**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-QSB**




**x** **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**




**For
      the quarterly period ended June 30, 2007**




**OR**





**o** **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**





**Commission
      File Number**


**000-51119**





**SKINS
      INC.**


(Exact
      name of small business issuer as specified in its charter)





**Nevada**
              (State
                or other jurisdiction of incorporationor
                organization)
            
            **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)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 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




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes o No x




There
      were 40,961,292 shares outstanding of registrant's common stock, par value
      $.001
      per share, as of August 16, 2007.




Transitional
      Small Business Disclosure Format (check one):  Yes o No x





**SKINS
      INC.**


**(A
      DEVELOPMENT STAGE COMPANY)**


**FORM
      10-QSB QUARTERLY REPORT**





**TABLE
      OF CONTENTS**





**Page**PART
                I - FINANCIAL INFORMATIONITEM
                1.
            
            FINANCIAL
                STATEMENTS
            
            1Consolidated
                Balance Sheet as of June 30, 2007 (unaudited)
            
            2Consolidated
                Statements of Operations for the Three and Six Months ended June
                30, 2007
                and 2006 and the period from Inception (May 18, 2004) to June 30,
                2007
                (unaudited)
            
            3Consolidated
                Statements of Stockholders' Equity the period from Inception (May
                18,
                2004) to June 30, 2007 (unaudited)
            
            4Consolidated
                Statements of Cash Flows for the Six Months ended June 30, 2007 and
                2006,
                and the period from Inception (May 18, 2004) to June 30, 2007
                (unaudited)
            
            5Notes
                to Consolidated Financial Statements
            
            6ITEM
                2.
            
            MANAGEMENT'S
                DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
            
            17ITEM
                3.
            
            CONTROLS
                AND PROCEDURES
            
            21PART
                II - OTHER INFORMATION
            
            22ITEM
                1.
            
            LEGAL
                PROCEEDINGS
            
            22ITEM
                2.
            
            UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
            
            22ITEM
                3.
            
            DEFAULTS
                UPON SENIOR SECURITIES
            
            22ITEM
                4.
            
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            
            22ITEM
                5.
            
            OTHER
                INFORMATION
            
            22ITEM
                6.
            
            EXHIBITS
            
            23SIGNATURES
            
            
            
            24








**PART
      I - FINANCIAL INFORMATION**




**ITEM
      1. FINANCIAL STATEMENTS**





The
      accompanying financial statements have been prepared in accordance with
      generally accepted accounting principles for interim financial information
      and
      in accordance with the instructions for Form 10-QSB. Accordingly, they do not
      include all of the information and footnotes required by generally accepted
      accounting principles for complete financial statements.





In
      the
      opinion of management, the financial statements contain all material
      adjustments, consisting only of normal recurring adjustments necessary to
      present fairly the financial condition, results of operations, and cash flows
      of
      the Company for the interim periods presented.





The
      results for the period ended June 30, 2007 are not necessarily indicative of
      the
      results of operations for the full year. These financial statements and related
      footnotes should be read in conjunction with the financial statements and
      footnotes thereto included in the Company's Annual Report on Form 10-KSB for
      the
      period ended December 31, 2006 filed with the Securities and Exchange Commission
      on April 17, 2007.




1




**SKINS
      INC. AND SUBSIDIARY**


**(A
      Development Stage Company)**





**CONSOLIDATED
      BALANCE SHEET**


**(Unaudited)**




**June
                30,**
              **2007****ASSETS**Current
                assetsCash
                and cash equivalents
            
            $
            2,313,158Inventory
                (Note 4)
            
            
            480,467Prepaid
                expenses
            
            
            214,876Total
                current assets
            
            
            3,008,501Property
                and equipment, net (Note 5)
            
            
            37,092Software
                Costs, Net (Note 6)
            
            
            19,734Capitalized
                production molds (Note 7)
            
            
            8,741Patent
                costs (Note 8)
            
            
            119,508Total
                Assets
            
            $
            3,193,576**LIABILITIES
                AND STOCKHOLDERS' EQUITY**Current
                liabilitiesAccounts
                payable and accrued liabilities (Note 9)
            
            $
            534,847Liquidated
                damages
            
            
            27,278Total
                current liabilities
            
            
            562,125Commitment
                And Contingencies (Note 10)Stockholders'
                Equity (Note 12)Common
                Stock, $.001 par value; 436,363,650 shares authorized; 40,816,292
              shares
                issued and outstanding at June 30, 2007
            
            
            40,816Additional
                paid in capital
            
            
            9,991,590Deficit
                accumulated in the development stage
            
            
            (7,400,955
            )Total
                Stockholders' Equity
            
            
            2,631,451Total
                Liabilities & Stockholders' Equity
            
            $
            3,193,576





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




2




**SKINS
      INC. AND SUBSIDIARY**


**(A
      Development Stage Company)**





**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(Unaudited)**


**Three
                  Months Ended June 30,**
              
              **Six
                  Months Ended June 30,**
              
              **Period
                  from Inception (May 18, 2004) to June 30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**
              
