Notes to Condensed Consolidated Interim Financial Statements

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

Expected volatility	17.30	%

Expected dividends	0

Expected Term (Years)	3

Risk free interest rate	4.70	%

The total incremental compensation expense from the cancellation and replacement of the awards was $196,763, which is expected to be recognized over a period of 32 months from March 16, 2006. For the three months ended March 31, 2008 and 2007, the Company recorded compensation expense of $2,236 and $18,446, respectively related to the replacement option grants to the board members. On October 19, 2007, one of the board members that was granted 421,875 replacement options resigned. Any non vested portion of the option expired immediately and the vested portion of the option was exercisable for a period of 90 days following optionee’s termination. As of January 19, 2008, the former board member did not exercise any of the vested options; subsequently all options have been forfeited.

The 421,875 options granted to two-consultants that vest over a 36-month period were granted for services not yet rendered. The Company used the provisions of FAS 123(R) and EITF 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services to account for the compensation expense associated with these grants. The Company measured the compensation associated with these grants based on the fair value of the equity instruments issued. There is no measurement date to calculate the fair value of the options at the date of grant because the performance commitment had not yet occurred (there are no sufficiently large disincentives for non-performance) and the performance by the two consultants was not complete. The Company calculated the expense at each reporting period based upon fair value of the options that vested during the reporting period using the fair value on the reporting date. Fair value was calculated using the Black-Scholes model. The options were treated as liability awards upon the original grant because the Company did not have a sufficient number of authorized shares. The options became equity awards on the date they were cancelled and re-granted. For the three months ended March 31, 2008 and 2007, the Company recorded compensation expense of $12,720 and $92,377, respectively.

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

Notes to Condensed Consolidated Interim Financial Statements

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

	March 31, 2008			March 31, 2007
Expected volatility		125.93	%		94.45	%
Expected dividends		None			None
Expected term (in years)		2.57			3.5
Risk-free interest rate		1.99	%		4.51	%

2006 Option Grants

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

On June 19, 2006 the Company granted 150,000 options to the Vice President of Finance and Operations. The options vest quarterly beginning three months after the grant date at 12,500 per quarter and have an exercise price of $1.19. In March 2007 the Company cancelled all of these options in exchange for a cash payment to this Vice President of $88,500.

For the three months ended March 31, 2007, the Company recorded a total compensation expense of $67,190 related to the Former Vice President's June 19, 2006 option grant. Total compensation was made up of the $9,135 service period expense for the quarter and the $58,055 from the unrecognized compensation that effectively vests upon repurchase of the options. The $30,445 cost in excess of the repurchase amount is the difference between the $88,500 total cash paid less the unrecognized cost of $58,055 and is recognized as a charge to additional paid in capital.

The total compensation expense related to the non-vested options on 2006 awards at March 31, 2008 is $31,156. For the three months ended March 31, 2008 and 2007, the Company recorded compensation expense of $2,417 and $16,593, respectively, related to the two grants above.

Notes to Condensed Consolidated Interim Financial Statements

On May 9, 2006 the Company granted 300,000 options to a consultant at an exercise price of $1.06. The options vest quarterly beginning three months from the date of the agreement and expire on May 9, 2008. The Company used the provisions of FAS 123(R) and EITF 96-18 to account for the compensation expense associated with this grant. The Company will measure the compensation associated with this grant based on the fair value of the equity instrument. There is no measurement date to calculate the fair value of this grant at the date of grant because the performance commitment had not yet occurred and the performance by the consultant was not complete. The Company will calculate the expense at each reporting period based on the fair value of the options that will vest during the reporting period. For the three months ended March 31, 2008 and 2007, the Company recorded compensation expense of $35 and $67,965, respectively.

