficulty in establishing a brand name
        that
        is well-known and regarded, and any brand image that we may be able to create
        may be quickly impaired. The importance of brand recognition will increase
        when
        and if our competitors create products that are similar to our products.
        Even if
        we are able to establish a brand image and react appropriately to changes
        in
        consumer preferences, consumers may consider our brand image to be outdated
        or
        associate our brand with styles of footwear that are no longer popular. In
        the
        past, footwear companies have experienced fluctuations in revenues and sales
        due, at least in part, to changes in the companies' brand image. Our results
        of
        operations may be similarly affected in the future should our products even
        be
        successfully launched.
 
 **We
        may fail in introducing and promoting our new products to the footwear market,
        which will have an adverse effect on our ability to generate
        revenues.**
  Demand
        for and market acceptance of new products such as the Skin and Bones product
        type is inherently uncertain. We expect that our revenue, if and when generated,
        will come from the sale of our products, and our ability to sell our products
        will depend on various factors, including the eventual strength, if any,
        of our
        brand name, competitive conditions and our access to necessary capital. If
        we
        fail to introduce and promote our products, we may not be able to generate
        any
        significant revenues. In addition, as part of our growth strategy, we intend
        to
        expand our product offerings to introduce products in multiple categories.
        This
        strategy may however prove unsuccessful and our association with failed products
        could impair our brand image. Introducing and achieving market acceptance
        for
        these products will require, among other things:
  ·
              the
                  establishment of our brand;
 
 ·
              the
                  development and application of advanced performance technologies
                  to our
                  planned product introductions;
 
 ·
              the
                  establishment of key relationships with designers of and customers
                  for our
                  apparel products; and
 
 ·
              substantial
                  marketing and product development efforts and expenditures to create
                  and
                  sustain consumer demand.
 
 **When
        and if our products are introduced and commercially available, we expect
        to rely
        on licensees for sales outside the U.S., and our dependence on licensees
        may
        adversely impact our business and results of operations.**
 
 We
        expect
        that our sales outside the U.S., if any, will be conducted through licensees.
        Any dependence on licensees will subject us to a number of risks,
        including:
 
 ·
              Our
                  brand image will be dependent, in part, on the marketing efforts
                  of our
                  licensees and on the quality of the products that licensees distribute.
                  If
                  licensees or their sponsors or endorsers do not maintain our brand
                  image
                  or our licensees fail to adhere to our quality control standards,
                  our
                  brand image could suffer.
 
 ·
              We
                  expect that our licensees will likely have the exclusive right
                  to
                  distribute products in a particular country or region. Licensees
                  may
                  engage in the trans-shipment, or gray marketing, of goods to countries
                  where they are not licensed to sell
                  products.
 
 ·
              Licensees
                  may use manufacturers who fail to meet our human rights or product
                  quality
                  standards, which could harm our brand image and
                  reputation.
 
 ·
              Licensees
                  may fail to timely and accurately report sales and licensing income
                  to
                  us.
 
 ·
              Our
                  reserve for unpaid licensee revenue may be
                  insufficient.
 
 Revenue
        we may receive from international licensees will subject us to the risks
        of
        doing business abroad, including, political risks, foreign currency risks,
        funds
        transfer restrictions and exposure to different legal standards, particularly
        with respect to intellectual property.
  8
  **Our
        business could be harmed if we fail to maintain proper inventory levels once
        product is available.**
 
 We
        may
        have difficulty in determining and maintaining the proper inventory levels
        for
        our Skins shoe product and styles, and if our inventory levels are too high
        or
        low, our results of operations will suffer. We plan to market our Skins shoe
        product as a “high level” style and fashion product, and, as a result, we will
        be subject to a higher risk of having an overstocked inventory because such
        styles and fashions change quickly and past styles can be rapidly considered
        obsolete. We expect to place orders with manufacturers for most of our products
        prior to the time we receive customer orders. Our inventory levels that are
        in
        excess of any customer demand, if any, that may develop for our products,
        once
        available, may result in an inventory of unfashionable product styles, inventory
        write-downs, and the sale of excess inventory at discounted prices could
        significantly impair our brand image as it is built and have a material adverse
        effect on our operating results and financial condition. Conversely, if we
        underestimate any consumer demand for our products that may develop or if
        our
        manufacturers, which are located in China and Italy, fail to supply the quality
        products that we require at the time we need them, we may experience inventory
        shortages. Inventory shortages might delay shipments to customers, negatively
        impact retailer and distributor relationships, and diminish any brand loyalty
        that we may be able to foster.
 
 **We
        expect to rely on independent contract manufacturers and, as a result, will
        be
        exposed to potential disruptions in product supply.**
 
 Our
        footwear products will likely be manufactured by independent contract
        manufacturers. We will not have long-term contracts with manufacturers and
        will
        compete with other footwear companies for production facilities. We could
        experience difficulties with these manufacturers, including reductions in
        the
        availability of production capacity, failure to meet our quality control
        standards, failure to meet production deadlines or increased manufacturing
        costs. This could result in future customers, if any, canceling orders, refusing
        to accept deliveries or demanding reductions in purchase prices, any of which
        could have a negative impact on our cash flow and harm our
        business.
  **We
        are likely to depend upon a relatively small group of customers for a large
        portion of our sales.**
 
 Our
        customers are not likely to have a contractual obligation to purchase our
        products once they are available and we cannot be certain that we will be
        able
        to retain major customers. We are likely to rely at all stages of our business
        on certain significant customers. Furthermore, the retail industry regularly
        experiences consolidation, contractions and closings. If there are further
        consolidations, contractions or closings in the future, we may lose future
        customers or be unable to collect accounts receivable of major customers
        in
        excess of amounts that we may insure. If we lose a major customer in the
        future,
        experience a significant decrease in sales to a major customer or are unable
        to
        collect the accounts receivable of a major customer in excess of amounts
        insured, our business could be harmed.
 
 **Any
        international sales and manufacturing operations we are able to develop will
        be
        subject to the risks of doing business abroad, which could affect our ability
        to
        sell or manufacture our products in international markets, obtain products
        from
        foreign suppliers or control the costs of our products.**
 
 Substantially
        all of any net sales we may be able to develop are likely to be derived from
        sales of footwear manufactured in foreign countries, which will most likely
        be
        China. We also expect to sell our footwear products in foreign countries
        and
        plan to establish international sales efforts over time as part of our growth
        strategy. Foreign manufacturing and sales will be subject to a number of
        risks,
        including:
 
 ·
              work
                  stoppages;
 
 ·
              natural
                  disasters and outbreaks pandemic diseases (such as the Avian
                  Flu);
 
 ·
              political
                  and social unrest, including U.S. military presence in
                  Iraq;
 
 ·
              changing
                  domestic and foreign economic
                  conditions;
 
 ·
              currency
                  exchange rate fluctuations;
 
 ·
              electrical
                  shortages;
 
 ·
              transportation
                  delays or damage to products in
                  transit;
 
 ·
              the
                  imposition of tariffs and trade duties both international and
                  domestically;
 
 ·
              import
                  and export controls and other non-tariff
                  barriers;
  9
 
 ·
              exposure
                  to different legal standards (particularly with respect to intellectual
                  property);
 
 ·
              compliance
                  with foreign laws; and
 
 ·
              changes
                  in domestic and foreign governmental
                  policies.
 
 The
        effects of these factors could restrict our ability to manufacture or sell
        our
        shoe products in a particular country and have a negative impact on our
        operating results.
 
 **Our
        business could be harmed if our future contract manufacturers, suppliers
        or
        licensees violate labor or other laws.**
 
 Once
        we
        are able to retain them, our independent contract manufacturers, suppliers
        and
        licensees may not operate in compliance with applicable United States and
        foreign laws and regulations, including labor practices. If one of any of
        our
        possible future independent contract manufacturers, suppliers or licensees
        violates labor or other laws or diverges from those labor practices generally
        accepted as ethical in the United States, we could result in adverse publicity
        for us, damage our reputation in the United States or render our conduct
        of
        business in a particular foreign country undesirable or impractical, any
        of
        which could harm our business.
 
 **We
        expect that once our products are introduced and when, and if, we are able
        to
        generate revenue on our products, our quarterly revenues and operating results
        will fluctuate as a result of a variety of factors, including seasonal
        fluctuations in demand for footwear, delivery date delays and potential
        fluctuations in our annualized tax rate, which may result in volatility of
        our
        stock price.**
 
 Once
        and
        if established, our quarterly revenues and operating results can be expected
        to
        fluctuate due to a number of factors, many of which are beyond our control.
        For
        example, sales of footwear products have historically been seasonal in nature
        with the strongest sales generally occurring in the second and third quarters.
        Delays in scheduling or pickup of purchased products by domestic customers
        could
        negatively impact our net sales and results of operations for any given quarter.
        In addition, a number of companies in the footwear industry specifically,
        and
        others in the fashion and apparel industry in general, have experienced periods
        of growth in revenues and earnings and thereafter periods of declining sales
        and
        losses, based on the market reception of their collection of products for
        a
        particular season. Also, our annualized tax rate will be based on projections
        of
        our domestic and international operating results for the year, which we will
        review and revise as necessary at the end of each quarter, and we will be
        highly
        sensitive to fluctuations in projected international earnings. Any quarterly
        fluctuations in our annualized tax rate that may occur could have a material
        impact on our quarterly operating results. As a result of these specific
        and
        other general factors, our operating results will likely vary from quarter
        to
        quarter and the results for any particular quarter may not be necessarily
        indicative of results for the full year.
 
 **We
        will face intense competition, including competition from companies with
        significantly greater resources than ours, and if we are unable to compete
        effectively with these companies, our business could be
        harmed.**
 
 We
        will
        face intense competition in the footwear industry from other established
        companies. We have no product sales, introductions, manufacturing or brand
        equity. All of our competitors have significantly greater financial,
        technological, engineering, manufacturing, marketing and distribution resources
        than we do. Their greater capabilities in these areas will enable them to
        better
        withstand periodic downturns in the footwear industry, compete more effectively
        on the basis of price and production and more quickly develop new products.
        In
        addition, new companies may enter the markets in which we expect to compete,
        further increasing competition in the footwear industry.
 
 We
        believe that our ability to compete successfully will depend on a number
        of
        factors, including the style and quality of our products once marketed and
        the
        strength of our brand, once established, as well as many factors beyond our
        control. We may not be able to compete successfully in the future, and increased
        competition may result in price reductions, reduced profit margins, loss
        of
        market share and an inability to generate cash flows that are sufficient
        to
        maintain or expand our development and marketing of new products.
 
 **We
        depend on key personnel to manage our business effectively in a rapidly changing
        market, and if we are unable to retain existing personnel, our business could
        be
        harmed.**
 
 Our
        future success depends upon the continued services of Mark Klein, President
        and
        Chief Executive Officer. The loss of the services of Mr. Klein or any other
        key
        employee could harm us. Our future success also depends on our ability to
        identify, attract and retain additional qualified personnel. Competition
        for
        employees in our industry is intense and we may not be successful in attracting
        and retaining such personnel.
 
 **The
        disruption, expense and potential liability associated with unanticipated
        future
        litigation against us could have a material adverse effect on our business,
        results of operations and financial condition.**
 
 We
        expect
        to be subject to various legal proceedings and threatened legal proceedings
        from
        time to time as part of our ordinary business. We are not currently a party
        to
        any legal proceedings. However, any unanticipated litigation in the future,
        regardless of merits, could significantly divert management's attention
        from our operations and result in substantial legal fees to it. Further,
        there
        can be no assurance that any actions that have been or will be brought against
        us will be resolved in our favor or, if significant monetary judgments are
        rendered against us, that we will have the ability to pay such judgments.
        Such
        disruptions, legal fees and any losses resulting from these claims could
        have a
        material adverse effect on our business, results of operations and financial
        condition.
  10
  **Our
        ability to compete will be jeopardized if we are unable to protect our
        intellectual property rights or if we are sued for intellectual property
        infringement.**
 
 We
        hope
        to use trademarks on most or all of our products and believe that having
        distinctive marks that are readily identifiable will be an important factor
        in
        creating a market for our goods, in identifying our and in distinguishing
        our
        products from the products of others.
 
 We
        own
        one issued United States patent claiming the modular shoe system; this patent
        issued February 6, 2007 as U.S. patent number 7,171,768 (the ‘768 patent). 
Additionally we have two pending U.S. patent applications also claiming certain
        aspects of the modular shoe system: U.S. patent application serial number
        (USPASN) 11/638,166 filed December 13, 2006, which is a continuation
        of ‘768 patent, and  USPASN 11/578,741 which is a national phase
        application of Patent Cooperation Treaty (PCT) international application
        serial
        number PCT/US04/033446 (the '446 application).  The '446 application has
        also been nationalized in Australia, Canada, China (PRC), Europe, Hong Kong,
        Israel, Japan, Korea, New Zealand and the Russian Federation.
 
 We
        believe that our ability to achieve success will depend primarily upon our
        ability to be effective in design, research and development, production and
        marketing rather than upon our patent position, however, we expect to establish
        a policy of filing applications for United States and foreign patents on
        designs
        and technologies that we deem valuable. If we fail to protect or maintain
        our
        trademarks, we may lose or damage our intellectual property rights and impair
        our ability to generate revenue in the future.
 
 **We
        may incur significant litigation expenses protecting our intellectual property
        or defending our use of intellectual property, which may have a material
        adverse
        effect on our cash flow and results of operations.**
 
 If
        our
        efforts to protect our intellectual property rights are inadequate to prevent
        imitation of our products by others or to prevent others from seeking to
        block
        sales of our products as a violation of the intellectual property rights
        of
        others, we could incur substantial significant legal expenses in resolving
        such
        disputes.
 
 **Our
        competitors may develop similar, non-infringing products that adversely affect
        our ability to generate revenues.**
 
 Our
        competitors may be able to produce a footwear product that is similar to
        our
        product without infringing on our intellectual property rights. Since we
        have
        yet to establish any significant brand recognition for our product, we could
        lose a substantial amount of business due to competitors developing products
        similar to our Skin and Bones footwear product. As a result, our future growth
        and ability to generate revenues from the sale of our product could suffer
        a
        material adverse effect.
  **Our
        business may be negatively impacted as a result of changes in the economy
        and
        consumer spending.**
 
 Our
        business will depend on the general economic environment and levels of consumer
        spending that affect not only the ultimate consumer, but also retailers,
        our
        likely primary direct customers. Purchases of footwear tend to decline in
        periods of recession or uncertainty regarding future economic prospects,
        when
        consumer spending, particularly on discretionary items, declines. During
        periods
        of recession or economic uncertainty, we may not be able to maintain or increase
        our sales to customers, maintain sales levels, establish international
        operations on a profitable basis or create earnings from operations as a
        percentage of net sales. As a result, our operating results may be adversely
        and
        materially affected by downward trends in the economy or the occurrence of
        events that adversely affect the economy in general. Our operating results
        and
        margins will be adversely impacted if we do not grow as
        anticipated.
 
 **We
        may be unable to scale our operations successfully.**
  Our
        plan
        is to grow our business rapidly. Our growth, if it occurs as planned, will
        place
        significant demands on our management, as well as our financial, administrative
        and other resources. Our success will be heavily dependent on our ability
        to
        integrate additional qualified employees that provide expertise in order
        to help
        grow the business. There is no guarantee that we will be able to locate and
        retain qualified personnel for such positions, which would likely hinder
        our
        ability to manage operations. Furthermore, we cannot guarantee that any of
        the
        systems, procedures and controls we put in place will be adequate to support
        the
        commercialization of our products or other operations. Our operating results
        will depend substantially on the ability of our officers and key employees
        to
        manage changing business conditions and to implement and improve our financial,
        administrative and other resources. If we are unable to respond to and manage
        changing business conditions, or the scale of our products, services and
        operations, then the quality of our services, our ability to retain key
        personnel and our business could be harmed.
  11
  **RISKS
        RELATED TO OUR CAPITAL STRUCTURE**
  **There
        is no assurance of an established public trading market, which would adversely
        affect the ability of our investors to sell their securities in the public
        market.**
  Although
        our common stock is listed on the OTC Bulletin Board, a regular trading market
        for the securities does not yet exist and may not exist or be sustained in
        the
        future. The NASD has enacted changes that limit quotations on the OTC Bulletin
        Board to securities of issuers that are current in their reports filed with
        the
        Securities and Exchange Commission. The effect on the OTC Bulletin Board
        of
        these rule changes and other proposed changes cannot be determined at this
        time.
        The OTC Bulletin Board is an inter-dealer, over-the-counter market that provides
        significantly less liquidity than the NASD's automated quotation system,
        or the
        NASDAQ Stock Market. Quotes for stocks included on the OTC Bulletin Board
        are
        not listed in the financial sections of newspapers as are those for the NASDAQ
        Stock Market. Therefore, prices for securities traded solely on the OTC Bulletin
        Board may be difficult to obtain and holders of common stock may be unable
        to
        resell their securities at or near their original offering price or at any
        price. Market prices for our common stock will be influenced by a number
        of
        factors, including:
 
 ·
              the
                  issuance of new equity securities pursuant to the share exchange
                  transaction, or a future offering;
 
 ·
              changes
                  in interest rates;
 
 ·
              competitive
                  developments, including announcements by competitors of new products
                  or
                  services or significant contracts, acquisitions, strategic partnerships,
                  joint ventures or capital
                  commitments;
 
 ·
              variations
                  in quarterly operating results;
 
 ·
              change
                  in financial estimates by securities
                  analysts;
 
 ·
              the
                  depth and liquidity of the market for our common
                  stock;
 
 ·
              investor
                  perceptions of our company and the footwear industry generally;
                  and
 
 ·
              general
                  economic and other national
                  conditions
 
 **Shares
        eligible for future sale may adversely affect the market price of our common
        stock, as the future sale of a substantial amount of outstanding stock in
        the
        public marketplace could reduce the price of our common
        stock.****
  Shares
        eligible for future sale may have an adverse effect on the market price of
        our
        common stock by creating an excessive supply. In October 2006 and August
        2007,
        we registered 6,122,000 and 8,000,000 shares of common stock, respectively,
        that
        are now freely tradeable. In addition, the former stockholders of Skins Footwear
        Inc. who received 19,404,000 shares of our common stock in the Share Exchange
        Transaction on the closing of the transaction in March 2006 are now eligible
        to
        sell all or some of their shares of common stock pursuant to Rule 144,
        promulgated under the Securities Act, or Rule 144, subject to certain
        limitations. Previously, in general, pursuant to Rule 144, a stockholder
        (or
        stockholders whose shares are aggregated) who has satisfied a one-year holding
        period may, under certain circumstances, sell within any three-month period
        a
        number of securities which does not exceed the greater of 1% of the then
        outstanding shares of common stock or the average weekly trading volume of
        the
        class during the four calendar weeks prior to such sale. February 15, 2008,
        Rule
        144 was amended to, among other things, shorten the holding period from one
        year
        to six months and to remove the volume limitations, among other things, for
        non-affiliates of the company, all of which make it easier for a non-affiliate
        stockholder to sell shares under Rule 144. Any substantial sale of common
        stock
        pursuant to any resale prospectus or Rule 144 may have an adverse effect
        on the
        market price of our common stock by creating an excessive supply.
 
 **Our
        principal stockholders have significant influence over our
        company.**
  Mark
        Klein, Michael J. Rosenthal, Geoffrey Dubey and Joshua Hermelin, each of
        whom
        were principal stockholders of Skins Footwear prior to the Share Exchange
        Transactions, beneficially own, in the aggregate, a majority of our outstanding
        voting stock following the Share Exchange Transaction. Mr. Klein became our
        President and Chief Executive Officer and Mr. Rosenthal became director of
        our
        company upon the closing of the Share Exchange Transaction. These stockholders
        possess significant influence over our company, giving them the ability,
        among
        other things, to elect a majority of the Board of Directors and to approve
        significant corporate transactions. Such stock ownership and control may
        also
        have the effect of delaying or preventing a future change in control, impeding
        a
        merger, consolidation, takeover or other business combination or discourage
        a
        potential acquirer from making a tender offer or otherwise attempting to
        obtain
        control of our company.
  12
  **We
        may not be able to achieve the benefits we expect to result from the Share
        Exchange Transaction.**
  On
        March
        20, 2006, the Share Exchange Transaction closed, Skins Footwear Inc. became
        our
        wholly-owned subsidiary and our sole business operations became that of Skins
        Footwear Inc. Also, the management and directors of Skins Footwear Inc. became
        the management and directors of our company.
  The
        Share
        Exchange Transaction was conducted for various reasons, but there is no
        guarantee that we will ever obtain the anticipated benefits, as
        follows:
 
 ·
              the
                  increased market liquidity expected to result from exchanging stock
                  in a
                  private company for publicly traded
                  securities;
 
 ·
              the
                  ability to use registered securities to make acquisition of assets
                  or
                  businesses;
 
 ·
              increased
                  visibility in the financial
                  community;
 
 ·
              enhanced
                  access to the capital markets;
 
 ·
              improved
                  transparency of operations; and
 
 ·
              perceived
                  credibility and enhanced corporate image of being a publicly traded
                  company.
 
 There
        can
        be no assurance that any of the anticipated benefits of the Share Exchange
        Transaction will be realized in respect to our new business operations. In
        addition, the attention and effort devoted to achieving the benefits of the
        Share Exchange Transaction and attending to the obligations of being a public
        company, such as reporting requirements and securities regulations, could
        significantly divert our management's attention from other important issues,
        which could materially and adversely affect our operating results or stock
        price
        in the future.
 
 **If
        we fail to maintain effective internal controls over financial reporting,
        the
        price of our common stock may be adversely affected.**
 
 Our
        internal control over financial reporting or disclosure controls and procedures
        may have weaknesses and conditions that need to be addressed, the disclosure
        of
        which may have an adverse impact on the price of our common stock. We are
        required to establish and maintain appropriate internal controls over financial
        reporting and disclosure controls and procedures. Failure to establish those
        controls, or any failure of those controls once established, could adversely
        impact our public disclosures regarding our business, financial condition
        or
        results of operations. In addition, management’s assessment of internal controls
        over financial reporting or disclosure controls and procedures may identify
        weaknesses and conditions that need to be addressed in our internal controls
        over financial reporting, disclosure controls and procedures or other matters
        that may raise concerns for investors. Any actual or perceived weaknesses
        and
        conditions that need to be addressed in our internal control over financial
        reporting or disclosure controls and procedures may have an adverse impact
        on
        the price of our common stock.
 
 As
        of
        December 31, 2007, our management, including our Chief Executive Officer,
        or
“CEO,” who is the Principal Executive Officer, and our Chief Financial Officer,
        or “CFO,” who is our Principal Financial and Accounting Officer, performed an
        evaluation of the effectiveness and the operation of our disclosure controls
        and
        procedures and internal controls over financial reporting as defined in Rules
        13a-15(e) or 15d-15(e) and Rules 13(a) -15(f) and 15d- 15(f), respectively
        under
        the Securities Exchange Act of 1934, as amended, or the “Exchange
        Act.
 
