**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

 

 

 

**FORM 10-QSB**

 

 

 

**x**                              QuarterlyReport pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended **September 30, 2006**

 

 

**o**                                 TransitionReport pursuant to 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period                to               

 

 

Commission File Number:  **001-14297**

 

 

 

**Davi Skin, Inc**

(Exact name of small business issuer as specified inits charter)

 

| **Nevada**                                                                          | ** ** | **86-0907471**                     |
|-------------------------------------------------------------------------------------|------------|------------------------------------|
| (State or other  jurisdiction of incorporation or organization)                     |       | (IRS Employer  Identification No.) |
|                                                                                |       |                               |
| **4223 Glencoe Avenue, Suite B130 Marina Del Rey,  CA  90292**                 |
| (Address of principal executive offices)                                            |
|                                                                                |       |                               |
| **310-827-0800**                                                                    |
| (Issuer’s telephone number)                                                    |
|                                                                                |       |                               |
|                                                                                |       |                               |
| (Former name, former address and former fiscal year, if changed since  last report) |

 

 

 

Checkwhether the issuer (1) filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the issuer was required to file such reports), and(2) has been subject to such filing requirements for the past 90 days.    x Yes    o No

Indicate by check mark whether the registrantis a shell company (as defined in Rule 12b-2 of the Exchange Act).    o Yes     Nox

Statethe number of shares outstanding of each of the issuer’s classes of commonstock, as of the latest practicable date: 12,115,820 commonshares as of September 30, 2006.

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

 

 

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|                                      | ** ** | **TABLE OF CONTENTS**                              | ** ** | ** ** | ** ** |
|--------------------------------------|------------|--------------------------------------------------------------|------------|------------|------------|
| ** **                           | ** ** | ** **                                                   | ** ** | ** ** | ** ** |
| ** **                           | ** ** | ** **                                                   | ** ** | **Page**   | ** ** |
|                                 |       |                                                         |       |       |       |
| PART  I — FINANCIAL INFORMATION |       |
|                                 |       |                                                         |       |       |       |
| Item 1:                              |       | Financial Statements                                         |       | 3          |       |
|                                 |       |                                                         |       |       |       |
| Item 2:                              |       | Plan of Operation                                            |       | 14         |       |
|                                 |       |                                                         |       |       |       |
| Item 3:                              |       | Controls and Procedures                                      |       | 26         |       |
|                                 |       |                                                         |       |       |       |
|                                 |       |                                                         |       |       |       |
| PART  II — OTHER INFORMATION    |       |
|                                 |       |                                                         |       |       |       |
| Item 1:                              |       | Legal Proceedings                                            |       | 27         |       |
|                                 |       |                                                         |       |       |       |
| Item 2:                              |       | Unregistered Sales of  Equity Securities and Use of Proceeds |       | 27         |       |
|                                 |       |                                                         |       |       |       |
| Item 3:                              |       | Defaults Upon Senior  Securities                             |       | 27         |       |
|                                 |       |                                                         |       |       |       |
| Item 4:                              |       | Submission of Matters  to a Vote of Security Holders         |       | 27         |       |
|                                 |       |                                                         |       |       |       |
| Item 5:                              |       | Other Information                                            |       | 27         |       |
|                                 |       |                                                         |       |       |       |
| Item 6:                              |       | Exhibits                                                     |       | 29         |       |

 

 

2

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**PART I — FINANCIALINFORMATION**

**Item 1.**                          FinancialStatements

Our unaudited consolidated financial statementsincluded in this Form 10-QSB are as follows:

(a)               Balance Sheet as ofSeptember 30, 2006 and December 31, 2005.

(b)              Statements ofOperations for the three and nine month periods ended September 30, 2006 and2005, and from inception;

(c)               Statements of CashFlows for nine month periods ended September 30, 2006 and 2005, and frominception;

(d)              Notes to FinancialStatements.

These unaudited consolidated financial statements havebeen prepared in accordance with accounting principles generally accepted inthe United States of America for interim financial information and the SECinstructions to Form 10-QSB.  In the opinionof management, all normally recurring adjustments considered necessary for afair presentation have been included. Operating results for the interim period ended September 30, 2006 arenot necessarily indicative of the results that can be expected for the fullyear.

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**Item 1.**           Financial Statements

**Balance Sheet asof September 30, 2006 and December 31, 2005**

**DAVI SKIN, Inc.(formerly MW Medical, Inc.)(A Developmental Stage Company)BALANCE SHEETS**
| ** **                                              | ** ** | **Sept 30, ‘06** | ** **    | **Dec 31, ‘05** | ** ** |
|---------------------------------------------------------|------------|---------------------------------|---------------|--------------------------------|------------|
| ** **                                              | ** ** | **(Unaudited)**                 | ** **    | ** **                     | ** ** |
| **ASSETS**                                              | ** ** | ** **                      | ** **    | ** **                     | ** ** |
| **Current Assets**                                      | ** ** | ** **                      | ** **    | ** **                     | ** ** |
| Cash                                                    |       | $                               | 355,863       |                           | $          | 3,616 |   |
| Certificate of  Deposit                                 |       | 825,488                         |          | 1,698,956                      |       |
| Accounts  Receivable                                    |       | —                          |          | 6,000                          |       |
| Product  Inventory                                      |       | 765,800                         |          | —                         |       |
| Prepaid Expenses                                        |       | 2,025                           |          | 7,025                          |       |
|                                                    |       |                            |          |                           |       |
| **TOTAL  CURRENT ASSETS**                               | ** ** | **1,949,176**                   | ** **    | **1,715,597**                  | ** ** |
|                                                    |       |                            |          |                           |       |
| Fixed Assets net  of Depreciation of $1,384 and $17,807 |       | 36,470                          |          | 48,119                         |       |
|                                                    |       |                            |          |                           |       |
| **Other Assets**                                        |       |                            |          |                           |       |
| Deposits                                                |       | 44,530                          |          | 11,505                         |       |
|                                                    |       |                            |          |                           |       |
| **TOTAL  ASSETS**                                       | ** ** | **$**                           | **2,030,176** | ** **                     | **$**      | **1,775,221** | ** ** |
| ** **                                              | ** ** | ** **                      | ** **    | ** **                     | ** ** |
| **LIABILITIES AND STOCKHOLDERS  EQUITY**                |       |                            |          |                           |       |
| **Current Liabilities**                                 |       |                            |          |                           |       |
| Accounts Payable                                        |       | $                               | 114,621       |                           | $          | 67,802 |   |
| Notes Payable -  Related Parties                        |       | 245,000                         |          | 230,000                        |       |
| Accrued  Liability                                      |       | 1,574                           |          | —                         |       |
| Leasehold  Improvement Allowance                        |       | 10,000                          |          | —                         |       |
|                                                    |       |                            |          |                           |       |
| **TOTAL  CURRENT LIABILITIES**                          | ** ** | **371,195**                     | ** **    | **297,802**                    | ** ** |
|                                                    |       |                            |          |                           |       |
| **Stockholders Equity**                                 |       |                            |          |                           |       |
| Preferred Stock                                         |       | —                          |          | —                         |       |
| Common Stock                                            |       | 12,100                          |          | 11,533                         |       |
| APIC                                                    |       | 10,295,095                      |          | 6,699,713                      |       |
| Prepaid  Consulting Expense                             |       | (34,376                         | )             | (68,750                        | )          |
| Accumulated  Deficit During the Development Stage       |       | (8,613,838                      | )             | (5,165,077                     | )          |
|                                                    |       |                            |          |                           |       |
| **TOTAL  STOCKHOLDERS EQUITY**                          | ** ** | **1,658,981**                   | ** **    | **1,477,419**                  | ** ** |
|                                                    |       |                            |          |                           |       |
| **TOTAL LIABILITIES &  STOCKHOLDERS EQUITY**        | ** ** | **$**                           | **2,030,176** | ** **                     | **$**      | **1,775,221** | ** ** |

 

See notes tofinancial statements.