On October 12, 2006 the Company granted 375,000 options to a consultant. 175,000 options vest immediately with the remaining 175,000 vesting annually over a three-year period with the first vesting occurring one year after the year of grant. In addition, the Company granted three other consultants a total of 80,000 options that vest annually over a three-year period with the first vesting occurring one year after the year of grant. The 455,000 options were granted for services not yet occurred. The Company used the provisions of FAS 123(R) and EITF 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services to account for the compensation expense associated with these grants. The Company measured the compensation associated with these grants based on the fair value of the equity instruments issued. There is no measurement date to calculate the fair value of the options at the date of grant because the performance commitment had not yet occurred (there are no sufficiently large disincentives for non-performance) and the performance by the consultants were not complete. The Company will calculate the expense at each reporting period based upon fair value of the options that vested during the reporting period using the fair value on the reporting date. At March 31, 2008 and 2007 no options under this grant had vested, therefore no expense had been incurred.

The fair value of the options granted to a consultant on May 9, 2006 was calculated using the Black-Scholes option valuation model on February 9, 2008 (vest date) with the following assumptions:

	May 9, 2006 Consultant Grant (Vest 2008)
Expected Volatility		114.58	%
Expected dividends		None
Expected Term (Years)		.25
Risk Free Interest Rate		2.31	%

2007 Option Grants

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

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

Notes to Condensed Consolidated Interim Financial Statements

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

On August 27, 2007, the Company granted 20,000 options to an employee of the Company. The options vest on an annual basis over three years, with the first one-third vesting on the one year anniversary of the grant date and have an exercise price of $1.37. The options expire on August 27, 2012. On March 14, 2008 the employee resigned and the options were forfeited.

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

On September 28, 2007, the Company granted warrants to a consultant to purchase up to 150,000 shares of common stock from the Company at an exercise price of $1.38 per share. The warrants were granted to the consultant in accordance with an Investor Relations Agreement dated May 9, 2006, as amended by the First Addendum dated September 19, 2007, entered into by the Company and the consultant. The vesting schedule of the consultant warrants are contingent upon the number of shares issued upon the exercise of investor warrants sold by the Company in a private placement in May 2007. A total of 4,000,000 warrants were issued in that private placement. The warrants become exercisable, subject to terms and conditions of the investor relations agreement, as follows: the first one-third of the consultant’s warrants vest upon the exercise of 1,217,200 investor warrants, the second one-third of the consultant’s warrants vest upon the exercise of 2,434,400 investor warrants, and the final one-third of the consultant’s warrants vest upon the exercise of 3,651,600 investor warrants. The Company used the provisions of FAS 123(R) and EITF 96-18 to account for the compensation expense associated with this warrant issuance. The Company measures the compensation associated with this issuance based on the fair value of the equity instrument. There was no measurement date to calculate the fair value of this issuance at the date of grant because the performance commitment had not yet occurred and the performance by the consultant was not complete. The Company calculates the expense at each reporting period based on the fair value of the warrants that will vest during the reporting period. At March 31, 2008 no warrants under this issuance had vested, therefore no expense had been incurred.

On November 12, 2007, the Company granted 24,000 options to a consultant. The first one-third of the options vest on December 1, 2007, and the second and final one-third of the options vest on December 1, 2008 and 2009, respectively. The grant has an exercise price of $0.78 per share. The options expire on April 7, 2012. The Company will use the provisions of FAS 123(R) and EITF 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services to account for the compensation expense associated with this grant. The Company will measure the compensation associated with these grants based on the fair value of the equity instruments. At March 31, 2008, no additional options vested, therefore no expense had been incurred.

The total compensation expense related to the non-vested options on 2007 awards to employees for the three months ended March 31, 2008 is $361,745. The Company recorded compensation expense of $56,577 for the three months ended March 31, 2008 on the 2007 awards to employees.

Notes to Condensed Consolidated Interim Financial Statements

On February 29, 2008, the Company granted 50,000 options to its Senior Vice President of Sales. On the same date, the Company granted 50,000 options to an employee. The options vest on an annual basis over three years, with the first one-third vesting on the one year anniversary of the grant date and have an exercise price of $0.24. The options expire on February 29, 2012 and February 28, 2013, respectively. The stock options as of the date of the grant have a fair value of $18,956, which shall be expensed as compensation in the Company’s consolidated statement of operations ratably over a 36 month service period.