              **2007****Operating
                  expenses:**Design
                  and development
              
              $
              550,495
              
              $
              35,293
              
              $
              885,131
              
              $
              69,582
              
              $
              1,360,737Selling,
                  general and administrative
              
              
              993,669
              
              
              451,015
              
              
              2,136,187
              
              
              894,711
              
              
              5,134,451Total
                  operating expenses
              
              
              1,544,164
              
              
              486,308
              
              
              3,021,318
              
              
              964,293
              
              
              6,495,188Operating
                  Loss
              
              
              (1,544,164
              )
              
              (486,308
              )
              
              (3,021,318
              )
              
              (964,293
              )
              
              (6,495,188
              )Unrealized
                  (loss) on derivative instruments
              
              
              -
              
              
              (1,245,000
              )
              
              -
              
              
              (1,225,763
              )
              
              (1,306,754
              )Liquidated
                  Damages
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (27,278
              )Interest
                  Income
              
              
              19,801
              
              
              12,357
              
              
              29,803
              
              
              13,625
              
              
              57,673Interest
                  Expense
              
              
              -
              
              
              -
              
              
              -
              
              
              (931
              )
              
              (5,266
              )Net
                  loss
              
              $
              (1,524,363
              )
              $
              (1,718,951
              )
              $
              (2,991,515
              )
              $
              (2,177,362
              )
              $
              (7,776,813
              )Basic
                  and diluted loss per share
              
              $
              (0.04
              )
              $
              (0.05
              )
              $
              (0.08
              )
              $
              (0.08
              )Weighted
                  average number of common shares outstanding, basic and
                  diluted
              
              
              37,190,070
              
              
              33,119,294
              
              
              36,211,762
              
              
              26,559,648





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




3


**SKINS
      INC. AND SUBSIDIARY**


**(A
      Development Stage Company)**





**CONSOLIDATED
      STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)**


**Common
                  Stock**
              
              **Additional**
                **Paid-in**
                **(deficit
                  in)**
              
              **Deficit
                  Accumulated Total Development**
              
              **Total
                  Stockholders' Equity/****Shares**
              
              **Amounts**
              
              **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
              )
              
              3,982-Shares
                  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 5)
              
              
              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 SB-2 became effective on October
                  10,
                  2006
              
              
              
              
              
              
              
              
              1,890,600
              
              
              
              
              
              1,890,600Warrants
                  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 9)
              
              
              -
              
              
              -
              
              
              (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
              
              
              
              
              
              156,138Net
                  Loss
              
              
              
              
              
              
              
              
              
              
              
              (2,991,515
              )
              
              (2,991,515
              )Balances
                  at June 30, 2007 (unaudited)
              
              
              40,816,292
              
              $
              40,816
              
              $
              9,991,590
              
              $
              (7,400,955
              )
              $
              2,631,451





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




4


**SKINS
      INC. AND SUBSIDIARY**


**(A
      Development Stage Company)**





**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(Unaudited)**


**Six
                  Months Ended June 30,**
              
              **Period
                  from Inception (May 18, 2004) to June 30,****2007**
              
              **2006**
              
              **2007**Cash
                  flows used in operating activities:Net
                  loss from operations
              
              $
              (2,991,515
              )
              $
              (2,177,362
              )
              $
              ($7,776,813
              )Adjustments
                  to reconcile net loss from operations to net cash used in operating
                  activities:Depreciation
              
              
              1,964
              
              
              861
              
              
              6,310Amortization
              
              
              12,984
              
              
              1,741
              
              
              20,647Issuance
                  of common stock for services
              
              
              36,295
              
              
              18,150
              
              
              90,751Share
                  based Compensation Expense
              
              
              351,519
              
              
              213,407
              
              
              1,165,290Unrealized
                  loss on derivative instruments
              
              
              -
              
              
              1,225,763
              
              
              1,306,754Loss
                  on write down of molds (Note 7)
              
              
              105,635
              
              
              -
              
              
              105,635Changes
                  in operating assets and liabilities:Prepaid
                  expenses
              
              
              (85,913
              )
              
              (64,925
              )
              
              (159,350
              )Inventory
              
              
              (480,467
              )
              
              
              
              
              (480,467
              )Accounts
                  payable and accrued expenses
              
              
              257,252
              
              
              (64,518
              )
              
              519,030Liquidated
                  damages
              
              
              -
              
              
              -
              
              
              27,278Net
                  cash used in operating activities
              
              
              (2,792,246
              )
              
              (846,883
              )
              
              (5,174,935
              )Cash
                  flows used in investing activities:Purchases
                  of property and equipment
              
              
              (32,801
              )
              
              (1,427
              )
              
              (41,424)
              )Software
                  Costs
              
              
              (29,600
              )
              
              -
              
              
              (29,600
              )Purchase
                  of Molds
              
              
              (114,376
              )
              