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**Statement of Operations**

**DAVI SKIN, Inc.(formerly MW Medical, Inc.)(A Developmental Stage Company)STATEMENTS OF OPERATIONS**
| ** **                                                    | ** ** | ** **          | ** ** | ** **          | ** ** | ** **          | ** ** | ** **          | ** ** | **From Date of  Inception** | ** ** |
|---------------------------------------------------------------|------------|---------------------|------------|---------------------|------------|---------------------|------------|---------------------|------------|---------------------------------------|------------|
| ** **                                                    | ** ** | **3 Months**   | ** ** | **9 Months**   | ** ** | **3 Months**   | ** ** | **9 Months**   | ** ** | **March 21, 2004**          | ** ** |
| ** **                                                    | ** ** | **Ended**           | ** ** | **Ended**           | ** ** | **Ended**           | ** ** | **Ended**           | ** ** | **through Sept 30, **  | ** ** |
| **(Unaudited)**                                               | ** ** | **Sept, 2006** | ** ** | **Sept, 2006** | ** ** | **Sept, 2005** | ** ** | **June, 2005** | ** ** | **2006**                              | ** ** |
| **Revenues**                                                  |       | $                   | —     |                | $          | 25,000              |       | $                   | —     |                                  | $          | — |   | $ | 25,000 |   |
| Cost of Revenues                                              |       | —              |       | —              |       | —              |       | —              |       | —                                |       |
| Gross Profit                                                  |       | —              |       | —              |       | —              |       | —              |       | 25,000                                |       |
| Operating  Expenses                                           |       |                |       |                |       |                |       |                |       |                                  |       |
| Selling, General & Admin.                                 |       | 449,424             |       | 885,494             |       | 208,392             |       | 409,763             |       | 2,322,956                             |       |
| Depreciation                                                  |       | 460                 |       | 11,430              |       | 4,288               |       | 10,303              |       | 30,164                                |       |
| Consulting Fees                                               |       | 71,076              |       | 193,352             |       | 19,173              |       | 246,275             |       | 193,353                               |       |
| Employee Option Expenses                                      |       | —              |       | 2,099,949           |       | —              |       | —              |       | 5,403,553                             |       |
| Professional Fees                                             |       | 120,051             |       | 286,868             |       | 55,949              |       | 130,026             |       | 503,318                               |       |
| **Total  Operating Expenses**                                 |       | 641,010             |       | 3,477,093           |       | 287,802             |       | 877,367             |       | 8,453,344                             |       |
| ** **                                                    |       |                |       |                |       |                |       |                |       |                                  |       |
| **(Loss)  from Operations**                                   |       | (641,010            | )          | (3,452,093          | )          | (287,802            | )          | (877,367            | )          | (8,428,344                            | )          |
| ** **                                                    |       |                |       |                |       |                |       |                |       |                                  |       |
| **Other  Income (Expense)**                                   |       |                |       |                |       |                |       |                |       |                                  |       |
| Interest Expense                                              |       | (5,013              | )          | (15,013             | )          | (5,000              | )          | (15,005             | )          | (45,018                               | )          |
| Interest Income                                               |       | 18,742              |       | 56,420              |       | 6,374               |       | 16,701              |       | 96,187                                |       |
| Loss on Sale/Disposition of Assets                            |       | —              |       | (38,075             | )          | (534                | )          | (534                | )          | (38,609                               | )          |
| **Other Income**                                              |       | —              |       | —              |       | 3,000               |       | 3,000               |       |                                  |       |
| **Total  Other Income (Expense)**                             |       | 13,728              |       | 3,332               |       | 3,840               |       | 4,162               |       | 12,560                                |       |
| ** **                                                    |       |                |       |                |       |                |       |                |       |                                  |       |
| **Net  (Loss)**                                               | ** ** | **(627,282**        | **)**      | **(3,448,761**      | **)**      | **(283,962**        | **)**      | **(873,205**        | **)**      | (8,415,784                            | )          |
| ** **                                                    | ** ** | ** **          | ** ** | ** **          | ** ** | ** **          | ** ** | ** **          | ** ** |                                  |       |
| Basic &  Diluted (loss) per Common Share                  |       | (0.05               | )          | (0.28               | )          | (0.02               | )          | (0.09               | )          |                                  |       |
| Basic and Diluted  Weighted Average Common Shares Outstanding |       | 12,115,820          |       | 11,952,116          |       | 11,368,716          |       | 9,216,205           |       |                                  |       |
|                                                               |            |                     |            |                     |            |                     |            |                     |            |                                       |            |  |  |  |  |  |

 

See notes tofinancial statements.

5

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**Statement of Cash Flows**

**DAVI SKIN, Inc.(formerly MW Medical, Inc.)(A Developmental Stage Company)STATEMENTS OF CASH FLOWS(Unaudited)**
| ** **                                                                     | ** ** | ** **                   | ** **  | ** **                   | ** ** | **From Date of Inception** | ** ** |
|--------------------------------------------------------------------------------|------------|------------------------------|-------------|------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                     | ** ** | ** **                   | ** **  | ** **                   | ** ** | **21-Mar-04**                             | ** ** |
| ** **                                                                     | ** ** | **9 Months Ended** | ** **  | **9 Months Ended** | ** ** | **through**                               | ** ** |
| ** **                                                                     | ** ** | **Sept, 30 2006**  | ** **  | **Sept, 30 2005**  | ** ** | **Sept, 30 2006**               | ** ** |
| **Operating  Activites**                                                       |       |                         |        |                         |       |                                      |       |
| Net (Loss)                                                                     |       | $                            | (3,448,761  | )                            | $          | (873,205                                  | )          | $ | (8,415,784 | ) |
| Adjustments to  Reconcile Net (Loss) to Net Cash Used in Operating Activities: |       |                         |        |                         |       |                                      |       |
| **Cash  Used in Operating Activities**                                         |       |                         |        |                         |       |                                      |       |
| Prepaid  Consulting Expense                                                    |       | —                       |        | 34,376                       |       | 45,834                                    |       |
| Stock Based  Compensation & Expenses                                       |       | 2,134,323                    |        | —                       |       | 5,360,413                                 |       |
| Depreciation and  Amortization                                                 |       | 11,429                       |        | 10,303                       |       | 30,162                                    |       |
| Accrued Interest                                                               |       | 15,000                       |        | 15,000                       |       | 45,000                                    |       |
| Loss from  Disposition of Fixed Assets                                         |       | 38,075                       |        | —                       |       | 38,609                                    |       |
|                                                                           |       |                         |        |                         |       |                                      |       |
| **Changes  in Operating Assets and Liabilities**                               |       |                         |        |                         |       |                                      |       |
| Prepaid Expenses                                                               |       | 5,000                        |        | 6,213                        |       | (2,025                                    | )          |
| Deposits                                                                       |       | (33,025                      | )           | (7,805                       | )          | (44,530                                   | )          |
| Accounts Payable                                                               |       | 48,389                       |        | 6,567                        |       | 116,192                                   |       |
| Accounts  Receivable                                                           |       | 6,000                        |        | —                       |       | —                                    |       |
| Product  Inventory                                                             |       | (765,800                     | )           | —                       |       | (765,800                                  | )          |
| **Net  Cash used by Operating Activities**                                     | ** ** | **(1,989,370**               | **)**       | **(808,551**                 | **)**      | **(3,591,929**                            | **)**      |
|                                                                           |       |                         |        |                         |       |                                      |       |
| **Investing  Activities**                                                      |       |                         |        |                         |       |                                      |       |
| **Cash  Flow from Investing Activities**                                       |       |                         |        |                         |       |                                      |       |
| Change in  Certificate of Deposit                                              |       | 873,468                      |        | (1,518,134                   | )          | (825,488                                  | )          |
| Purchase of  Fixed Assets                                                      |       | (27,853                      | )           | (24,500                      | )          | (108,350                                  | )          |
| Sale of Fixed  assets                                                          |       | —                       |        | 2,273                        |       | 1,739                                     |       |
| **Net  Cash Provided (Used) by Investing Activities**                          | ** ** | **845,615**                  | ** **  | **(1,540,361**               | **)**      | **(932,099**                              | **)**      |
|                                                                           |       |                         |        |                         |       |                                      |       |
| **Financing  Activities**                                                      |       |                         |        |                         |       |                                      |       |
| Cash Flow from  Financing Activities                                           |       |                         |        |                         |       |                                      |       |
| Proceeds from  Stock Transactions                                              |       | 1,496,000                    |        | 1,887,426                    |       | 4,679,890                                 |       |
| Notes Payable  Related Party                                                   |       | —                       |        | —                       |       | 200,000                                   |       |
| Short Term Note  Payable                                                       |       | —                       |        | (10,500                      | )          | —                                    |       |
| **Net  Cash Provided by Financing Activities**                                 | ** ** | **1,496,000**                | ** **  | **1,876,926**                | ** ** | **4,879,890**                             | ** ** |
| ** **                                                                     |       |                         |        |                         |       |                                      |       |
| **Net  Change in Cash and Cash Equivalents**                                   |       | 352,246                      |        | (471,986                     | )          | 355,863                                   |       |
| ** **                                                                     |       | 3,617                        |        | 506,131                      |       | —                                    |       |
| **Cash at End of Period**                                                      | ** ** | **$**                        | **355,863** | ** **                   | **$**      | **34,145**                                | ** ** | **$** | **355,863** | ** ** |

 

See notes tofinancial statements.

