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EX-32.1 - Enhance Skin Products Incex32-1.htm
EX-31.1 - Enhance Skin Products Incex31-1.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended April 30, 2016

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 000-52755

 

ENHANCE SKIN PRODUCTS INC.

(Exact name of registrant as specified in its charter)

 

Nevada 84-1724410

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

50 West Liberty Street, Suite 880, Reno NV 89501

(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: (416) 306-2493

 

Securities to be Registered Pursuant to Section 12(b) of the Act: None

 

Securities to be Registered Pursuant to Section 12(g) of the Act:

 

Common Shares, par value $0.001 per share

 

Indicate by check mark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

 

Indicate by check mark if registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes [  ] No [X]

 

Indicate by check mark whether the registrant (1) has filed all Reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes [X] No [  ]

 

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is contained in this form and no disclosure will be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K. [X]

 

Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “small reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ] Accelerated filer [  ]
Non-accelerated filer [  ] (Do not check if a smaller reporting company) Smaller reporting company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes [  ] No [X]

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:

 

Number of shares outstanding of the registrant’s class of common stock as of July 21, 2016: 113,951,705

 

 

 

   
 

  

Table of Contents

 

PART I    
     
ITEM 1. BUSINESS. 3
     
ITEM 1A. RISK FACTORS. 12
     
ITEM 1B. UNRESOLVED STAFF COMMENTS. 12
     
ITEM 2. PROPERTIES. 12
     
ITEM 3. LEGAL PROCEEDINGS. 13
     
ITEM 4. MINE SAFTETY DISCLOSURES. 14
     
PART II    
     
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES. 14
     
ITEM 6. SELECTED FINANCIAL DATA. 15
     
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 15
     
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. 18
     
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. 19
     
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 37
     
ITEM 9A. CONTROLS AND PROCEDURES 38
     
ITEM 9B. OTHER INFORMATION. 38
     
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. 38
     
ITEM 11. EXECUTIVE COMPENSATION. 43
     
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANGEMENT AND RELATED STOCKHOLDER MATTERS. 45
     
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. 46
     
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. 46
     
ITEM 15. EXHIBITS 47
     
SIGNATURES 48

 

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PART I

 

ITEM 1. BUSINESS.

 

Our financial statements are stated in United States dollars and are prepared in accordance with generally accepted accounting principles in the United States of America.

 

In this annual report, unless otherwise specified, all dollar amounts are expressed in United States dollars.

 

Enhance Skin Products Inc., formerly Zeezoo Software Corp. (“Zeezoo”) was originally incorporated under the laws of the State of Nevada on November 14, 2006. 

 

Pursuant to an Asset Purchase Agreement by and between Zeezoo and Enhance Skin Products Inc., a privately owned Ontario corporation (“Enhance Private”), which closed on August 14, 2008, Zeezoo acquired all of the intellectual property and certain liabilities of Enhance Private (the “Assets”). In addition to shares issued for the asset purchase and the cancellation of certain securities of Zeezoo, Enhance Private acquired approximately 57.6% of the issued and outstanding shares of common stock, par value $0.001 per share (the “Common Stock”), of Zeezoo. On August 28, 2008 Zeezoo changed its name to Enhance Skin Products Inc. (the “Company”).

 

The Company is now a developer of premium cosmetic and cosmeceutical products marketed under its “Visible Youth” trademark. Cosmeceuticals are topically applied products containing ingredients that influence the biological function of skin and can be described as a marriage between cosmetics and pharmaceuticals. These products may improve the appearance and condition of the skin by delivering nutrients or protectants necessary for healthy skin.

 

The Freedonia Group, Cosmeceutical Study predicts that US demand for cosmeceutical products is expected to increase 5.8% per annum to $8.5 billion in 2015, driven by an aging populace seeking to maintain the appearance of youth. The target market for cosmeceuticals continues to expand beyond the traditional 45-years-and-older demographic to include much younger individuals, as the national obsession with youth continues and focus shifts to products intended to stave off the first signs of aging. Further supporting growth will be an increasingly competitive employment environment, a steady stream of new and technologically advanced product introductions and the continuation of astute consumer-targeted marketing.