2008 Option Grants

On March 26, 2008, the Company granted 50,000 options to an employee. The options vest on an annual basis over three years, with the first one-third vesting on the one year anniversary of the grant date and have an exercise price of $0.31. The options expire on March 26, 2013. The stock options as of the date of the grant have a fair value of $13,175, which shall be expensed as compensation in the Company’s consolidated statement of operations ratably over a 36 month service period.

The total compensation expense related to the non-vested options on 2008 awards to employees for the three months ended March 31, 2008 is $24,260. The Company recorded compensation expense of $469 for the three months ended March 31, 2008 on the 2008 awards to employees.

Notes to Condensed Consolidated Interim Financial Statements

The fair value of the options granted to employees on February 29, 2008 and March 26, 2008 were calculated using the Black-Scholes option valuation model with the following assumptions:

	February 29, 2008 Option Grants			March 26, 2008 Option Grant
Expected volatility		115.51	%		125.74	%
Expected dividends		None			None
Expected term (in years)		4-5			5
Risk-free interest rate		2.50	%		2.55	%

A summary of option activity under the 2005 Plan as of March 31, 2008 and changes during the three months then ended is presented below:

	Shares			Weighted Average Exercise Price		Weighted - Average Remaining Contractual Term		Aggregate Intrinsic Value
Options
Outstanding, January 1, 2008		3,486,500		$	1.00
Granted		150,000			.26
Cancelled		(270,000	)		1.26
Outstanding, March 31, 2008		3,366,500		$	.95		2.95	$	-

Exercisable, March 31, 2008		2,346,906		$	.94		2.63	$	-

A summary of the status of the Company's non-vested shares as of March 31, 2008, and changes during the three months ended March 31, 2008, is presented below:

	Shares			Weighted- Average Grant-Date Fair Value
Non-vested Shares
Non-vested, January 1, 2008		1,461,225		$	.72
Granted		150,000			.26
Cancelled		(270,000	)		1.26
Vested		(321,631	)		.90
Non-vested, March 31, 2008		1,019,594		$	.63

Notes to Condensed Consolidated Interim Financial Statements

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

NOTE 15: SUBSEQUENT EVENTS

The repriced options had originally been issued with $0.80 to $1.37 per share option exercise prices, which prices reflected the then current market prices of the Company’s stock on the dates of original grant. As a result of the recent sharp reduction in the Company’s stock price, the Board of Directors believed that such options no longer would properly incentivize the Company’s employees, officers and consultants who held such options to work in the best interests of the Company and its stockholders. Moreover, the Board of Directors believed that if these options were repriced, that such options would provide better incentives to such employees, officers and directors.

On April 9, 2008, the Company sold a total of 13,403,225 units to 27 investors and raised aggregate gross proceeds of approximately $2,680,645 in a private offering. Of the gross proceeds of $2,680,645 raised in the offering,

(i)

$1,935,000 represents cash received by the Company from investors,

(ii)

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

(iii)

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

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

The offering was made pursuant to a U.S. investor subscription agreement and an offshore subscription agreement, each dated April 9, 2008, Each unit was sold for $0.20 and consists of one share of common stock of the Company and one share purchase warrant, exercisable at an exercise price of $0.40 per share at any time upon election of the holder during the 24 month period following the offering. The Company agreed to register the shares of common stock and the shares of common stock underlying the warrants on a registration statement that must be filed with the Securities and Exchange Commission within the earlier of 21 days after the closing of the offering or 10 days after the Company filed its Annual Report on Form 10-KSB. The Company filed the registration statement on Form S-1 on April 24, 2008.