 

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**Notes to FinancialStatements**

**NOTES TO FINANCIALSTATEMENTS (Unaudited)**

1.             BASISOF PRESENTATION

The accompanying unaudited consolidated financialstatements of Davi Skin, Inc. (the “Company”) have been prepared in accordancewith Securities and Exchange Commission requirements for interim financialstatements. Therefore, they do not include all of the information and footnotesrequired by accounting principles generally accepted in the United States forcomplete financial statements. The financial statements should be read inconjunction with the Company’s Form 10-KSB for the year ended December 31,2005.

The interim financial statements present the balancesheet, statements of operations, cash flows of the Company. The financialstatements have been prepared in accordance with accounting principlesgenerally accepted in the United States.

In the opinion of management, all normally recurringadjustments necessary to present fairly the financial position as of September30, 2006 and the results of operations, cash flows presented herein have beenincluded in the financial statements. Interim results are not necessarilyindicative of results of operations for the full year.

2.             DESCRIPTIONOF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES

Descriptionof Business.  We are principally engaged in the development,manufacturing and distribution of luxury branded skincare products for men andwomen which harness the antioxidant health benefits of fermented grapeextracts. We also function as a licensing agent to entities interested inassociating their products with our luxury brand names.

History.  Wewere incorporated on December 4, 1997 as MW Medical, Inc., originally a whollyowned subsidiary of Dynamic Associates, Inc. On June 21, 2004, we completed andclosed a Plan of Merger and Reorganization Agreement (“Merger Agreement”) withDavi Skin, Inc. (“Davi”), a separate, privately owned company founded in March2004 by Carlo Mondavi, our current Chairman of the Board. Mr. Mondavi foundedDavi with the vision of creating an all-natural grape-based luxury skin careline. The Merger Agreement called for our subsidiary to merge into and withDavi, and for Davi to become our wholly owned subsidiary. As considerationpursuant to the Merger Agreement, we issued 9,768,327 shares of common stock inexchange for all the outstanding common stock of Davi on a one-for-one shareexchange basis.

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TheMerger Agreement provided for the transaction to be accounted for as arecapitalization or reverse merger whereby Davi was considered the accountingacquirer. Accordingly, the accounting history of the acquirer was carriedforward as our accounting history, with no goodwill recorded, and theaccompanying financial statements reflect the history of Davi from its date ofincorporation of March 21, 2004. Prior to the Merger Agreement, our balancesheet reflected 645,033 shares of common stock outstanding, $1,922 in accountspayable, $200,000 in a note payable to a related party and no assets.

DevelopmentStage Company.  The accompanying financial statements have beenprepared in accordance with the Statement of Financial Accounting Standards No.7 “Accounting and Reporting by Development-Stage Enterprises.” Adevelopment-stage enterprise is one in which planned principal operations havenot commenced or if its operations have commenced, there has been nosignificant revenue there from.

GoingConcern.  The accompanying financial statements have been prepared ona going concern basis, which contemplates the realization of assets and the satisfactionof liabilities in the normal course of business. We have incurred cumulativenet losses of $8,415,784 since our inception and may require additional capitalfor our operational activities. Our ability to raise additional capital throughfuture issuances of the common stock is unknown. Obtaining additional financingand attaining profitable operations are necessary for us to continueoperations. The ability to successfully resolve these factors raise substantialdoubt about our ability to continue as a going concern. Our consolidatedfinancial statements do not include any adjustments that may result from theoutcome of these aforementioned uncertainties.

Definitionof Fiscal Year.  Our fiscal year end is December 31.

Useof Estimates.  The preparation of consolidated financial statementsin conformity with accounting principles generally accepted in the UnitedStates requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assetsand liabilities at the date of the consolidated financial statements and thereported amounts of revenue and expenses during the reporting period. Actualresults could differ from those estimates.

RevenueRecognition.  Revenues are recognized when services are renderedand/or products are delivered. Costs and expenses are recognized during theperiod in which they are incurred.

Cashand Cash Equivalents.  We consider all highly liquid short-terminvestments, with original maturities of three months or less, to be cashequivalents. Such cash equivalents generally are part of our cash managementactivities rather than part of its operating, investing, and financingactivities. Changes in the market value of cash equivalents result in gains orlosses that are recognized in the income statement in the period in which theyoccur.

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Inventoriesconsist of finished goods and raw materials and are stated at the lower of costor market. The Company regularly monitors inventory quantities on hand and recordswrite-downs for excess and obsolete inventories based primarily on the Company’sestimated forecast of product demand and production requirements. Suchwritedowns establish a new cost basis of accounting for the related inventory.Actual inventory losses may differ from management’s estimates, and suchdifferences could be material to the Company’s consolidated financial position,results of operations and cash flows.

We periodically evaluate whether events andcircumstances have occurred that may warrant revision of the estimated usefullife of fixed assets or whether the remaining balance of fixed assets should beevaluated for possible impairment.

FairValue of Financial Instruments.  Statement of Financial AccountingStandards (“SFAS”) No. 107, “Disclosure About Fair Value of FinancialInstruments,” requires us to disclose, when reasonably attainable, the fairmarket values of its assets and liabilities which are deemed to be financialinstruments. The carrying amounts and estimated fair values of our financialinstruments approximate their fair value due to their short-term nature.

Earnings(loss) per Share.  Basic earnings (loss) per share exclude anydilutive effects of options, warrants and convertible securities. Basicearnings (loss) per share is computed using the weighted-average number ofoutstanding common shares during the applicable period. Diluted earnings (loss)per share is computed using the weighted-average number of common and commonstock equivalent shares outstanding during the period. Common stock equivalentshares are excluded from the computation if their effect is anti-dilutive.Stock option are anti-dilutive when the results from operations are a net loss,as is the case for the for the period ended September 30, 2006 or when theexercise price of the options is greater than the average market price of thecommon stock for the period.

IncomeTaxes.  We account for income taxes in accordance with Statement ofFinancial Accounting Standards No. 109 “Accounting for Income Taxes”, whichrequires recognition of deferred tax assets and liabilities for future taxconsequences attributable to differences between the financial statementcarrying amounts of existing assets and liabilities and their respective taxbases and tax credit carry-forwards. Deferred tax assets and liabilities aremeasured using enacted tax rates expected to apply to taxable income in theyears in which those temporary differences are expected to be recovered orsettled. The effect on deferred tax assets and liabilities of a change in taxrates is recognized in income in the period that includes the enactment date. Weestablished a valuation allowance for the full tax benefit of the operatingloss carryforward due to the uncertainty regarding realization.

AdvertisingCosts.  Advertising costs incurred in the normal course of operationsare expensed as incurred. No advertising costs have been incurred from March21, 2004 (date of inception) through September 30, 2006.

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Stock-basedCompensation.  We apply Financial Accounting Standard 123R, “Accountingfor Stock Based Compensation,” which requires the recognition of compensationcost based upon the fair value of stock options at the grant date using theBlack-Scholes option pricing model.

3.             RELATED PARTY TRANSACTIONS

Weallegedly owe $200,000 to the former President of our predecessor entity MWMedical, Inc. under a promissory note originally due December 31, 2004 bearingan interest rate of 10% per annum. Accordingly, we recorded accrued interest inthe amount of $45,000. The maturity date of the note was extended to December31, 2006 by the note holder. To our knowledge, ownership of the note is thesubject of a lawsuit filed in federal court to which we are not named as aparty. At this time, we have not fully ascertained whether the note reflects astill outstanding Company obligation and if it does, do not believe that thenote and its rights were assigned under proper conditions. Until this matter isresolved, we do not believe we are obligated to pay the note or grant theconversion in lieu of payment. The matter remains under investigation. Wecurrently report the liability on our balance sheet, and reserve the right tocancel the note and any obligations that may exist thereunder, includingprincipal and any accrued interest, if the validity of the note cannot beestablished.