 Our
        management is responsible for establishing and maintaining adequate internal
        control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
        under the Exchange Act. Our management is also required to assess and report
        on
        the effectiveness of our internal control over financial reporting in accordance
        with Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). Management
        assessed the effectiveness of our internal control over financial reporting
        as
        of December 31, 2007. In making this assessment, we used the criteria set
        forth
        by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
        in Internal Control - Integrated Framework. During our assessment of the
        effectiveness of internal control over financial reporting as of December
        31,
        2007, management identified a significant deficiencies and a material weakness
        .
        Based on the significant deficiencies and the material weaknesses, management
        concludes that the internal controls over financial reporting are not effective
        for the year 2007 as a whole. Management has undertaken remediation of the
        significant deficiencies and the material weaknesses as well as Internal
        Controls over Financial Reporting and has completed all remediation as of
        the
        filing of this report. Our management is not aware of any other significant
        deficiencies and material weaknesses in our internal control over financial
        reporting, and nothing has come to the attention of management that causes
        them
        to believe that any material inaccuracies or errors exist in our financial
        statement as of December 31, 2007.
  13
  As
        noted
        above there were significant changes in internal control over financial
        reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the SEC Act
        of
        1934) during the third and fourth quarters of 2007. These changes by the
        Chief
        Financial Officer and Chief Executive Officer, which occurred during the
        most
        recent fiscal quarter, will have materially affected, or are reasonably likely
        to materially affect, internal control over financial reporting.
 
 Our
        internal control over financial reporting may have weaknesses and conditions
        that need to be addressed, the disclosure of which may have an adverse impact
        on
        the price of our common stock. We are required to establish and maintain
        appropriate internal controls over financial reporting. Failure to establish
        and
        to continue to maintain an effective internal controls over financial reporting
        could result in accounting errors such as those which led to the restatement
        of
        our financial statements in the year ended December 31, 2005, the three months
        ended March 31, 2006 and the six months ended June 30, 2006, which could
        adversely impact our public disclosures regarding our business, financial
        condition or results of operations. We may in the future identify similar
        errors
        in prior period financial information, requiring further restatement of our
        financial statements. In addition, management’s assessment of internal controls
        over financial reporting may identify weaknesses and conditions that need
        to be
        addressed in our internal controls over financial reporting or other matters
        that may raise concerns for investors. Any actual or perceived weaknesses
        and
        conditions may have an adverse impact on the price of our common
        stock.
 
 **Compliance
        with changing regulation of corporate governance and public disclosure will
        result in additional expenses.**
  Changing
        laws, regulations and standards relating to corporate governance and public
        disclosure, including the Sarbanes-Oxley Act of 2002 and related SEC
        regulations, have created uncertainty for public companies and significantly
        increased the costs and risks associated with accessing the public markets
        and
        public reporting. Our management team will need to invest significant management
        time and financial resources to comply with both existing and evolving standards
        for public companies, which will lead to increased general and administrative
        expenses and a diversion of management time and attention from revenue
        generating activities to compliance activities.
 
 **Standards
        for compliance with Section 404 of the Sarbanes-Oxley Act of 2002 are uncertain,
        and if we fail to comply in a timely manner, our business could be harmed
        and
        our stock price could decline.**
  Rules
        adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002
        require annual assessment of our internal control over financial reporting,
        and
        attestation of this assessment by our company's independent registered public
        accountants. The SEC extended the compliance dates for non-accelerated filers,
        as defined by the SEC. Accordingly, we believe that this requirement will
        first
        apply to our annual report for fiscal 2008. The standards that must be met
        for management to assess the internal control over financial reporting as
        effective are new and complex, and require significant documentation, testing
        and possible remediation to meet the detailed standards. We may encounter
        problems or delays in completing activities necessary to make an assessment
        of
        our internal control over financial reporting. In addition, the attestation
        process by our independent registered public accountants is new and we may
        encounter problems or delays in completing the implementation of any requested
        improvements and receiving an attestation of our assessment by our independent
        registered public accountants. If we cannot assess our internal control over
        financial reporting as effective, or our independent registered public
        accountants will be unable to provide an unqualified attestation report on
        such
        assessment, investor confidence and share value may be negatively
        impacted.
  **Our
        common stock is considered a “penny stock,” and is subject to additional sale
        and trading regulations that may make it more difficult to
        sell.**
  Our
        common stock is considered to be a “penny stock” since it does not qualify for
        one of the exemptions from the definition of “penny stock” under Section 3a51-1
        of the Securities Exchange Act for 1934, as amended, or the Exchange Act.
        Our
        common stock is a “penny stock” because it meets one or more of the following
        conditions (i) the stock trades at a price less than $5.00 per share; (ii)
        it is
        NOT traded on a “recognized” national exchange; (iii) it is NOT quoted on the
        Nasdaq Stock Market, or even if so, has a price less than $5.00 per share;
        or
        (iv) is issued by a company that has been in business less than three years
        with
        net tangible assets less than $5 million.
  The
        principal result or effect of being designated a “penny stock” is that
        securities broker-dealers participating in sales of our common stock will
        be
        subject to the “penny stock” regulations set forth in Rules 15-2 through 15g-9
        promulgated under the Exchange Act. For example, Rule 15g-2 requires
        broker-dealers dealing in penny stocks to provide potential investors with
        a
        document disclosing the risks of penny stocks and to obtain a manually signed
        and dated written receipt of the document at least two business days before
        effecting any transaction in a penny stock for the investor's account. Moreover,
        Rule 15g-9 requires broker-dealers in penny stocks to approve the account
        of any
        investor for transactions in such stocks before selling any penny stock to
        that
        investor. This procedure requires the broker-dealer to (i) obtain from the
        investor information concerning his or her financial situation, investment
        experience and investment objectives; (ii) reasonably determine, based on
        that
        information, that transactions in penny stocks are suitable for the investor
        and
        that the investor has sufficient knowledge and experience as to be reasonably
        capable of evaluating the risks of penny stock transactions; (iii) provide
        the
        investor with a written statement setting forth the basis on which the
        broker-dealer made the determination in (ii) above; and (iv) receive a signed
        and dated copy of such statement from the investor, confirming that it
        accurately reflects the investor's financial situation, investment experience
        and investment objectives. Compliance with these requirements may make it
        more
        difficult and time consuming for holders of our common stock to resell their
        shares to third parties or to otherwise dispose of them in the market or
        otherwise.
  14
  **We
        do not foresee paying cash dividends in the foreseeable
        future.**
  To
        date,
        we have not declared or paid any cash dividends on our shares of common stock
        and currently intend to retain any future earnings for funding growth. We
        do not
        anticipate paying any dividends in the foreseeable future. As a result, you
        should not rely on an investment in our securities if you require dividend
        income. Capital appreciation, if any, of our shares may be your sole source
        of
        gain for the foreseeable future. Moreover, you may not be able to resell
        your
        shares in our company at or above the price you paid for them.
  **ITEM
        2. DESCRIPTION OF PROPERTY.**
 
 We
        do not
        own any real property. On May 4, 2007, the Company entered into an agreement
        to
        lease new corporate office space effective June 1, 2007. The agreement requires
        the company to pay approximately $95,000 through May 31, 2008, but the Company
        may terminate this agreement and vacate the premise upon 60 day written
        notification.
 
 On
        February 12, 2008, we entered into an office space lease agreement for
        additional office space. Pursuant to the terms of the Lease, we will pay
        a base
        monthly rent of $1,430 (including utilities, maintenance, and a rate abatement)
        for a room located at 1115 Broadway, 12th Floor, New York, NY 10010. Other
        one-time and continuing fees are due and payable. The Lease expires on May
        31,
        2008. We may terminate the Lease on the last day of any month provided that
        60-day prior written notice has been provided.
 
 **ITEM
        3. LEGAL PROCEEDINGS.**
 
 We
        are
        not a party to any material litigation.
  **ITEM
        4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.**
 
 No
        matters were submitted to a vote of security holders during the fourth quarter
        of 2007.
  **ITEM
        5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS**
 
 Our
        common stock is listed on the Over-the-Counter Bulleting Board under the
        trading
        symbol “SKNN.” Prior to April 18, 2006, our shares were listed under the symbol
“LGIM.” No trading market for our common stock developed until March 20, 2006,
        the closing of the Share Exchange Transaction. The following table sets forth
        the high and low bid prices for our common stock for the periods noted, as
        reported by the National Daily Quotation Service and the Over-The-Counter
        Bulletin Board. Quotations reflect inter-dealer prices, without retail mark-up,
        markdown or commission and may not represent actual
        transactions.
  **2007****High**
              
              **Low**Fourth
                  Quarter
              
              $
              1.40
              
              $
              0.23Third
                  Quarter
              
              $
              2.29
              
              $
              1.20Second
                  Quarter
              
              $
              1.84
              
              $
              0.75First
                  Quarter
              
              $
              2.79
              
              $
              1.53
  15
  **2006****High**
              
              **Low**Fourth
                  Quarter
              
              $
              3.05
              
              $
              1.10Third
                  Quarter
              
              $
              1.31
              
              $
              0.89Second
                  Quarter
              
              $
              1.26
              
              $
              0.90First
                  Quarter
              
              $
              1.25
              
              $
              0.55
  As
        of
        April 1, 2008, we have approximately 31 registered shareholders. The closing
        sales price of our common stock on April 8, 2008 was $0.48, as reported on
        the
        Over-the-Counter Bulletin Board.
 
 The
        price
        of our common stock will likely fluctuate in the future. The stock market
        in
        general has experienced extreme stock price fluctuations in the past few
        years.
        In some cases, these fluctuations have been unrelated to the operating
        performance of the affected companies. Many companies have experienced dramatic
        volatility in the market prices of their common stock. We believe that a
        number
        of factors, both within and outside our control, could cause the price of
        our
        common stock to fluctuate, perhaps substantially. Factors such as the following
        could have a significant adverse impact on the market price of our common
        stock:
 
 ·  Our
        limited operating history;
 
 ·  Our
        lack
        of profits from operations;
 
 ·  Our
        recent restatement of our financial statements;
 
 ·  Our
        ability to raise additional funds on acceptable terms or at all;
 
 ·  Our
        ability to successfully design, manufacture and commercialize our proposed
        product;
 
 ·  Our
        reliance on one unproven and undeveloped product type;
 
 ·  Rapidly
        changing consumer demands for footwear products;
 
 ·  Our
        unestablished brand;
 
 ·  The
        degree and nature of our competition;
 
 ·  Our
        ability to employ and retain qualified employees;
 
 ·  The
        limited trading market for our common stock; and
 
 ·  Current
        market conditions
 
 Additionally,
        our common stock is currently considered to be a “penny stock” because it does
        not qualify for one of the exemptions from the definition of “penny stock” under
        Section 3a51-1 of the Securities Exchange Act for 1934, as amended (the
“Exchange Act”). Our common stock may be a “penny stock” if it meets one or more
        of the following conditions (i) the stock trades at a price less than $5.00
        per
        share; (ii) it is NOT traded on a “recognized” national exchange; (iii) it is
        NOT quoted on the Nasdaq Stock Market, or even if so, has a price less than
        $5.00 per share; or (iv) is issued by a company that has been in business
        less
        than three years with net tangible assets less than $5 million.
  The
        principal result or effect of being designated a “penny stock” is that
        securities broker-dealers participating in sales of our common stock will
        be
        subject to the “penny stock” regulations set forth in Rules 15g-2 through 15g-9
        promulgated under the Exchange Act. For example, Rule 15g-2 requires
        broker-dealers dealing in penny stocks to provide potential investors with
        a
        document disclosing the risks of penny stocks and to obtain a manually signed
        and dated written receipt of the document at least two business days before
        effecting any transaction in a penny stock for the investor’s account. Moreover,
        Rule 15g-9 requires broker-dealers in penny stocks to approve the account
        of any
        investor for transactions in such stocks before selling any penny stock to
        that
        investor. This procedure requires the broker-dealer to (i) obtain from the
        investor information concerning his or her financial situation, investment
        experience and investment objectives; (ii) reasonably determine, based on
        that
        information, that transactions in penny stocks are suitable for the investor
        and
        that the investor has sufficient knowledge and experience as to be reasonably
        capable of evaluating the risks of penny stock transactions; (iii) provide
        the
        investor with a written statement setting forth the basis on which the
        broker-dealer made the determination in (ii) above; and (iv) receive a signed
        and dated copy of such statement from the investor, confirming that it
        accurately reflects the investor’s financial situation, investment experience
        and investment objectives. Compliance with these requirements may make it
        more
        difficult and time consuming for holders of our common stock to resell their
        shares to third parties or to otherwise dispose of them in the market or
        otherwise.
 
 **Dividend
        Policy**
  We
        have
        not declared or paid any cash dividends on our common stock, and we currently
        intend to retain future earnings, if any, to finance the development of our
        business, and we do not expect to pay any cash dividends in the foreseeable
        future. The decision whether to pay cash dividends on our common stock will
        be
        made by our board of directors, in their discretion, and will depend on our
        financial condition, operating results, capital requirements and other factors
        that the board of directors considers significant.
  16
 
 **Securities
        Authorized for Issuance Under Equity Compensation Plan**
  The
        following table provides information as of December 31, 2007 regarding
        compensation plans (including individual compensation arrangements) under
        which
        our equity securities are authorized for issuance.
  # of securities to be issued upon exercise of outstanding options,
                    warrants and rights
                
                Weighted-average exercise price of outstanding options, warrants
                    and
                    rights
                
                #
                    of securities remaining available for future issuance under equity
                    compensation plans (excluding securities reflected in column
                    (a))Equity
                    compensation plans approved by security holders
                
                
                3,486,500
                (1)
                $
                1.00
                
                
                1,513,500
                (2)Equity
                    compensation plans not approved by securities holders
                
                
                4,714,714
                (3)
                
                1.01
                
                
                —Total
                
                
                8,201,214
                
                $
                1.01
                
                
                1,513,500
   (1)
              Represents
                  stock options outstanding under our Amended and Restated 2005 Incentive
                  Plan (the “2005 Incentive Plan”), under which a total of 5,000,000 shares
                  are authorized to be issued.
 (2)
              Represents
                  shares available for future issuance under our 2005 Incentive
                  Plan.
 (3)
              Represents
                  warrants that were issued to third parties for
                  services.
  17
  **ITEM
        6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
        OPERATION**
 
 *The
        following discussion of our financial condition and plan of operation should
        be
        read in conjunction with our financial statements and the related notes,
        and the
        other financial information included in this report. This Management's
        Discussion and Analysis or Plan of Operation describes the matters we consider
        to be important to understanding our history, technology, current position,
        financial condition and future plans. Our fiscal year begins on January 1
        and
        ends on December 31.*
 
 *The
        following discussion includes forward looking statements and uncertainties,
        including plans, objectives, goals, strategies, financial projections as
        well as
        known and unknown uncertainties. The actual results of our future performance
        may differ materially from the results anticipated in these forward-looking
        statements. Although we believe that the expectations reflected in the
        forward-looking statements are reasonable, we can not guarantee future results,
        levels of activity, performance or achievement.*
 
 **OVERVIEW**
 
 **Our
        Company**
 
 We
        are a
        development stage company. We have not yet realized any revenues from our
        planned operations. We launched our Fall/Winter 2007 product through to a
        test
        market of approximately 20 select independent stores in third quarter of
        2007.
        We have designed, outsourced manufactured and are marketing quality men’s and
        women’s footwear with distribution to select retailers beginning in April 2008.
        This marks our first main stream consumer launch after completing a test
        soft
        launch to a select 20 retailers this past fall season.
 
 We
        have
        designed and continue to develop an innovative footwear product - a two-part
        footwear structure consisting of an outer collapsible “Skin” and an inner
        orthopedic support section called the “Bone.” This structure enables consumers
        to purchase one inner section and multiple outer skins - resulting in multiple
        style variations from the same pair of inner section, with the same feel
        and fit
        despite the type of Skin being worn. Our primary activities have been conducting
        research and development, performing business, strategic and financial planning,
        and raising capital.
 
 We
        have
        initially designed and manufactured men's and women's footwear and distributed
        to a test market through a soft commercial launch during the third quarter
        of
        2007. Due to technological advances in the product, we announced an updated
        design of the Bone to be launched in first half of 2008 for the Spring/Summer
        2008 season. The Bone is designed such that it can only be worn once it is
        inside the Skin and not on its own. As a result of the product enhancements
        and
        advanced technologies, we agreed to replace the existing Bones at retail
        and
        will replace the Skins, as well to ensure an ideal fit and match for the
        Skins
        and Bone. The improvements to the product, rendered inventory to be
        obsolete.
 
 We
        anticipate marketing our products via traditional footwear channels,
        non-traditional apparel channels, the Internet and other retail locations
        that
        traditionally do not have a footwear department. Due to the interchangeability
        of a Skin and a Bone, a consumer will know how the product will fit and feel
        once they own a Bone, allowing the customer to purchase a Skin from various
        venues without having to try on the product.
  Our
        objective is to create a new attire concept that allows and encourages consumers
        to more frequently change their footwear - positioning the Skins concept
        between
        footwear and apparel. Our footwear will initially be designed with an active,
        youthful lifestyle in mind. We will initially design most of our styles to
        be
        fashionable and marketable to the 18- to 35-year old consumer, with
        consideration in the future to lines that will appeal to the broad cross-section
        of the population.
  As
        of
        December 31, 2007, we had no established source of revenues and had accumulated
        losses of $11,397,491 since inception. Our ability to continue as a going
        concern is dependent upon achieving production, sales, profitability and
        our
        ability to obtain the necessary financing to meet our obligations and pay
        our
        liabilities arising from normal business operations when they come due. The
        outcome of these matters cannot be predicted with any certainty at this time
        and
        raise substantial doubt that we will be able to continue as a going concern.
        The
        financial statements contained in this 10-KSB form do not include any
        adjustments to the amounts and classification of assets and liabilities that
        may
        be necessary should we be unable to continue as a going concern. We anticipate
        that additional funding may be generated from the sale of common shares and/or
        debt with an equity feature and from asset based financing or
        factoring.
 
 **Product
        and Technology**
 
 Management
        believes that the Skins concept has advantages that eliminate a large part
        of
        traditional footwear manufacturing - including the stretching, shaping and
        stiffening normally found in footwear construction. The engineering of the
        Bone
        and Skin allows for a pressure fit attachment, removing the need for any
        type of
        fasteners, like hooks, Velcro, zippers or buttons. The Bone is an exact fit
        to
        its corresponding Skin in the same size, meaning that despite the type of
        Skin
        the consumer purchases, no matter the shape or style, the Skin will fit as
        long
        as it is the same size as the Bone.
  18
  The
        Skin
        by itself is a shapeless, thin material upper made from traditional materials
        found in shoemaking that has been stitched and glued to a “hollowed-out”
outsole. The outsole is part of the actual Skin and changes accordingly with
        each new Skin design. The Skin cannot be worn on its own. Without the Bone,
        the
        Skin is fully collapsible, and offers no shape or support. As a result,
        traveling with multiple skins will require much less space than packing multiple
        pairs of shoes.
 
 The
        Bone
        represents the inner structure and support of the product. It is made up
        of an
        orthopedic midsole, a shock absorbent heel, a supporting heel counter and
        a
        protective toe box. The Bone was designed to be as minimalist and timeless
        as
        possible. It is designed to provide the consumer with fit and comfort, and
        such
        fit and comfort may be felt no matter which Skin is being worn. The Bone
        is
        designed such that it can only be worn once it is inside the Skin and not
        on its
        own.
 
 These
        two
        components of Skin and Bones, when combined, create a full shoe. Management
        believes that the key characteristics of the Skin and Bones are as
        follows:
 
 ·
              The
                  same fit and feel for every Skin purchased in the same size, no
                  matter the
                  style or function of the Skin;
 
 ·
              Interchangeable
                  uppers, which allow the consumer to constantly switch Skins to
                  match and
                  correspond with their apparel and activity;
                  and
 
 ·
              Fully
                  collapsible Skins, allowing for minimal room to store and pack
                  numerous
                  pairs.
 
 **Patent
        and Patent Applications**
 
 We
        own
        one issued United States patent claiming the modular shoe system; this patent
        issued February 6, 2007 as U.S. patent number 7,171,768 (the ‘768 patent). 
Additionally we have two pending U.S. patent applications also claiming certain
        aspects of the modular shoe system: U.S. patent application serial number
        (USPASN) 11/638,166 filed December 13, 2006, which is a continuation of 
the ‘768 patent, and  USPASN 11/578,741 which is a national phase
        application of Patent Cooperation Treaty (PCT) international application
        serial
        number PCT/US04/033446 (the '446 application).  The '446 application has
        also been nationalized in Australia, Canada, China (PRC), Europe, Hong Kong,
        Israel, Japan, Korea, New Zealand and the Russian Federation.
 
 **CORPORATE
        HISTORY**
 
 We
        were
        incorporated in the state of Nevada on January 23, 2004. We had planned to
        develop, market and support a voice interface software platform for the Chinese
        languages to serve as a standard set of software that would allow other software
        programmers and engineers to develop voice interface applications for the
        Chinese languages based on the software platform. Our chief software engineer
        resigned in July 2005 and we determined that we were not likely to be successful
        in the software industry unless we were able to find a replacement. We began
        both to search for a replacement and to assess other business opportunities.
        We
        became aware of a business opportunity presented by an unrelated private
        company, Skins Footwear Inc., and we began to consider and discuss the
        possibility of a business combination between our company and the shareholders
        of Skins Footwear Inc.
 
 On
        November 2, 2005, we entered into a Share Exchange Agreement with all of
        the
        stockholders of Skins Footwear Inc., a Delaware corporation, pursuant to
        which
        we agreed to acquire all of the issued and outstanding share capital of Skins
        Footwear in exchange for shares of our common stock. The exchange of the
        shares
        pursuant to the Share Exchange Agreement is herein referred to as the Share
        Exchange Transaction. The Share Exchange Agreement was amended on February
        1,
        2006. On March 20, 2006, the Share Exchange Transaction was completed, Skins
        Footwear became our wholly-owned subsidiary and our sole business operations
        became that of Skins Footwear.
 
 In
        April
        2006, we changed our corporate name from “Logicom Inc.” to “Skins Inc.” and we
        changed the name of our operating subsidiary from Skins Shoes, Inc. to Skins
        Footwear Inc. Skins Footwear Inc. was originally organized in May 2004 as
        a New
        Jersey limited liability company under the name Skin Shoes, LLC and, in 2005,
        merged with Skins Footwear Inc., a Delaware corporation, whereby the corporation
        was the surviving entity. The merger on October 20, 2005 was a conversion
        of a
        non-taxable entity to a taxable corporation, The deficit accumulated in the
        development stage on October 20, 2005 was treated as a return of capital
        to the
        members of Skin Shoes, LLC and as a result the accumulated deficit was
        reclassified to additional paid in capital in the consolidated statements
        of
        stockholders' equity.
 