 

The Visible Youth skin care line utilizes high purity, medical-grade hyaluronic acid (also called hyaluronan or HA) of specific molecular size to deliver hydration to the skin. The brand also contains products that are proprietary synergistic formulations of two or more active ingredients that include the specific, medical-grade hyaluronic acid. Visible Youth is formulated to help improve the healthy appearance and feel of skin and addresses the loss of HA-water complex, a natural component of the skin without which the underlying structure of skin collapses. Visible Youth is formulated to help restore the skin’s natural supply of HA-water complex and works to rehydrate the skin at the cellular level. Visible Youth utilizes the same unique fraction of hyaluronan used in the development of the topical drug product Solaraze to deliver its active ingredient through to the dermis. In the case of Visible Youth, the ingredient that we are delivering is water for deep hydration.

 

The Visible Youth professional products also utilise Vitryxx/HA Bio-active Glass Serum; a new, effective and easy-to-formulate anti-aging ingredient with potential use in a wide variety of personal care products. It is based on a proprietary formulation of Hyaluronic Acid and bioactive glass in a serum, developed by Enhance Skin in collaboration with Schott Glass. This unique formulation has been designed to deliver both the product benefits of Hyaluronic Acid and Bioactive Glass Powder as well as provide additional advantages from the combination of both materials. Bioactive glass has been reported to have strong anti-inflammatory activity. Hyaluronan, also has strong anti-inflammatory activity, and we thus believe should provide synergistic benefits to the bioactive glass.

 

Our base patents are granted in the USA, Australia, New Zealand and China and Japan. We have applications on the base patent in advanced stages of process in the European Union and Canada. New patent applications have been accepted for the use of HA and bioactive glass to enhance and extend the beneficial cosmetic effects of certain non-surgical dermal interventions, in particular the anti-wrinkle effects of cosmetic treatments associated with aesthetic injectables such as Botox (botulinum toxin) and cosmetic dermal fillers. We also own the Visible Youth trademark in various jurisdictions. See also; Intellectual Property and Patent Protection.

 

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Products

 

Hyaluronan, which is the basis of all Visible Youth products, is a naturally occurring sugar polymer of central biological importance. Hyaluronic acid is present in every tissue of the body. It has many functions, including stimulating the tissue’s water retention capabilities. Three percent of the human body, by dry weight, is composed of HA. For example, hyaluronic acid is found in the eyes and keeps them round and it is found in joints as part of the synovial fluid and acts as a lubricant and shock absorber. However, 56% of the HA in our bodies is found in the skin, where it helps retain moisture and structure. Together with collagen and elastin, HA forms the cement that holds cells together.

 

Studies have shown (Stern, RJ, 2006, Hyaluronan: Key to Skin Moisture, 246-277, In: Dry Skin and Moisturizers, Loden, M and HI Maibach Eds.) that fragmentation of the HA polymer generates size-specific pieces, or oligomers, with widely differing biological activities.

 

However, it is difficult to synthesize HA free of contaminating glycoprotein, lipids and other tissue material in the laboratory setting. In spite of these drawbacks, many cosmetic and cosmeceutical manufacturers continue to incorporate “cosmetic grade” HA into their products and claim their beneficial effects for their products. This grade of HA can be impure and ill-defined as to molecular size and biological activities and can therefore be less effective.

 

Dr. Samuel Asculai, our Chief Scientific Officer, has, in the course of his career, worked to define the size and purity of the HA molecule that would result in maximum hydration, dermal delivery, systematic targeting and safety. His work has resulted in over 30 patents defining the discovery of what the company believes is a HA oligomer of extremely high purity that provides the hydrating, delivery and targeting characteristics not found in “cosmetic grade” HA. The Visible Youth line is the product of Dr. Asculai’s work.

 

The Visible Youth skin care line currently has six products, all of which use medical grade HA and are hypoallergenic, non-irritating, fragrance free, non-comodegenic, non-occlusive and oil free:

 

Visible Youth Revitalizing Skin Formula:

 

A Serum for topical treatment of all areas of the face and neck. Replenishing hyaluronate helps to restore, correct and maintain the skin’s optimal moisture balance. Fine and deep lines are diminished over time, while the skin’s tone, texture, color and radiance are improved. This leaves the individual with healthier, more youthful looking skin.