Weoutsource a portion of our operational activities to companies with greaterexpertise in certain areas in order to keep our overhead expenditures to aminimum. Currently our payroll function is outsourced to an accounting firmwith one of its partners being both a member of our Executive Advisory Boardand a relative of a member of our Board of Directors.

4.             STOCK ACTIVITY

OnMarch 27, 2006, we closed a Stock Purchase Agreement (“SPA”) with Artist HouseHoldings, Inc. (“Artist House.”) Under the Stock Purchase Agreement, ArtistHouse agreed to purchase 283,333 of our Securities Units (“Securities Units,”)consisting of 566,667 shares of common stock and a warrant to purchase anadditional 283,333 shares of common stock at $4.50 per share exercisable in 24months, in exchange for gross proceeds of $1,700,000 (less $204,000 in fees)for net proceeds of $1,496,000, an effective price of $3.00 per share. We filedthe Registration Statement, however did not pursue the registration process dueto legal proceedings.

Thewarrants issued in accordance with the above mentioned SPA were valued at$275,737 using the Black-Scholes option pricing model. The following tablesummarizes the assumptions used in arriving at the valuation:

| Number of warrants issued            |   | 283,333   |   |
|--------------------------------------|--------|-----------|--------|
| Stock price at  grant date           |   | $         | 1.50   |   |
| Exercise price                       |   | $         | 4.50   |   |
| Term                                 |   | 24 months |   |
| Volatility                           |   | 173       | %      |
| Annual rate of  quarterly dividends  |   | 0.00      | %      |
| Discount Rate-Bond  Equivalent Yield |   | 3.50      | %      |

 

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5.             EQUITY SECURITIES OFFERINGS

Wecurrently do not have an active offering of our equity securities.

6.            LEGAL PROCEEDINGS

We allegedly owe $200,000 to the former President of our predecessorentity MW Medical, Inc. under a promissory note originally due December 31,2004 bearing an interest rate of 10% per annum. Accordingly, we recordedaccrued interest in the amount of $45,000. The maturity date of the note wasextended to December 31, 2006 by the note holder. To our knowledge, ownershipof the note is the subject of a lawsuit filed in federal court to which we arenot named as a party to. At this time, we have not fully ascertained whetherthe note reflects a still outstanding Company obligation and if it does, do notbelieve that the note and its rights were assigned under proper conditions. Untilthis matter is resolved, we do not believe we are obligated to pay the note orgrant the conversion in lieu of payment. The matter remains underinvestigation. We currently report the liability on our balance sheet, andreserve the right to cancel the note and any obligations that may existthereunder, including principal and any accrued interest, if the validity ofthe note cannot be established.

On May 4, 2006 we received a letter from legal counsel representingArtist House in which Artist House purportedly terminated the SPA dated March27, 2006, and demanded the unconditional return of $1,700,000 million,representing Artist House’s purchase price under the SPA for 566,667 shares ofour common stock plus warrants exercisable into 283,333 shares of our commonstock. In this demand letter, Artist House alleged that we failed to timelyperform certain conditions and obligations under the SPA, including (a)appointing certain individuals affiliated with Artist House to our board ofdirectors, (b) obtaining directors and officers liability insurance, (c)modifying rights related to stock options issued to our CEO, Joe Spellman, (d)appointing Artist House as our licensing agent in Japan, and (e) requiringboard approval for any salary increases to our officers. On July 6, 2006,counsel for the Company received written notice from another attorneyrepresenting Artist House, demanding rescission of the SPA, based on thesimilar claims and allegations of breach and non-performance by the Company andallegations that the alleged “finder” of the investment was acting as anunlicensed broker and therefore the transaction is subject to rescission. TheCompany denies the allegations.

On August 2, 2006, a lawsuit entitled Artist House Holdings, Inc. vs.Davi Skin, Inc. et. al., United States District Court, District of Nevada, CaseNo. 2:06-CV-893-RLH-LRL (the “Artist House Action”), was filed in federaldistrict court in Nevada in connection with this matter. The Company has fileda motion to dismiss the complaint and all allegations against the Company whichhas been fully briefed and is pending before the Court.

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An action entitled Tohid Naeem vs. Carlo Mondavi, Timothy Mondavi, Davi Skin, Inc. et. al., Los Angeles Superior Court Case No. BC355913 was filed on July 25, 2006. The complaint alleges that sometime before the formation of Davi Skin, Inc., Carlo Mondavi and his father Timothy Mondavi orally agreed with plaintiff to form a joint venture, and that, in consideration for plaintiff’s providing certain undefined services to the joint venture, plaintiff would own 48% of a company to be formed by the joint venture, which was ultimately Davi Skin, Inc. Plaintiff pleads damages of not less than One Million Dollars ($1,000,000) and, in a claim for “account stated,” further contends that he is owed $125,000 as the balance due for efforts undertaken prior to the incorporation of Davi Skin, Inc. Davi Skin, Inc. and Timothy Mondavi were later dismissed from the complaint and Carlo Mondavi, the Company’s Chairman remains as the lone defendant who is being defended by the Company. Since there are no written documents or agreements submitted to support the contract claims asserted, we cannot fully evaluate the claims without further formal discovery which has only recently commenced. The Company and Carlo Mondavi do not believe, however, that the claims are meritorious and dispute the underlying facts and conclusions alleged.

On September 20, 2006, an shareholder derivative action entitled RoweD. Nelson, et al. vs. Davi Skin, Inc., et al., Los Angeles Superior Court CaseNo. SC091146 (the “Complaint”) was filed and subsequently served on the Companyand its named officers and directors Carlo Mondavi, Joseph Spellman and JoshLevine. Timothy Mondavi and Robert Mondavi, neither of whom are officers,directors or shareholders of the Company are named but as yet are unserved. TheComplaint states a number of allegations, principally that (a) certainindividual members of the Mondavi family, including our Chairman, CarloMondavi, made intentional misrepresentations or fraudulent omissions about thephysical and financial involvement of the Mondavi family in the Company,certain agreements between the Company and a winery owned by the Mondavi familyknown as Opus One and the sale of the Mondavi winery in order to induce theplaintiffs to invest in the Company, (b) certain individual members of theMondavi family, including our Chairman, Carlo Mondavi, made intentional misrepresentationsto induce plaintiff Sam Medley and his son and business associate (the “Medleys”)to merge MW Medical, Inc., a company the Medleys allegedly contracted to buy,into Davi Skin, Inc., at the time a privately held company, and (c) CarloMondavi, our Chairman and a director, Joseph Spellman, our President and CEOand a director, and Josh LeVine, an executive vice president and director,misused and or wasted corporate assets for their personal benefit in variousways.

Based on these allegations, the Complaint states fifteen (15) causes ofaction against some or all of the named defendants, including, among others,breach of fiduciary duty of loyalty, breach of fiduciary duty of care, unjustenrichment, conversion, waste of corporate assets, fraudulentmisrepresentation, fraud in the inducement, state law securities fraud,intentional interference with contract and promissory estoppel. No writtendocuments or agreements were submitted with the Complaint to support any of theallegations and claims asserted. We do not believe that the claims aremeritorious, 

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dispute many of the facts which form the basis for the claims alleged.The Company and individual defendants intend to defend the case vigorously.

On November 3, 2006, legal counsel for the parties (except for theunaffiliated Mondavi defendants) met to explore possible settlement.

The financial statements do not reflect any adjustments that couldresult from an unfavorable outcome with respect to any of the above legalproceedings. At this juncture we cannot determine the outcome nor range of anysuch loss. We do believe, however, that the above litigation is without merit,and are currently evaluating strategic and legal options best suited for ourfuture growth.

7.            SUBSEQUENT EVENTS

InOctober 2006 we launched our cosmetics products under the “Davi” brand atBergdorf Goodman in New York City. Additionally, we updated our website underthe www.daviskin.com and www.davigroup.com addresses to comprehensivelyillustrate the scope of our cosmetics product line and inform prospectivebuyers about our Company. Although at this time our prospective consumers areunable to purchase our products via the internet, we anticipate havingecommerce capabilities within a short time frame, either through our websitesor through those of our retail partners. Although it is early to discern whatthe ongoing demand for our products will be, we remain cautiously optimisticthat sales will grow accordingly.

OnOctober 12, 2006, we entered into an engagement agreement with Gemstone CapitalLLC to act as a consultant and advisor to us on various financial, operationaland strategic matters.