 **RECENT
        EVENTS**
 
 ***May
        2007 Private Placement***
 
 On
        May
        21, 2007, we sold a total of 4,000,000 units to seven investors and raised
        an
        aggregate of $3,000,000 in a private offering. The offering was made pursuant
        to
        a subscription agreement dated May 21, 2007. Each unit consists of one share
        of
        our common stock and one share purchase warrant, exercisable at an exercise
        price of $1.00 per share at any time upon election of the holder during the
        30
        month period following the offering. We registered all of the securities
        issued
        pursuant to the private placement.
  19
  ***Promissory
        Notes***
 
 From
        December 2007 through March 2008, we issued Secured Promissory Notes in a
        total
        amount of $705,000 to various lenders. The Notes bear interest at the rate
        of 5%
        per annum compounded annually and is secured by the grant of a security interest
        by us to the Lenders in all of our intellectual property rights, patents,
        copyrights, trademarks which we now have or acquire and all proceeds and
        products thereof. We agreed to repay the Loan upon our completion of a
        financing, and in no event later than six months from each of the Notes’ date of
        issuance. Pursuant to the Notes, and in consideration of entering into the
        Notes, the Lenders received a total of 1,285,976 shares of our common stock.
        In
        addition, the Lenders received piggy-back registration rights with respect
        to
        the shares. In April 2008, we conducted a private placement and the Lenders
        invested the principal amounts due under the Notes into the placement and
        waived
        interest due under the Notes. As part of the consideration, we issued an
        additional 316,298 shares of common stock to the Lenders as part of the
        transaction.
 
 ***April
        2008 Option Repricing***
 
 On
        April
        2, 2008, we repriced a total of 2,794,625 options that we had previously
        granted
        to certain of our employees, directors and consultants. The options, all
        of
        which had been previously issued pursuant to our Amended And Restated 2005
        Incentive Plan (the “Plan”), were repriced to be $0.40 per share, which is
        greater than the $0.33 closing trading price of our common stock on the date
        the
        Board of Directors approved the transaction. The Board of Directors resolved
        that an exercise of $0.40 per share would provide an incentive to the recipients
        of the repriced options to continue to work in the best interests of our
        company. The other terms of the options, including the vesting schedules,
        remained unchanged as a result of the repricing. The repriced options had
        originally been issued with $.80 to $1.37 per share option exercise prices,
        which prices reflected the then current market prices of our stock on the
        dates
        of original grant. As a result of the recent sharp reduction in our stock
        price,
        our Board of Directors believed that such options no longer would properly
        incentivize our employees, officers, directors and consultants who held such
        options to work in the best interests of our company and stockholders.
 
 ***April
        2008 Private Placement***
 
 On
        April
        9, 2008, we sold a total of 13,403,225 units to 27 investors and raised an
        aggregate of $2,680,645 in a private offering under Regulation S and Regulation
        D of the Securities Act of 1933, as amended. Of the gross proceeds of $2,680,645
        raised in the offering,
 
 (i)
              $1,085,000
                  represented cash received by the Company from investors by wire
                  or check,
 
 (ii)
              $850,000
                  represented subscription receivables from eight investors that
                  have yet to
                  be paid to the Company,
 
 (iii)
              $705,000
                  represented an amount due under six secured promissory notes previously
                  issued by the Company that was invested by five holders into this
                  offering, and
 
 (iv)
              $40,645
                  represented amounts owed by the Company to three non-employee board
                  members and two advisory board members in lieu of payment for fees
                  due to
                  them.
 
 In
        addition, the Company issued 100,000 units to a financial consultant that
        provided services in connection with the offering in lieu of $20,000 payment
        in
        cash for such services.
 
 The
        offering was made pursuant to a U.S. investor subscription agreement and
        an
        offshore subscription agreement, each dated April 9, 2008, respectively.
        Each
        unit was sold for $0.20 and consists of one share of common stock of the
        Company
        and one share purchase warrant, exercisable at an exercise price of $0.40
        per
        share at any time upon election of the holder during the 24 month period
        following the offering. The Company agreed to register the shares of common
        stock and the shares of common stock underlying the warrants on a registration
        statement that must be filed with the Securities and Exchange Commission
        within
        the earlier of 21 days after the closing of the offering or 10 days after
        the
        Company files it Annual Report on Form 10-KSB.
 
 In
        an
        effort to preserve cash for Company operations, it agreed to convert the
        $40,645
        in debt owed to the non-employee board members and advisory board members
        into
        the offering in lieu of payment for fees due to them. Similarly, the Company
        agreed to convert the $705,000 in principal debt owed under the secured
        promissory notes into the offering to preserve cash for Company operations.
        Each
        of the secured note holders agreed to waive payment of any and all interest
        due
        under the note.
  20
  Upon
        execution of the secured notes, the holders received shares of common stock
        in
        an amount that was equal to (x) half of the principal amount of the note *divided
        by* (y) the
        closing trading price of the Company’s common stock on the date of the note. The
        lowest trading price used to calculate the number so shares to be issued
        under
        the secured notes was $0.22 per share. In consideration of the holders investing
        the principal due into private placement in lieu of payment and waiving any
        and
        all interest due, each holder that received shares upon the execution of
        the
        note based on a trading price higher than $0.22 per share was issued additional
        shares of common stock. These additional shares were equal to the number
        of
        shares that would have been received if $0.22 were in the formula, minus
        the
        number of shares actually received upon execution of the secured note. A
        total
        of 316,298 additional shares were issued to these secured note holders. Our
        Chief Financial Officer and Chairman of the Board was a note holder that
        converted into the private placement in amounts of $15,000 and $100,000,
        respectively, on the same terms and conditions as the rest of the
        investors.
 
 **PLANNED
        OPERATIONS**
 
 **Product
        Development**
  We
        have
        designed, outsourced manufactured and are marketing quality men’s and women’s
        footwear with distribution to select retailers beginning in April 2008. This
        marks our first main stream consumer launch after completing a test soft
        launch
        to a select 20 retailers during the third quarter of 2007. The focus is on
        creating a high-end line of Skins priced at a manufacturer's suggested average
        retail price of $110 to $130 for women and $140 to $160 for men. The first
        test
        collection (Fall/Winter 2007) had approximately five to six styles per gender
        ranging three to five color ways per each style. The new collection (Spring/
        Summer 2008) will have approximately eight to nine styles per gender ranging
        three to five color ways per each style.
 
 Our
        Skins
        are being designed by our in-house designer and other outsourced design firms.
        They collaboratively put together the collection for men's and women's Skins,
        the packaging and retail displays, and help in refining the creative identity
        of
        the brand.
 
 During
        the third quarter 2007, we launched our product to a test market of
        approximately 20 select independent stores. In conjunction with the soft
        launch,
        we announced our Consumer Partnership Program, which is a program aimed to
        elicit feedback from consumers to aid us in product development and internal
        research. As part of the program, we gave the Bone portion of the product
        to
        participating consumers without charge. As a result of input from our retail
        partners, continuous fit trials, and feedback from consumers through the
        Consumer Partnership Program, we were able to incorporate this information
        into
        a new Bone. On November 7, 2007, we announced an updated designed of the
        Bone,
        an advanced product to be launched in first half 2008 for the Spring/Summer
        2008
        season.
 
 The
        engineering of the Bone and Skin allows for a pressure fit attachment. The
        Bone
        is an exact fit to its corresponding Skin. The Skin cannot be worn on its
        own.
        The Bone is designed such that it can only be worn once it is inside the
        Skin
        and not on its own. As a result of the product enhancements and advanced
        technologies, we agreed to replace the existing Bones at retail and will
        replace
        the Skins, as well to ensure an ideal fit and match for the Skins and Bone.
        The
        improvements to the product, rendered inventory to be obsolete as defined
        in
        management’s discussion below.
 
 **Sourcing**
 
 On
        November 28, 2007, the Company executed a Buying Agency and Sourcing Agreement
        with Atsco Footwear, LLC. Pursuant to the Agreement, Atsco will serve as
        the
        Company’s non-exclusive buying and sourcing agent and will be responsible for
        sourcing, commercialization and product line review. The Company will pay
        Atsco
        a commission of 7% of the $5 million and 5% for the amounts above the first
        $5
        million at the FOB country of origin price for merchandise sourced by Atsco
        and
        shipped to the Company. The Agreement has an initial term of one year, from
        November 15, 2007 through November 15, 2008, and each party has the option
        to
        extend the initial term of the Agreement for an additional year upon providing
        written notice to the other party no less than thirty days prior to the
        expiration of the initial term. Either party may terminate the Agreement
        at any
        time upon providing the other party with three months written notice. Mark
        Itzkowitz, the President of Atsco, is also an advisory member of the Board
        of
        Directors of the Company.
 
 **Planned
        Distribution**
 
 We
        plan
        to act as a wholesaler and market our products to specialty, department and
        Internet retail locations via our marketing and branding efforts.
 
 We
        will
        consider the children's market and more mainstream middle-market retailers
        once
        our brand is more established. We may also consider licensing our technology
        in
        the future.
  21
  We
        have
        designed, outsourced manufactured and are marketing quality men’s and women’s
        footwear with distribution to select retailers beginning in April 2008. This
        marks our first main stream consumer launch after completing a test soft
        launch
        to a select 20 retailers during the third quarter of 2007 this past fall
        season.
        We believe that the initial purchase order amount we can expect per retailer
        will be 60 pairs per gender at an average wholesale price of $57 per pair
        of
        Skins. We further plan on selling fill-in orders as the season
        progresses.
  **Critical
        Accounting Policies**
 
 Our
        financial statements reflect the selection and application of accounting
        policies, which require management to make significant estimates and
        assumptions. The Company believes that the following are some of the more
        critical judgment areas in the application of our accounting policies that
        currently affect our financial condition and results of operations.
 
 *Inventory
        and Inventory Reserves*
 
 Inventory
        is stated at the lower of cost or market, under the first-in, first-out method
        of inventory valuation. The Company evaluates its inventory on a quarterly
        basis
        to identify excess, slow-moving and obsolete inventory and assesses reserve
        adequacy. When this evaluation indicates such inventory exists, the reserve
        is
        increased by a charge to operations or such inventories are written off.
        At
        December 31, 2007, the Company had no inventory.
 
 *Share-Based
        Compensation*
 
 The
        Company uses the fair value recognition provisions of Financial Accounting
        Standards No. 123R, "Share Based Payment", which requires the Company to
        expense
        the cost of employee services received in exchange for an award of equity
        instruments based on the grant date fair value of such instruments. The Company
        uses the Black-Sholes model to calculate the fair value of the equity instrument
        on the grant date.
 
 The
        Company uses the provisions of FAS 123(R) and EITF 96-18, *Accounting for Equity Instruments That Are Issued to Other Than Employees
        for
        Acquiring, or in Conjunction with Selling, Goods or Services* to
        account for the compensation expense associated with grants to non-employees.
        The Company measures the compensation associated with these grants based
        on the
        fair value of the equity instruments issued using the Black-Scholes Model.
        In
        all option grants of this kind there is no measurement date to calculate
        the
        fair value of the options at the date of grant because the performance
        commitment had not yet occurred (there are no sufficiently large disincentives
        for non-performance) and the performance by the non-employees was not complete.
        The Company calculates the expense at each reporting period based upon fair
        value of the options that vested during the reporting period using the fair
        value on the reporting date.
 
 *Deferred
        Tax Assets*
 
 In
        assessing the realization of deferred tax assets, the Company considers whether
        it is more likely than not that some portion or all of the deferred tax assets
        will not be realized. As a result of uncertainty of achieving sufficient
        taxable
        income in the future a full valuation allowance against its deferred tax
        asset
        has been recorded. If these estimates and assumptions change in the future,
        the
        Company may be required to reverse the valuation allowance against deferred
        tax
        assets, which could result in additional income tax income.
  *Impairment
        of Long Lived Assets*
  The
        Company assesses the valuation of components of its
        property and equipment and other long-lived assets whenever events or
        circumstances dictate that the carrying value might not be recoverable. The
        Company bases its evaluation on indicators such as the nature of the assets,
        the
        future economic benefit of the assets, any historical or future profitability
        measurements and other external market conditions or factors that may be
        present. If such factors indicate that the carrying amount of an asset group
        may
        not be recoverable, the Company determines whether an impairment has occurred
        by
        analyzing an estimate of undiscounted future cash flows at the lowest level
        for
        which identifiable cash flows exist. If the estimate of the undiscounted
        cash
        flows during the estimated useful like of the asset if less than the carrying
        value of the asset the Company recognizes a loss for the difference between
        the
        carrying value of the asset and its estimated fair value, generally measured
        by
        the present value of the estimated cash flows.
  **Year
        Ended December 31, 2007 Compared with Year Ended December 31,
        2006**
 
 Net
        revenues for the years ended December 31, 2007 and 2006 were nil.
 
 Design
        and development expenses were $1,859,238 and $336,815 for the years ended
        December 31, 2007 and 2006, respectively. The increase of $1,522,423 is
        primarily attributable to $643,644 of costs to prepare the product for market
        distribution, including additional research and development, sampling expense,
        engineering and design consulting, web design, sourcing and quality control.
        In
        addition, design and development expenses include approximately $114,376
        of
        obsolete molds, the write-off of obsolete product of $672,675 as a result
        of the
        soft launch and introduction of an advanced technology product, and the
        write-off of packaging and displays of $91,728 as a result of changes to
        store
        presentation and concept.
  22
  Selling,
        general and administrative expenses (SG&A) were $4,780,436 and $2,478,561
        for the years ended December 31, 2007 and 2006, respectively. SG&A expenses
        increased by $2,301,875 primarily as a result of additional expenses
        incurred in connection with the initial soft launch of our product to test
        stores, which occurred in the third quarter of 2007, as well as other general
        expenses required to support the business. More specifically, the increase
        in
        SG&A expenses are attributable to:
 
 ·
              Employee
                  compensation and benefits of
                  $488,413;
 ·
              Selling
                  ,warehouse and shipping expense of $
                  182,000;
 ·
              Termination
                  expense for a previous employee of
                  $198,000;
 ·
              Professional
                  fees of $404,550 (including employee recruitment, investor relations,
                  legal, accounting and auditing);
 ·
              Advertising
                  and marketing of $502,625;
 ·
              Travel
                  and entertainment of $305,000; and
 ·
              Share
                  base compensation of $242,334;
 ·
              Partially
                  offset by non recurring expense in the prior year of $184,000 related
                  to
                  the acquisition of all of the outstanding capital stock of Skins
                  Footwear
                  Inc by us.
  There
        was
        unrealized loss on derivative instruments of $0 and $1,284,563 and a loss
        on
        disposal of property and equipment of $22,179 and $0 for the years ended
        December 31, 2007 and 2006, respectively. The unrealized loss on derivative
        instruments for the year ended December 31, 2006 represents mainly the fair
        value charge in our derivative liability that resulted from the liquidated
        damages provision we have within a subscription agreement with certain of
        our
        stockholders who hold warrants to purchase common stock in accordance with
        the
        Share Exchange Agreement.
  Our
        net
        loss for the year ended December 31 2007 was $6,612,193, or $0.18 per share,
        as
        compared to a net loss of $4,100,278, or $0.14 per share, for the year ended
        December 31, 2006.
 
 **Liquidity
        and Capital Resources**
 
 At
        December 31, 2007, we had $6,186 in cash and cash equivalents. Generally,
        we
        have primarily financed operations to date through the proceeds of the private
        placement of equity securities and the proceeds of warrants exercised in
        the
        fourth quarter of fiscal year 2006. We received net proceeds of $2,261,462
        from
        the private placements that were conducted in connection with the share exchange
        transaction during the fiscal quarter ended March 31, 2006 and $1,680,763
        for
        the year ended December 31, 2006 from the exercise of the warrants.
 
 On
        May
        21, 2007, we closed a financing transaction pursuant to which we sold a total
        of
        4,000,000 units to seven investors and raised an aggregate of $3,000,000.
        The
        offering was made pursuant to a subscription agreement dated May 21, 2007
        that
        we entered into with each investor. Each unit consists of one share of our
        common stock and one share purchase warrant that is exercisable at an exercise
        price of $1.00 per share at any time upon election of the holder during the
        30
        month after the offering. Net proceeds from the private offering were $2,962,013
        (net of issuance costs of $37,987).
 
 From
        December 2007 through March 2008, we issued Secured Promissory Notes in a
        total
        amount of $705,000 to various lenders. The Notes bear interest at the rate
        of 5%
        per annum compounded annually and is secured by the grant of a security interest
        by us to the Lenders in all of our intellectual property rights, patents,
        copyrights, trademarks which we now have or acquire and all proceeds and
        products thereof. We agreed to repay the Loan upon our completion of a
        financing, and in no event later than six months from each of the Notes’ date of
        issuance. Pursuant to the Notes, and in consideration of entering into the
        Notes, the Lenders received a total of 1,285,976 shares of our common stock.
        In
        addition, the Lenders received piggy-back registration rights with respect
        to
        the shares. In April 2008, we conducted a private placement and the Lenders
        invested the principal amounts due under the Notes into the placement and
        waived
        interest due under the Notes. As part of the consideration, we issued an
        additional 316,298 shares of common stock to the Lenders as part of the
        transaction.
 
 Net
        cash
        used in operating activities for the twelve months ended December 31, 2007
        was
        $5,324,722 as compared to net cash used of $2,086,524 in the same period
        in
        2006. The increase in net cash used was primarily attributable to an increase
        in
        net losses from operations, which was primarily attributable to an increase
        in
        operating expenditures and lack of revenue. Operating expenditures consisted
        principally of design and development, advertising and promotion, legal and
        accounting fees and salaries and costs to bring the product to market. We
        earned
        no revenues since our inception in May 2004. We were able to finance our
        operations and purchase of raw materials and production principally from
        our
        existing cash balance as of December 31, 2006, the May 21, 2007 financing
        transaction, and the proceeds from the exercise of common stock purchase
        warrants. During the year ended December 31, 2007, we received cash
        proceeds from these exercises totaling $754,437.
 
 Net
        cash
        used in investing activities for the year ended December 31, 2007 was $260,023,
        as compared to $56,957 during the same period in 2006. The increase in net
        cash
        used was primarily attributable to an increase in our purchase of molds,
        software costs and property and equipment.
 
 Net
        cash
        providing by financing activities for the year ended December 31, 2007 was
        $3,686,005, as compared to $3,861,874 for the same period in 2006. The increase
        was primarily attributable to our private placement conducted in May 21,
        2007.
  23
  At
        December 31, 2007, we had 3,486,500 stock options and 4,714,714 common stock
        purchase warrants outstanding. The outstanding stock options have a weighted
        average exercise price of $1.00 per share and the outstanding warrants have
        a
        weighted average exercise price of $1.01 per share. Accordingly, at December
        31,
        2007, the outstanding options and warrants represented a total of 8,201,214
        shares issuable for a maximum of $8,266,084 if these options and warrants
        were
        exercised in full. The exercise of these options and warrants is completely
        at
        the discretion of the holders. There is no assurance that any of these options
        or any additional warrants will be exercised.
 
 We
        have
        entered into employment agreements with our Chief Executive Officer (“CEO”),
        Chief Operating Officer (“COO”), and Chief Financial Officer (“CFO”). Below is a
        summary of our obligations to make payments under the employment
        agreements:
 
 ·
              We
                  entered into an employment agreement with our CEO on September
                  28, 2007.
                  Pursuant to the agreement, we will employ the CEO for a period
                  of three
                  years with successive one-year automatic renewals unless either
                  party
                  provides 180-days' advance notice of intent not to renew. We will
                  pay our
                  CEO an annual base salary of $250,000 with a bonus of up to 50%
                  of the
                  base salary at the discretion of the Board of Directors or its
                  Compensation Committee. If our CEO is terminated without cause,
                  resigns
                  with good reason or is terminated upon a change of control, he
                  will
                  receive, in addition to his accrued base salary, bonus compensation,
                  vested deferred compensation, any benefits under any of our plans
                  in which
                  he is a participant to the full extent of his rights under such
                  plan, and
                  accrued vacation benefits prorated through the termination date,
                  12 months
                  of his base salary along with health benefits, to be paid out
                  proportionally, on our usual paydays, over a 12 month period.
  ·
              We
                  entered into an employment agreement with our COO on April 13,
                  2007.
                  Pursuant to the agreement, we agreed to employ the COO for a period
                  of
                  three years with successive one-year automatic renewals unless
                  either
                  party provides 180-days' advance notice of intent not to renew.
                  We had
                  agreed to pay our COO an annual base salary of $225,000 with a
                  bonus of up
                  to 50% of the base salary at the discretion of the Board of Directors
                  or
                  its Compensation Committee.
  ·
              On
                  April 8, 2008, the Company entered into a separation agreement
                  and release
                  (“Separation Agreement”) with its COO in connection with his resignation
                  as COO of the Company. Pursuant to the Separation Agreement, our
                  COO
                  agreed that he was not entitled to any further payments or benefits,
                  including any annual incentive/performance bonus, under his employment
                  agreement with the Company. Our COO also agreed to release the
                  Company
                  from any and all claims and rights that he may have against the
                  Company,
                  including, but not limited to, any claims arising out of or relating
                  to
                  the employment agreement, those claims of which our COO is not
                  aware, and
                  all claims for attorney’s fees, costs, and interest. In exchange, the
                  Company agreed to amend its COO’s stock option agreement to permit the
                  vesting of 250,000 options, permit participation of such options
                  in the
                  option repricing, and permit the options to be exercisable for
                  one year
                  from the date of the termination of its COO’s employment.
  ·
              We
                  entered into an employment agreement with our CFO on October 29,
                  2007.
                  Pursuant to the agreement, we will employ the CFO for a period
                  of three
                  years with successive one-year automatic renewals unless either
                  party
                  provides 180-days' advance notice of intent not to renew. We will
                  pay our
                  CFO an annual base salary of $200,000 with a bonus of up to 40%
                  of the
                  base salary at the discretion of the Board of Directors or its
                  Compensation Committee. In the event the CFO is terminated without
                  cause
                  or she resigns with good reason, our CFO will be entitled to severance
                  pay
                  from the company. The amount of the severance pay will be an amount
                  equal
                  to (i) nine months of her base pay if the termination of her employment
                  occurs during the first year of employment under the agreement,
                  (ii) ten
                  months of her base pay if termination of her employment occurs
                  during the
                  second year of employment under the agreement, or (iii) eleven
                  months of
                  her base pay if the termination occurs during the third year of
                  employment
                  under the agreement. The severance pay would be paid in accordance
                  with
                  the Company's usual paydays during the applicable severance
                  period.
  As
        of
        December 31, 2007, we anticipate that we will need additional financing to
        enable us to meet our anticipated expenditures for the next year, which will
        principally be for the production of our footwear products and marketing
        expenses. We presently have a factoring agreement in place which currently
        will
        enable us to borrow up to $500,000 related to purchasing finished goods
        inventory. Per the terms of the agreement, we will also be able to factor
        and
        receive advance proceeds of up to 85% of our future accounts receivable,
        if any,
        upon the date of shipment of product from our United States inventory warehouse
        to customers. We anticipate raising additional funds through public or private
        financing, strategy relationships or other arrangements in the future to
        support
        our business operations. We cannot be certain that any such public or private
        financing will be available on acceptable terms, or at all, and our failure
        to
        raise capital when needed could limit our ability to continue as a going
        concern. We plan to overcome the circumstances that impact our ability to
        remain a going concern through a combination of beginning to generate revenues
        and decreasing costs, as necessary, with interim cash flow deficiencies being
        addressed through additional equity financing. Our ability to obtain additional
        funding in year 2007 and thereafter will determine our ability to continue
        as a
        going concern. There can be no assurances that these plans for additional
        financing will be successful. Failure to secure additional financing in a
        timely
        manner and on favorable terms if and when needed in the future could have
        a
        material adverse effect on our financial performance, results of operations
        and
        stock price and require us to implement cost reduction initiatives and curtail
        operations. Furthermore, additional equity financing may be dilutive to the
        holders of our common stock, and debt financing, if available, may involve
        restrictive covenants, and may require the Company to relinquish valuable
        rights.
  24
  On
        April
        9, 2008, we sold a total of 13,403,225 units to 27 investors and raised an
        aggregate of $2,680,645 in a private offering under Regulation S and Regulation
        D of the Securities Act of 1933, as amended. Of the gross proceeds of $2,680,645
        raised in the offering,
 
 (i)
              $1,085,000
                  represented cash received by the Company from investors by wire
                  or check,
 
 (ii)
              $850,000
                  represented subscription receivables from eight investors that
                  have yet to
                  be paid to the Company,
 
 (iii)
              $705,000
                  represented an amount due under six secured promissory notes previously
                  issued by the Company that was invested by five holders into this
                  offering, and
 
 (iv)
              $40,645
                  represented amounts owed by the Company to three non-employee board
                  members and two advisory board members in lieu of payment for fees
                  due to
                  them.
 