              -
              
              
              (114,376
              )Patent
                  Costs
              
              
              (13,775
              )
              
              (12,956
              )
              
              (121,838
              )Net
                  cash used in investing activities
              
              
              (190,552
              )
              
              (14,383
              )
              
              (307,238
              )Cash
                  flows provided by financing activities:Cash
                  assumed in connection with Recapitalization
              
              
              
              
              
              2,261,462
              
              
              2,261,462Related
                  Party payments
              
              
              
              
              
              (79,014
              )
              
              (26,924
              )Proceeds
                  from issuance of Common Stock (net of issuance costs)
              
              
              3,571,475
              
              
              -
              
              
              5,441,238Repurchase
                  of options (Note 9)
              
              
              (30,445
              )
              
              -
              
              
              (30,445
              )Proceeds
                  from Note Payable
              
              
              -
              
              
              -
              
              
              150,000Net
                  cash provided by financing activities:
              
              
              3,541,030
              
              
              2,182,448
              
              
              7,795,331Net
                  increase in cash and cash equivalents
              
              
              558,232
              
              
              1,321,182
              
              
              2,313,158Cash
                  and cash equivalents at beginning of period
              
              
              1,754,926
              
              
              36,533
              
              
              -Cash
                  and cash equivalents at end of period
              
              $
              2,313,158
              
              $
              1,357,715
              
              $
              2,313,158Supplemental
                  Schedule of Disclosure of Cash Flow Information:Cash
                  Paid this period for:Interest
              
              
              -
              
              $
              931
              
              $
              5,266Supplemental
                  Schedule of Non-Cash Investing and Financing Activities:Net
                  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
              
              
              30,000On
                  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
              
              
              -
              
              
              -
              
              
              375,568Issuance
                  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
              
              
              127,030




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




5




**Skins
      Inc. and Subsidiary**


**(A
      Development Stage Company)**


**Notes
      to Consolidated Financial Statements**


**(Unaudited)**





**NOTE
      1: DESCRIPTION OF BUSINESS**




**Overview**





Skins
      Inc. and subsidiary (“Company”), a Nevada corporation with 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. We intend to initially
      design, manufacture and market high quality men's and women's footwear and
      have
      finalized the first Skins collection with an anticipated Fall 2007 commercial
      launch to be distributed to selected retail stores in the third quarter of
      2007.





On
      March
      20, 2006 the Company 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, and the former shareholders of Skins Footwear became
      our
      largest shareholders. The business of Skins Footwear became the only business
      of
      Logicom.





Logicom
      was incorporated in the State of Nevada on January 23, 2004. Logicom had been
      in
      the development stage since its formation and had not realized any revenues
      from
      its planned operations. Logicom originally intended to develop, market and
      support a voice interface software platform that would make the information
      and
      services of enterprises, telecommunications networks and the Internet accessible
      from telephone. Logicom's chief software designer resigned on July 4, 2005.
      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. As a result, Skin Shoes, Inc. became the surviving Delaware corporation
      and the limited liability company ceased 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. (the “Company”) 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**




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 June 30, 2007 will not agree with the total
      loss from May 18, 2004 (inception date) to June 30, 2007 due to the treatment
      of
      the merger of the non-taxable entity to a taxable corporation on October 20,
      2005 described in paragraph four of Note 1, Description of Business,
      Overview.





6




**Skins
      Inc. and Subsidiary**


**(A
      Development Stage Company)**


**Notes
      to Consolidated Financial Statements**


**(Unaudited)**





**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 June 30, 2007, the Company had no
      established source of revenues and has accumulated losses of $7,776,813
      since its inception. Its ability to continue as a going concern is dependent
      upon achieving production or sale of goods, the ability of the Com pany
      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 unaudited consolidated 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.





Management
      is presently producing its product and plans to sell the product to selected
      retail stores and chains throughout the United States in third quarter 2007.
      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.
      On
      May 21, 2007 the Company sold a total of 4,000,000 units in a private offering
      for aggregate proceeds of $3,000,000 (See Note 12).





**NOTE
      2: CONDENSED PRESENTATION**





The
      accompanying consolidated financial statements have been prepared in accordance
      with generally accepted accounting principles for interim financial information
      and in accordance with the rules and regulations of the Securities and Exchange
      Commission. Accordingly, they do not include all of the information and
      footnotes required by generally accepted accounting principles for complete
      financial statements.





In
      the
      opinion of management, these financial statements contain all material
      adjustments, consisting only of normal recurring adjustments necessary to
      present fairly the financial condition, results of operations, and cash flows
      of
      the Company for the interim periods presented.





The
      results for the six months ended June 30, 2007 are not necessarily indicative
      of
      the results of operations for the full year. These financial statements should
      be read in conjunction with the summary of accounting policies and the notes
      to
      consolidated financial statements for the year ended December 31, 2006 included
      in our annual report on Form 10-KSB.





**NOTE
      3: 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.





*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.





*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.