 

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**Item 2.**                          Plan ofOperation

**Forward-Looking Statements**

Historicalresults and trends should not be taken as indicative of future operations. Our statementscontained in this report that are not historical facts are forward-lookingstatements within the meaning of Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities and Exchange Act of 1934(the “Exchange Act”), as amended. Actual results may differ materially fromthose included in the forward-looking statements. We intend suchforward-looking statements to be covered by the safe-harbor provisions forforward-looking statements contained in the Private Securities LitigationReform Act of 1995, and are including this statement for purposes of complyingwith those safe-harbor provisions. Forward-looking statements, which are basedon certain assumptions and describe our future plans, strategies andexpectations, are generally identifiable by use of the words ”believe,” “expect,”“intend,” “anticipate,” “estimate,” “project,” “prospects,” or similarexpressions. Our ability to predict results or the actual effect of futureplans or strategies is inherently uncertain. Factors which could have amaterial adverse affect on the operations and our future prospects on aconsolidated basis include, but are not limited to: changes in economicconditions, legislative/regulatory changes, availability of capital, interestrates, competition, and generally accepted accounting principles. These risksand uncertainties should be considered in evaluating forward-looking statementsand undue reliance should not be placed on such statements. Further informationconcerning our business, including additional factors that could materiallyaffect our financial results, are included in this discussion and in our otherfilings with the Securities and Exchange Commission.

**Plan of Operation**

Weare principally engaged in the development, manufacturing and distribution ofluxury branded skincare products for men and women which harness theantioxidant health benefits of fermented grape extracts. We also function as alicensing agent to entities interested in associating their products with ourluxury brand names. The development of the luxury branded skincare product lineand its related packaging is now complete. We are now selling nine (9)different products, four (4) products in the women’s line and five (5) productsin the men’s line, which are described in more detail below. All the productsare now available pursuant to our retail launch in October 2006 with BergdorfGoodman.

Weengaged Paul Wilmot Communications (“Wilmot”) to handle our marketing,promotional and public relations activities. The relationship with Wilmotaugments our ability to leverage our visible and respected brand names, and havegenerated significant public relations and marketing exposure and events forus.

***Skin Care Line***

Plantingtechniques at select vineyards utilized exclusively by us produce deeper vines 

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witha lower yield of grapes per vine. After processing, we believe these grapesyield higher concentrations of minerals, vitamins and nutrients than grapesfrom other vineyards. Many of these minerals, vitamins and nutrients are foundin a by-product of the wine making process called pomace. The uniquely longmaceration process to which these grapes are subjected yield polyphenols inrelatively high quantities. Polyphenols are free radical scavengers that, amongother things, help to protect collagen and elastin fibers, and prevent thedestruction of hyaluronic acid in the skin. We believe that the use of pomacein our products, in addition to the use of other value-added uniqueingredients, allows for the creation of a skincare line that can assist inpreventing the visible signs of premature aging.

**a.             The Skin CareMarket**

Theskin care market can be divided into four distinct segments: (a) Luxury; (b)Prestige; (c) Masstige; and (d) Mass. The following is a brief discussion ofeach of these segments.

Luxury

Theluxury segment of the skin care market involves high-end products, sold indepartment stores such as Bergdorf-Goodman, Neiman Marcus, Barneys and SaksFifth Avenue. Skin crème products in this market segment will generally bepriced over $150. Examples of product lines sold in these markets, include LaPrairie, Sisley, Crème de la Mer and Aqua di parma. We are planning to positionour products in this market.

Prestige

Theprestige segment of the skin care market involves quality products, sold inwide distribution through department stores, brand stores and specialty storessuch as Sephora and Ultra. Examples of product lines sold in these marketsinclude Lancôme, Estee Lauder, L’Occitane and Caudalie.

Masstige

Themasstige segment of the skin care market involves discounted products soldprimarily in drug stores, high-end discount stores such as Target and Kohl’sand select department stores. Direct sales distributions are also oftenconsidered to involve masstige product sales. Skin crème products in thismarket segment are generally priced below the prestige segment, but higher thanthe mass segment. This market segment is identified by a higher perceived brandimage based on quality, effectiveness and style, and includes product linessuch as Neutrogena, L’Oreal and Olay.

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Mass

Themass segment of the skin care market involves products sold in grocery and drugstores. These products are generally priced at the lower end of market and thissegment of the market includes product lines such as Dove, Herbal Essence, andAveeno.

**b.             Development of SkinCare Products**

Product

Wehave completed the development of our products and have a contract with amanufacturer of skin care products to produce a series of skin crème productswhich include the following:

**Women’sLine**

**FaceCream (Le Grand Cru)** —An ultra-luxurious creamdesigned for women to provide a unique, long lasting, slow released infusion ofanti-oxidants and moisture to the skin in order to make it smoother, softer andmore supple;

**SPF 30 Lotion**— Oil free everyday moisturizer with UVB/UVA protection of a SPF 30. Formulatedas a light, non-greasy formula, which is perfect for any type skin tomoisturize and protect against oxidative damage such as pollution and stress;

**SkinCleanser** — A gentle, luxurious creamy product designed tocleanse and condition at the same time;

**Misting / Toning Spray** — A super hydrating mist, formulatedto tone, hydrate and refresh dull complexion.

**Men’sLine**

**FaceCream (Le Grand Cru)** —An ultra-luxurious creamdesigned for men to provide a unique, long lasting, slow released infusion ofanti-oxidants and moisture to the skin in order to make it smoother, softer andmore supple;

**SPF 15Lotion** — Oil freeeveryday moisturizer with UVB/UVA protection of a SPF 15. Formulated as alight, non-greasy formula, which is perfect for any type skin to moisturize andprotect against oxidative damage such as pollution and stress;

**Shave Cream** —A luxurious shave cream designed to provide an extraordinarily close yetcomfortable shave;

**After Shave Tonic** — An aftershave elixir /tonic used to soothe freshly shavedskin, reduce irritation and provide moisturizing properties;

**ExfoliatingCleanser** —Infused with crushed grape seeds this productis designed to cleanse, exfoliate and condition in the same time.

Wedeveloped formulations for our products using a proprietary bio complex blendof ten different raw materials, consistent across our product line. The keyitems are the materials containing the anti-oxidant properties believed to helpfight free radical damage 

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causedby sunlight, stress and other environmental factors. Other key ingredients usedin these formulas have been selected for their efficacy in helping to correctexisting damage, thereby supporting anti-aging goals.

Weconsider these formulations, as they have been developed and tested, to beproprietary, and thus have been and will remain vigilant in protecting thedetails of our developing product mix.

Asthe products are expected to be sold over the counter, we do not anticipateneeding or obtaining any Federal Food and Drug Administration approvals, and wedo not plan on doing any clinical testing of any kind. The products containingSPF or any other over the counter ingredients, however, will need to meet FDAtesting regulations as well as the global standards for sales in countriesother than the United States.

Manufacture

We began initial production in preparation for our product launch inOctober 2006, and received commercial batches of each product, bottle andpackage for our final approval. Additionally, we completed the process ofchoosing all peripheral items involved in the manufacturing and marketingprocess, including:

i.              theshape and size of the product containers;

ii.             thetypes of caps;

iii.            thepackaging;

iv.            thelogo and label designs; and

v.             unitcartons.

**c.             Marketingand Distribution**

Our products are currently available over the counter at the luxuryretail entity Bergdorf Goodman in New York City.

**d.             Competition**

Amongall the brands found in this industry, we consider our closest competitor to beCaudalie. Caudalie is a French spa and skincare line that reflects our productconcept and closely resembles our proposed product line. The creators behindCaudalie are wine makers with a family vineyard located in the wine region ofFrance. The concept of the Caudalie product line, like ours, is an extrapolationon the benefits of the antioxidants and polyphenols found mainly in grapeseeds. The advantage of Caudalie over our proposed product in the marketplaceat this time is two fold: (a) they have been on the market for over a decadeand have grown to be a global brand with distribution outlets all over theworld; and (b) they serve a larger target audience with a lower price pointthan we anticipate.