 In
        addition, the Company issued 100,000 units to a financial consultant that
        provided services in connection with the offering in lieu of $20,000 payment
        in
        cash for such services.
 
 The
        offering was made pursuant to a U.S. investor subscription agreement and
        an
        offshore subscription agreement, each dated April 9, 2008. Each unit was
        sold
        for $0.20 and consists of one share of common stock of the Company and one
        share
        purchase warrant, exercisable at an exercise price of $0.40 per share at
        any
        time upon election of the holder during the 24 month period following the
        offering. The Company agreed to register the shares of common stock and the
        shares of common stock underlying the warrants on a registration statement
        that
        must be filed with the Securities and Exchange Commission within the earlier
        of
        21 days after the closing of the offering or 10 days after the Company files
        it
        Annual Report on Form 10-KSB.
 
 In
        an
        effort to preserve cash for Company operations, it agreed to convert the
        $40,645
        in debt owed to the non-employee board members and advisory board members
        into
        the offering in lieu of payment for fees due to them. Similarly, the Company
        agreed to convert the $705,000 in principal debt owed under the secured
        promissory notes into the offering to preserve cash for Company operations.
        Each
        of the secured note holders agreed to waive payment of any and all interest
        due
        under the note.
 
 Upon
        execution of the secured notes, the holders received shares of common stock
        in
        an amount that was equal to (x) half of the principal amount of the note *divided
        by* (y) the
        closing trading price of the Company’s common stock on the date of the note. The
        lowest trading price used to calculate the number so shares to be issued
        under
        the secured notes was $0.22 per share. In consideration of the holders investing
        the principal due into private placement in lieu of payment and waiving any
        and
        all interest due, each holder that received shares upon the execution of
        the
        note based on a trading price higher than $0.22 per share was issued additional
        shares of common stock. These additional shares were equal to the number
        of
        shares that would have been received if $0.22 were in the formula, minus
        the
        number of shares actually received upon execution of the secured note. A
        total
        of 316,298 additional shares were issued to these secured note holders. Our
        Chief Financial Officer and Chairman of the Board was a note holder that
        converted into the private placement in amounts of $15,000 and $100,000,
        respectively, on the same terms and conditions as the rest of the
        investors.
 
 **Off
        Balance Sheet Arrangements**
 
 We
        do not
        have any off-balance sheet arrangements.
 
 **ITEM
        7. FINANCIAL STATEMENTS**
 
 The
        information required by this Item 7 is incorporated by reference to the Index
        to
        Consolidated Financial Statements beginning at page F-1 of at the end of
        this
        Form 10-KSB.
  25


**ITEM
      8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE**





None.





**ITEM
      8A. CONTROLS AND PROCEDURES**




***Disclosure
      Controls and Procedures***





The
      Company's management
      evaluated, with the participation of its Chief Executive Officer (“CEO”) and
      Chief Financial Officer (“CFO”), the effectiveness of the
      design/operation of its
      disclosure controls and procedures (as defined in Rules 13a-15(c) and 15d-15(c)
      under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) as of
      December 31, 2007.





Disclosure
      controls and procedures refer to controls and other procedures designed to
      ensure that information required to be disclosed in the reports we file or
      submit under the Exchange Act, is recorded, processed, summarized and reported
      within the time periods specified in the rules and forms of the SEC and that
      such information is accumulated and communicated to our management, including
      our chief executive officer and chief financial officer, as appropriate, to
      allow timely decisions regarding required disclosure. In designing and
      evaluating our disclosure controls and procedures, management recognizes that
      any controls and procedures, no matter how well designed and operated, can
      provide only reasonable assurance of achieving the desired control objectives,
      and management is required to apply its judgment in evaluating and implementing
      possible controls and procedures.


Management
        conducted its evaluation of disclosure controls and procedures under the
        supervision of our principal executive officer and our principal financial
        officer. Based on that evaluation, management concluded that our financial
        disclosure controls and procedures were not effective related to the preparation
        of the 10-KSB filing as of December 31, 2007.
 
 The
        controls design was adequate for financial disclosures required for the
        preparation of the 10-KSB filing; however due to lack of resources in the
        company’s accounting department the controls were not operating effectively. The
        remediation plan for improving the effectiveness over financial disclosure
        controls, which caused the material weakness over financial disclosures required
        in the 10-KSB, will include creating a financial disclosures roll-forward
        model
        in accordance with the disclosures contained in the audited 10-KSB report.
        This
        model will be maintained and updated by Skins staff and management as new
        business transactions require additional financial disclosures. These financial
        disclosures will be reviewed by an outside financial disclosure expert for
        completeness and accuracy earlier in the financial statement closing process
        cycle in order to help ensure completeness and accuracy for reporting financial
        disclosures.





***Management’s
      Report on Internal Control over Financial Reporting***





Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
      under the Exchange Act. Our management is also required to assess and report
      on
      the effectiveness of our internal control over financial reporting in accordance
      with Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). Management
      assessed the effectiveness of our internal control over financial reporting
      as
      of December 31, 2007. In making this assessment, we used the criteria set forth
      by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
      in Internal Control - Integrated Framework. During our assessment of the
      effectiveness of internal control over financial reporting as of December 31,
      2007, management identified a material deficiency as more fully described below.





Prior
      to
      third quarter of 2007 management determined that a suspected fraud material
      to
      the company may have occurred due to material weaknesses in our internal control
      structure. There were no formal internal controls implemented or tested prior
      to
      third quarter of 2007 as reported in our second quarter 10-QSB dated August
      20,
      2007. The specific material control weaknesses that contributed to the suspected
      fraud included:





·
            Lack
                of proper controls over the access to corporate negotiable instruments
                convertible into cash.


·
            Lack
                of proper controls to approve cash disbursements for validity for
                checks,
                wire transfers and debit card
                usage.


·
            Lack
                of controls related to procedures for new vendor acceptance and
                determining vendor invoice validity prior to issuance of payment
                for goods
                or services.


·
            Lack
                of entity controls over the employee hiring process related to background
                checks, code of conduct, whistleblower policy, ethics and employee
                handbook.


·
            Lack
                of controls and segregation of duties over payroll review and approval
                prior to issuance of payroll
                disbursements.


·
            Lack
                of controls over the payroll master data change authorization
                process.


·
            Lack
                  of controls over the new employee additions process to ensure that
                  all
                  payroll information is complete and accurate and in accordance
                  with
                  relevant Skins policy and
                  procedures.


·
            Lack
                of controls over periodic review of expense flux analysis to determine
                if
                expenses were in line with expectations, specifically
                salaries.


·
            Lack
                of controls over cash and regular performance of bank reconciliations
                by a
                person who has no access to authorizing cash
                disbursements.


·
            Lack
                of controls over access to computer systems and records by authorized
                individuals.





26




The
      current CFO of the Company, who was hired on July 16, 2007, made the following
      procedure and control changes within 90 days of the commencement of employment,
      all of which were designed to remediate the deficiencies in our controls and
      procedures:





·
            Established
                new authorized signatures authority with the bank for signing checks
                and
                wire transfers for the CEO, COO and
                CFO.


·
            Eliminated
                the access to employees to negotiable
                instruments.


·
            Changed
                the procedure for vendor acceptance and vendor invoice payment
                authorization.


·
            Created
                a Wire Transfer Approval form for all
                wires.


·
            Adopted
                a vendor invoice approval
                procedure.


·
            Completed
                a bank reconciliation for all 2007 bank statements, noted exceptions
                and
                suspicious payments


·
            Completed
                a payroll reconciliation for 2007 payroll issued, noted exceptions
                and
                suspicious payments


·
            Hired
                a third-party firm to assist management with implementing and testing
                internal controls for Section 404 under Sarbanes Oxley (“SOX”)
                compliance.


·
            Hired
                an independent third-party firm to perform a security assessment
                of
                security vulnerabilities and possible security access
                breaches.


·
            Implemented
                new employee hiring procedures and controls including background
                checks
                and issuance of preliminary policies covering ethics, insider trading,
                whistleblower and information technology
                usage.


·
            All
                suspected fraud and/or unauthorized transactions were reported to
                the
                Board of Directors and outside
                counsel.





During
      the period of the fourth quarter of 2007 and until the filing of our 10-KSB,
      management with the assistance of our outside consultants implemented and tested
      formal internal controls and procedures to ensure that all transactions are
      valid and authorized. All of the controls designed and implemented were based
      on
      the criteria set forth in Internal Control — Integrated Framework issued by
      the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
      as
      well as a comprehensive risk assessment including the information presented
      above.





Based
      on
      the material weaknesses noted above, management concludes that the internal
      controls over financial reporting are not effective for the year 2007 as a
      whole. Management has undertaken remediation of this material weakness as well
      as Internal Controls over Financial Reporting and has completed all remediation
      as of the filing of this report. Nothing has come to the attention of management
      that causes them to believe that any material inaccuracies or errors exist
      in
      our financial statements as of December 31, 2007.




***Changes
      in Internal Controls over Financial Reporting***





As
      noted
      above there were significant changes in internal control over financial
      reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the SEC Act
      of
      1934) during the third and fourth quarters of 2007. These changes by the Chief
      Financial Officer and Chief Executive Officer, which occurred during the most
      recent fiscal quarter, will have materially affected, or are reasonably likely
      to materially affect, internal control over financial reporting.





***Auditor
      Attestation***





This
      annual report does not include an attestation report of the company’s registered
      public accounting firm regarding internal control over financial reporting.
      Management’s report was not subject to attestation by the company’s registered
      public accounting firm pursuant to rules of the Securities and Exchange
      Commission that permit the company to provide only management’s report in this
      annual report.





**ITEM
      8B. OTHER INFORMATION**





None.




27





**ITEM
      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSON AND CORPORATE
      GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
      ACT**




The
      information required by this Item 9 is incorporated by reference from our
      definitive proxy statement on Schedule 14A which will be filed before the end
      of
      the 120-day period immediately following the end of our 2007 fiscal year, or,
      if
      our definitive proxy statement is not filed within that time, the information
      will be filed as part of an amendment to this annual report on Form 10-KSB/A,
      not later than the end of the 120-day period.




**ITEM
      10. EXECUTIVE COMPENSATION**





The
      information required by this Item 10 is incorporated by reference from our
      definitive proxy statement on Schedule 14A which will be filed before the end
      of
      the 120-day period immediately following the end of our 2007 fiscal year, or,
      if
      our definitive proxy statement is not filed within that time, the information
      will be filed as part of an amendment to this annual report on Form 10-KSB/A,
      not later than the end of the 120-day period.




**ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS- OPEN**





The
      information required by this Item 11 is incorporated by reference from our
      definitive proxy statement on Schedule 14A which will be filed before the end
      of
      the 120-day period immediately following the end of our 2007 fiscal year, or,
      if
      our definitive proxy statement is not filed within that time, the information
      will be filed as part of an amendment to this annual report on Form 10-KSB/A,
      not later than the end of the 120-day period.





**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE**




The
      information required by this Item 12 is incorporated by reference from our
      definitive proxy statement on Schedule 14A which will be filed before the end
      of
      the 120-day period immediately following the end of our 2007 fiscal year, or,
      if
      our definitive proxy statement is not filed within that time, the information
      will be filed as part of an amendment to this annual report on Form 10-KSB/A,
      not later than the end of the 120-day period.




**ITEM
      13. EXHIBITS**





**Exhibit
                No.**
            
            **Description**2.1
            
            Share
                Exchange Agreement, dated as of November 2, 2005, by and among Skin
                Shoes,
                Inc., Logicom Inc. and all of the stockholders of Skin Shoes, Inc
                (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K
                filed with the Securities and Exchange Commission on November 7,
                2005).2.1(a)
            
            Amendment
                No. 1 to the Share Exchange Agreement dated February 1, 2006 by and
                among
                Skin Shoes, Inc., Logicom Inc. and all of the stockholders of Skin
                Shoes,
                Inc (incorporated by reference to Exhibit 2.1(a) of the Registrant’s Form
                8-K filed with the Securities and Exchange Commission on March 24,
                2006).4.1
            
            Form
                of Stock Purchase Warrant for March 2006 Private Offering. (incorporated
                by reference to Exhibit 4.1 of the Registrant’s Form 8-K filed with the
                Securities and Exchange Commission on March 24, 2006).4.2
            
            Form
                of Stock Purchase Warrant May 2007 Private Offering. (incorporated
                by
                reference to Exhibit 4.1 of the Registrant’s Form 8-K filed with the
                Securities and Exchange Commission on May 22, 2007).4.3
            
            Form
                of Stock Purchase Warrant dated April 9, 2008 (incorporated by reference
                to Exhibit 4.1 of the Registrant’s Form 8-K filed with the Securities and
                Exchange Commission on April 11, 2008).10.1
            
            Employment
                Agreement by Mark Klein and the Logicom, Inc. dated March 20, 2006
                (incorporated by reference to Exhibit 10.3 of the Registrant’s Form 8-K
                filed with the Securities and Exchange Commission on March 24,
                2006).10.1(a)
            
            Amended
                and Restated Employment Agreement by Mark Klein and the Registrant
                dated
                September 28, 2007 (incorporated by reference to Exhibit 10.1 of
                the
                Registrant’s Form 8-K filed with the Securities and Exchange Commission on
                October 4, 2007).10.2
            
            Executive
                Employment Agreement by and between Deborah A. Gargiulo and the Registrant
                dated October 29, 2007 (incorporated by reference to Exhibit 10.1
                of the
                Registrant’s Form 8-K filed with the Securities and Exchange Commission on
                November 2, 2007).10.3
            
            Dennis
                Walker Employment Agreement dated February 9, 2008 (incorporated
                by
                reference to Exhibit 10.1 of the Registrant’s Form 8-K filed with the
                Securities and Exchange Commission on February 20,
                2008).10.4
            
            Employment
                Agreement executed April 13, 2007 between Registrant and Antonio
                Pavan
                (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K
                filed with the Securities and Exchange Commission on March 19,
                2007).10.4(a)
            
            Stock
                Option Agreement for Mr. Pavan (incorporated by reference to Exhibit
                10.1(a) of the Registrant’s Form 8-K filed with the Securities and
                Exchange Commission on March 19,
                2007).




28




**Exhibit
                No.**
            
            **Description**


10.4(b)
            
            Separation
                Agreement dated April 8, 2008 by and between the Company and Antonio
                Pavan
                (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K
                filed with the Securities and Exchange Commission on April 9,
                2008).10.4(c)
            
            Amendment
                to Stock Option Agreement dated April 8, 2008 by and between the
                Company
                and Antonio Pavan(incorporated
                by reference to Exhibit 10.2 of the Registrant’s Form 8-K filed with the
                Securities and Exchange Commission on April 9, 2008).10.5
            
            Form
                of Subscription Agreement for March 2006 Private Offering (incorporated
                by
                reference to Exhibit 10.1 of the Registrant’s Form 8-K filed with the
                Securities and Exchange Commission on March 24, 2006).10.6
            
            Form
                of Subscription Agreement for May 2007 Private Offering (incorporated
                by
                reference to Exhibit 10.1 of the Registrant’s Form 8-K filed with the
                Securities and Exchange Commission on May 22, 2007).10.7
            
            Skin
                Shoes, Inc. 2005 Incentive Plan (incorporated by reference to Exhibit
                10.2
                of the Registrant’s Form 8-K filed with the Securities and Exchange
                Commission on March 24, 2006).10.7(a)
            
            Form
                of Skin Shoes, Inc. Incentive Plan Option Agreement (incorporated
                by
                reference to Exhibit 10.2(a) of the Registrant’s Form 8-K filed with the
                Securities and Exchange Commission on March 24, 2006).10.7(b)
            
            Skins
                Inc. Amended and Restated 2005 Incentive Plan (incorporated by reference
                to Exhibit 10.2 of the Registrant’s Form 8-K filed with the Securities and
                Exchange Commission on October 4, 2007).10.8
            
            Form
                of Skins Inc. Secured Promissory Note December 21, 2007 and January
                2,
                2008 (incorporated by reference to Exhibit 10.1 of the Registrant’s Form
                8-K filed with the Securities and Exchange Commission on January
                11,
                2008).10.9
            
            Form
                of Skins Inc. Secured Promissory Note dated February 11 and 14, 2008
                (incorporated by reference to Exhibit 10.2 of the Registrant’s Form 8-K
                filed with the Securities and Exchange Commission on February 20,
                2008).10.10
            
            Form
                of Skins Inc. Secured Promissory Note dated February 28 and March
                17, 2008
                (incorporated by reference to Exhibit 10.2 of the Registrant’s Form 8-K
                filed with the Securities and Exchange Commission on March 19,
                2008).10.11
            
            Lease
                Agreement with Summit Office Suites dated February 12, 2008 (incorporated
                by reference to Exhibit 10.3 of the Registrant’s Form 8-K filed with the
                Securities and Exchange Commission on February 20,
                2008).10.12
            
            Exclusive
                Buying Agency and Sourcing Agreement dated December 7, 2005 by and
                between
                the Registrant and Atsco Footwear LLC and addendum dated February
                27, 2006
                (incorporated by reference to Exhibit 10.4 of the Registrant’s
                registration statement on Form SB-2 file with the Securities and
                Exchange
                Commission on June 30, 2006).10.13
            
            Buying
                Agency and Sourcing Agreement by and between the Company and Atsco
                Footwear, LLC dated November 28, 2007 (incorporated by reference
                to
                Exhibit 10.1 of the Registrant’s Form 8-K filed with the Securities and
                Exchange Commission on December 3, 2007).10.14
            
            Form
                of U.S. Investor Subscription Agreement dated April 9, 2008 (incorporated
                by reference to Exhibit 10.1 of the Registrant’s Form 8-K filed with the
                Securities and Exchange Commission on April 11, 2008).10.15
            
            Form
                of Offshore Investor Subscription Agreement dated April 9, 2008
                (incorporated by reference to Exhibit 10.2 of the Registrant’s Form 8-K
                filed with the Securities and Exchange Commission on April 11,
                2008).10.16
            
            Form
                of Note Cancellation Agreement dated April 9, 2008 (incorporated
                by
                reference to Exhibit 10.3 of the Registrant’s Form 8-K filed with the
                Securities and Exchange Commission on April 11, 2008).21.1
            
            List
                of Subsidiaries of Registrant (incorporated by reference to Exhibit
                21.1
                of the Registrant’s registration statement on Form SB-2 file with the
                Securities and Exchange Commission on June 30, 2006).31.1
            
            Certification
                of Chief Executive Officer pursuant to Section 302(a) of the
                Sarbanes-Oxley Act of 2002.31.2
            
            Certification
                of Chief Financial Officer pursuant to Section 302(a) of the
                Sarbanes-Oxley Act of 2002.32.1*
            
            Certification
                of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002.*




*
            This
                exhibit shall not be deemed “filed” for purposes of Section 18 of the
                Securities Exchange Act of 1934 or otherwise subject to the liabilities
                of
                that section, nor shall it be deemed incorporated by reference in
                any
                filing under the Securities Act of 1933 or the Securities Exchange
                Act of
                1934, whether made before or after the date hereof and irrespective
                of any
                general incorporation language in any
                filings.




**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**





The
      information required by this Item 14 is incorporated by reference from our
      definitive proxy statement on Schedule 14A which will be filed before the end
      of
      the 120-day period immediately following the end of our 2007 fiscal year, or,
      if
      our definitive proxy statement is not filed within that time, the information
      will be filed as part of an amendment to this annual report on Form 10-KSB/A,
      not later than the end of the 120-day period.




29


**SIGNATURES**





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


**SKINS
                INC.**
              (Registrant)April
                14, 2008
            By:
            /s/ Mark
                KleinMark
                KleinChief
                Executive Officer, President and Director
              (Principal
                Executive Officer)


By:
            /s/ Deborah
                A. GargiuloDeborah
                A. GargiuloChief
                Financial Officer
              (Principal
                Financial and Accounting Officer)





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed by the following persons on behalf of the Registrant and in the
      capacities and on the dates indicated.





SIGNATURE
            
            TITLE
            
            DATE/s/
                Mark Klein
            
            Chief
                Executive Officer, President and Director
            
            April
                14, 2008Mark
                Klein
            
            (Principal
                Executive Officer)/s/
                Michael J. Rosenthal
            
            Chairman
                  of the Board
            
            April
                14, 2008Michael
                J. Rosenthal/s/
                Steve Reimer
            
            Director
            
            April
                14, 2008Steve
                Reimer/s/ Frank
                Zambrelli
            
            Director
            
            April
                14, 2008Frank
                Zambrelli





30





**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS OF**





**SKINS
      INC. AND SUBSIDIARY**





**(A
      DEVELOPMENT STAGE COMPANY)**





**Page**Report****of
                Independent Registered Public Accounting Firm
            
            
            F-2Financial
                Statements:Consolidated
                Balance Sheets
            
            
            F-3Consolidated
                Statements of Operations
            
            
            F-4Consolidated
                Statements of Stockholders’ Equity (Deficiency)
            
            
            F-5Consolidated
                Statements of Cash Flows
            
            
            F-6Notes
                to Consolidated Financial Statements
            
            
            F-7




F-1


**Report
      of Independent Registered Public Accounting Firm**




Board
      of
      Directors and Stockholders


Skins
      Inc. and Subsidiary





We
      have
      audited the accompanying consolidated balance sheets of Skins Inc. and
      Subsidiary (a development stage company) as of December 31, 2007 and 2006,
      and
      the related consolidated statements of operations, stockholders' equity
      (deficiency) and cash flows for the years then ended and the period May 18,
      2004, date of inception, to December 31, 2007. These consolidated financial
      statements are the responsibility of the Company's management. Our
      responsibility is to express an opinion on these consolidated financial
      statements based on our audits.