7




**Skins
      Inc. and Subsidiary**


**(A
      Development Stage Company)**


**Notes
      to Consolidated Financial Statements**


**(Unaudited)**





*Income
      Taxes*




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 June 30, 2007, there were no unrecognized tax benefits.
      Interest and penalties related to uncertain tax positions will be recognized
      in
      income tax expense. As of June 30, 2007, no interest and penalties related
      to
      uncertain tax positions had been accrued.





*Share
      Based Compensation*





The
      Company accounts for its stock-based employee compensation arrangements under
      SFAS No. 123 (revised 2004), "Share Based Payment" ("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.





*Recently
      Issued 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 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.




*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 each the three and six-month
      periods ended June 30, 2007 and 2006, the Company had
      1,404,000 common
      shares held in escrow, respectively. The escrow amounts for all periods prior
      the to March 20, 2006 transaction are shown retroactively based on the
      recapitalization of the Company. 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.




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.





8




**Skins
      Inc. and Subsidiary**


**(A
      Development Stage Company)**


**Notes
      to Consolidated Financial Statements**


**(Unaudited)**


**Three
                  Months ended**
              
              **Six
                  Months ended****June
                  30,**
              
              **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006****(Unaudited)**
              
              **(Unaudited)**
              
              **(Unaudited)**
              
              **(Unaudited)**Numerator:Net
                  loss - basic and diluted
              
              $
              (1,524,363
              )
              $
              (1,718,951
              )
              $
              (2,991,515
              )
              $
              (2,177,362
              )Denominator:Weighted
                  average shares - basic
              
              
              37,190,045
              
              
              33,119,294
              
              
              36,211,746
              
              
              26,559,648Effect
                  of dilutive stock options and warrants
              
              
              —
              
              
              —
              
              
              —
              
              
              —Denominator
                  for diluted earnings per share
              
              
              37,190,045
              
              
              33,119,294
              
              
              36,211,746
              
              
              26,559,648Loss
                  per share:Basic
              
              $
              (0.04
              )
              $
              (0.05
              )
              $
              (0.08
              )
              $
              (0.08
              )Diluted
              
              $
              (0.04
              )
              $
              (0.05
              )
              $
              (0.08
              )
              $
              (0.08
              )


At
      June
      30, 2007 and 2006 the Company's stock options outstanding totaled 3,509,375
      and
      2,709,375, respectively. In addition, at June 30, 2007 and 2006 the Company's
      warrants outstanding were 4,707,939 and
      3,000,000, respectively. Inclusion of the Company's options and warrants in
      diluted loss per share for the six months ended June 30, 2007 and 2006 have
      an
      anti-dilutive effect because the Company incurred a loss from continuing
      operations.





**NOTE 4: INVENTORY**




Inventory
      at June 30, 2007 (unaudited) consisted of the following:





Raw
                Materials
            
            $
            97,283Work
                in process
            
            
            312,716Finished
                goods
            
            
            70,468$
            480,467





Inventory
      was located at the Company's independently contracted production factories
      in
      Italy and Singapore and is stated at the lower of cost (first-in, first-out)
      or
      market.





**NOTE 5: PROPERTY
      AND EQUIPMENT, NET**




Property
      and equipment, net at June 30, 2007 (unaudited) consist of the
      following:




Sewing
                equipment
            
            $
            1,882Office
                equipment
            
            
            1,183Computer
                equipment
            
            
            12,657Store
                Displays
            
            
            27,68043,402Less
                accumulated depreciation
            
            
            6,310$
            37,092




Depreciation
      expense related to property and equipment was $1,166 and $490 for the three
      months ended June 30, 2007 and 2006 and $1,964 and $861 for the six months
      ended
      June 30, 2007 and 2006, respectively.





During
      the quarter ended June 30, 2007, the Company purchased and capitalized store
      displays of $27,680. No depreciation of displays is included in the June 30,
      2007 consolidated statement of operations as the displays have not been placed
      in service at this point. The displays will be depreciated on a straight-line
      basis over 12 months.




9




**NOTE
      6: SOFTWARE COSTS**





Software
      costs at June 30, 2007 (unaudited) consisted of the following:





Website
                design costs
            
            $
            29,600Less
                accumulated amortization
            
            
            9,866$
            19,734





Software
      costs are amortized using the straight line method over the estimated useful
      life of 18 months. Amortization expense related to software costs was $9,866
      and
      $0 for the three and six months ended June 30, 2007 and 2006,
      respectively.





**NOTE 7: CAPITALIZED
      PRODUCTION MOLDS**




During
      the fiscal quarter ending March 31, 2007, the Company capitalized production
      molds of $112,235. 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 quarter ending
      June 30, 2007, the Company ended their relationship with an Italian manufacturer
      and began production for the balance of their Fall 2007 collection with other
      factories in China. As a result, the Company determined that the capitalized
      molds from Italy of $105,635 to be obsolete. No amortization of production
      molds
      is included in the June 30, 2007 consolidated statement of operations as they
      were not placed in service as of June 30, 2007. The molds will be amortized
      on a
      straight line basis between 2-3 years.