 

Visible Youth Revitalizing Eye Zone Gel:

 

Addresses the delicate needs of the skin around the eye area. An ultra light gel combining the hydrating benefits of hyaluronate, collagen and glycerin with the healing and antioxidant properties of Vitamin E. It is a safe non-irritating gel that reduces puffiness, smoothes fine lines and improves the elasticity and texture of skin.

 

Visible Youth Revitalizing Moisturizer:

 

Containing our specific HA fraction and other healthy emollients, this unique cream delivers hydrating nutrition to the skin and neck and is particularly effective when used after Visible Youth Skin Revitalizing Formula.

 

Visible Youth Revitalizing Cleanser:

 

A mild, non-soap and non-alkaline gel, Revitalizing Cleanser is formulated for all skin types to gently remove impurities without breaking the acid mantle of the skin.

 

Visible Youth Healing Complex:

 

A proprietary synergistic formulation of Hyaluronic Acid and bioactive glass that delivers a restorative formula to treated skin following a professional skin resurfacing procedure. Developed for use at home, the Healing Complex acts as a humectant in combination with bioactive ceramic micro-particles to aid in healing. The Healing Complex also provides anti-microbial and anti-inflammatory properties while actively helping to attenuate redness.

 

Visible Youth Healing Complex Plus 3% Lidocaine:

 

For Physician use only, this is the Healing Complex with 3% Lidocaine added to be applied immediately after a professional skin-resurfacing procedure. Lidocaine helps relieve pain and discomfort while decreasing irritation.

 

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Product Development

 

On August 12, 2015, the Company entered into a services agreement with Snowbell Management Limited (“Snowbell”) to project manage and develop the Visible Youth™ consumer skin care brand for its relaunch. The project encompasses refining the brand plan and product briefs and involves the management and development of the brand and product line from re-formulation and re-branding through to delivered finished goods. During the period the Company also engaged a product formulation and manufacturing company and is currently in the process of reformulating its first six consumer products containing HA and bioactive glass. The first complete skincare system is expected to comprise: Visible Youth Cleansing melt, Visible Youth Pro Skin Facial Serum, Visible Youth Under Eye Super Serum, Visible Youth Moisturising Day Cream SPF20, Visible Youth Renewal Night Cream, and Visible Youth Resurfacing Toner. In addition, the Company engaged design consultancy firms to create its new brand identity and packaging, encompassing both the Visible Youth consumer and professional brands. The work is well advanced and the new formulations and brand identity are expected to be completed by the end of the current quarter. The Company then intends to place the products on three months accelerated stability and to conduct various challenge and compatibility tests with a view to the start of pilot manufacture and the commencement of two further marketing clinical studies for the Visible Youth Pro Skin Facial Serum and our Visible Youth Moisturising Day Cream SPF20 as soon as resources are available. It is expected that final study results will be available approximately four months after their start.

 

If study results are satisfactory and necessary funding and collaboration or marketing partners can be obtained, management aims to re-launch the Visible Youth products in the consumer markets in Europe and the USA approximately six to nine months from clinical study completion.

 

The Visible Youth Healing Complex and Visible Youth Healing Complex plus 3% Lidocaine, plus reformulated versions of the Skin Formula, Eye Zone Gel and Moisturizer to include Vitryxx™, are expected to be marketed under the Visible Youth “Professional” brand.

 

We are also in the process of evaluating and developing products utilizing HA and bioactive glass to enhance and extend the beneficial cosmetic effects of certain non-surgical dermal interventions, in particular the anti-wrinkle effects of cosmetic treatments associated with aesthetic injectables such as Botox (botulinum toxin) and cosmetic dermal fillers. Additional applications may include the alleviation of symptoms of rosacea such as redness, dryness and itchiness. We are also currently seeking development and marketing partners for these products which are expected to be marketed under the Visible Youth “Professional” brand.

 

We also plan to develop additional products under the Visible Youth trademark, which may include Visible Youth Brightening/Lightening Moisturizer and Serum, Visible Youth BioGlass Mask, Visible Youth Neck Zone Gel, Visible Youth + SPF 30. We would anticipate launching two to three additional formulations per year after the re-launch of the Visible Youth Brand.