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Theprime difference between Caudalie and our proposed product line is expected tobe based on the market segment and quality of ingredients that will be includedin our products. Unlike Caudalie, who is segmented in the *prestige*market, we expect our product line to be sold in the *luxury*market. Further, our brand will use only the highest quality ingredientsavailable, including wine extract, producing a highly concentrated preparationof antioxidant polyphenols. We have also created our own proprietarybio-delivery complex that encapsulates a variety of selected antioxidantingredients to be effectively delivered directly to the skin withoutcompromising their integrity. We are also using our own uniquely innovative rawmaterials derived from the wine making process as opposed to only usingcommercially available raw materials. Our product line will also be packaged inhigh quality containers with inviting labels, versus the lesser quality plastictubes and bottles used by Caudalie.

Otherbrands with similar lifestyle stories include SKII, Creme de la Mer and L’Occitane.These brands share the theme of being derived from nature and generally havinga named or unnamed individual who was inspired by the benefits of certain rawmaterials. For example, the secret formula behind SKII is their “Pitera”, ayeast extract discovered by a monk who noticed the wonderfully youthful handsof workers who make Sake. These brands have revealed their stories and theirinspirations by creating product lines where customers are invited to share intheir innovations.

***Licensing Agent***

In order to further our success and to leverage ourBoard Chairman’s highly visible and well-respected Mondavi name into othermarket categories, we entered into an agreement with Constellation Brands Group(“CBG”), the parententity of The Robert Mondavi Corporation (“RMC”). RMC has retained us to act astheir licensing agent in agreements with Waterford Wedgewood USA, Inc. (“Waterford”)on the development of a Robert Mondavi stemware line. CBG owns certainintellectual property rights held in RMC, including the valued Robert-Mondavilicensed marks (the “Intellectual Property”), and we have been engaged to: (1)negotiate opportunities with Waterford to license the Intellectual Propertywith Waterford’s stemware products, (2) develop and implement strategic plansfor branding Waterford’s products, and (3) facilitate the terms and conditionsof any agreements with Waterford. In exchange, CBG has agreed to compensate uswith a revenue share of thirty three and one-third percent (33 -1/3%) of thegross revenues collected in any agreement we establish with Waterford. Grossrevenues means the gross receipts actually received from any agreement withWaterford, including without limitation advance payments, minimum guarantees,royalty payments and other license fees.

We received a one-time$25,000 signing bonus in the first quarter of 2006 for the successfulnegotiation and execution of the Constellation licensing arrangement. Per theterms of the agreement, we do not expect significant revenues from thisagreement to begin until the first quarter of 2007.

Underthe terms of the investment from Artist House, Artist House became a licenseeof Davi to help market and distribute our products in Japan. Under the terms ofthe 

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agreement,Artist House is obligated to facilitate the terms and conditions of any agreementswith Davi. In exchange, Davi would compensate Artist House with a revenue shareof thirty three and one-third percent (33 -1/3%) of the gross revenuescollected in any agreement we establish with Artist House. As has beenpreviously disclosed, Artist House has made demand upon us to rescind theirinvestment in the Company, which, among other things, would terminate ArtistHouse’s obligation to act as our licensee for marketing and distribution inJapan. Failure to have a licensee in Japan could have an adverse impact on ourability to penetrate the Japanese consumer retail market and to promote ourproduct in Japan.

We have learned that certainparties have applied for our trademark in Japan, and believes those parties areobligated to transfer that trademark to us. We have begun that process. Failureto recapture this trademark could have a material impact on our financialperformance.

a.             BusinessDevelopment

As part of our effort to generate revenue fromlicensing intellectual property, we areseeking opportunities to acquire small companies in related businesses. Anyacquisition we enter into at this point is expected to bring new capital andnew opportunities with it; thereby offsetting our current corporate overheadand maximizing our ability to pursue future opportunities.

b.             Sub-Agencies

We previously entered into a Stock Purchase Agreement with Artist HouseHoldings, Inc. in which Artist House invested an additional $1,700,000 into ourstock and we received a net amount of $1,496,000 after payment of a finder’sfee. In that agreement, we have agreed that Artist House Holdings, Inc. wouldbe our licensing agent in Japan. In this way we expect to create a more globalpresence and thereby generate additional revenues. As has been previouslydisclosed, Artist House has made demand upon us to rescind their investment inthe Company, which, among other things, would terminate Artist House’sobligation to act as our licensee for marketing and distribution in Japan. Failureto have a licensee in Japan could have an adverse impact on our ability topenetrate the Japanese consumer retail market and to promote our product inJapan.

c.             Competition

Competitionfor our proposed new venture of housing various luxury brands under one parentcompany are Louis Vuitton, Moet Hennesey and Gucci Group. These competitorsfocus mainly on brands that tend to complement their already existing line ofbusiness, while we are intending to focus on luxury brands in all areas ofdaily living. We feel that there are numerous companies that are available foracquisition or partnering who would ultimately be considered too small for ourcompetition to acquire. We anticipate that such acquisitions will complementour licensing efforts related to the Mondavi and Davi names.

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**Executive AdvisoryBoard**

OurBoard of Directors has created a blue ribbon Executive Advisory Board,assembled to assist our officers in making certain high level planningdecisions. While the members of the Executive Advisory Board have no authorityover our business operations, the board anticipates that their input willprovide great value to our executives in their decision making process. Thisadvisory board includes the following persons along with a brief description oftheir business background:

**Robert G. Mondavi** is the Founder and Chairman Emeritus of Robert Mondavi Winery. At theage of 93, Mr. Mondavi is a global emissary of American food and wine. He isalso currently active as a major benefactor of cultural and educationalinstitutions, including Copia, an American center for Wine Food and the Arts;and the University of California at Davis, establishing the Robert MondaviInstitute for Wine and Food Science.

**Timothy J. Mondavi** is the Vice Chairman and Winegrower for Robert Mondavi Winery. In thisrole, Mr. Mondavi leads the winegrowing team at the winery in setting the styleand vision for every wine made. Mr. Mondavi graduated from the University ofCalifornia at Davis in 1974.

**Jean-Marc Benet**grew up in the beauty industry. His father, Andre Benet, was thefounder of Decleor, a Paris-based botanical professional skincare company. TheBenet Family acquired Darphin, which at the time has a small skincare linebased on aromatherapy and natural plant extracts. Over the last decade, theBene family has grown Darphin to a full professional and retail skincare linewith over 90 products. Today we are dedicated to the development, manufacturingand marketing of prestige skin care and makeup products. Under the guidance ofJean-Marc Benet and his family, Darphin has grown from $500,000 in annual salesto in excess of $50,000,000 in annual sales and is currently sold in over 60countries around the world. Estee Lauder acquired Darphin in 2003. Jean-Marchas remained on as General Manager for Darphin USA.

**JerryLeVine** is a partnerwith Grobstein, Horwath & Company LLP. He is a Certified Public Accountantwith more than 30 years experience. Mr. LeVine specializes in providingaccounting and auditing services to both private and publicly held companies. Mr.LeVine is a graduate from California State University, Northridge and is amember of the AICPA and the California Society of Certified Public Accountants.

**R.Michael Mondavi**resignedfrom our Advisory board in June 2006 to pursue other interests.

**Employees**

OnSeptember 15, 2006, Mr. Theodore Lanes resigned as our Chief Financial Officer.There was no known disagreement with Mr. Lanes on any matter relating to our 

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operations,policies or practices. Effective October 12, 2006, one of our directors, Mr.Joshua LeVine, agreed to serve as the interim Chief Financial Officer until apermanent replacement is found.

We currently have one full-timeadministrative employee and three officers on payroll. The majority ofadministrative requirements are handled by outside sources. Our employees arenot represented by labor unions or collective bargaining agreements. Our keyemployees are Mr. Carlo Mondavi, founder and chairman of the board ofdirectors, Mr. Joshua LeVine, co-founder, executive vice president and creativedirector and Mr. Joseph Spellman, our president and Chief Executive Officer.

**Assets**

Ourtotal assets as of September 30, 2006 were $2,030,176. Our assets largelyconsist of cash in the amount of $355,863, certificates of deposit in theamount of $825,488 and inventory of $765,800. Our total assets as of September30, 2005, were $1,927,525, including cash and certificates of deposit in thecombined amount of $1,865,231. The increase in our assets for the period endingSeptember 30, 2006, is a result of our sales of additional common stock throughthe private placements.