In an effort to preserve cash for Company operations, it agreed to convert the $40,645 in debt owed to the non-employee board members and advisory board members into the offering in lieu of payment for fees due to them. Similarly, the Company agreed to convert the $705,000 in principal debt owed under the secured promissory notes into the offering to preserve cash for Company operations. Each of the secured note holders agreed to waive payment of any and all interest due under the notes. The remaining unamortized discount of approximately $200,000 related to the fair value of the issuable shares of the Company’s common stock granted on the date of issuance for each note will be amortized to the Company’s statement of operations on April 9, 2008. (Note 12)

Notes to Condensed Consolidated Interim Financial Statements

NOTE 15: SUBSEQUENT EVENTS (continued)

Upon execution of the secured notes, the holders received shares of common stock in an amount that was equal to (x) half of the principal amount of the note divided by (y) the closing trading price of the Company’s common stock on the date of the note. The lowest trading price used to calculate the number so shares to be issued under the secured notes was $0.22 per share. In consideration of the holders investing the principal due into private placement in lieu of payment and waiving any and all interest due, each holder that received shares upon the execution of the note based on a trading price higher than $0.22 per share were issued additional shares of common stock. These additional shares were equal to the number of shares that would have been received if $0.22 were in the formula, minus the number of shares actually received upon execution of the secured note. A total of 316,298 additional shares will be issued to these secured note holders. The Company will book a fee expense equal to the fair value of the additional common shares issuable at April 9, 2008 or approximately $187,000 in its consolidated statement of operations. Our Chief Financial Officer and Chairman of the Board were each note holders that converted amounts of $15,000 and $100,000, respectively, in the private placement on the same terms and conditions as the rest of the investors.

On April 9, 2008, the Company granted 125,000 options to an employee. The options vest on an annual basis over three years, with the first one-third vesting on the one year anniversary of the grant date and have an exercise price of $0.59. The options expire on April 9, 2012. The stock options as of the date of the grant have a fair value of approximately $60,500, which shall be expensed as compensation in the Company’s consolidated statement of operations ratably over a 36 month service period.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following discussion of our financial condition and plan of operation should be read in conjunction with our financial statements and the related notes, and the other financial information included in this report. This Management's Discussion and Analysis or Plan of Operation describes the matters we consider to be important to understanding our history, technology, current position, financial condition and future plans. Our fiscal year begins on January 1 and ends on December 31.

The following discussion includes forward looking statements and uncertainties, including plans, objectives, goals, strategies, financial projections as well as known and unknown uncertainties. The actual results of our future performance may differ materially from the results anticipated in these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we can not guarantee future results, levels of activity, performance or achievement.

OVERVIEW

Our Company

We are a development stage company. We have not yet realized any revenues from our planned operations. We launched our Fall/Winter 2007 product through to a test market of approximately 20 select independent stores in third quarter of 2007. We have designed, outsourced manufactured and are marketing quality men’s and women’s footwear with distribution to select retailers beginning in April 2008. This marks our first main stream consumer launch after completing a test soft launch to a select 20 retailers this past fall season.

We have designed and continue to develop an innovative footwear product - a two-part footwear structure consisting of an outer collapsible “Skin” and an inner orthopedic support section called the “Bone.” This structure enables consumers to purchase one inner section and multiple outer skins - resulting in multiple style variations from the same pair of inner section, with the same feel and fit despite the type of Skin being worn. Our primary activities have been conducting research and development, performing business, strategic and financial planning, and raising capital.

We have initially designed and manufactured men's and women's footwear and distributed to a test market through a soft commercial launch during the third quarter of 2007. Due to technological advances in the product, we announced an updated design of the Bone to be launched in first half of 2008 for the Spring/Summer 2008 season. The Bone is designed such that it can only be worn once it is inside the Skin and not on its own. As a result of the product enhancements and advanced technologies, we agreed to replace the existing Bones at retail and will replace the Skins, as well to ensure an ideal fit and match for the Skins and Bone. The improvements to the product rendered inventory to be obsolete.