 

The Company is in discussions with several parties to acquire certain technology assets, including patents and patent applications, products and active ingredients, which are complementary to and synergistic with our existing patents, patent applications, current and future products and have the potential to expand and increase the attractiveness of our Visible Youth product lines to potential development and marketing partners. Given the Company’s limited cash resources it would need to pay for such asset acquisitions primarily through the issue of shares and deferred consideration. There can be no assurances, however, that management’s efforts to acquire such assets on terms satisfactory to the Company, or at all will, be realized.

 

The Company is also evaluating a number of other technologies and products under collaborations with other companies and universities which we would seek to develop and market either as cosmecueticals or as medical devices depending on regulatory requirements. The Company plans to seek development partners and/or additional funding at the appropriate time to develop some or all its development candidates using its HA delivery technology.

 

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Intellectual Property and Patent Protection

 

At present, we have the following registered patents, patent applications and trademarks:

 

Patents - Cosmetic Composition for the Treatment of Skin and Methods Thereof 

 

While attempting to create topical formulations of HA with Vitryxx™, a commercially available bioglass made by Schott Ag, we observed that the resulting formulations were able to maintain acidic pH for up to 24 months. Furthermore, clinical evaluation of a HA/Vitryxx formulation, conducted at Essex Testing Clinic, Verona, New Jersey, revealed that after four weeks of daily use, up to 100% of the subjects responded with improvements in at least one or more skin aging parameters. These observations are also the foundation of the Visible Youth Healing Complex line. These observations are also the subject of a PCT patent application entitled Cosmetic Composition for the Treatment of Skin and Methods Thereof that was filed in September 2007. The PCT application has matured into the national patent applications set out below.

  

Title of Invention   Country   Status   Serial No.   National Phase
Entry Date
Cosmetic Composition for the Treatment of Skin and Methods Thereof   Canada   Application   2,662,581   March 5, 2009
Cosmetic Composition for the Treatment of Skin and Methods Thereof   United States   Granted June 2014   12/439,811   March 3, 2009
Cosmetic Composition for the Treatment of Skin and Methods Thereof   Europe   Application   078005865   March 16, 2009
Cosmetic Composition for the Treatment of Skin and Methods Thereof   Australia   Granted January 2014   2007295894   April 2, 2009
Cosmetic Composition for the Treatment of Skin and Methods Thereof   New Zealand   Granted January 2013   575334   March 5, 2009
Cosmetic Composition for the Treatment of Skin and Methods Thereof   China   Granted December 2013   100037   April 9, 2009
Cosmetic Composition for the Treatment of Skin and Methods Thereof   Japan   Granted May 2015   2009/527658   March 10, 2009
Cosmetic Composition for the Treatment of Skin and Methods Thereof   Hong Kong   Application   09110376.4   November 6, 2009

 

New Patent Application for Extending the Cosmetic Effects of Botox®* and Dermal Fillers

 

On May 5, 2015 the Company announced the acceptance by the US Patent and Trademark Office of a new patent application for the use of HA and bioactive glass to enhance and extend the beneficial cosmetic effects of certain non-surgical dermal interventions, in particular the anti-wrinkle effects of cosmetic treatments associated with aesthetic injectables such as Botox (botulinum toxin) and cosmetic dermal fillers. Additional applications may include the alleviation of symptoms of rosacea such as redness, dryness and itchiness. An international application under the Patent Cooperation Treaty has also been accepted. Further details of these patent applications is set out below.

 

Title of Invention   Country   Status   Serial No.
Methods and Compositions for Enhancing and Extending the Cosmetic Effects of Non-Surgical Interventions   United States   Application   61/974,559
Methods and Compositions for Enhancing and Extending the Cosmetic Effects of Non-Surgical Interventions   Patent Co-operation Treaty   Application   PCT/US15/23183

 

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Trademarks

 