In anticipation of our skincare productlaunch in October 2006, we purchased $765,800 of inventory consisting ofvarious cosmetics ingredients, associated packaging and final product. Theinventory consists of:

| Raw Materials and Components: |   | 727,450 |    |
|-------------------------------|--------|---------|---------|
| Finished Goods:               |   | 38,350  |    |
| Total Inventory:              |   | $       | 765,800 |   |
|                               |        |         |         |  |

 

**Planned Purchases of Equipment**

We do not anticipate purchasing any realproperty or significant equipment during the next twelve (12) months.

**Liabilitiesand Stockholders Deficit**

Ourtotal liabilities as of September 30, 2006 were $371,195. Our liabilitiesconsisted of (i) accounts payable in the amount of $114,620, and (ii) $245,000in convertible notes payable to a related party. The accrued interest on thenote payable is $45,000, including $5,000 accrued in the three months endedSeptember 30, 2006. The note was originally issued in March of 2003. It camedue, after extensions, on December 31, 2005 and remains unpaid. The ownershipof the note is the subject of a lawsuit filed in federal court; however, we arenot named as a party to the lawsuit. While we report the liability on ourbalance sheet, we reserve our right to cancel the note and any obligations thatmay exist thereunder, including principal and any accrued interest, if itcannot be established that the note survived the bankruptcy proceeding of MWMedical, Inc.

 

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**Liquidity and Capital Resources**

Asof September 30, 2006, we had current assets consisting of cash andcertificates of deposit in the combined amount of $1,181,351. Thedecrease in our net cash position from the period ending December 31, 2005 isprimarily attributable to the purchase of product inventory.

Weare not certain as to whether our current cash balance will be sufficient tofund our operations for the next twelve (12) months, as well as meet therequirements for completing our product launch and associated promotion andadvertising. While we anticipate ongoing revenue from our product launch ofOctober 2006, as well as from our licensing agreement, the extent and timing ofsuch revenue is largely unclear at this time. In order to support our workingcapital needs and to provide for previously unanticipated legal expenses, weare considering the possibility of raising additional capital as well as otherstrategic options.

**Off Balance Sheet Arrangements**

As of September 30, 2006,there were no off balance sheet arrangements.

Resultsof Operations — For the Three Months Ended September 30, 2006 Compared toSeptember 30, 2005

Operating expenses for the three months ended September 30, 2006 were$641,010, compared to $287,802 for the three months ended September 30, 2005,an increase of $353,208. The increase in operating expenses is primarily due toan increase in selling, general & administration expenses of $241,032consisting of increased product development, payroll and public relationsexpenses, consulting fees of $51,903 and professional fees of $64,102 inconnection with increased legal expenses.

Other income for the three months ended September 30, 2006 was $13,728,compared to $3,840 for the three months ended September 30, 2005, an increaseof $9,888. The increase in other income is primarily due to an increase ininterest income of $12,368.

Resultsof Operations — For the Nine Months Ended September 30, 2006 Compared toSeptember 30, 2005

Operating expenses for the nine months ended September 30, 2006 were$3,477,093, compared to $877,367 for the nine months ended September 30, 2005,an increase of $2,599,726. The increase in operating expenses is primarily dueto an increase in employee option expense of 2,099,949, selling, general &administration expenses of $394,731 consisting of increased productdevelopment, payroll and public relations expenses, and professional fees of$156,842 in connection with increased legal expenses.

Other income for the nine months ended September 30, 2006 was $3,332,compared to $4,162 for the nine months ended September 30, 2005, a decrease of$830.

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**Going Concern**

We may requireadditional capital for our operational activities and our ability to raisecapital through future issuances of common stock is unknown. Obtainingadditional financing and attaining profitable operations are necessary for usto continue operations. These factors, among others, raise substantial doubtabout our ability to continue as a going concern. The unaudited consolidatedfinancial statements do not include any adjustments that may result from theoutcome of these aforementioned uncertainties.

**CriticalAccounting Policies**

In December 2001, the SEC requested that all registrants list theirthree to five most “critical accounting polices” in the Management Discussionand Analysis. The SEC indicated that a “critical accounting policy” is onewhich is both important to the portrayal of a company’s financial condition andresults, and requires management’s most difficult, subjective or complex judgments,often as a result of the need to make estimates about the effect of mattersthat are inherently uncertain. We believe that the following accountingpolicies fit this definition:

Revenue recognition.  Revenuesare recognized when services are rendered and/or products are delivered. Costsand expenses are recognized during the period in which they are incurred.

Stock-based compensation  TheCompany applies Financial Accounting Standard 123R, “Accounting for Stock BasedCompensation,”, which requires the recognition of compensation cost based uponthe fair value of stock options at the grant date using the Black-Scholesoption pricing model.

OurBoard of Directors administers our stock option plan which provides for thegranting of rights to purchase shares to our directors (including non-employeedirectors), executive officers, key employees, and outside consultants. OurBoard of Directors sets the vesting period and exercise price per issuancebasis as determined by the purpose of the individual issuance.

OnNovember 1, 2005, we entered into an employment agreement (“Agreement”) withour President and Chief Executive Officer. The term of the Agreement is for twoyears with an annual salary of $120,000. The Agreement provides for bonuses toour President based upon our financial performance to be determined at the solediscretion of our Board of Directors after consultation with our President. TheAgreement also provides for equity based compensation to purchase up to1,250,000 shares of our common stock (“Stock Options”) at a purchase price of$0.25 per share. The Stock Options will vest as follows: 250,000 shares uponexecution of the Agreement; 500,000 shares on March 1, 2006; and 250,000 shareson each March 1, and June 1, 2006. The estimated fair value of the StockOptions have been determined using Black-Scholes option pricing model using the

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followingassumptions:

| exercise price of                               |   | $0.25                |
|-------------------------------------------------|--------|----------------------|
| closing stock price on date of the Agreement of |   | $3.50                |
| historical stock price volatility of            |   | 77%                  |
| risk free interest rate of                      |   | 3.50%                |
| dividend yield of                               |   | 0% and 3 year  term. |

 

Theestimated fair value of the Stock Options totaled $4,102,537, which through theperiod ended September 30, 2006, has been completely expensed.

In order to determine compensation onoptions issued to consultants, as well as fair value disclosures for employeesoptions, the fair value of each option granted is estimated on the date ofgrant using the Black-Scholes option-pricing model. We estimate the requisite serviceperiod used in the Black-Scholes calculation based on an analysis of vestingand exercisability conditions, explicit, implicit, and/or derived serviceperiods, and the probability of the satisfaction of any performance or serviceconditions. We also consider whether the requisite service has been renderedwhen recognizing compensation costs.

Useof estimates.  Thepreparation of consolidated financial statements in conformity with accountingprinciples generally accepted in the United States requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe consolidated financial statements and the reported amounts of revenue andexpenses during the reporting period. Actual results could differ from thoseestimates.

Fixedassets.  Fixedassets are stated at cost less accumulated depreciation. Depreciation isprovided principally on the straight-line method over the estimated usefullives of the assets, which are generally 3 to 10 years. The cost of repairs andmaintenance is charged to expense as incurred. Expenditures for propertybetterments and renewals are capitalized. Upon sale or other disposition of adepreciable asset, cost and accumulated depreciation are removed from theaccounts and any gain or loss is reflected in other income (expense). Weperiodically evaluate whether events and circumstances have occurred that maywarrant revision of the estimated useful life of fixed assets or whether theremaining balance of fixed assets should be evaluated for possible impairment.

Fairvalue of financial instruments.  Statement of Financial Accounting Standards (“SFAS”) No.107, “Disclosure About Fair Value of Financial Instruments”, requires us todisclose, when reasonably attainable, the fair market values of its assets andliabilities which are deemed to be financial instruments. The carrying amountsand estimated fair values of our financial instruments approximate their fairvalue due to their short-term nature.

**RecentlyIssued Accounting Pronouncements**

InMay 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error 

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Corrections,”which replaces APB Opinion No. 20 and FASB Statement No. 3. This pronouncementapplies to all voluntary changes in accounting principle, and revises therequirements for accounting for and reporting a change in accounting principle.SFAS No. 154 requires retrospective application to prior periods’ financialstatements of a voluntary change in accounting principle, unless it isimpracticable to do so. This pronouncement also requires that a change in themethod of depreciation, amortization, or depletion for long-lived,non-financial assets be accounted for as a change in accounting estimate thatis affected by a change in accounting principle. SFAS No. 154 retains manyprovisions of APB Opinion 20 without change, including those related toreporting a change in accounting estimate, a change in the reporting entity,and correction of an error. The pronouncement also carries forward theprovisions of SFAS No. 3 which govern reporting accounting changes in interimfinancial statements. SFAS No. 154 is effective for accounting changes andcorrections of errors made in fiscal years beginning after December 15, 2005.The Statement does not change the transition provisions of any existingaccounting pronouncements, including those that are in a transition phase as ofthe effective date of SFAS No. 154.