10




**Skins
      Inc. and Subsidiary**


**(A
      Development Stage Company)**


**Notes
      to Consolidated Financial Statements**


**(Unaudited)**





**NOTE
      8: 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. 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 June 30, 2007 (unaudited)
      consisted of:





Patent
                costs
            
            $
            130,289Less
                accumulated amortization
            
            
            10,781$
            119,508





Amortization
      expense related to patents was $1,637 and $924 for the three months ended June
      30, 2007 and 2006 and $3,118 and $1,741 for the six months ended June 30, 2007
      and June 30, 2006, respectively. The estimated aggregate amortization expense
      for the next five years ending December 31 is estimated to be approximately
      $6,500 for each year.





**NOTE 9: ACCOUNTS
      PAYABLE AND ACCRUED LIABILITIES**




Accounts
      payable and accrued liabilities at June 30, 2007 (unaudited) consisted of the
      following:




Trade
                payables
            
            $
            241,394Other
                accrued liabilities
            
            
            71,452Accrued
                Purchases
            
            
            222,001$
            534,847





**NOTE
      10: COMMITMENTS AND CONTINGENCIES**





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
      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.





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 six months ended June 30, 2007.





11




**Skins
      Inc. and Subsidiary**


**(A
      Development Stage Company)**


**Notes
      to Consolidated Financial Statements**


**(Unaudited)**





On
      the
      closing of the Share Exchange Agreement, the Company entered into an
      employment agreement with the Company's President and Chief Executive Officer.
      The duration of the employment agreement is three years unless terminated
      earlier pursuant to the terms and conditions of the agreement. The agreement
      provides for a base salary of $150,000 per year and an annual incentive bonus
      of
      up to 50% of the base salary based on annual volume and net profit of our
      company. Pursuant to the terms of the employment agreement, the Company's
      President will not disclose to any third party any confidential information
      or
      trade secrets of the company during and after the term of the employment
      agreement. In addition, the Company's President agreed not to solicit away
      any
      customers or employees of our company during the term of the employment
      agreement and one year after the termination of his employment. The Company's
      President also agreed not to compete, either directly or indirectly, with the
      business of our company in the United States for a period of one year from
      the
      termination of his employment with us. The Company also paid approximately
      $20,000 to cover moving and relocation expenses for its President and his
      family. As of January 1, 2007, the Company raised the Company's President base
      salary to $175,000 per year.





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 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. Upon a change of control of the Company, all options
      outstanding that have not previously vested or terminated will be immediately
      and fully vested and exercisable upon the date of the change of
      control.


severance
      payments are made





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.





**NOTE
      11: 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
      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 dated November 2, 2005, 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.




12




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.




13




**Skins
      Inc. and Subsidiary**


**(A
      Development Stage Company)**


**Notes
      to Consolidated Financial Statements**


**(Unaudited)**




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. For the three months and six months ended June
      30,
      2007 the Company recorded compensation expense of $ 18,447 and $36,894
      respectively, related to the replacement option grants to the board
      members.




·
            The
                421,875 options granted to two-consultants that vest over a 36-month
                period were granted for services not yet rendered. 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 three and six months ended June 30, 2007, the Company recorded
                compensation expense of $72,057 and $164,434,
                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.





The
      fair
      value of the options granted to consultants was calculated using the
      Black-Scholes option valuation model with the following assumptions at the
      applicable dates noted:





**June
                30,**
              **2007**Expected
                volatility
            
            
            100.23
            %Expected
                dividends
            
            
            0Expected
                term (in years)
            
            
            2Risk-free
                interest rate
            
            
            4.50
            %




14




**Skins
      Inc. and Subsidiary**


**(A
      Development Stage Company)**


**Notes
      to Consolidated Financial Statements**


**(Unaudited)**




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
      this Vice President of $88,500. (See Note 10)




For
      the
      three and six months ended June 30, 2007, the Company recorded a total
      compensation expense of $0 and $67,190, respectively, related to the Former
      Vice
      President's June 19, 2006 option grant. Total 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 total
      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 these awards at June
      30, 2007 is $58,363. For the
      three and six months ended June 30, 2007, the Company recorded compensation expense
      of $7,614 and $24,206, respectively related to the
      two grants above.




On May
      9,
      2006 the Company
      granted 300,000 options to a consultant at an exercise price of $1.06. The
      options vest quarterly, with the first vesting occurring six 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 measures the compensation associated
      with this grant based on the fair value of the equity instrument. There was
      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 calculates the expense at each
      reporting period based on the fair value of the options that will vest during
      the reporting period. For the three and six months ended June 30, 2007, the
      Company recorded compensation expense of $29,451 and $97,416,
      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 will calculate the expense at each reporting period based upon
      fair
      value of the options that vest during the reporting period using the fair value
      on the reporting date. At June 30, 2007 no options under this grant had vested,
      therefore no expense had been incurred.