We anticipate marketing our products via traditional footwear channels, non-traditional apparel channels, the Internet and other retail locations that traditionally do not have a footwear department. Due to the interchangeability of a Skin and a Bone, a consumer will know how the product will fit and feel once they own a Bone, allowing the customer to purchase a Skin from various venues without having to try on the product.

Our objective is to create a new attire concept that allows and encourages consumers to more frequently change their footwear - positioning the Skins concept between footwear and apparel. Our footwear will initially be designed with an active, youthful lifestyle in mind. We will initially design most of our styles to be fashionable and marketable to the 18- to 35-year old consumer, with consideration in the future to lines that will appeal to the broad cross-section of the population.

As of March 31, 2008, we had no established source of revenues and had accumulated losses of $12,519,607 since inception. Our ability to continue as a going concern is dependent upon achieving production, sales, profitability and our ability to obtain the necessary financing to meet our obligations and pay our liabilities arising from normal business operations when they come due. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that we will be able to continue as a going concern. The financial statements contained in this 10-QSB form do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern. We anticipate that additional funding may be generated from the sale of common shares and/or debt with an equity feature and from asset based financing or factoring.

PLANNED OPERATIONS

Product Development

We have designed, outsourced manufactured and are marketing quality men’s and women’s footwear with distribution to select retailers beginning in April 2008. This marks our first main stream consumer launch after completing a test soft launch to a select 20 retailers during the third quarter of 2007. The focus is on creating a high-end line of Skins priced at a manufacturer's suggested average retail price of $110 to $130 for women and $140 to $160 for men. The first test collection (Fall/Winter 2007) had approximately five to six styles per gender ranging three to five color ways per each style. The new collection (Spring/ Summer 2008) will have approximately eight to nine styles per gender ranging three to five color ways per each style.

Our Skins are being designed by our in-house designer and other outsourced design firms. They collaboratively put together the collection for men's and women's Skins, the packaging and retail displays, and help in refining the creative identity of the brand.

During the third quarter 2007, we launched our product to a test market of approximately 20 select independent stores. In conjunction with the soft launch, we announced our Consumer Partnership Program, which is a program aimed to elicit feedback from consumers to aid us in product development and internal research. As part of the program, we gave the Bone portion of the product to participating consumers without charge. As a result of input from our retail partners, continuous fit trials, and feedback from consumers through the Consumer Partnership Program, we were able to incorporate this information into a new Bone. On November 7, 2007, we announced an updated designed of the Bone, an advanced product to be launched in first half 2008 for the Spring/Summer 2008 season.

The engineering of the Bone and Skin allows for a pressure fit attachment. The Bone is an exact fit to its corresponding Skin. The Skin cannot be worn on its own. The Bone is designed such that it can only be worn once it is inside the Skin and not on its own. As a result of the product enhancements and advanced technologies, we agreed to replace the existing Bones at retail and will replace the Skins, as well to ensure an ideal fit and match for the Skins and Bone. The improvements to the product, rendered inventory to be obsolete as defined in management’s discussion below.

Sourcing

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

Planned Distribution

We plan to act as a wholesaler and market our products to specialty, department and Internet retail locations via our marketing and branding efforts.

We will consider the children's market and more mainstream middle-market retailers once our brand is more established. We may also consider licensing our technology in the future.

We have designed, outsourced manufactured and are marketing quality men’s and women’s footwear with distribution to select retailers beginning in April 2008. This marks our first main stream consumer launch after completing a test soft launch to a select 20 retailers during the third quarter of 2007 this past fall season. We believe that the initial purchase order amount we can expect per retailer will be 60 pairs per gender at an average wholesale price of $57 per pair of Skins. We further plan on selling fill-in orders as the season progresses.