We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement. The Company
      is not required to have, nor were we engaged to perform, an audit of its
      internal control over financial reporting. Our audits included consideration
      of
      internal control over financial reporting as a basis for designing audit
      procedures that are appropriate in the circumstances, but not for the purpose
      of
      expressing an opinion on the effectiveness of the Company's internal control
      over financial reporting. Accordingly, we express no such opinion. An audit
      also
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the consolidated financial statements, 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 Skins Inc. and Subsidiary
      at
      December 31, 2007 and 2006, and the results of their operations and their cash
      flows for the years ended December 31, 2007 and 2006, and the period May 18,
      2004, date of inception, to December 31, 2007, in conformity with accounting
      principles generally accepted in the United States of America.




The
      accompanying consolidated financial statements have been prepared assuming
      that
      Skins, Inc. and Subsidiary will continue as a going concern. As more fully
      described in Note 1, at December 31, 2007, the Company has no established source
      of revenues and has accumulated losses of $11,397,491 since inception. These
      conditions raise substantial doubt about the Company's ability to continue
      as a
      going concern. Management's plans in regard to these matters are also described
      in Note 1. The consolidated financial statements do not include any adjustments
      to reflect the possible future effects on the recoverability and classification
      of assets or the amounts and classification of liabilities that may result
      from
      the outcome of this uncertainty.







/s/
      Mahoney Cohen & Company, CPA, P.C.




New
      York,
      New York


April
      12,
      2008





F-2


**SKINS
      INC. AND SUBSIDIARY**


**(A
      Development Stage Company)**




**CONSOLIDATED
      BALANCE SHEETS**




**As
                of December 31,****2007**
            
            **2006****ASSETS****Current
                assets:**Cash
                and cash equivalents
            
            $
            6,186
            
            $
            1,754,926Prepaid
                expenses
            
            
            251,034
            
            
            165,258Total
                current assets
            
            
            257,220
            
            
            1,920,184Property
                and equipment, net (Note 3)
            
            
            13,209
            
            
            6,255Software
                Costs, net (Note 4)
            
            
            16,634
            
            
            -Capitalized
                Production Molds (Note 5)
            
            
            10,660
            
            
            -Patent
                costs, net (Note 6)
            
            
            159,400
            
            
            108,851Other
                Intangibles, net (Note 7)
            
            
            1,378
            
            
            -**Total
                Assets**
            
            $
            458,501
            
            $
            2,035,290**LIABILITIES
                AND STOCKHOLDERS' EQUITY (DEFICIENCY)****Current
                liabilities:**Accounts
                payable and accrued liabilities (Note 8)
            
            
            750,425
            
            
            277,595Liquidated
                damages payable (Note 2)
            
            
            21,988
            
            
            27,278Note
                Payable, net of discount (Note 10)
            
            
            95,777
            
            
            -**Total
                current liabilities**
            
            
            868,190
            
            
            304,873**Commitments
                and Contingencies (Note**11**)**Stockholders'
                Equity (Deficiency) (Note 12):Common
                Stock, $.001 par value; 436,363,650 shares authorized; 40,961,294
                and
                36,206,769 shares issued and outstanding at December 31, 2007 and
                2006, respectively (Note 1)
            
            
            40,961
            
            
            36,206Additional
                paid in capital
            
            
            10,570,983
            
            
            6,103,651Deficit
                accumulated in the development stage
            
            
            (11,021,633
            )
            
            (4,409,440
            )**Total
                stockholders' equity (deficiency)**
            
            
            (409,689
            )
            
            1,730,417**Total
                Liabilities & Stockholders' Equity
                (Deficiency)**
            
            $
            458,501
            
            $
            2,035,290





The
      accompanying notes are an integral part of the financial
      statements.




F-3


**SKINS
      INC. AND SUBSIDIARY**


**(A
      Development Stage Company)**




**CONSOLIDATED
      STATEMENTS OF OPERATIONS**




**Years
                Ended December 31,**
            
            **Period
                from Inception**
              **(May
                18, 2004 - Dec****2007**
            
            **2006**
            
            **31,
                2007)****Operating
                expenses:**Design
                and development
            
            $
            1,859,238
            
            $
            336,815
            
            $
            2,334,844Selling,
                general and administrative
            
            
            4,780,436
            
            
            2,478,561
            
            
            7,778,700Total
                operating expenses
            
            
            6,639,674
            
            
            2,815,376
            
            
            10,113,544Operating
                Loss
            
            
            (6,639,674
            )
            
            (2,815,376
            )
            
            (10,113,544
            )Unrealized
                (loss) on derivative instruments
            
            
            -
            
            
            (1,284,563
            )
            
            (1,306,754
            )Liquidated
                damages
            
            
            5,290
            
            
            (27,278
            )
            
            (21,988
            )Interest
                Income
            
            
            47,705
            
            
            27,870
            
            
            75,575Loss
                on disposal of property and equipment
            
            
            (22,179
            )
            
            —
            
            
            (22,179
            )Amortization
                of discount on note payable
            
            
            (3,130
            )
            
            —
            
            
            (3,130
            )Interest
                Expense
            
            
            (205
            )
            
            (931
            )
            
            (5,471
            )**Net
                loss**
            
            $
            (6,612,193
            )
            $
            (4,100,278
            )
            $
            (11,397,491
            )**Basic
                and diluted loss per share**
            
            $
            (0.18
            )
            $
            (0.14
            )**Weighted
                average number of common shares outstanding, basic and
                diluted**
            
            
            37,888,638
            
            
            29,948,876




The
      accompanying notes are an integral part of the financial
      statements.




F-4


**SKINS
      INC. AND SUBSIDIARY**


**(A
      Development Stage Company)**




**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIENCY)**




**Common
                Stock**
            
            **Additional
                Paid-In (deficit-in)**
            
            **Deficit
                Accumulated Total Development**
            
            **Total
                Stockholders' Equity/****Shares**
            
            **Amount**
            
            **Capital**
            
            **Stage**
            
            **(Deficiency)**Transfer
                of net liabilities from a predecessor entity - May 18,
                2004
            
            
            
            
            $
            -
            
            $
            (32,312
            )
            $
            -
            
            $
            (32,312
            )Shares
                issued on June 1, 2004
            
            
            954,513
            
            
            955
            
            
            9,045
            
            
            
            
            
            10,000Shares
                issued on July 2, 2004
            
            
            954,513
            
            
            955
            
            
            9,045
            
            
            
            
            
            10,000Shares
                issued on August 4, 2004
            
            
            1,909,026
            
            
            1,909
            
            
            18,091
            
            
            
            
            
            20,000Shares
                issued on August 10, 2004
            
            
            1,909,026
            
            
            1,909
            
            
            18,091
            
            
            
            
            
            20,000Shares
                issued on December 1, 2004
            
            
            8,338,484
            
            
            8,338
            
            
            79,162
            
            
            
            
            
            87,500Shares
                issued on December 30, 2004
            
            
            144,077
            
            
            144
            
            
            1,356
            
            
            
            
            
            1,500Shares
                issued on December 31, 2004
            
            
            3,818,053
            
            
            3,818
            
            
            36,182
            
            
            
            
            
            40,000Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (152,706
            )
            
            (152,706
            )Balances
                at December 31, 2004
            
            
            18,027,692
            
            
            18,028
            
            
            138,660
            
            
            (152,706
            )
            
            3,982Shares
                issued for services on October 20, 2005
            
            
            1,376,308
            
            
            1,376
            
            
            (1,370
            )
            
            -
            
            
            6Net
                Loss January 1, 2005 to October 20, 2005
            
            
            
            
            
            
            
            
            
            
            
            (223,152
            )
            
            (223,152
            )Recapitalization
                of deficit upon merger of Skins Shoes, LLC into Skin Shoes, Inc.
                on
                October 20, 2005 (Note 1)
            
            
            
            
            
            
            
            
            (375,858
            )
            
            375,858
            
            
            -Net
                Loss Oct 21, 2005 to Dec 31, 2005
            
            
            
            
            
            -
            
            
            -
            
            
            (309,162
            )
            
            (309,162
            )Balances
                at December 31, 2005
            
            
            19,404,000
            
            
            19,404
            
            
            (238,568
            )
            
            (309,162
            )
            
            (528,326
            )Reclassification
                of Share based liability Awards to equity Awards upon the re-Adoption
                of
                the 2005 Incentive Stock Plan on March 16, 2006
            
            
            -
            
            
            -
            
            
            241,157
            
            
            -
            
            
            241,157Skins
                Inc. net assets assumed - March 20, 2006
            
            
            14,821,434
            
            
            14,821
            
            
            1,693,886
            
            
            
            
            
            1,708,707Conversion
                of convertible debenture - Common Stock - March 20, 2006
            
            
            178,572
            
            
            179
            
            
            119,821
            
            
            
            
            
            120,000Shares
                issued for consulting services on April 3, 2006 (Note 9)
            
            
            122,000
            
            
            122
            
            
            145,058
            
            
            
            
            
            145,180Share
                based Compensation, June 30, 2006
            
            
            
            
            
            
            
            
            86,156
            
            
            
            
            
            86,156Share
                based Compensation, September 30, 2006
            
            
            
            
            
            
            
            
            130,218
            
            
            
            
            
            130,218Reclassification
                of Derivative Liability as Form
            
            
            
            
            
            
            
            
            1,890,600
            
            
            
            
            
            1,890,600SB-2
                became effective on October 10, 2006Warrants
                exercised December 5, 2006
            
            
            30,000
            
            
            30
            
            
            29,970
            
            
            
            
            
            30,000Warrants
                exercised December 8, 2006
            
            
            120,000
            
            
            120
            
            
            119,880
            
            
            
            
            
            120,000Warrants
                exercised December 11, 2006
            
            
            320,000
            
            
            320
            
            
            319,680
            
            
            
            
            
            320,000Warrants
                exercised December 12, 2006
            
            
            115,715
            
            
            116
            
            
            115,599
            
            
            
            
            
            115,715Warrants
                exercised December 14, 2006
            
            
            119,000
            
            
            119
            
            
            118,881
            
            
            
            
            
            119,000Warrants
                exercised December 15, 2006
            
            
            274,000
            
            
            274
            
            
            273,726
            
            
            
            
            
            274,000Warrants
                exercised December 19, 2006
            
            
            363,476
            
            
            363
            
            
            363,113
            
            
            
            
            
            363,476Warrants
                exercised December 21, 2006
            
            
            238,572
            
            
            238
            
            
            238,334
            
            
            
            
            
            238,572Warrants
                exercised December 22, 2006
            
            
            100,000
            
            
            100
            
            
            99,900
            
            
            
            
            
            100,000Share
                based Compensation, December 31, 2006
            
            
            
            
            
            
            
            
            356,240
            
            
            
            
            
            356,240Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            (4,100,278
            )
            
            (4,100,278
            )Balances
                at December 31, 2006
            
            
            36,206,769
            
            
            36,206
            
            
            6,103,651
            
            
            (4,409,440
            )
            
            1,730,417Warrants
                exercised January 5, 2007
            
            
            100,000
            
            
            100
            
            
            99,900
            
            
            
            
            
            100,000Warrants
                exercised January 6, 2007
            
            
            11,904
            
            
            12
            
            
            11,882
            
            
            
            
            
            11,894Warrants
                exercised January 10, 2007
            
            
            100,000
            
            
            100
            
            
            99,900
            
            
            
            
            
            100,000Warrants
                exercised January 25, 2007
            
            
            200,000
            
            
            200
            
            
            199,800
            
            
            
            
            
            200,000Warrants
                exercised February 7, 2007
            
            
            59,524
            
            
            60
            
            
            59,464
            
            
            
            
            
            59,524Warrants
                exercised February 26, 2007
            
            
            138,095
            
            
            138
            
            
            137,906
            
            
            -
            
            
            138,044Repurchase
                of options (Note 11)
            
            
            -
            
            
            -
            
            
            (30,445
            )
            
            -
            
            
            (30,445
            )Share
                based Compensation for the three months ended March 31,
                2007
            
            
            
            
            
            
            
            
            195,381
            
            
            
            
            
            195,381Shares
                issued on May 21, 2007 (net of issuance costs of $37,987)
            
            
            4,000,000
            
            
            4,000
            
            
            2,958,013
            
            
            
            
            
            2,962,013Share
                based Compensation for the three months ended June 30,
                2007
            
            
            
            
            
            
            
            
            156,138
            
            
            
            
            
            156,138Warrants
                exercised July 24, 2007
            
            
            60,000
            
            
            60
            
            
            59,865
            
            
            
            
            
            59,925Warrants
                exercised August 7, 2007
            
            
            10,000
            
            
            10
            
            
            9,965
            
            
            
            
            
            9,975Warrants
                exercised August 14 2007
            
            
            75,000
            
            
            75
            
            
            75,000
            
            
            
            
            
            75,075Share
                based compensation for the three months ended September 30,
                2007
            
            
            
            
            
            
            
            
            213,453
            
            
            
            
            
            213,453Shares
                issued on October 31, 2007 to correct prior balances
            
            
            2Discount
                on note payable for common stock to be issued - December 21, 2007
                (Note
                10)
            
            
            
            
            
            
            
            
            57,353
            
            
            
            
            
            57,353Share
                based compensation for the three months ended December 31,
                2007
            
            
            
            
            
            
            
            
            163,757
            
            
            
            
            
            163,757Net
                loss
            
            
            -
            
            
            -
            
            
            
            
            
            (6,612,193
            )
            
            (6,612,193
            )Balances
                at December 31, 2007
            
            
            40,961,294
            
            $
            40,961
            
            $
            10,570,983
            
            $
            (11,021,633
            )
            $
            (409,689
            )




The
      accompanying notes are an integral part of the financial statements




F-5


**SKINS
      INC. AND SUBSIDIARY**


**(A
      Development Stage Company)**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**




**Year
                Ended**
              **December
                31,**
              **2007**
            
            **Year
                Ended**
              **December
                31,**
              **2006**
            
            **Period
                from Inception (May 18, 2004) to December 31,
                2007**Cash
                flows used in operating activities:Net
                loss
            
            $
            (6,612,193
            )
            $
            (4,100,278
            )
            $
            (11,397,491
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
            
            
            15,623
            
            
            2,423
            
            
            19,969Amortization
            
            
            21,670
            
            
            4,205
            
            
            29,333Issuance
                of common stock for services
            
            
            72,590
            
            
            54,450
            
            
            127,046Share
                based compensation expense
            
            
            728,729
            
            
            699,865
            
            
            1,542,500Loss
                on write down of molds (Note 5)
            
            
            114,376
            
            
            -
            
            
            114,376Loss
                on disposal of property and equipment (Note 3)
            
            
            22,179
            
            
            -
            
            
            22,179Amortization
                of discount on note payable
            
            
            3,130
            
            
            -
            
            
            3,130Unrealized
                loss on derivative instruments
            
            
            —
            
            
            1,284,563
            
            
            1,306,754Changes
                in operating assets and liabilities:Prepaid
                expenses
            
            
            (158,366
            )
            
            (73,437
            )
            
            (231,803
            )Accounts
                payable and accrued liabilities
            
            
            472,830
            
            
            14,407
            
            
            734,608Liquidated
                damages payable
            
            
            (5,290
            )
            
            27,278
            
            
            21,988Net
                cash used in operating activities
            
            
            (5,324,722
            )
            
            (2,086,524
            )
            
            (7,707,411
            )Cash
                flows used in investing activities:Purchases
                of property and equipment
            
            
            (44,756
            )
            
            (5,125
            )
            
            (53,379
            )Software
                costs
            
            
            (31,551
            )
            
            -
            
            
            (31,551
            )Purchases
                of molds
            
            
            (125,036
            )
            
            -
            
            
            (125,036
            )Patent
                costs
            
            
            (57,290
            )
            
            (51,832
            )
            
            (165,353
            )Purchase
                of other intangibles
            
            
            (1,390
            )
            
            —
            
            
            (1,390
            )Net
                cash used in investing activities
            
            
            (260,023
            )
            
            (56,957
            )
            
            (376,709
            )Cash
                flows provided by financing activities:Cash
                assumed in connection with Recapitalization
            
            
            —
            
            
            2,261,462
            
            
            2,261,462Related
                party proceeds (payments)
            
            
            —
            
            
            (80,351
            )
            
            (26,924
            )Proceeds
                from issuance of Common Stock
            
            
            3,716,450
            
            
            1,680,763
            
            
            5,586,213Repurchase
                of Options (Note 13)
            
            
            (30,445
            )
            
            -
            
            
            (30,445
            )Proceeds
                from note payable
            
            
            150,000
            
            
            -
            
            
            300,000Net
                cash provided by financing activities:
            
            
            3,836,005
            
            
            3,861,874
            
            
            8,090,306Net
                (decrease) increase in cash and cash equivalents
            
            
            (1,748,740
            )
            
            1,718,393
            
            
            6,186Cash
                and cash equivalents at beginning of year
            
            
            1,754,926
            
            
            36,533
            
            
            -Cash
                and cash equivalents at end of year
            
            $
            6,186
            
            $
            1,754,926
            
            $
            6,186Supplemental
                Schedule of Disclosure of Cash Flow Information:Cash
                Paid this period for:Interest
            
            $
            -
            
            $
            931
            
            $
            5,266Supplemental
                Schedule of Non-Cash Investing and Financing Activities:On
                May 18, 2004 the Company received Net Liabilities From a predecessor
                entity totaling
            
            
            -
            
            
            -
            
            
            32,312Transfer
                of deficit due to merger of Skin Shoes, LLC into Skin Shoes, Inc.
                on
                October 20, 2005
            
            
            -
            
            
            -
            
            
            375,568Net
                liabilities assumed from reverse acquisition on March 20, 2006, net
                of
                cash of $2,261,462
            
            
            -
            
            
            552,755
            
            
            552,755Conversion
                of convertible debenture, assumed from reverse acquisition, to common
                stock
            
            
            -
            
            
            120,000
            
            
            120,000Conversion
                of convertible debenture, assumed from reverse acquisition, to warrant
                liability
            
            
            -
            
            
            30,000
            
            
            30,000Issuance
                of Common Stock to consultants on April 3, 2006 for services to be
                provided for a two year term
            
            
            -
            
            
            -
            
            
            145,180Reclassification
                of share based liability awards to equity awards upon the re-adoption
                of
                the 2005 Incentive Stock Plan on March 16, 2006
            
            
            -
            
            
            241,157
            
            
            241,157Reclassification
                of derivative liability to equity upon the declaration of the SB-2
                registration statement as effective.
            
            
            -
            
            
            -
            
            
            1,890,600Issuance
                of Common Stock to consultants on April 3, 2006 for services to be
                provided for a two year term
            
            
            -
            
            
            127,030
            
            
            127,030Discount
                on note payable for common stock to be issued- December 21, 2007
                (Note
                10)
            
            
            57,353
            
            
            -
            
            
            57,353




The
      accompanying notes are an integral part of the financial
      statements.




F-6






**SKINS
        INC. AND SUBSIDIARY**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
  **NOTE 1: DESCRIPTION
        OF BUSINESS**





**Overview**





Skins
      Inc. and subsidiary (the “Company”), a Nevada corporation has its corporate
      office located in New York City, has designed and continues to develop a
      patented two-part, footwear structure consisting of an outer collapsible “Skin”
and an inner orthopedic support section called the “Bone.” The design is
      intended to allow consumers to purchase one inner section, the Bone, and
      numerous outer Skins, resulting in multiple style variations from the same
      pair
      of shoes, with the same feel and fit despite which Skin is being worn.





**Basis
      of presentation, organization and other matters**





On
      March
      20, 2006, the Company, at that time known as Logicom Inc. (“Logicom”), acquired
      all of the outstanding capital stock of Skins Footwear Inc. (formerly known
      as
      Skin Shoes, Inc.) (“Skins Footwear”). Skins Footwear thereupon became a wholly
      owned subsidiary of Logicom. The business of Skins Footwear is the only business
      of Logicom.




Logicom
      was incorporated in the State of Nevada on January 23, 2004. Logicom was in
      the
      development stage since its formation and it had not realized any revenues
      from
      its planned operations. Logicom entered into a share exchange agreement with
      all
      of the shareholders of Skins Footwear, a privately held development stage
      footwear company, on November 2, 2005.




Skins
      Footwear was originally organized on May 18, 2004 as a New Jersey limited
      liability company under the name Skin Shoes, LLC. On October 11, 2005, Skins
      Shoes, LLC created a Delaware corporation under the name Skin Shoes, Inc. as
      a
      wholly owned subsidiary and merged with and into Skin Shoes, Inc. on October
      20,  2005,
      resulting in Skin Shoes, Inc. becoming the surviving Delaware corporation and
      the limited liability company ceasing to exist. The merger on October 20, 2005
      was a conversion of a non-taxable entity to a taxable corporation, The deficit
      accumulated in the development stage on October 20, 2005 was treated as a return
      of capital to the members of Skin Shoes, LLC, which was then contributed to
      Skin
      Shoes, Inc., and as a result the accumulated deficit was reclassified to
      additional paid in capital at October 20, 2005 in the consolidated statements
      of
      stockholders' equity.




On
      April
      10, 2006, Logicom changed its corporate name to Skins Inc. and Skins Shoes,
      Inc.
      changed its corporate name to Skins Footwear Inc. (“Skins
      Footwear”).




The
      acquisition of Skins Footwear by the Company on March 20, 2006 was accounted
      for
      as a recapitalization by the Company. The recapitalization was the merger of
      a
      private operating company (Skins Footwear) into a non-operating public shell
      corporation (the Company) with nominal net assets and as such is treated as
      a
      capital transaction, rather than a business combination. As a result no Goodwill
      is recorded. The transaction is the equivalent to the issuance of stock by
      the
      private company for the net monetary assets of the shell corporation. The pre
      acquisition financial statements of Skins Footwear are treated as the historical
      financial statements of the consolidated companies. The financial statements
      presented reflect the change in capitalization for all periods presented,
      therefore the capital structure of the consolidated enterprise, being the
      capital structure of the legal parent, is different from that appearing in
      the
      financial statements of Skins Shoes, LLC and Skins Shoes, Inc. in earlier
      periods due to the recapitalization.





**Development
      Stage Company**




The
      Company is in the development stage. Since its formation the Company has not
      realized any revenues from its planned operations. The Company intends to
      design, manufacture and market high quality men's and women's footwear. The
      Company's primary activities since incorporation have been conducting research
      and development, performing business, strategic and financial planning, and
      raising capital. The deficit accumulated in the development stage presented
      on
      the consolidated balance sheet on December 31, 2007 will not agree with the
      total loss from May 18, 2004 (inception date) to December 31, 2007 due to the
      treatment of the merger of the non-taxable entity to a taxable corporation
      on
      October 20, 2005 described in paragraph three of Note 1, basis of presentation,
      organization and other matters.