Trademark   Country     Registration No.   Classes   Status
                       
Visible Youth   United States     3139439         03   Granted/Registered
Visible Youth   Australia     768865         03, 05   Granted/Registered
Visible Youth   Canada     A393144         03, 05   Granted/Registered
Visible Youth   France     1590434         03, 05   Granted/Registered
Visible Youth   Japan     2457750         03   Granted/Registered
Visible Youth   Switzerland     508958         03, 05   Granted/Registered
Visible Youth   EU Community     002984367         03, 05   Granted/Registered
Visible Youth   EU Community   015447592   03, 05   Application
VY Logo   EU Community   015454051   03, 05   Application
Visible Youth   PR China     12407092/12407091         03, 05   Application

 

Our trademarks registrations are granted for a specific period in each jurisdiction, and those registrations may be maintained indefinitely by renewing them periodically. Generally, our trademark registrations are renewable every 5 to 10 years, depending on the particular jurisdiction.

 

The Company received a Section 45 Notice from the Canadian Intellectual Property Office dated December 18, 2012 requesting that the Company, in accordance with Section 45 of the Trade-marks Act, furnish evidence within three months from the date of the notice demonstrating use of the trademark Visible Youth in Canada at any time during the three year period immediately preceding the date of the notice. The Company provided such evidence in the form of an affidavit on March 14, 2013. On August 26, 2013 the Company received a response from the purported requesting party, Glycobiocsiences Inc. (“Glcyobiosciences”) response, dated August 12, 2013, to its evidence. The Company filed its response to that submission on December 23, 2013.

 

On January 9, 2014 Glycobiosciences requested an oral hearing, which was held on June 25, 2014. On September 17, 2014 the Company was informed that the Canadian Intellectual Property Office issued a decision dated September 7, 2014 rejecting the Section 45 application and maintaining the Company’s Canadian trademark. On November 13, 2014 the Company was informed that the applicant has appealed this decision to the Federal Court of Canada. The Company filed a Notice of Appearance with the Federal Court of Canada on November 21, 2014 indicating that it intends to oppose this application. On January 20, 2015 the Company filed further evidence in the form of an affidavit with the Court.

 

On April 20, 2015 the Company received a notice of Change of Solicitors from Glycobiosciences, the alleged requesting party. Glycobiosciences has not filed a response in a timely manner and on April 24, 2015 the Company filed a response requesting that the matter be dismissed for delay. On April 28, 2015 the Company was notified by the Federal Court that the alleged applicant will be required to bring a Motion requesting an extension of time to file a response. On July 8, 2015 the Federal Court issued a Notice of Status Review because more than 180 days have elapsed since the issuance of the Notice of Application. Accordingly, the Applicant now had until July 23, 2015, to serve and file representations stating the reasons why the proceeding should not be dismissed for delay. On July 30, 2015 the Company filed its written Submissions in response. On August 6, 2015 the Applicant filed its reply to the Company’s response. On August 19, 2015 the Federal Court found that the application should not be dismissed for delay and ordered that the application proceed as a specially managed proceeding under a Case Management Judge. On September 16, 2015 a Case Management Judge was appointed. Despite repeated attempts both Glycobiosciences and its attorneys failed to supply dates for a case management teleconference and subsequently informed the Company that it was no longer represented by attorneys. Consequently, on November 17, 2015 the Company again asked the Federal Court that the matter be dismissed for delay. Glycobiosciences was given until December 19, 2015 by the Federal Court to retain new counsel in this matter.On December 8, 2015 Glycobiosciences retained new counsel. On January 12, 2016 Glycobiosciences discontinued the case putting an end to the Section 45 proceedings. As a result, the Company maintains its Canadian trademark.

 

In the course of preparing the affidavit in the Section 45 proceedings the Company discovered that Glycobiosciences has been offering for sale and selling “VISIBLE YOUTH VY” anti-aging revitalizing formula containing hyaluronate sodium to the public. The Company also discovered that on December 20, 2012, Glycobiosciences filed a Canadian trademark application to register VISIBLE YOUTH for cosmetics. On March 13, 2013, the Company filed a Notice of Infringement of Trademark on Glycobiosciences. On April 9, 2015 the Company filed a Statement of Claim against Glycobiosciences in the Federal Court of Canada claiming, amongst other matters, infringement of our Visible Youth trademark and seeking damages. On May 29, 2015 the defendant filed a Statement of Defence and Counterclaim denying each of the allegations in our Statement of Claim and alleged that they are not using the trademark Visible Youth. The Company filed its Reply and Defence to the Counterclaim on June 29, 2015. The defendant had until July 9. 2015 to file a reply. As no reply was received the pleadings closed on July 9, 2015. Consequently, on August 25, 2015 the Company served its Affidavit of Documents on Glycobiosciences Inc. On August 25, 2015 an Affidavit of Documents was received from Glycobiosciences. The Company responded on September 4, 2015 and has had no formal response to date. The Company has been in correspondence with the defendant and its respective attorneys since September 17, 2015 concerning a settlement of outstanding matters and since January 12 concerning costs in respect of Section 45 proceeding. Communication from the defendant is however slow and infrequent.