RECENT EVENTS

April 2008 Private Placement

On April 9, 2008, we sold a total of 13,403,225 units to 27 investors and raised aggregate gross proceeds of approximately $2,680,645 in a private offering. Of the gross proceeds of $2,680,645 raised in the offering,

(i)

$1,935,000 represents cash received by the Company from investors,

(ii)

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

(iii)

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

The purpose of the Private Placement was to raise working capital. In addition, the Company issued 100,000 units to a financial consultant that provided services in connection with the offering in lieu of $20,000 payment in cash for such services.

The offering was made pursuant to a U.S. investor subscription agreement and an offshore subscription agreement, each dated April 9, 2008, respectively. Each unit was sold for $0.20 and consists of one share of common stock of the Company and one share purchase warrant, exercisable at an exercise price of $0.40 per share at any time upon election of the holder during the 24 month period following the offering. The Company agreed to register the shares of common stock and the shares of common stock underlying the warrants on a registration statement. The Company filed the registration statement on Form S-1 on April 24, 2008.

Upon execution of the secured notes, the holders received shares of common stock in an amount that was equal to (x) half of the principal amount of the note divided by (y) the closing trading price of the Company’s common stock on the date of the note. The lowest trading price used to calculate the number of shares to be issued under the secured notes was $0.22 per share. In consideration of the holders investing the principal due into private placement in lieu of payment and waiving any and all interest due, each holder that received shares upon the execution of the note based on a trading price higher than $0.22 per share were issued additional shares of common stock. These additional shares were equal to the number of shares that would have been received if $0.22 were in the formula, minus the number of shares actually received upon execution of the secured note. A total of 316,298 additional shares will be issued to these secured note holders. The Company will book a fee expense equal to the fair value of the additional common shares issuable at April 9, 2008 or approximately $187,000 in its consolidated statement of operations. Our Chief Financial Officer and Chairman of the Board were each note holders that converted amounts of $15,000 and $100,000, respectively, in the private placement on the same terms and conditions as the rest of the investors.

April 2008 Option Repricing

On April 2, 2008, we repriced a total of 2,794,625 options that we had previously granted to certain of our employees, directors and consultants. The options, all of which had been previously issued pursuant to our Amended And Restated 2005 Incentive Plan (the “Plan”), were repriced to be $0.40 per share, which is greater than the $0.33 closing trading price of our common stock on the date the Board of Directors approved the transaction. The Board of Directors resolved that an exercise of $0.40 per share would provide an incentive to the recipients of the repriced options to continue to work in the best interests of our company. The other terms of the options, including the vesting schedules, remained unchanged as a result of the repricing. Total additional compensation expense on non vested options relating to the April 2, 2008 repricing is approximately $26,000 which will be expensed ratably over the 8 to 29 months service period that remain. Additional compensation expense on vested options relating to the April 2, 2008 repricing is approximately $73,000 which will be fully expensed on April 2, 2008. The repriced options had originally been issued with $0.80 to $1.37 per share option exercise prices, which prices reflected the then current market prices of our stock on the dates of original grant. As a result of the recent sharp reduction in our stock price, our Board of Directors believed that such options no longer would properly incentivize our employees, officers, directors and consultants who held such options to work in the best interests of our company and stockholders.

December 2007 through March 2008 Promissory Notes

From December 2007 through March 2008, we issued secured promissory notes in a total amount of $705,000 to various lenders. The notes bore interest at the rate of 5% per annum compounded annually and were secured by the grant of a security interest by us to the lenders in all of our intellectual property rights, patents, copyrights, trademarks which we now have or acquire and all proceeds and products thereof. We agreed to repay the loan upon our completion of a financing, and in no event later than six months from each of the notes’ date of issuance. Pursuant to the notes, and in consideration of entering into the notes, the lenders received a total of 1,285,976 shares of our common stock. In addition, the lenders received piggy-back registration rights with respect to the shares. In April 2008, we conducted a private placement and the lenders invested the principal amounts due under the notes into the placement and waived interest due under the notes. As part of the consideration, we issued an additional 316,298 shares of common stock to the lenders as part of the transaction. The Company will book a fee expense equal to the fair value of the additional common shares issuable at April 9, 2008 or approximately $187,000 in its consolidated statement of operations.