**Going
      Concern**




The
      financial statements have been prepared using accounting principles generally
      accepted in the United States of America applicable for a going concern which
      assumes that the Company will realize its assets and discharge its liabilities
      in the ordinary course of business. As of December 31, 2007, the Company has
      no
      established source of revenues and has accumulated losses of $11,397,491 since
      its commencement. Its ability to continue as a going concern is dependent upon
      achieving production or sale of goods, the ability of the Company to obtain
      the
      necessary financing to meet its obligations and pay its liabilities arising
      from
      normal business operations when they come due and upon profitable operations.
      The outcome of these matters cannot be predicted with any certainty at this
      time
      and raise substantial doubt that the Company will be able to continue as a
      going
      concern. These financial statements do not include any adjustments to the
      amounts and classification of assets and liabilities that may be necessary
      should the Company be unable to continue as a going concern.




F-7





**SKINS
      INC. AND SUBSIDIARY**


**(A
      Development Stage Company)**


**Notes
      to Consolidated Financial Statements**




The
      Company intends to overcome the circumstances that impact its ability to remain
      a going concern through a combination of the commencement of revenues, with
      interim cash flow deficiencies being addressed through additional equity and
      debt financing. The Company's ability to obtain additional funding will
      determine its ability to continue as a going concern. There can be no assurances
      that these plans for additional financing will be successful. Failure to secure
      additional financing in a timely manner and on favorable terms if and when
      needed in the future could have a material adverse effect on the Company's
      financial performance, results of operations and stock price and require the
      Company to implement cost reduction initiatives and curtail operations.
      Furthermore, additional equity financing may be dilutive to the holders of
      the
      Company's common stock, and debt financing, if available, may involve
      restrictive covenants, and may require the Company to relinquish valuable
      rights.




**NOTE 2: SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**




*Principles
      of Consolidation*




The
      consolidated financial statements include the accounts of the Company and its
      wholly owned subsidiary, Skins Footwear. All significant inter-company
      transactions and balances have been eliminated in consolidation.




*Concentration
      of Credit Risk*




The
      Company maintains cash balances at various financial institutions. At various
      times throughout the years, the Company's cash balances exceeded FDIC insurance
      limits.




*Cash
      Equivalents*




The
      Company considers all highly liquid investments with an original maturity of
      three months or less at the date of purchase to be cash
      equivalents.




*Property
      and Equipment*




Equipment is stated at cost, less accumulated depreciation, which is calculated
      using the straight-line method over the estimated useful lives of the respective
      assets, ranging between one and five years.




*Software
      Costs*





In
      accordance with Statement of Position 98-1 “ *Accounting
      for the Costs of Computer Software Developed or Obtained for Internal
      Use* ”,
      the
      Company capitalized software costs related to the design up to the point when
      the software was operating. Software costs are being amortized by the
      straight-line method over estimated useful life of 18 months. Subsequent
      maintenance and modification costs are charged to operations as
      incurred.





*Impairment
      of Long Lived Assets*





The
      Company assesses the valuation of components of its property and equipment
      and
      other long-lived assets whenever events or circumstance dictate that the
      carrying value might not be recoverable. The Company bases its evaluation on
      indicators such as the nature of the assets, the future economic benefit of
      the
      assets, any historical or future profitability measurements and other external
      market conditions or factors that may be present. If such factors indicate
      that
      the carrying amount of an asset group may not be recoverable, the Company
      determines whether an impairment has occurred by analyzing an estimate of
      undiscounted future cash flows at the lowest level for which identifiable cash
      flows exist. If the estimate of the undiscounted cash flows during the estimated
      useful like of the asset if less than the carrying value of the asset the
      Company recognizes a loss for the difference between the carrying value of
      the
      asset and its estimated fair value, generally measured by the present value
      of
      the estimated cash flows.




F-8


**SKINS
        INC. AND SUBSIDIARY**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**


*Production
      Molds*




Production
      molds to be used in production of inventory are stated at cost.





*Patent
      Costs*




Costs
      associated with the development and filing of patent applications are
      capitalized and amortized over the useful life of 20 years, using the
      straight-line method.





*Design
      and Development*




Costs to develop the Company's products are expensed as incurred in accordance
      with Statement of Financial Accounting Standards (“SFAS”) No. 2, *“Accounting
      for Research and Development Costs.”* These
      costs include research, related overhead expenses, including salaries and other
      personnel related expenses, travel costs, supplies and depreciation of
      equipment.




*Use
      of Estimates*




The preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America 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 the reported amounts of revenues and expenses
      during the reporting period. Actual results could differ from those
      estimates.




*Estimated
      Fair Value of Financial Instruments*




The Company's financial instruments include cash, accounts payable and
      liquidated damages payable. Management believes the estimated fair value of
      cash, accounts payable and liquidated damages payable at December 31, 2007
      approximate their carrying value as reflected in the balance sheets due to
      the
      short-term nature of these instruments




*Income
      Taxes*




Deferred
      tax assets and liabilities are recognized for the future tax consequences
      attributable to differences between the financial statement carrying amounts
      of
      existing assets and liabilities and their respective tax bases and operating
      loss and tax credit carryforwards. Deferred tax assets and liabilities are
      measured using enacted tax rates expected to apply to taxable income in the
      years in which those temporary differences are expected to be recovered or
      settled. The effect on deferred tax assets and liabilities of a change in tax
      rates is recognized in income in the period that includes the enactment date.
      At
      December 31, 2007 and 2006, the Company had a full valuation allowance against
      its deferred tax assets.





The
      Company files an income tax return in the U.S. federal jurisdiction and New
      York. Tax returns for the years 2005 through 2006 remain open for examination
      in
      various tax jurisdictions in which it operates. The Company adopted the
      provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income
      Taxes-An Interpretation of FASB Statement No. 109, Accounting for Income
      Taxes” (“FIN 48”), on January 1, 2007. As a result of the implementation of
      FIN 48, the Company recognized no material adjustment in the liability for
      unrecognized income tax benefits. At the adoption date of January 1, 2007,
      and
      at December 31, 2007, there were no unrecognized tax benefits. Interest and
      penalties related to uncertain tax positions will be recognized in income tax
      expense. As of December 31, 2007, no interest and penalties related to uncertain
      tax positions had been accrued.




*Stock
      Options*




The
      Company has elected to adopt the intrinsic-value method of accounting for
      liability awards and the fair value (calculated) method for equity awards issued
      to employees under SFAS No. 123 (R), “Share Based Payment” (SFAS No. 123R”) that
      were granted prior to the Company becoming a public company. The Company uses
      the fair value method for all liability and equity awards after it became a
      public company.




F-9


**SKINS
        INC. AND SUBSIDIARY**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**


The
      Company accounts for its stock-based employee compensation arrangements under
      "SFAS No. 123R", which requires companies to recognize the cost of employee
      services received in exchange for awards of equity instruments, based on the
      grant date fair value of those awards, in the financial statements.




*Derivative
      Instruments*




In
      accordance with the Emerging Issues Task Force (EITF) 00-19, Accounting for
      Derivative Financial Instruments Indexed to, and Potentially Settled in a
      Company's Own Stock, the Company records a liability for the derivative
      instrument that results due to the number of potential common stock shares
      plus
      outstanding shares that exceed the number of authorized common stock shares.
      At
      each balance sheet date, the liability for these potential excess shares is
      adjusted to fair value with the change being recorded as a gain or loss on
      the
      statement of operations. At December 31, 2005, the Company had 1,000 common
      authorized shares and had 515,725 of outstanding shares plus potential shares
      from the exercise of options that had vested. The 514,725 excess potential
      shares were attributed to the option grants that had vested. The Company
      calculated the fair value of these potential shares using the Black-Scholes
      model and recorded a derivative liability of $22,191 at December 31, 2005.
      The
      liability booked was net of the derivative recorded for the options granted
      to
      non-employees where services were provided (Note 13) because the options used
      in
      that calculation are also part of the derivative calculation for the shares
      and
      potential shares over the authorized share amount. On March 16, 2006 the
      Company increased its authorization of common stock and cured this liability.
      At
      March 16, 2006, the Company reversed out the liability through a charge to
      unrealized gains on derivative instruments.





In
      accordance with EITF 00-19, the Company recorded a liability for the derivative
      instruments that result from the liquidated damages provision it had with
      stockholders who also held warrants to purchase common stock in accordance
      with
      the Share Exchange Agreement. At each balance sheet date after the
      March 20, 2006 Share Exchange Close, a liability was calculated for
      3,000,000 warrants subject to the liquidated damages provision. On March 20,
      2006, 2,821,428 of the 3,000,000 warrants were granted upon the close of the
      private placement which occurred immediately prior to the close of the share
      exchange transaction (Note 12). The Company assumed a derivative liability
      of
      $553,846 which was reflected in the net assets assumed on the Company's
      Statement of Shareholder Equity (Deficit). The change in the value of the
      derivative liability from March 20, 2006 to October 10, 2006 was recorded in
      the
      Statement of Operations. The remaining 178,572 warrants were granted in
      conjunction with the conversion of the convertible debenture. The Company
      calculated a fair value of $30,000 for the 178,572 warrants issued upon
      conversion of the convertible debenture in accordance with EITF 00-27 and
      treated these warrants as a liability in accordance with EITF 00-19. The change
      in fair value of the derivative liability from the conversion date, March 20,
      2006, to October 10, 2006 was recorded in the Statement of Operations. The
      provision required the Company to have its Registration Statement declared
      effective (to register the common stock and common stock equivalents issued
      in
      relation to the Share Exchange Agreement (Note 12) by the middle of August
      2006.
      If the Registration Statement was not declared effective before the
      effectiveness date, the Company was required to pay liquidated damages to each
      Share Exchange Common Stock holder equal to 0.025% for each day after the
      effectiveness date until the Registration Statement is declared effective by
      the
      United States Securities and Exchange Commission. At December 31, 2006 The
      Company accrued approximately $27,000 for the potential liquidated damages
      payable. During the year ended December 31, 2007, waivers and releases were
      obtained from shareholders of approximately $5,000.





On
      October 10, 2006 the registration statement was declared effective by the United
      States Securities and Exchange Commission. As a result the Company reclassified
      its derivative liability at October 10, 2006 to additional paid in capital
      in
      accordance with paragraph 10 of EITF 00-19.





*Net
      Loss per Common Share*




Basic
      net
      loss per share is computed by dividing net loss by the weighted average number
      of common shares outstanding during the period. For both the years ended
      December 31, 2007 and 2006, the Company had 1,404,000 common shares held in
      escrow, respectively. The escrow amounts for all periods prior to the March
      20,
      2006 transaction are shown retroactively based on the recapitalization of the
      Company (Note 1). The shares held in escrow are excluded from the weighted
      average common share calculation at each date because all the necessary
      conditions for the release of the escrow shares have not been satisfied (Note
      12).




Diluted
      net loss per share is computed by dividing the net loss by the weighted average
      number of common and common equivalent shares outstanding during the period.
      Basic and diluted net losses per share are the same.




F-10


**SKINS
        INC. AND SUBSIDIARY**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**




Years
                  ended
                December
                  31,2007
            
            2006Numerator:Net
                loss - basic and diluted
            
            $
            (6,612,193
            )
            $
            (4,100,278
            )Denominator:Weighted
                average shares - basic
            
            
            37,888,638
            
            
            29,948,876Effect
                of dilutive stock options and warrants
            
            
            -
            
            
            -Denominator
                for diluted earnings per share
            
            
            37,888,638
            
            
            29,948,876Loss
                per shareBasic
            
            $
            (0.18
            )
            $
            (0.14
            )Diluted
            
            $
            (0.18
            )
            $
            (0.14
            )




At
      December 31, 2007 and 2006 the Company’s stock options outstanding totaled
      3,336,500 and 3,139,375, respectively. In addition, at December 31, 2007 and
      2006 the Company’s warrants outstanding were 4,714,714 and 1,319,237,
      respectively. Inclusion of the Company’s options and warrants in diluted loss
      per share for the years ended December 31, 2007 and 2006 have an anti-dilutive
      effect because the Company incurred a loss from continuing
      operations.





*Recent
      Accounting Pronouncements*





In
      September 2006, the FASB issued Statement No. 157, “Fair Value Measurements”
(“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring
      fair value under GAAP, and expands disclosures about fair value measures. SFAS
      157 is effective for fiscal years beginning after November 15, 2007, with early
      adoption encouraged. The provisions of SFAS 157 are to be applied on a
      prospective basis, with the exception of certain financial instruments for
      which
      retrospective application is required. The adoption of SFAS 157 is not expected
      to materially affect the Company's financial position or results of
      operations.





In
      February 2008, the FASB issued FASB Staff Position No. 157-1. "Application
      of
      FAS13 Statement No. 157 to FASB Statement No. 13 and Other Accounting
      Pronouncements That Address Fair Value Measurements for Purposes of Lease
      Classification or Measurement under Statement 13" ("FSP FAS 157-1"). FSP FAS
      157-1excludes FASB Statement No 13, Accounting for Leases ("SFAS  13"),
      as
      well as other accounting pronouncements that address fair value measurements
      on
      lease classification or measurement under Statement 13, from the scope of SFAS
      157. FSP FAS 157-1  is
      effective upon the initial adoption of SFAS 157. The Company believes that
      upon
      the adoption of SFAS157, FSP FAS 157-1 will have no affect on the way the
      Company accounts for its lease under SFAS 13.





In
      February 2008, the FASB issued FASB Staff Position No.157-2, "Effective Date
      of
      FASB Statement No. 157" ("FSP FAS 157-2"). FSP FAS 157-2 delays the effective
      date of SFAS 157 for all nonrecurring fair value measurements of non-financial
      assets and non-financial liabilities until fiscal years beginning after November
      15,2008. FSP FAS 157-2 states that a measurement is recurring if it happens
      at
      least annually and defines non-financial assets and non-financial liabilities
      as
      all assets and liabilities other than those meeting the definition of a
      financial asset or financial liability in FASB Statement No. 159, The Fair
      Value
      Option for Financial Assets and Financial Liabilities. FSP FAS 57-2 is effective
      upon issuance. The adoption of FSP FAS 157 is not expected to materially affect
      the Company's financial position or results of operations.





In
      February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
      for Financial Assets and Financial Liabilities-Including an amendment of FASB
      Statement No. 115," which permits entities to choose to measure many
      financial instruments and eligible items at fair value at specified election
      dates. Unrealized gains and losses on items for which the fair value option
      has
      been elected are reported in earnings at each subsequent reporting date. The
      fair value option (i) may be applied instrument by instrument, with certain
      exceptions, (ii) is irrevocable (unless a new election date occurs) and
      (iii) is applied only to entire instruments and not to portions of
      instruments. SFAS 159 is effective for the Company on January 1, 2008 and
      is not expected to have a significant impact on the Company's financial
      statement.




F-11


**SKINS
        INC. AND SUBSIDIARY**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**


In
      December 2007, the FASB issued Statement No. 160, "Non-controlling Interests
      in
      Consolidated Financial Statements - an amendment of ARB No. 51(Consolidated
      Financial Statements)" ( "SFAS 160"). SFAS 160 establishes accounting and
      reporting standards fir a non-controlling interest in a subsidiary and for
      the
      deconsolidation of a subsidiary. In addition, SFAS  160
      requires certain consolidation procedures for consistency with the requirements
      of SFAS 141 (R). "Business Combinations." SFAS 160 is effective for fiscal
      years, and interim periods within those fiscal years, beginning on or after
      December 15, 2008 with earlier adoption prohibited. The Company is currently
      evaluating the impact adoption of SFAS 160 may have on the financial
      statements.





In
      December 2007, the FASB issued Statement No. 141 (R), "Business Combinations'
      (-SFAS 141(R)"). SFAS 141 (R) expands the definition of transactions and events
      that qualify as business combinations; requires that the acquired assets and
      liabilities, including contingencies, be recorded at the fair value determined
      on the acquisition date and changes thereafter reflected in revenue, not
      goodwill; changes the recognition timing for restructuring costs; and requires
      acquisition costs to be expensed as incurred. Adoption of SFAS 141 (R) is
      required for combinations after December 15, 2008. Early adoption and
      retroactive application of SFAS 141 (R) to fiscal years preceding the effective
      date are not permitted. The Company is currently evaluating the impact adoption
      of SFAS 141(R) may have on the financial statements.





SFAS
      No.
      161, Disclosures about Derivative Instruments and Hedging Activities - An
      Amendment of FASB Statement No. 133 (Summary - On March 19, 2008, the FASB
      issued FASB Statement No. 161, Disclosures about Derivative Instruments and
      Hedging Activities - an Amendment of FASB Statement 133. Statement 161 enhances
      required disclosures regarding derivatives and hedging activities, including
      enhanced disclosures regarding how: (a) an entity uses derivative instruments;
      (b) derivative instruments and related hedged items are accounted for under
      FASB
      Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
      and (c) derivative instruments and related hedged items affect an entity's
      financial position, financial performance, and cash flows. Specifically,
      Statement 161 requires:


·
              Disclosure
                  of the objectives for using derivative instruments be disclosed
                  in terms
                  of underlying risk and accounting designation;
 ·
              Disclosure
                  of the fair values of derivative instruments and their gains and
                  losses in
                  a tabular format;
 ·
              Disclosure
                  of information about credit-risk-related contingent features; and
 ·
              Cross-reference
                  from the derivative footnote to other footnotes in which
                  derivative-related information is disclosed.
  Statement
        161 is effective for fiscal years and interim periods beginning after November
        15, 2008. Early application is encouraged . The
        Company is currently evaluating the impact adoption of SFAS 161 may have
        on the
        financial statements.





**NOTE 3: PROPERTY
      AND EQUIPMENT**





Property
      and equipment consist of the following:




**December
                31,**
            
            
            **December
                31,****2007**
            
            
            **2006**Sewing
                equipment
            
            $
            1,882
            
            $
            1,882Office
                equipment
            
            
            -
            
            
            1,183Computer
                equipment (note 1)
            
            
            19,652
            
            
            7,53621,534
            
            
            10,601Less
                accumulated depreciation
            
            
            8,325
            
            
            4,346$
            13,209
            
            $
            6,255





The
      Company determined that $419 of office equipment and $21,760 of displays to
      be
      obsolete for the year ended December 31, 2007.





Depreciation
      expense related to property and equipment was $15,623 and $2,423 for the years
      ended December 31, 2007 and 2006, respectively.




F-12


**SKINS
        INC. AND SUBSIDIARY**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**


**NOTE
      4: SOFTWARE COSTS**





Software
      costs at December 31, 2007 consisted of the following:





Website
                design costs
            
            $
            31,551Less
                accumulated amortization
            
            
            14,917$
            16,634





Amortization
      expense related to software costs was $14,917 for the year ended December 31,
      2007..




**NOTE 5: CAPITALIZED
      PRODUCTION MOLDS**




During
      the year ended December 31, 2007 the Company purchased $125,036 of production
      molds. The Company periodically evaluates the value of its assets and will
      write
      off the unamortized value if it is determined that the asset will not be
      recovered in the ordinary course of business. During the year ended December
      31,
      2007, the Company determined that capitalized molds of $114,376, to be obsolete.
      No amortization of production molds is included in the December 31, 2007
      consolidated statement of operations. The Company’s capitialized production
      molds are $10,660 at December 31, 2007.




**NOTE
      6: PATENT COSTS**





The
      Company periodically evaluates the recoverability of unamortized patents and
      will write off the unamortized value if it is determined they no longer have
      value. Patent costs as of December 31, 2007 consisted of:




**December
                31,**
              **2007**
            
            **December
                31,**
              **2006**Patent
                costs
            
            $
            173,804
            
            $
            116,514Less
                accumulated amortization
            
            
            14,404
            
            
            7,663$
            159,400
            
            $
            108,851




Amortization
      expense related to patents was $6,741 and $ 4,205 for the years ended December
      31, 2007 and December 31, 2006, respectively. The estimated aggregate
      amortization expense for the next five years is estimated to be approximately
      $8,700 for each year.





**NOTE
      7: OTHER INTANGIBLES**





The
      Company purchased internet brand name for approximately $1,390 during the year
      ended December 31, 2007 and will amortize it using the straight line method
      over
      an estimated useful life of 10 years. Amortization expense related to other
      intangibles was $12 for the year ended December 31, 2007.





**NOTE 8: ACCOUNTS
      PAYABLE AND ACCRUED LIABILITIES**





Accounts
      payable and accrued liabilities at December 31, 2007 consisted of the
      following:





Trade
                payables
            
            $
            590,556Professional
                fees
            
            
            87,943Commissions
                payable
            
            
            28,000Board
                fees
            
            
            18,750Other
                accrued liabilities
            
            
            25,176$
            750,425




F-13


**SKINS
        INC. AND SUBSIDIARY**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**




**NOTE 9: RELATED
      PARTY TRANSACTIONS**




As
      of
      December 31, 2007, there were no related party payables.





For
      the
      years ended December 31, 2007 and 2006, consulting expenses incurred to Mage
      LLC
      was $20,000 and $90,000 respectively. A former director of the Company (Note
      13)
      was a principal of Mage, LLC.





In
      March
      2006,the Company granted 843,750 options exercisable at $0.80 cents a share
      that
      vest over three years to two members of the Board of Directors of the Company.
      One of the board members resigned on October 19, 2007, Any non vested portion
      of
      the option expired immediately and the vested portion of the option was
      exercisable for a period of 90 days following optionee’s termination. As of
      January 19, 2008, the former board member did not exercise any of the vested
      options; subsequently all options have forfeited.





On
      April
      3, 2006 the Company granted 122,000 fully vested shares of the Company's common
      stock to two shareholders for consulting services to be provided over a two
      year term beginning April 3, 2006. The Company valued the transaction based
      on
      the fair value of its common stock on the date of grant and will amortize the
      expense ratably over the two year term. Prepaid consulting expense of $19,193
      and $91,783 was recognized and presented as a prepaid asset at December 31,
      2007
      and December 31, 2006, respectively.





On
      August
      27, 2007 the Company granted 150,000 options exercisable at $1.37 a share that
      vest over three years to a director of the Company. The options shall vest
      on an
      annual basis from January 9, 2007, the date the member was appointed director
      of
      the company. (Note 13).





**NOTE
      10: NOTE PAYABLE**





The
      Company issued a Secured Promissory Note on December 21, 2007 with a lender
      in
      the principal amount of $150,000 for a Secured Promissory Notes (the “Note”),
      for a total financing of $150,000 (the “Loan”). The Note bears interest at a
      rate of 5% per annum compounded annually and is secured by the grant of a
      security interest by the Company to the lender in all of its intellectual
      property rights, patents, copyrights, trademarks which the Company now has
      or
      acquires and all proceeds and products thereof. The Company agreed to repay
      the Loan upon the Company’s completion of a financing, and in no event
      later than six months from the Notes’ date of issuance. Pursuant to the Notes,
      and in consideration of entering into the Notes, the lender will receive 220,588
      shares of the Company’s common stock. In addition, the lender received
      piggy-back registration rights with respect to the Shares.