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
      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.





The
      total
      compensation expense related to the non-vested options on these awards at June
      30, 2007 is $ 379,417. For the three and six months ended June 30, 2007, the
      Company recorded compensation expense of $28,569 related to the 2007
      grants.





As
      of
      June 30, 2007, the number of options granted exceeded the maximum allowable
      number of shares of 3,375,000 authorized under the 2005 Incentive Plan. In
      accordance with the 2005 Incentive Plan, the Board of Directors approved the
      option grants and the Company intends to obtain shareholder approval at its
      next
      annual stockholder meeting, which is expected to occur in September 2007.




15




**Skins
      Inc. and Subsidiary**


**(A
      Development Stage Company)**


**Notes
      to Consolidated Financial Statements**


**(Unaudited)**





The
      fair
      value of the options granted to consultants on May 9, 2006, and the March 14,
      2007 and April 13, 2007 option grants to employees 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
            %
            
            97.48
            %Expected
                dividends
            
            
            None
            
            
            None
            
            
            NoneExpected
                term (in years)
            
            
            3.00
            
            
            3.00
            
            
            4.00Risk-free
                interest rate
            
            
            4.50
            %
            
            4.51
            %
            
            4.50
            %




A
      summary
      of option activity under the 2005 Plan as of June 30, 2007 and changes
      during the six months then ended is presented below:




**Shares**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            **Weighted
                -**
              **Average**
              **Remaining**
              **Contractual**
              **Term**
            
            **Aggregate**
              **Intrinsic**
              **Value****Options**Outstanding,
                January 1, 2007
            
            
            3,139,375
            
            $
            0.91Granted
            
            
            520,000
            
            
            1.26Cancelled
            
            
            (150,000
            )
            
            1.19Outstanding,
                June 30, 2007
            
            
            3,509,375
            
            $
            0.95
            
            
            3.59
            
            $
            —Exercisable,
                June 30, 2007
            
            
            1,734,375
            
            $
            0.87
            
            
            3.29
            
            $
            —




A
      summary
      of the status of the Company's non-vested shares as of June 30, 2007, and
      changes during the six months ended June 30, 2007, is presented
      below:




**Shares**
            
            **Weighted-**
              **Average**
              **Grant-Date**
              **Fair
                Value****Non-vested
                Shares**Non-vested,
                January 1, 2007
            
            
            1,786,248
            
            $
            0.42Granted
            
            
            520,000
            
            
            0.79Cancelled
            
            
            (112,500
            )
            
            (0.73
            )Vested
            
            
            (418,748
            )
            
            0.35Non-vested,
                June 30, 2007
            
            
            1,775,000
            
            $
            0.52





**NOTE
      12: STOCKHOLDERS’ EQUITY**





On
      May
      21, 2007, the Company sold a total of 4,000,000 units to seven investors and
      raised an aggregate of $3,000,000 in a private offering under Regulation S
      of
      the Securities Act of 1933, as amended. The offering was made pursuant to a
      subscription agreement dated May 21, 2007. Each unit consists of one share
      of
      common stock of the Company 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. Registration of all the securities
      issued pursuant to the private placement was filed under SB-2 on June 21, 2007
      and declared effective by the United States Securities and Exchange Commission
      on August 1, 2007. Net proceeds from the private offering were $2,962,013 (net
      of issuance costs of $37,987).





**NOTE
      13: SUBSEQUENT EVENT**





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 have a fair value of approximately
      $206,000, which shall be expensed as compensation in the Company’s consolidated
      statement of operations ratably over a 36 month service period.




16





**ITEM
      2. 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 intend to initially design, manufacture and market high
      quality men's and women's footwear. Our primary activities have been conducting
      research and development, performing business, strategic and financial planning,
      and raising capital.





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. The Skins product concept is patent
      pending.





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
      June 30, 2007, we had no established source of revenues and had accumulated
      losses of $7,776,813 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-QSB 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.





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.




17





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
      have
      applied for a U.S. patent relating to our Modular Shoe System. We also filed
      international (PCT) Patent App. No. PCT/US04/33446 for our Modular Shoe System
      on October 7, 2004, for which we have filed national and regional entry
      applications in Canada, Australia, China (PRC), Japan, New Zealand, South Korea,
      the European Patent Office, the Russian Federation and Israel. On November
      20,
      2006 the
      U.S.
      patent and trademark office allowed and approved our patent application for
      a
      modular shoe system in the US. The allowance went into effect immediately.
      On
      February 6, 2007 we were issued patent number 7,171,768 for the Modular Shoe
      System. Two additional U.S. patent applications related to the issued patent
      are
      pending.





**PLANNED
      OPERATIONS**





**Product
      Development**





We
      will
      concentrate on our core design and development of the Skin and Bone product,
      while outsourcing the production requirements to third parties. Production
      requirements are currently being handled by Atsco Footwear, LLC, Kwan Yiu,
      and
      TLD.