 

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The Company received a further Section 45 Notice by Glycobiosciences from the Canadian Intellectual Property Office dated June 22, 2016 requesting that the Company, in accordance with Section 45 of the Trade-marks Act, furnish evidence within three months from the date of the notice demonstrating use of the trademark Visible Youth in Canada at any time during the three year period immediately preceding the date of the notice. The Company remains confident that its trademark will prevail.

 

On September 17, 2015 the Company discovered that Glycobiosciences had applied for and been granted a trademark for Visible Youth in the European Union on May 10, 2015. No system of searches for prior trademark registration exists in the European Union prior to grant. On September 18, 2015 the Company filed an application for a declaration of invalidity of Glycobiosciences trademark due to the Company’s earlier granted trademark. On March 18, 2016 Glycobiosciences filed a response to the Company’s application for invalidity. On June 6, 2016 the Company filed its response and Glycobiosciences have until August 14, 2016 to submit their reply. The Company intends to vigorously defend its Visible Youth trademark.

 

Clinical Results and Study Plans

 

A clinical evaluation of our Visible Youth Healing Complex indicates clear anti-aging efficacy.

 

The Visible Youth Healing Complex when subjected to further clinical evaluation in human subjects was found to:

 

- Promote elasticity
- Reduce the appearance of fine lines and wrinkles
- Make pores appear smaller
- Improve skin texture and moisture
- Enhance evenness of skin

 

One hundred percent of the subjects tested responded with improvements in at least one or more skin-aging parameters. One hundred percent of the subjects felt that their skin showed improvements in fine lines/wrinkles, pore size, softness, smoothness, skin tightness, evenness, overall skin quality and healthiness.

 

Evaluations were conducted at Essex Testing Clinic, Inc, under the supervision of a Board-Certified Dermatologist.

 

We plan to undertake additional studies to support the marketing of the Visible Youth Consumer and Professional product lines;

 

We currently plan to undertake two marketing clinical studies on two Visible Youth products; namely, the Visible Youth Repairing Serum and the Visible Youth Moisturising Day Cream SPF20.

 

To aid the licensing and marketing of the Healing Complex as the basis of skin resurfacing products we also plan a larger study on our Visible Youth Healing Complex for the professional market. The clinical evaluation will assist in establishing the credibility necessary to approach to physicians. Additional studies are also planned for the Botox and cosmetic dermal fillers products.

 

Clinical studies typically involve 20-50 subjects using the product for between 8 – 14 weeks and take 3 – 4 months to the issue of the final report.

 

Government Approval of Principal Products

 

We are not required to obtain government approval of our products.

 

Effect of Existing Governmental Regulations on our Business

 

Our operations and products are subject to the United States Federal Food Drug and Cosmetic Act (the “FDNC”). The FDNC is a set of laws passed by Congress giving authority to the United States Food and Drug Administration to oversee the safety of food, drugs, and cosmetics. Generally, the FDNC prohibits the manufacture, labeling or introduction into interstate commerce of any cosmetic that is adulterated or misbranded. We are also subject to the Fair Packaging and Labelling Act (FPLA) which requires our products to bear a label on which there is a statement identifying the product, the name and place of business of the manufacturer or distributor and the net quantity of contents in terms of weight or measure.