Results of Operations and Financial Condition

Three Months Ended March 31, 2008 Compared with Three Months Ended March 31, 2007

Net revenues during the three months ended March 31, 2008 and 2007 were nil.

Design and development expenses were $109,253 and $334,636 for the three months ended March 31, 2008 and 2007, respectively. The decrease of $225,383 is primarily attributable to a reduction in the amount of design and development costs from the prior year needed to bring the product to market in 2008.

Selling, general and administrative expenses (SG&A) were $917,955 and $1,142,518 for the three months ended March 31, 2008 and 2007, respectively, a decrease of $224,563. The decrease in SG&A expenses are primarily attributable to increases in employee compensation and benefits of approximately $152,000 to staff the business in order to bring the product to market, offset by reductions in travel of $54,000, shared based compensation of $121,000, termination expenses for a previous employee of $144,000 and non recurring charges of $57,000.

Our net loss for the three months ended March 31, 2008 was $1,122,116, or $0.03 per share, as compared to a net loss of $1,467,152, or $0.04 per share, for the same period in 2007.

Liquidity and Capital Resources

At March 31, 2008, we had $9,413 in cash and cash equivalents. We earned no revenues since our inception in May 2004. Generally, we have primarily financed operations to date through the proceeds of the private placement of equity securities and the proceeds of warrants exercised in the fourth quarter of fiscal year 2006. We received net proceeds of $2,261,462 from the private placements that were conducted in connection with the share exchange transaction during the fiscal quarter ended March 31, 2006 and $1,680,763 for the year ended December 31, 2006 from the exercise of the warrants.

On May 21, 2007, we closed a financing transaction pursuant to which we sold a total of 4,000,000 units to seven investors and raised an aggregate of $3,000,000. Each unit consists of one share of our common stock and one share purchase warrant that is exercisable at an exercise price of $1.00 per share at any time upon election of the holder during the 30 month after the offering. Net proceeds from the private offering were $2,962,013 (net of issuance costs of $37,987).

From December 2007 through March 2008, we issued secured promissory notes in a total amount of $705,000 to various lenders. The notes bore interest at the rate of 5% per annum compounded annually and were secured by the grant of a security interest by us to the lenders in all of our intellectual property rights, patents, copyrights, trademarks which we now have or acquire and all proceeds and products thereof. We agreed to repay the Loan upon our completion of a financing, and in no event later than six months from each of the notes’ date of issuance. Pursuant to the notes, and in consideration of entering into the notes, the lenders received a total of 1,285,976 shares of our common stock. In addition, the lenders received piggy-back registration rights with respect to the shares. In April 2008, we conducted a private placement and the lenders invested the principal amounts due under the notes into the placement and waived interest due under the notes. As part of the consideration, we issued an additional 316,298 shares of common stock to the lenders as part of the transaction.

(i)

$1,935,000 represents cash received by the Company from investors,

(ii)

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

(iii)

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

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

Each unit was sold for $0.20 and consists of one share of common stock of the Company and one share purchase warrant, exercisable at an exercise price of $0.40 per share at any time upon election of the holder during the 24 month period following the offering.

Net cash used in operating activities for the three months ended March 31, 2008 was $683,062 as compared to net cash used of $1,244,461 in the same period in 2007. The decrease in net cash used was primarily attributable to a decrease in net loss from operations during the three months ended March 31, 2008 as compared to the same period in 2007, which was primarily attributable to a decrease in operating expenditures compared to the first quarter of 2007. Operating expenditures consisted principally of design and development, advertising and promotion, legal and accounting fees and salaries and costs to bring the product to market.

Net cash used in investing activities for the three months ended March 31, 2008 was $178,711, as compared to $116,307 during the same period in 2007. The increase in net cash used was primarily attributable to an increase in our purchase of molds, store displays and property and equipment.