A
      fully
      developed men's and women's line is expected to be delivered to retailers for
      sale for early Fall 2007. The focus is on creating a high-end line of Skins
      priced at a manufacturer's suggested retail price of $100-$165 for women and
      $130-$180 for men. This first collection will have approximately 25-30 styles
      including both genders.




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.





**Sourcing**





We
      are in
      the process of amending our sourcing and buying agent agreement with Atsco
      Footwear, LLC pursuant to which Atsco Footwear will continue to be responsible
      for sourcing, commercialization and product line review. Atsco Footwear will
      assist us in developing a fit-and-wear tested marketable product and be
      responsible for the factory development and output as well as delivery,
      scheduling, supplier deadlines and other related matters. We are also in the
      process of amending our engineering and consulting agreement with TLD Asian
      Pacific Ltd.





**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.





Our
      current plan is to launch a limited nationwide distribution by early Fall 2007,
      and planned shipping of our product will occur in the third quarter of 2007.
      We
      plan to be in approximately 60 to 70 stores by the end December
      2007.





We
      believe that the initial purchase order amount we can expect per retailer will
      be 72 pairs per gender at an average wholesale price of $65 per pair of Skins.
      We further plan on selling fill-in orders as the season progresses.




18




**Three
      Months Ended June 30, 2007 Compared with Three Months Ended June 30,
      2006**





Net
      revenues during the three months ended June 30, 2007 and 2006 were
      nil.





Design
      and development expenses were $550,495 and $35,293 for the three months ended
      June 30, 2007, and 2006, respectively. The increase of $515,202 is primarily
      attributable to design consulting services of approximately $116,000, sourcing
      agent fees of $28,800 and $370,000 of further research and development of our
      product, which also includes sampling expense and the write-off of approximately
      $105,000 of obsolete molds.




Selling,
      general and administrative expenses (“SG&A”) were $993,669 and $451,015 for
      the three months ended June 30, 2007, and 2006, respectively. The increase
      of
      $542,654 in SG&A expenses was attributable to additional
      expenses incurred in anticipation of the initial launch of our product,
      which is expected to occur in the third quarter of 2007. The increase in
      SG&A expenses are attributable to:


·
            Increased
                employee compensation and benefits of approximately $134,000,


·
            Termination
                expense for a previous employee of $54,000,


·
            Professional
                fees of $96,000 (including employee recruitment, investor relations,
                legal
                and auditing),


·
            Advertising
                and marketing of $131,000,


·
            Travel
                and entertainment of $65,000, and


·
            Share
                based compensation of $233,000,


·
            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 $1,245,000 for the three
      months ended June 30, 2007 and 2006. The
      unrealized loss on derivative instruments for the three months ended June 30,
      2006 represents the fair value charge in our derivative liability from March
      31,
      2006, which 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 three months ended June 30, 2007 was $1,524,363, or $0.04 per
      share, as compared to a net loss of $1,718,951, or $0.05 per share, for the
      same
      period in 2006. The decrease in net loss is primarily attributable to the lack
      of an unrealized loss on derivative instruments during the three months ended
      June 30, 2007, partially offset by increased expenses during the same period
      related to its anticipated launch of its product.




**Six
      Months Ended June 30, 2007 Compared with Six Months Ended June 30,
      2006**





Net
      revenues during the six months ended June 30, 2007 and 2006 were
      nil.





Design
      and development expenses were $885,131 and $69,582 for the six months ended
      June
      30, 2007 and 2006, respectively. The increase of $815,549 is primarily
      attributable to design consulting services of approximately $218,500, sourcing
      agent fees of $57,600 and $540,000 of further research and development of our
      product, which also includes sampling expense and the write-off of approximately
      $105,000 of obsolete molds.




Selling,
      general and administrative expenses (“SG&A”) were $2,136,187 and $894,711
      for the six months ended June 30, 2007 and 2006, respectively. SG&A expenses
      increased by $1,241,476 primarily as a result of additional expenses
      incurred in anticipation of the initial launch of our product, which is expected
      to occur in the third quarter of 2007. The increase in SG&A expenses are
      attributable to:


·
            Increased
                employee compensation and benefits of approximately $222,000,


·
            Termination
                expense for a previous employee of $198,000,


·
            Professional
                fees of $183,000 (including employee recruitment, investor relations,
                legal and auditing),


·
            Advertising
                and marketing of $228,000


·
            Travel
                and entertainment of $158,000, and


·
            Share
                base compensation of $352,000,


·
            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 $1,225,763 for the six
      months ended June 30, 2007 and 2006. The
      unrealized loss on derivative instruments for the three months ended June 30,
      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 six months ended June 30, 2007 was $2,991,515, or $0.08 per share,
      as compared to a net loss of $2,177,362, or $0.08 per share, for the same period
      in 2006. The increase in net loss is attributable primarily to increased
      expenses as a result its anticipated launch of its product, partially offset
      by
      the lack of an unrealized loss on derivative instruments during the same
      period.