A
      discount of $57,353 has been taken on the $150,000 note payable for the fair
      value of the 220,588 shares of common stock that were due to be issued on
      December 21, 2007. The Company issued the 220,588 shares of common stock in
      2008. The Company will amortize the discount using the effective interest rate
      method over the term of the note payable.





From
      January 2008 through March 2008, the Company issued additional Secured
      Promissory Notes of $555,000 to various lenders. The Notes bear interest at
      the
      rate of 5% per annum compounded annually and are secured by the grant of a
      security interest by the Company to the lenders in all of its intellectual
      property rights, patents, copyrights, trademarks which we now have or acquire
      and all proceeds and products thereof. The Company agreed to repay
      the Loan upon the Company’s completion of a financing, and in no event
      later than six months from each of the Notes’ date of issuance. Pursuant to the
      Notes, and in consideration of entering into the Notes, the additional Lenders
      received a total of 1,065,388 shares of our common stock. In addition, the
      Lenders received piggy-back registration rights with respect to the
      shares.





In
      April
      2008, the Company conducted a private placement and all the lenders invested
      their principal amounts due under the Notes into the placement and waived
      interest due under the Notes. As part of the consideration, we issued an
      additional 316,298 shares of common stock to the lenders as part of the
      transaction.




F-14




**SKINS
        INC. AND SUBSIDIARY**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**




**NOTE
      11: COMMITMENTS AND CONTINGENCIES**




The
      Company entered into an engineering and consulting agreement dated October
      1,
      2006, with an effective date of December 10, 2006, with TLD Asian Pacific Ltd
      (“TLD”) for a period of six months from the effective date. According to the
      agreement the Company agreed to pay TLD $9,600 monthly totaling $57,600 over
      the
      six month period. The Company is in the process of amending the engineering
      and
      consulting agreement with TLD pursuant to which TLD will continue to be
      responsible for engineering and further developing Skins and Bones and
      responsible for overseeing all of the Bone production and a portion of the
      Skins
      production.





On
      November 7, 2006 the Company entered into a factoring agreement with FCC, LLC
      (“First Capital”) through October 31, 2008. The agreement provides for the
      Company to sell its credit-approved accounts receivable to First Capital without
      recourse as to bad debts but with recourse as to all future customer claims.
      First Capital will provide cash advances to the Company in an amount equal
      to
      85% of the value of the assigned accounts receivable, as defined. In addition
      the First Capital will make cash advances to the Company against the value
      of
      the Company’s future finished goods inventory, up to a maximum of $500,000. The
      unpaid advances will bear interest at the greater of 6% or 1% above the prime
      rate. Upon commencement of factoring, the Company’s obligation to First Capital
      will be secured by all of its tangible and intangible assets. The Company has
      the right to terminate the agreement prior to its expiration term, for a maximum
      fee payable of $24,000.





The
      Company has entered into an investor relations consulting agreement with ICR,
      with an effective date of December 15, 2006 for a period of one year from the
      effective date. According to the agreement the Company agreed to pay ICR $96,000
      over the one year period. The agreement has remained in full force and effect
      provided, after December 15,2007. However, either party may terminate this
      agreement upon sixty (60) days prior written notice.





The
      Company aligned with SLAM (Sportie LA Media) in March 2007 to benefit from
      SLAM’s nontraditional advertising, marketing, promoting and consulting to
      selected brands. The agreement between the Company and SLAM has an effective
      date of March 1, 2007 and states that the Company will pay SLAM a fee of
      $197,800 in equal monthly installments of $16,483, on the first day of each
      month during the term.





On
      April
      1, 2007, the Company engaged the services of Robert Burke Associates Inc
      (“RBA”), an advisor to the fashion and retail sectors, to provide our management
      with strategic advisory services to assist in the positioning of the Skins
      brand, review and analysis of the product lines, and identify potential
      licensing opportunities and partners. The Company agreed to pay RBA $15,000
      per
      month for six months, beginning April 1, 2007, after which the agreement will
      continue on a month-to-month basis. On October 1, 2007, the contract between
      the
      Company and RBA expired. Both parties mutually agreed not to renew the
      contract.





During
      the period ended March 31, 2007, the Company's Vice President of Finance and
      Operations (“VP”) offered his resignation to the Company, which was accepted by
      the Company. The Company, through a signed separation agreement and general
      release, agreed to pay the VP a total of $203,500 including a bonus for the
      current fiscal year, buy-out of all of his stock options, one month's vacation,
      and three month's compensation, the latter becoming effective upon his
      completion of services to the Company on April 30, 2007. In addition, the
      Company has paid $25,000 above the contract amount to the former VP for the
      year
      ended December 31 2007.





On
      April
      13, 2007, the Company entered into an employment agreement with Mr. Pavan to
      serve as its Chief Operating Officer and Executive Vice President. Pursuant
      to
      the terms of the Agreement, the Company will employ Mr. Pavan for three years
      with successive one year automatic renewals unless either party provides 180
      days advance notice of intent not to renew and the Company will pay Mr. Pavan
      an
      annual base salary of $225,000 with a cash bonus of up to 50% of the base salary
      at the discretion of the Board of Directors. Mr. Pavan is also eligible to
      receive up to $4,000 as a one time benefit in connection with the fees incurred
      in connection with the Agreement, paid vacation, and other benefits made
      available by the Company to its executives, including a Company-owned or leased
      automobile. Furthermore, the Company granted Mr. Pavan 500,000 stock options
      pursuant to the Company's 2005 Amended and Restated Incentive Plan at a strike
      price of $1.25, to encourage him to provide long-term services to the Company
      and to encourage greater productivity and efficiency. The 500,000 stock options
      will vest over a three year period in equal 1/6 portions semi-annually. The
      stock options as of the date of the grant have a fair value of $390,000, which
      shall be expensed as compensation in the Company's consolidated statement of
      operations ratably over a 36 month service period, (See Note 15).





On
      May 4,
      2007, the Company entered into an agreement to lease new corporate office space
      effective June 1, 2007. The agreement requires the company to pay approximately
      $95,000 through May 31, 2008, but the Company may terminate this agreement
      and
      vacate the premise upon 60 day written notification.




F-15


**SKINS
        INC. AND SUBSIDIARY**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**


On
      September 28, 2007, the Company and Mark Klein executed an Amended and Restated
      Employment Agreement (the “Agreement”) in connection with the continued
      employment of Mr. Klein as the Company's Chief Executive Officer and President.
      The Agreement supersedes, amends and restates the prior employment agreement
      entered into by Mr. Klein and the Company when Mr. Klein was initially appointed
      Chief Executive Officer and President on March 20, 2006. Pursuant to the terms
      of the Agreement, the Company will continue to employ Mr. Klein for a period
      of
      three years with successive one-year automatic renewals unless either party
      provides 180-days advance notice of intent not to renew the Company will pay
      Mr.
      Klein an annual base salary of $250,000 with a bonus of up to 50% of the base
      salary at the discretion of the Board of Directors. Mr. Klein is also eligible
      to receive paid vacation and other benefits made available by the Company to
      its
      executives, including a Company-owned or leased automobile. If Mr. Klein's
      employment is terminated with cause, as defined in the Agreement, Mr. Klein
      will receive that portion of any unpaid base salary that has been earned through
      the termination date and any accrued but unpaid vacation pay as well as any
      expense reimbursements due and owing to him. If Mr. Klein is terminated
      without cause, resigns with good reason or is terminated upon a change of
      control, he will receive, in addition to his accrued base salary, bonus
      compensation, vested deferred compensation, any benefits under any plans of
      the
      Company in which he is a participant to the full extent of his rights under
      such
      plan, and accrued vacation benefits prorated through the termination date,
      12
      months of his base salary along with health benefits, to be paid out
      proportionally, on the Company's usual paydays, over a 12 month period. 
Mr. Klein has agreed not to compete with the Company during his employment
      or in
      the 12 months that severance payments are made.





On
      October 29, 2007, the Company and Deborah A. Gargiulo executed an Executive
      Employment Agreement in connection with the employment of Ms. Gargiulo as the
      Company's Chief Financial Officer. Pursuant to the terms of the Agreement,
      the
      Company will employ Ms. Gargiulo for a period of three years with successive
      one-year automatic renewals unless either party provides 180-days' advance
      notice of intent not to renew. The Company will pay Ms. Gargiulo an annual
      base
      salary of $200,000 with a bonus of up to 40% of the base salary at the
      discretion of the Board of Directors or its Compensation Committee. Ms. Gargiulo
      is also eligible to receive paid vacation and other benefits made available
      by
      the Company to its executives, including a monthly automobile allowance. The
      Company had also previously granted to Ms. Gargiulo 200,000 options exercisable
      at fair market value on the date of grant under the Company's 2005 Incentive
      Plan. If Ms. Gargiulo's employment is terminated for cause, as defined in the
      Agreement, Ms. Gargiulo will receive that portion of any unpaid base salary
      that
      has been earned through the termination date and any accrued but unpaid vacation
      pay as well as any expense reimbursements due and owing to her. In the event
      Ms.
      Gargiulo is terminated without cause or she resigns with good reason, Ms.
      Gargiulo will be entitled to severance pay from the Company. The amount of
      the
      severance pay will be an amount equal to (i) nine months of her base pay if
      the
      termination of her employment occurs during the first year of employment under
      the Agreement, (ii) ten months of her base pay if termination of her employment
      occurs during the second year of employment under the Agreement, or (iii) eleven
      months of her base pay if the termination occurs during the third year of
      employment under the Agreement. The severance pay would be paid in accordance
      with the Company's usual paydays during the applicable severance period. In
      addition, in the event of termination without cause or for good reason, she
      will
      receive all accrued base salary, bonus compensation to the extent earned, vested
      deferred compensation, any benefits under any plans of the Company in which
      she
      is a participant, accrued vacation pay and any as well as any expense
      reimbursements due and owing to her, all to the date of
      termination.




On
      November 26, 2007, the Company amended their agreement with Studio Dror pursuant
      to which the Company engaged the service of Studio Dror to develop and design
      “Skin” and “Bones.” A retainer agreement was entered into on September 6, 2007
      for a period of six months upon expiration, the retainer agreement shall
      automatically renew for additional and successive one month periods, unless
      terminated by either party on not less than sixty days prior to written notice;
      the Company shall pay retainer fee of $4,000 a month. If less than twenty-five
      hours are rendered in any given month, those unused hours shall roll into next
      immediate month and count towards any excess time used during such month. If
      upon termination by the Company of the agreement, the Company is owed credit
      of
      unused time. Studio Dror shall provide the Company with Design services equal
      to
      fifty percent (50%) of excess hours remaining until credit hours have been
      used
      up. If upon termination of the retainer agreement, Studio Dror shall have
      rendered design services in excess the monthly allotment, Studio Dror shall
      be
      compensated for each additional hour at rate of one hundred fifty dollars ($150)
      per hour.





On
      November 28, 2007, Skins Inc. (the “Company”) executed a Buying Agency and
      Sourcing Agreement (the “Agreement”) with Atsco Footwear, LLC (“Atsco”).
      Pursuant to the Agreement, Atsco will serve as the Company’s non-exclusive
      buying and sourcing agent and will be responsible for sourcing,
      commercialization and product line review. The Company will pay Atsco a
      commission of 7% of the $5 million and 5% for the amounts above the first $5
      million at the FOB country of origin price for merchandise sourced by Atsco
      and
      shipped to the Company. The Agreement has an initial term of one year, from November 15, 2007 through
      November 15, 2008, and each party has the option to extend the initial term
      of
      the Agreement for an additional year upon providing written notice to the other
      party no less than thirty days prior to the expiration of the initial term.
      Either party may terminate the Agreement at any time upon providing the other
      party with three months written notice. The Company worked with Atsco on a
      month-by-month basis as our non-exclusive sourcing agent in the Far East prior
      to the November 28, 2007 agreement. Mark Itzkowitz, the President of Atsco,
      is
      also an advisory member of the Board of Directors of the
      Company.





F-16


**SKINS
        INC. AND SUBSIDIARY**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**


**NOTE
      12: SHARE EXCHANGE AGREEMENT**




On
      March
      20, 2006, the Company completed the transactions contemplated by the Share
      Exchange Agreement dated November 2, 2005 and amended February 1, 2006 with
      all
      of the stockholders of Skins Footwear whereby the Company :





·
            Repurchased
                all of the common shares of the Company owned by a shareholder for
                the sum
                of $100,000 (the shareholder owned 7,418,182 common shares of the
                Company
                );





·
            Issued
                to the stockholders of Skins Footwear, at the closing of the share
                exchange transaction, 19,404,000 common shares of the Company in
                exchange
                for all of the issued and outstanding shares of Skin Shoes Inc.,
                (of these
                19,404,000 common shares, 1,404,000 shares are held in escrow by
                the
                Company and are subject to partial and full return to the Company
                contingent upon the number of share purchase warrants exercised by
                investors in the Company within a period of 30 months following the
                closing of private placements and the share exchange transaction
                on March
                20, 2006);





·
            Assumed,
                at the closing of the share exchange transaction, Skins Footwear's
                Incentive Plan and certain stock option agreements entered into between
                Skins Footwear and certain persons who have already received stock
                options
                from the Skins Footwear pursuant to its 2005 Incentive
                Plan;





·
            Entered
                into an employment agreement with the new President of the Company
                for a
                term of 3 years and a base salary of $150,000. An incentive bonus
                plan
                will also be implemented. The Company will also pay up to $20,000
                to cover
                moving and relocation expenses of the President and his family. (See
                Note
                11)




On
      March
      20, 2006, immediately prior to the closing of the share exchange transaction,
      the Company closed a private placement of units to purchase its common stock
      and
      warrants pursuant to a subscription agreement. Each unit consisted of one share
      of common stock of the Company and one share purchase warrant convertible at
      an
      exercise price of $1.00 per share at any time upon election of the holder during
      the 30 month period following the date of issue. A total of 2,821,428 units
      were
      sold in the private placement for an aggregate of $2,370,000. The proceeds
      from
      this private placement offering were included in the net asset assumed by the
      Company.





On
      November 2, 2005, the Company sold one convertible debenture in connection
      to
      the share exchange agreement in the amount of $150,000 to one offshore investor.
      The convertible debenture was convertible into 178,572 units at a conversion
      price of $0.84 per unit, with each unit consisting of one share of common stock
      of our company and one share purchase warrant. Pursuant to the terms of the
      convertible debenture, the conversion of the debenture into units occurred
      automatically upon the completion of our share exchange transaction on March
      20,
      2006. Upon conversion the fair value of the common stock and warrants were
      accounted for in the December 31, 2006 financial statements based on the
      relative value on the day of issuance in accordance with EITF 00-27. The
      share purchase warrants are exercisable for a period of thirty months from
      the
      date of issue at an exercise price of $1.00 per share.





On
      December 31, 2007 and December 31, 2006 the Company had 40,961,294 and
      36,206,769 outstanding shares of common stock, options to purchase 3,336,500
      and
      3,139,375 shares of common stock, and warrants to purchase 4,714,714 and
      1,319,237 shares of common stock, respectively.





**NOTE
      13: STOCK OPTIONS**




In
      October 2005, Skins Footwear's Board of Directors approved the 2005 Incentive
      Plan (the “2005 Plan”). The 2005 Plan provides that the following types of
      awards may be granted under the 2005 Plan: stock appreciation rights (“SARs”);
      incentive stock options (“ISOs”); non-qualified stock options (“NQSOs”);
      restricted stock awards; unrestricted stock awards; and performance share awards
      which entitle recipients to acquire shares upon the attainment of specified
      performance goals, stock units and other stock-based awards, short-term cash
      incentive awards or any other award. Under the 2005 Plan, awards may be granted
      with respect to a maximum of 3,375,000 shares of Skins Footwear's common
      stock, subject to adjustment in connection with certain events such as a stock
      split, merger or other recapitalization of the Company. On September 28, 2007,
      the Company held our annual meeting of stockholders at which an amendment of
      our
      2005 Incentive Plan was approved to increase the authorized number of shares
      that are available for issuance under the 2005 Incentive Plan by 1,625,000
      shares, to a total of 5,000,000 shares.




F-17


**SKINS
        INC. AND SUBSIDIARY**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**


On
      October 24, 2005 Skins Footwear granted the following individuals options under
      the 2005 Plan:




·
            Two
                board members were granted 421,875 options each at an exercise price
                of
                $0.80 that vest ratably over a 36-month
                period.





·
            Two
                consultants were granted 421,875 options each at an exercise price
                of
                $0.80 a share that vests ratably over a 36-month
                period.





·
            One
                consultant was granted 421,875 options at an exercise price of $0.80
                that
                vested immediately for finder fee
                services.





As
      part
      of the Share Exchange Agreement, the Company assumed Skins Footwear 's 2005
      Incentive Plan.




The
      awards granted to the two board members were treated as liability awards upon
      the grant on October 24, 2005. The treatment of the awards as liability was
      due
      to insufficient number of authorized shares at the time of issuance. The Company
      used the intrinsic value method to determine compensation on these liability
      awards. For the year ended December 31, 2006, the Company recorded compensation
      expense related to these grants of $1,876.




March
      16, 2006 Replacement Option Grants




On
      March
      16, 2006 as a result of the granting of options in excess of the authorized
      shares allowed, Skins Footwear canceled and re-adopted its 2005 Incentive Stock
      Plan. In connection thereof Skins Footwear increased its authorized shares
      to
      4,000,000. Additionally, all options granted under the original plan were
      canceled and re-granted in accordance with the terms of the re-adopted 2005
      Incentive Stock Option Plan.




The
      replacement options to the two board members were treated as replacement equity
      awards. On the date of replacement the Company calculated the fair value
      (calculated method) of the replacement options using a Black-Scholes option
      valuation model that uses the assumptions noted in the following table. At
      the
      time of the replacement of the options the Company was non-public and calculated
      its expected volatility based on the calculated method using the Dow Jones
      US
      Footwear Index. The Company elected to use the calculated method because it
      did
      not have a trading history for its stock and it was a development stage company.
      The Company chose the Dow Jones US Footwear Index because it represents an
      industry index closest to which the Company operates. The Company estimates
      option exercise and employee termination within the valuation model; separate
      groups of employees that have similar historical exercise behavior are
      considered separately for valuation purposes. The expected term of options
      granted is derived from the output of the option valuation model and represents
      the period of time that options granted are expected to be outstanding. The
      risk-free rate for periods within the contractual life of the option is based
      on
      the U.S. Treasury yield curve in effect at the time of grant.




Expected
                volatility
            
            
            17.30
            %Expected
                dividends
            
            
            0Expected
                Term (Years)
            
            
            3Risk
                free interest rate
            
            
            4.70
            %




The
      total
      incremental compensation expense from the cancellation and replacement of the
      awards was $196,763, which is expected to be recognized over a period of 32
      months from March 16, 2006. The total compensation expense related to the
      non-vested replacement options at December 31, 2007 and 2006 was $30,745 and
      $135,274, respectively. For the years ended December 31, 2007 and December
      31,
      2006 the Company recorded compensation expense of $66,102 and $61,488 related
      to
      the replacement option grants to the board members, respectively. On October
      19,
      2007, one of the board members that were granted 421,875 replacement options
      resigned. Any non vested portion of the option expired immediately and the
      vested portion of the option was exercisable for a period of 90 days following
      optionee’s termination. As of January 19, 2008, the former board member did not
      exercise any of the vested options; subsequently all options have
      forfeited.




F-18


**SKINS
        INC. AND SUBSIDIARY**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**


· The
      421,875 options granted to two-consultants that vest over a 36-month period
      were
      granted for services not yet occurred. The Company used the provisions of FAS
      123(R) and EITF 96-18, *Accounting for Equity Instruments That Are Issued to Other Than Employees for
      Acquiring, or in Conjunction with Selling, Goods or Services* to
      account for the compensation expense associated with these grants. The Company
      measured the compensation associated with these grants based on the fair value
      of the equity instruments issued. There is no measurement date to calculate
      the
      fair value of the options at the date of grant because the performance
      commitment had not yet occurred (there are no sufficiently large disincentives
      for non-performance) and the performance by the two consultants was not
      complete. The Company calculated the expense at each reporting period based
      upon
      fair value of the options that vested during the reporting period using the
      fair
      value on the reporting date. Fair value was calculated using the Black-Scholes
      model. The options were treated as liability awards upon the original grant
      because the Company did not have a sufficient number of authorized shares.
      The
      options became equity awards on the date they were cancelled and re-granted.
      For
      the year ended December 31, 2007 and 2006, the Company recorded compensation
      expense of $256,059 and $304,889, respectively.





· The
      remaining 421,875 options were granted to a non-employee for services that
      had
      already been provided. The Company used the provisions of EITF-00-19 to account
      for these options. At the grant date and at December 31, 2005, the Company
      treated the option grant as liability award because it did not have enough
      authorized shares to settle the contract in equity. Therefore, these options
      were recorded at fair value as a liability at December 31, 2005. The fair value
      of the options was calculated using the Black-Scholes model at December 31,
      2005. On March 16, 2006 the Company increased its authorization of Common Stock
      therefore alleviating the potential liability. The Company recorded the fair
      value of the options using a Black-Scholes model as of March 16, 2006 and
      reclassified the total remaining liability from these awards to additional
      paid
      in capital. For the period January 1 to March 16, 2006, the Company
      recorded compensation expense of $98,381.





· The
      fair value of the options granted to consultants and the replacement option
      grant transactions were calculated using the Black-Scholes option valuation
      model with the following assumptions at the applicable dates
      noted:




March
                16,
            
            
            December
                31,
            
            
            December
                31,2006
            
            
            2006
            
            
            2007Expected
                volatility
            
            
            17.30
            %
            
            100.94
            %
            
            111.71
            %Expected
                dividends
            
            
            None
            
            
            None
            
            
            NoneExpected
                term (in years)
            
            
            4.6
            
            
            3.6
            
            
            2.82Risk-free
                interest rate
            
            
            4.70
            %
            
            4.53
            %
            
            3.25
            %




2006
      Option Grants.




On
      May
      15, 2006 the Company granted 150,000 options to the Vice President of Sales.
      The
      options vest quarterly beginning three months after the grant at 12,500 per
      quarter and have an exercise price of $1.10. The options expire on May 15,
      2011.





On
      June
      19, 2006 the Company granted 150,000 options to the Vice President of Finance
      and Operations. The options vest quarterly beginning three months after the
      grant at 12,500 per quarter and have an exercise price of $1.19. In March 2007,
      the Company cancelled all of these options in exchange for a cash payment to
      its
      Vice President of Finance of $88,500 (see Note 11). For the year ended December
      31,2007, the Company recorded total compensation expense of $67,190,
      respectively, related to the former Vice President’s June 19, 2006 option grant.
      The compensation was made up of the $9,135 service period expense and the
      $58,055 from the unrecognized compensation that effectively vests upon
      repurchase of the options. The $30,445 cost in excess of the repurchase amount
      is the difference between the $88,500 and the cash paid less the unrecognized
      cost of $58,055 and is recognized as a charge to additional paid in
      capital.