InFebruary 2006, the FASB issued SFAS No. 155 entitled “*Accountingfor Certain Hybrid Financial Instruments*,” an amendment of SFAS No.133 (“*Accounting for Derivative Instruments and HedgingActivities*”) and SFAS No. 140 (“*Accounting for Transfersand Servicing of Financial Assets and Extinguishments of Liabilities*”).In this context, a hybrid financial instrument refers to certain derivativesembedded in other financial instruments. SFAS No. 155 permits fair valuere-measurement of any hybrid financial instrument which contains an embeddedderivative that otherwise would require bifurcation under SFAS No. 133. SFASNo. 155 also establishes a requirement to evaluate interests in securitizedfinancial assets in order to identify interests that are either freestandingderivatives or “hybrids” which contain an embedded derivative requiringbifurcation. In addition, SFAS No. 155 clarifies which interest/principalstrips are subject to SFAS No. 133, and provides that concentrations of creditrisk in the form of subordination are not embedded derivatives. SFAS No. 155amends SFAS No. 140 to eliminate the prohibition on a qualifyingspecial-purpose entity from holding a derivative financial instrument thatpertains to a beneficial interest other than another derivative. When SFAS No.155 is adopted, any difference between the total carrying amount of thecomponents of a bifurcated hybrid financial instrument and the fair value ofthe combined “hybrid” must be recognized as a cumulative-effect adjustment ofbeginning deficit/retained earnings.

SFASNo. 155 is effective for all financial instruments acquired or issued after thebeginning of an entity’s first fiscal year that begins after September 15,2006. Earlier adoption is permitted only as of the beginning of a fiscal year,provided that the entity has not yet issued any annual or interim financialstatements for such year. Restatement of prior periods is prohibited.

Management does not believethat SFAS No. 154 and No. 155 will have an impact on our consolidated financialstatements.

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Otherrecent accounting pronouncements issued by the FASB (including its EmergingIssues Task Force), the American Institute of Certified Public Accountants, andthe SEC did not or are not believed by management to have a material impact onour present or future consolidated financial statements included elsewhereherein.

**Item 3.    Controls and Procedures**

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2006. This evaluation was carried out under the supervision and with the participation of our President and Chief Executive Officer, Mr. Joseph Spellman, and our interim Chief Financial Officer, Mr. Joshua LeVine. Based upon that evaluation, our Chief Executive Officer and interim Chief Financial Officer concluded that, as of September 30, 2006, our disclosure controls and procedures are effective. There have been no significant changes in our internal controls over financial reporting during the quarter ended September 30, 2006 that have materially affected or are reasonably likely to materially affect such controls.

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

****Limitations on the Effectiveness of Internal Controls****

Our management does not expect that our disclosurecontrols and procedures or our internal control over financial reporting willnecessarily prevent all fraud and material error. An internal control system,no matter how well conceived and operated, can provide only reasonable, notabsolute, assurance that the objectives of the control system are met. Further,the design of a control system must reflect the fact that there are resourceconstraints, and the benefits of controls must be considered relative to theircosts. Because of the inherent limitations in all control systems, noevaluation of controls can provide absolute assurance that all control issues andinstances of fraud, if any, within our operations have been detected. Theseinherent limitations include the realities that judgments in decision-makingcan be faulty, and that breakdowns can occur because of simple error ormistake. Additionally, controls can be circumvented by the individual acts ofsome persons, by collusion of two or more people, or by management override ofthe internal control. The design of any system of controls also is based inpart upon certain assumptions about the likelihood of future events, and therecan be no assurance that any design will succeed in achieving our stated goalsunder all potential future conditions. Over time, control may become inadequatebecause of changes in conditions, or the degree of compliance with the policiesor procedures may deteriorate.

 

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**PART II — OTHERINFORMATION**

**Item 1.    Legal Proceedings**

Otherthan as described below, we are not aware of any pending or threatened legalproceeding to which any of our officers, directors, or any beneficial holdersof 5% or more of our voting securities are adverse to us or have a materialinterest adverse to us.

Pleasesee Part I — Item 1.  Financial Statements.  Notes toFinancial Statements:  NOTE 6 — Legal Proceedings

**Item 2.    Unregistered Sales of Equity Securities andUse of Proceeds**

None

**Item 3.    Defaults upon Senior Securities**

None

**Item 4.    Submission of Matters to a Vote of SecurityHolders**

Weprovided notice to the shareholders of the Company regarding the annual meetingof the Company, scheduled for July 19, 2006, the purpose of which was to voteon the nomination of four individuals to the Board of Directors of the Company.The candidates for the Board of Directors included three Artist House nominees, Messrs. Taro Yamakawa, Takashi Kusube andYuzuru Kawabata (the “Artist House Candidates”), whose nominations wererequired under the SPA. According to Artist House’s counsel, the Artist HouseCandidates declined their nominations and will not stand for election to theBoard of Directors of the Company. As a result of the decision of the ArtistHouse Candidates to withdraw as nominees to the Company’s Board of Directors,the Company cancelled the annual meeting of the shareholders and will providenotice as appropriate when the annual meeting of the shareholders isrescheduled.

**Item 5.    Other Information**

OnJuly 7, 2006, we notified Child, Van Wagoner & Bradshaw that we dismissedthem as our independent registered public accounting firm. During the mostrecent fiscal year and through July 7, 2006, there were no disagreements withChild, Van Wagoner & Bradshaw on any matter of accounting principles,practices, financial statement disclosure or auditing scope or procedure, whichdisagreements, if not resolved to the satisfaction of Child, Van Wagoner &Bradshaw, would have caused it to make reference thereto in its report on thefinancial statements for such years.

 

The decision to change independent registered publicaccounting firms was approved by the Board of Directors of the Company.

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OnAugust 2, 2006, we held a special meeting of the Board of Directors duringwhich we i). elected Joe Spellman to be a director effective August 2, 2006, ii).ratified the appointment of Buchalter Nemer as our legal counsel based on aprofessional services agreement dated April 19, 2006 and iii). ratified theappointment of Rose, Snyder and Jacobs as our independent accounting firm basedon a professional services agreement dated July 7, 2006. We also ratified theengagement of our public relations, design and advertising, and otheroperational companies important to our business.

OnSeptember 15, 2006, Mr. Theodore Lanes resigned as our Chief Financial Officer.There was no known disagreement with Mr. Lanes on any matter relating to ouroperations, policies or practices.

OonSeptember 20, 2006, we issued a press release regarding our exclusive retailpartnership with Bergdorf Goodman, a subsidiary of the Nieman Marcus Group, forthe launch of our line of luxury skincare products, which occurred in October2006.

OnSeptember 29, 2006, we entered into an engagement agreement withPondelWilkinson Inc., an investor relations firm to assist us with activitiesin this regard.

 

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**Item 6.    Exhibits**
| Exhibit  Number | ** ** | **Description of Exhibit**                                                                                                                                            | ** ** |
|-----------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| 31.1            |       | Certification of Chief  Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002                             |       |
| 31.2            |       | Certification of Chief  Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002                             |       |
| 32.1            |       | Certification of Chief Executive Officer and Chief Financial Officer  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |       |

 

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**SIGNATURES**

In accordance with therequirements of the Securities and Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.
|            | ** ** | **Joseph Spellman** |
|------------|------------|---------------------|
| ** ** | ** ** | ** **          | ** ** | ** ** |
| Date:      |       | November 20, 2006   |
|       | ** ** |                |   |   |
|       | ** ** |                |   |   |
|       | ** ** |                |   |   |
|       |       | By:                 |   | /s/Joseph Spellman |
|       | ** ** |                | ** ** | **Joseph Spellman** |
|       |       | Title:              | ** ** | **Chief Executive Officer** |
|       | ** ** |                |   |   |
|       | ** ** |                |   |   |
|       | ** ** |                |   |   |
|       |       | By:                 |   | /s/Joshua LeVine |
|       | ** ** |                | ** ** | **Joshua LeVine** |
|       |       | Title:              | ** ** | **Chief Financial Officer** |
|       | ** ** |                |   |   |

 

 

 

 

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