19





**Liquidity
      and Capital Resources**





At
      June
      30, 2007, we had $2,313,158 in cash and cash equivalents. Generally, we have
      primarily financed operations to date through the proceeds from the private
      placement of equity securities and the proceeds from the exercising of common
      stock purchase warrants. During the fourth quarter of fiscal 2006 and the first
      quarter of fiscal 2007 we received cash proceeds from these exercises totaling
      $1,680,763 and $609,462, respectively. No warrants were exercised during the
      second fiscal quarter ending June 30, 2007.





We
      previously received net cash 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.




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. We registered the shares of common stock and the
      shares of common stock underlying the warrants on a registration statement
      that
      was declared effective by Securities and Exchange Commission on August 1, 2007.
      Net proceeds from the private offering were $2,962,013 (net of issuance costs
      of
      $37,987).




Net
      cash
      used in operating activities for the six months ended June 30, 2007 was $2,792,246. We
      earned no revenues since our inception in May 2004. Operating expenditures
      consisted principally of design and development, advertising and promotion,
      legal and accounting fees and salaries. During the six months ended June 30,
      2007 we purchased and paid for $480,467 of raw materials which enabled us to
      produce our products during the second quarter of this fiscal year. 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.




At
      June
      30, 2007, we had 3,509,375 stock options and 4,709,939 common stock purchase
      warrants, outstanding. The outstanding stock options have a weighted average
      exercise price of $0.95 per share and the outstanding warrants have a weighted
      average exercise price of $1.00 per share. Accordingly, at June 30, 2007, the
      outstanding options and warrants represented a total of 8,217,314 shares
      issuable for a maximum of $8,030,539 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.





During
      the remainder of the fiscal year we expect to continue and increase our current
      level of expenditures for compensation to our existing employees and to
      employees we anticipate hiring once our business becomes fully
      operational.





As
      of
      June 30, 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.





**Off
      Balance Sheet Arrangements**





We
      do not
      have any off-balance sheet arrangements.





**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.




20




*Inventory
      and Inventory Reserves*





Inventory
      is stated at the lower of cost or market, at costs that approximate 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 June 30, 2007, inventory represented raw
      materials to be used in production for goods to be sold, work in process and
      finished goods. There was no reserve taken against inventory at June 30,
      2007.




*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.




**Risk
      Factors**





There
      have been no material changes from the risk factors disclosed in the “Risk
      Factors” section of our 2006 Form 10-KSB, as filed with the Securities and
      Exchange Commission on April 17, 2007.




**ITEM
      3. CONTROLS AND PROCEDURES**




*(a)
      Evaluation of disclosure controls and procedures*




As
      of
      June 30, 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 as defined in Rules 13a-15(e) or 15d-15(e) under the Securities
      Exchange Act of 1934, as amended, or the “Exchange Act.” Based on that
      evaluation, our CEO and CFO concluded that our disclosure controls and
      procedures were ineffective due to a lack of experience with disclosure controls
      and procedures and a lack of a formal structure to record, process, summarize
      and report information with the Securities and Exchange Commission (the “SEC”)
      within the time periods specified in the SEC rules and regulations.




We
      have
      taken remedial steps to address the specific problems identified. We
      have worked with an accounting firm (other than our auditors) to consult
      with us on accounting issues. In addition, after the departure of our Vice
      President of Finance and Operations, we hired a Chief Financial Officer. We
      believe that the remedial steps that we have taken and will take will address
      the conditions identified as significant deficiencies in our disclosure controls
      and procedures. We will continue to monitor the effectiveness of these new
      internal policies. Our CEO and CFO believes that there are no material
      inaccuracies, or omissions of material facts necessary to make the statements
      not misleading in light of the circumstances in which they were made, in this
      Form 10-QSB.




*(b)
      Changes in internal control over financial reporting*




Based
      on
      the evaluation of our management as required by paragraph (d) of Rule 13a-15
      or
      15d-15 of the Exchange Act, we believe that there were no changes in our
      internal control over financial reporting that occurred during the fiscal
      quarter ended June 30, 2007 that have materially affected, or are reasonably
      likely to materially affect, our internal control over financial
      reporting.




21




**PART
      II-OTHER INFORMATION**




**ITEM
      1. LEGAL PROCEEDINGS**





We
      are
      not currently a party to any material legal proceedings.





**ITEM
      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS**





None.




**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**




None.





**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





None.




**ITEM
      5. OTHER INFORMATION**





None.




22


**ITEM
      6. EXHIBITS**





(a)
      Exhibits




31.1
            Certification
                of Principal Executive Officer pursuant to Section 302(a) of the
                Sarbanes-Oxley Act of 2002.31.2
            Certification
                of Principal Financial and Accounting Officer pursuant to Section
                302(a)
                of the Sarbanes-Oxley Act of 2002.32.1
            Certification
                of Principal Executive Officer and Principal Financial and Accounting
                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.




23





**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)August
                20, 2007
            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)




24