Net cash provided by financing activities for the three months ended March 31, 2008 was $865,000, as compared to $579,017 for the same period in 2007. The increase was primarily attributable to $555,000 of secured promissory notes to various lenders and $310,000 received in advance in relation to our private placement conducted in April 9, 2008.

At March 31, 2008, we had 3,366,500 stock options and 4,714,714 common stock purchase warrants outstanding. The outstanding stock options have a weighted average exercise price of $0.95 per share. The outstanding warrants have a weighted average exercise price of $1.01 per share. Accordingly, at March 31, 2008, the outstanding options and warrants represented a total of 8,081,214 shares issuable for a maximum of $7,962,684 if these options and warrants were exercised in full. The exercise of these options and warrants is completely at the discretion of the holders. There is no assurance that any of these options or any additional warrants will be exercised.

As of March 31, 2008, we anticipate that we will need additional financing to enable us to meet our anticipated expenditures for the next year, which will principally be for the production of our footwear products and marketing expenses. We presently have a factoring agreement in place which currently will enable us to borrow up to $500,000 related to purchasing finished goods inventory. Per the terms of the agreement, we will also be able to factor and receive advance proceeds of up to 85% of our future accounts receivable, if any, upon the date of shipment of product from our United States inventory warehouse to customers. We anticipate raising additional funds through public or private financing, strategy relationships or other arrangements in the future to support our business operations. We cannot be certain that any such public or private financing will be available on acceptable terms, or at all, and our failure to raise capital when needed could limit our ability to continue as a going concern. We plan to overcome the circumstances that impact our ability to remain a going concern through a combination of beginning to generate revenues and decreasing costs, as necessary, with interim cash flow deficiencies being addressed through additional equity financing. Our ability to obtain additional funding in year 2008 and thereafter will determine our ability to continue as a going concern. There can be no assurances that these plans for additional financing will be successful. Failure to secure additional financing in a timely manner and on favorable terms if and when needed in the future could have a material adverse effect on our financial performance, results of operations and stock price and require us to implement cost reduction initiatives and curtail operations. Furthermore, additional equity financing may be dilutive to the holders of our common stock, and debt financing, if available, may involve restrictive covenants, and may require the Company to relinquish valuable rights.

Off Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures

The Company's management evaluated, with the participation of its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), the effectiveness of the design/operation of its disclosure controls and procedures (as defined in Rules 13a-15(c) and 15d-15(c) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) as of March 31, 2008.

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

Management conducted its evaluation of disclosure controls and procedures under the supervision of our principal executive officer and our principal financial officer. Based on that evaluation, management concluded that our financial disclosure controls and procedures were not effective related to the preparation of the Form 10-Q filing as of March 31, 2008

The controls designed were adequate for financial disclosures required for the preparation of the Form 10-Q filing; however due to lack of resources in the company’s accounting department the controls were not operating effectively. The remediation plan for improving the effectiveness over financial disclosure controls, which caused the material weakness over financial disclosures required in the Form 10-Q, will include creating a financial disclosures roll-forward model in accordance with the disclosures required for each periodic filing with the SEC. This model will be maintained and updated by Skins staff and management as new business transactions require additional financial disclosures. These financial disclosures will be reviewed by an outside financial disclosure expert for completeness and accuracy earlier in the financial statement closing process cycle in order to help ensure completeness and accuracy for reporting financial disclosures.

(b) Changes in internal control over financial reporting

During the quarter ended March 31, 2008 we began to implement remediation steps to remedy the material weaknesses identified in our Form 10-KSB for the year ended December 31, 2007 to enhance internal control over financial reporting. As noted in 4(a) above, we noted a material weakness in our financial disclosure controls at March 31, 2008. We are in the process of updating our remediation process as noted in Item 4(a).

PART II-OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors disclosed in the “Risk Factors” section of our 2007 Form 10-KSB, as filed with the Securities and Exchange Commission on April 14, 2008.

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

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

ITEM 5. OTHER INFORMATION