The
      total
      compensation expense related to the non-vested options on 2006 awards to
      employees at December 31, 2007 is $41,889. For the years ended December 31
      2007
      and 2006, the Company recorded compensation expense of $39,434 and $38,716,
      respectively related to the two grants above.





The
      fair
      value of each option award is estimated on the date of grant using a
      Black-Scholes option valuation model that uses the assumptions noted in the
      following table. Expected volatilities are based on the Company's closing price
      on its Common Stock from March 20, 2006, which is the date the Company became
      a
      public company. The Company reviewed each individual grant to determine the
      applicable forfeiture rate. The expected term of options granted is derived
      from
      the output of the option valuation model and represents the period of time
      that
      options granted are expected to be outstanding. The risk-free rate for periods
      within the contractual life of the option is based on the U.S. Treasury yield
      curve in effect at the time of grant.




F-19




**SKINS
          INC. AND SUBSIDIARY**
 **(A
          Development Stage Company)**
 **Notes
          to Consolidated Financial Statements**




May
                15, 2006 Grant
            
            June
                19, 2006 GrantExpected
                Volatility
            
            
            59.07
            %
            
            68.80
            %Expected
                dividends
            
            
            0
            
            
            0Expected
                Term (Years)
            
            
            3
            
            
            3Risk
                Free Interest Rate
            
            
            5.00
            %
            
            5.11
            %




On
      May 9,
      2006 the Company granted 300,000 options to a consultant at an exercise price
      of
      $1.06. The options vest quarterly beginning three months from the date of the
      agreement and expire on May 9, 2008. The Company used the provisions of FAS
      123(R) and EITF 96-18 to account for the compensation expense associated with
      this grant. The Company will measure the compensation associated with this
      grant
      based on the fair value of the equity instrument. There is no measurement date
      to calculate the fair value of this grant at the date of grant because the
      performance commitment had not yet occurred and the performance by the
      consultant was not complete. The Company will calculate the expense at each
      reporting period based on the fair value of the options that will vest during
      the reporting period. Fair value will be calculated using a Black-Scholes model.
      For the years ended December 31, 2007 and 2006, the Company recorded
      compensation expense of $153,441 and $59,730, respectively.





On
      October 12, 2006 the Company granted 375,000 options to a consultant. 175,000
      options vest immediately with the remaining 175,000 vesting annually over a
      three-year period with the first vesting occurring one year after the year
      of
      grant. In addition, the Company granted three other consultants a total of
      80,000 options that vest annually over a three-year period with the first
      vesting occurring one year after the year of grant. The 455,000 options were
      granted for services not yet occurred. The Company used the provisions of FAS
      123(R) and EITF 96-18, *Accounting for Equity Instruments That Are Issued to Other Than Employees for
      Acquiring, or in Conjunction with Selling, Goods or Services* to
      account for the compensation expense associated with these grants. The Company
      measured the compensation associated with these grants based on the fair value
      of the equity instruments issued. There is no measurement date to calculate
      the
      fair value of the options at the date of grant because the performance
      commitment had not yet occurred (there are no sufficiently large disincentives
      for non-performance) and the performance by the consultants were not complete.
      The Company calculated the expense at each reporting period based upon fair
      value of the options that vested during the reporting period using the fair
      value on the reporting date. Fair value was calculated using the Black-Scholes
      model. For the years ended December 31, 2007 and 2006, the Company recorded
      compensation expense of $62,748 and $134,785, respectively, for these option
      grants.




The
      fair
      value of the options granted to consultants on October 12, 2006 was calculated
      using the Black-Scholes option valuation model with the following
      assumptions:





October
                  12,
                2006
                GrantExpected
                Volatility
            
            
            101.38
            %Expected
                dividends
            
            
            NoneExpected
                Term (Years)
            
            
            4Risk
                Free Interest Rate
            
            
            4.42
            %




2007
      Option Grants





On
      March
      14, 2007 the Company granted 20,000 options to an employee of the Company.
      The
      options vest on an annual basis over three years, with the first one-third
      vesting on the one year anniversary of the grant and have an exercise price
      of
      $1.63. The options expire on March 14, 2011. On November 8, 2007, the employee
      resigned and the options were forfeited.




On
      April
      13, 2007 the Company granted 500,000 options to its Chief Operating Officer.
      The
      options vest in six semi-annual installments from the date of grant over three
      years, and have an exercise price of $1.25. The options expire on April 13,
      2012.




F-20




**SKINS
          INC. AND SUBSIDIARY**
 **(A
          Development Stage Company)**
 **Notes
          to Consolidated Financial Statements**


On
      July
      3, 2007, the Company granted 200,000 options to its Chief Financial Officer.
      The
      options vest on an annual basis over three years, with the first one-third
      vesting on the one year anniversary of the grant and have an exercise price
      of
      $1.29. The options expire on July 3, 2011. On the same date, the Company granted
      25,000 options to the Vice President of Sales. The options vest on an annual
      basis over three years, with the first one-third vesting on the one year
      anniversary of the grant and have an exercise price of $1.29. The options expire
      on July 3, 2011. The stock options as of the date of the grant shall be expensed
      as compensation in the Company's consolidated statement of operations ratably
      over a 36 month service period.





On
      August
      27, 2007, the Company granted 20,000 options to an employee of the Company.
      The
      options vest on an annual basis over three years, with the first one-third
      vesting on the one year anniversary of the grant and have an exercise price
      of
      $1.37. The options expire on August 27, 2012. On that same date, the Company
      granted 150,000 options to a Director of the Company. The options vest on an
      annual basis from January 9, 2007, the date the Director was appointed to the
      Company, and vest over three years, with the first one-third vesting to occur
      one year from the Appointment Date. The grant has an exercise price of $1.37.
      The options expire on August 27, 2012. The stock options as of the date of
      the
      grant shall be expensed as compensation in the Company's consolidated statement
      of operations ratably over a 36 month service period.





On
      September 28, 2007, the Company granted warrants to a consultant to purchase
      up
      to 150,000 shares of common stock from the Company at an exercise price of
      $1.38
      per share. The warrants were granted to the consultant in accordance with an
      Investor Relations Agreement dated May 9, 2006, as amended by the First Addendum
      dated September 19, 2007, entered into by the Company and the consultant. The
      vesting schedule of the consultant warrants are contingent upon the number
      of
      shares issued upon the exercise of investor warrants sold by the Company in
      a
      private placement in May 2007. A total of 4,000,000 warrants were issued in
      that
      private placement. The warrants become exercisable, subject to terms and
      conditions of the investor relations agreement, as follows: the first one-third
      of the consultant’s warrants vest upon the exercise of 1,217,200 investor
      warrants, the second one-third of the consultant’s warrants vest upon the
      exercise of 2,434,400 investor warrants, and the final one-third of the
      consultant’s warrants vest upon the exercise of 3,651,600 investor warrants. The
      Company used the provisions of FAS 123(R) and EITF 96-18 to account for the
      compensation expense associated with this warrant issuance. The Company measures
      the compensation associated with this issuance based on the fair value of the
      equity instrument. There was no measurement date to calculate the fair value
      of
      this issuance at the date of grant because the performance commitment had not
      yet occurred and the performance by the consultant was not complete. The Company
      calculates the expense at each reporting period based on the fair value of
      the
      warrants that will vest during the reporting period. At December 31, 2007 no
      warrants under this issuance had vested, therefore no expense had been
      incurred.





On
      November 12, 2007, the Company granted 24,000 options to a consultant. The
      first
      one-third of the options vest on December 1, 2007, and the second and final
      one-third of the options vest on December 1, 2008 and 2009, respectively. The
      grant has an exercise price of $0.78 per share. The options expire on April
      7,
      2012. The Company will use the provisions of FAS 123(R) and EITF
      96-18, *Accounting for Equity Instruments That Are Issued to Other Than Employees for
      Acquiring, or in Conjunction with Selling, Goods or Services* to
      account for the compensation expense associated with this grant. The Company
      will measure the compensation associated with these grants based on the fair
      value of the equity instruments. For the year ended December 31, 2007, the
      Company recorded compensation expense of $1,193.





The
      total
      compensation expense related to the non-vested options on 2007 awards to
      employees at December 31, 2007 is $675,204. The Company recorded compensation
      expense of $149,752 for the year ended December 31, 2007 on the 2007 awards
      to
      employees.





The
      fair
      value of the options granted to consultants on May 9, 2006 and November 12,
      2007
      and the option grants to employees on March 14, 2007, April 13, 2007, July
      3,
      2007 and August 27, 2007 were calculated using the Black-Scholes option
      valuation model with the following assumptions:




**April
                13, 2007**
              **Option
                Grant**
            
            **March
                14, 2007**
              **Option
                Grant**
            
            **May
                9th, 2006**
              **Consultant
                Grant**Expected
                volatility
            
            
            95.84
            %
            
            94.45
            %
            
            100.73
            %Expected
                dividends
            
            
            None
            
            
            None
            
            
            NoneExpected
                term (in years)
            
            
            3.00
            
            
            3.00
            
            
            0.50Risk-free
                interest rate
            
            
            4.50
            %
            
            4.51
            %
            
            3.64
            %




F-21




**SKINS
          INC. AND SUBSIDIARY**
 **(A
          Development Stage Company)**
 **Notes
          to Consolidated Financial
          Statements**




**August
                27, 2007**
              **Option
                Grant**
            
            
            **July
                3, 2007**
              **Option
                Grant**Expected
                volatility
            
            
            101.38
            %
            
            99.55
            %Expected
                dividends
            
            
            None
            
            
            NoneExpected
                term (in years)
            
            
            5.00
            
            
            4.00Risk-free
                interest rate
            
            
            4.32
            %
            
            4.92
            %




**November
                  12, 2007**
                **Option
                  Grant**Expected
                volatility
            
            
            105.64
            %Expected
                dividends
            
            
            NoneExpected
                term (in years)
            
            
            4.95Risk-free
                interest rate
            
            
            3.28
            %




A
      summary
      of option activity under the 2005 Plan as of December 31, 2007 and 2006 and
      changes during the years then ended is presented below:




**Shares**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            **Weighted
                -**
              **Average**
              **Remaining**
              **Contractual**
              **Term**
            
            **Aggregate**
              **Intrinsic**
              **Value****Options**Outstanding,
                January 1, 2006
            
            
            2,109,375
            
            $
            0.80Granted,
                May 9, 2006
            
            
            300,000
            
            
            1.06Granted,
                May 15, 2006
            
            
            150,000
            
            
            1.10Granted,
                June 19, 2006
            
            
            150,000
            
            
            1.19Granted,
                October 12, 2006
            
            
            430,000
            
            
            1.15Outstanding,
                December 31, 2006
            
            
            3,139,375
            
            $
            0.91
            
            
            3.79
            
            $
            —Granted,
                March 14, 2007
            
            
            20,000
            
            
            1.63Granted,
                April 13, 2007
            
            
            500,000
            
            
            1.25Granted,
                July 3, 2007
            
            
            225,000
            
            
            1.29Granted,
                August 27, 2007
            
            
            170,000
            
            
            1.37Granted,
                November 12, 2007
            
            
            24,000
            
            
            0.78Cancelled
            
            
            (591,875
            )
            
            0.99Outstanding,
                December 31, 2007
            
            
            3,486,500
            
            $
            1.00
            
            
            3.21
            
            $
            —Exercisable,
                December 31, 2007
            
            
            2,025,275
            
            $
            0.91
            
            
            2.79
            
            $
            —




F-22


**SKINS
              INC. AND SUBSIDIARY**
 **(A
              Development Stage Company)**
 **Notes
              to Consolidated Financial Statements**




A
      summary
      of the status of the Company's non-vested shares as of December 31, 2007, and
      changes during the year ended December 31, 2007, is presented
      below:




**Shares**
            
            **Weighted-**
              **Average**
              **Grant-Date**
              **Fair
                Value****Non-vested
                Shares**Non-vested,
                January 1, 2007
            
            
            1,786,248
            
            $
            0.42Granted
            
            
            939,000
            
            
            0.70Cancelled
            
            
            (305,848
            )
            
            (0.73
            )Vested
            
            
            (958,175
            )
            
            0.43Non-vested,
                December 31, 2007
            
            
            1,461,225
            
            $
            0.72




**NOTE
      14. INCOME TAXES**





The
      components of the Company’s deferred tax assets as of December 31, 2007 and 2006
      are as follows:





Fixed
                assets and start up costs
            
            $
            2,270,000
            
            
            898,000Stock
                compensation
            
            
            342,000
            
            
            —Net
                operating losses
            
            
            689,000
            
            
            —Less:
                valuation allowance
            
            
            (3,301,000
            )
            
            (898,000
            )Net
                deferred tax asset
            
            $
            —
            
            $
            —





In
      assessing the realization of deferred tax assets, management considers whether
      it is more likely than not that some portion or all of the deferred tax assets
      will not be realized. As a result of uncertainty of achieving sufficient taxable
      income in the future, the Company has recorded a full valuation allowance
      against its deferred tax asset of $3,301,000 as of December 31, 2007 and
      $898,000 as of December 31, 2006 (an increase of approximately $2,403,000 and
      $873,000 from the year ended December 31, 2006 and 2005, respectively).





At
      December 31, 2007, the Company has accumulated net operating losses totaling
      approximately $2,814,000 that may be used to reduce future tax liabilities.
      Such
      net operating losses expire through 2027 and may be limited as the annual amount
      available for use under Internal Revenue Code Section 382.




A
      reconciliation of the benefit from income taxes based on the Federal statutory
      rate to the Company’s effective rate for the years ended December 31, 2007 and
      2006 is as follows:





**2007**
              **%**
            
            **2006**
              **%**Federal
                income tax benefit at statutory rate
            
            
            (34.0
            )
            
            (34.0
            )State
                income tax benefit, net of federal income tax
            
            
            (6.0
            )
            
            (6.0
            )Non
                deductible losses attributable to Skins Inc., a pass-through
                entity
            
            
            -
            
            
            -Non
                deductible losses principally arising from unrealized losses on derivative
                instruments
            
            
            -
            
            
            18.7Change
                in valuation allowance
            
            
            40.0
            
            
            21.3Total
                benefit from taxes
            
            
            -
            
            
            -




**NOTE
      15. SUBSEQUENT EVENT**





On
      February 9, 2008, the Company and Dennis Walker executed an Employment Agreement
      (the “Agreement”) in connection with the employment of Mr. Walker as the
      Company’s Senior Vice President of Sales. Pursuant to the terms of the
      Agreement, the Company will employ Mr. Walker for a period of three years with
      successive one-year automatic renewals unless either party provides 180-days’
advance notice of intent not to renew. The Company will pay Mr. Walker an annual
      base salary of $200,000 with a bonus of up to 40% of the base salary at the
      discretion of the Board of Directors or its Compensation Committee. Mr. Walker
      is also eligible to receive paid vacation and other benefits made available
      by
      the Company to its executives, including a monthly automobile allowance. The
      Company also agreed to grant Mr. Walker 50,000 options exercisable at fair
      market value on the date of grant under the Company’s Amended and Restated 2005
      Incentive Plan. In the event Mr. Walker is terminated without cause or he
      resigns with good reason, as defined in the agreement, he will be entitled
      to
      severance pay from the Company. The amount of the severance pay will be an
      amount equal to (i) ten months of his base pay if the termination of his
      employment occurs during the first year of employment under the Agreement,
      (ii)
      eleven months of his base pay if termination of his employment occurs during
      the
      second year of employment under the Agreement, or (iii) months of his base
      pay
      if the termination occurs during the third year of employment under the
      Agreement. The severance pay would be paid in accordance with the Company’s
      usual paydays during the applicable severance period.




F-23


**SKINS
        INC. AND SUBSIDIARY**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**


On
      February 12, 2008, the Company entered into an office space lease agreement
      (the
“Lease”) with Summit Office Suites. Pursuant to the terms of the Lease, the
      Company will pay a base monthly rent of $1,430 (including utilities,
      maintenance, and a rate abatement) for a room located at 1115 Broadway, 12th
      Floor, New York, NY 10010. Other one-time and continuing fees are due and
      payable. The Lease expires on May 31, 2008. The Company may terminate the Lease
      on the last day of any month provided that 60-day prior written notice has
      been
      provided.





On
      February 29, 2008, the Company granted 50,000 options to it’s Senior Vice
      President of Sales. On the same date, the Company granted 50,000 options to
      an
      employee. The options vest on an annual basis over three years, with the first
      one-third vesting on the one year anniversary of the grant and have an exercise
      price of $.24. The options expire on February 29, 2012 and 2013, respectively.
      The stock options as of the date of the grant have a fair value of approximately
      $19,000, which shall be expensed as compensation in the Company’s consolidated
      statement of operations ratably over a 36 month service period.





On
      March
      26, 2008, the Company granted 50,000 options to an employee. The options vest
      on
      an annual basis over three years, with the first one-third vesting on the one
      year anniversary of the grant and have an exercise price of $.31. The options
      expire on March 26, 2013. The stock options as of the date of the grant have
      a
      fair value of approximately $13,000, which shall be expensed as compensation
      in
      the Company’s consolidated statement of operations ratably over a 36 month
      service period.




On
      March
      27, 2008, we received the resignation of our Chief Operating Officer (COO”),
      from his position with the Company effective immediately. On
      April
      8, 2008, the Company entered into a separation agreement and release
      (“Separation Agreement”) with Its COO in connection with his resignation as COO
      of the Company. Pursuant to the Separation Agreement, Our COO agreed that he
      was
      not entitled to any further payments or benefits, including any annual
      incentive/performance bonus, under his employment agreement with the Company.
      Our COO also agreed to release the Company from any and all claims and rights
      that its COO may have against the Company, including, but not limited to, any
      claims arising out of or relating to the employment agreement, those claims
      of
      which its COO is not aware, and all claims for attorney’s fees, costs, and
      interest. In exchange, the Company agreed to amend its COO’s stock option
      agreement to permit the vesting of 250,000 options, permit participation of
      such
      options in the option repricing (as described above), and permit the options
      to
      be exercisable for one year from the date of the termination of its COO’s
      employment.





On
      April
      2, 2008, the board of directors of the Company acted to reprice a total of
      2,794,625 options that it had previously granted to certain employees, directors
      and consultants of the Company. The options, all of which had been previously
      issued pursuant to the Amended And Restated 2005 Incentive Plan (the “Plan”),
      were repriced to be $0.40 per share, which is greater than the $0.33 closing
      trading price of the Company’s common stock on the date of approval by the Board
      of Directors. The Board of Directors resolved that an exercise of $0.40 per
      share would provide an incentive to the recipients of the repriced options
      to
      continue to work in the best interests of the Company. The other terms of the
      options, including the vesting schedules, remained unchanged as a result of
      the
      repricing. Total
      additional compensation expense on non vested options relating to the April
      2,
      2008 repricing is approximately $26,000 which will be expensed ratably over
      the
      8 to 29 months service period that remain. Additional compensation expense
      on
      vested options relating to the April 2, 2008 repricing is approximately $73,000
      which will be fully expensed on April 2, 2008.





The
      repriced options had originally been issued with $.80 to $1.37 per share option
      exercise prices, which prices reflected the then current market prices of the
      Company’s stock on the dates of original grant. As a result of the recent sharp
      reduction in the Company’s stock price, the Board of Directors believed that
      such options no longer would properly incentivize the Company’s employees,
      officers and consultants who held such options to work in the best interests
      of
      the Company and its stockholders. Moreover, the Board of Directors believed
      that
      if these options were repriced, that such options would provide better
      incentives to such employees, officers and directors.





F-24




**SKINS
        INC. AND SUBSIDIARY**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**




On
      April
      9, 2008, Skins Inc., a Nevada corporation (the “Company”) sold a total of
      13,403,225 units to 27 investors and raised an aggregate of $2,680,645 in a
      private offering under Regulation S and Regulation D of the Securities Act
      of
      1933, as amended. Of the gross proceeds of $2,680,645 raised in the offering,





(i)
            $1,085,000
                represented cash received by the Company from investors by wire or
                check,





(ii)
            $850,000
                represented subscription receivables from eight investors that have
                yet to
                be paid to the Company,





(iii)
            $705,000
                represented an amount due under six secured promissory notes previously
                issued by the Company that was invested by five holders into this
                offering, and





(iv)
            $40,645
                represented amounts owed by the Company to three non-employee board
                members and two advisory board members in lieu of payment for fees
                due to
                them.





In
      addition, the Company issued 100,000 units to a financial consultant that
      provided services in connection with the offering in lieu of $20,000 payment
      in
      cash for such services.





The
      offering was made pursuant to a U.S. investor subscription agreement and an
      offshore subscription agreement, each dated April 9, 2008, Each unit was sold
      for $0.20 and consists of one share of common stock of the Company and one
      share
      purchase warrant, exercisable at an exercise price of $0.40 per share at any
      time upon election of the holder during the 24 month period following the
      offering. The Company agreed to register the shares of common stock and the
      shares of common stock underlying the warrants on a registration statement
      that
      must be filed with the Securities and Exchange Commission within the earlier
      of
      21 days after the closing of the offering or 10 days after the Company files
      it
      Annual Report on Form 10-KSB.





In
      an
      effort to preserve cash for Company operations, it agreed to convert the $40,645
      in debt owed to the non-employee board members and advisory board members into
      the offering in lieu of payment for fees due to them. Similarly, the Company
      agreed to convert the $705,000 in principal debt owed under the secured
      promissory notes into the offering to preserve cash for Company operations.
      Each
      of the secured note holders agreed to waive payment of any and all interest
      due
      under the note.





Upon
      execution of the secured notes, the holders received shares of common stock
      in
      an amount that was equal to (x) half of the principal amount of the note *divided
      by* (y) the
      closing trading price of the Company’s common stock on the date of the note. The
      lowest trading price used to calculate the number so shares to be issued under
      the secured notes was $0.22 per share. In consideration of the holders investing
      the principal due into private placement in lieu of payment and waiving any
      and
      all interest due, each holder that received shares upon the execution of the
      note based on a trading price higher than $0.22 per share was issued additional
      shares of common stock. These additional shares were equal to the number of
      shares that would have been received if $0.22 were in the formula, minus the
      number of shares actually received upon execution of the secured note. A total
      of 316,298 additional shares were issued to these secured note holders. Our
      Chief Financial Officer and Chairman of the Board was a note holder that
      converted into the private placement in amounts of $15,000 and $100,000,
      respectively, on the same terms and conditions as the rest of the
      investors.





On
      April
      9, 2008, the Company granted 125,000 options to an employee. The options vest
      on
      an annual basis over three years, with the first one-third vesting on the one
      year anniversary of the grant and have an exercise price of $.59. The options
      expire on April 9, 2012. The stock options as of the date of the grant have
      a
      fair value of approximately $60,500, which shall be expensed as compensation
      in
      the Company’s consolidated statement of operations ratably over a 36 month
      service period.




F-25