 

All cosmetic products placed on the UK/EU market must comply with Regulation (EC) n°1223/2009 the “Cosmetics Regulation”. The main objectives of this law are that products are safe and do not mislead the consumer in any way. This is not dissimilar to the FDCA and the Fair Packaging and Labelling Act (FPLA).All cosmetic products in Europe should be manufactured to the Cosmetics Good Manufacturing Practices ISO Standard 22716. This differs to the USA where the FDA outline manufacturing standards which are very similar to ISO 22716, but ISO certification is still voluntary. In Europe it is not voluntary, manufacturers must be ISO 22716 certified to manufacture cosmetic products for the European Market.

 

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Also, we are subject to the provisions of the International Nomenclature of Cosmetic Ingredients (“INCI”). INCI is the official dictionary for cosmetic ingredients. Pursuant to INCI, manufacturers of cosmetic ingredients are required to submit all new ingredients for registration in the INCI system. Accordingly, to comply with legal labeling requirements, we are required to use the official INCI name of the ingredients on our labels.

 

Our operations and products are also subject to similar rules in other jurisdictions.

 

Markets

 

Cosmeceutical products with therapeutic elements in their composition are enjoying increased popularity in worldwide markets. As a greater number of women and men are visiting dermatologists and expressing concern about the health of their skin, cosmeceuticals provide answers to their cosmetic and health needs. Products such as anti-aging creams, tanning lotions and shampoos are beginning to incorporate medicinal grade ingredients and nutritional supplements in order to improve their efficiency and respond to market demand.

 

The Company believes that its products should have wide appeal to all skin types and all age groups.

 

It was Enhance Skin Products’ original plan to reach the targeted consumers by a direct dispense method; that is selling the Visible Youth products, through the services of independent aesthetic sales representatives, exclusively through physician offices, Medical Spas and licensed aestheticians, and supplemented by online sales with appropriate credit paid to back to referring physicians and aestheticians. Accordingly the initial production run and web site shopping cart were completed in June 2009.

 

During the second half of 2009, it became apparent that due to the recession, the direct dispense business model in the US was changing. Because of the attrition of funding sources, aesthetic sales reps had to commit increased time and effort helping customers finance equipment purchases, making them reluctant to spend time promoting the sale of lower commission products such as cosmecueticals. This, coupled with the reticence of patients to pay premium prices for unfamiliar brands, made it difficult for the Company to recruit independent sales reps. Sales representatives who did join the Company reported that physician offices were cutting back on product offerings due to the economic climate and were reluctant to take on new as yet unproven products.

 

In late 2010 we concluded that the Company should re-position and relaunch the Visible Youth product line in North America, so as to be able to pursue a direct to consumer (“DTC”) marketing program, in addition to a re-focused professional, direct dispense (“Professional”) strategy. In early 2011 the Visible Youth website was updated for new DTC pricing and attempts were made to access affiliate networks utilizing new communication methods such as blogs, web-based social networks (Facebook, Twitter), email, etc., to introduce, and acquire customers for the selected Visible Youth DTC products. The professional line was not re-focused and our DTC activities were not successful due to the lack of organizational and financial resources.

 

Since Mid 2011 the product line has not been actively promoted in the United States with a sales force or advertisement, save for sampling and through our website, to professionals or consumers partly due to the lack of financial resources but also as the Company spent considerable time in attempting to complete unsuccessful private financing transactions to fund the DTC and Professional strategy and, then, during 2012 on a proposed merger with nutraceutical company Age Reversal Inc., who ultimately withdrew from the merger in January 2013. We have however continued to actively market the line in Canada, where we have our Corporate Office and our Chief Scientific Officer resides, and to market and sell product and to provide free samples to existing and potential customers and professionals in the USA and Canada who are highly supportive of the product range. Sales of the products have however continued to be very low primarily, we believe, due to the lack of marketing support, non attendance at trade shows and exhibitions and the absence of clinical studies on the key formulations, necessary to support marketing efforts. We have also been negatively impacted by the bankruptcy of our US fulfillment centre and have not had the financial resources to replace the fulfillment centre.

 

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In February, 2013 the company changed its management responsibilities, subsequently restructured its balance sheet and refocused its activities on the re-launch of its products to the US consumer market. As part of our new strategy to be market driven we decided to seek external professional help on our future marketing strategy as part of the Restructuring Plan. We engaged a US based consultancy firm with a unique set of skills and extensive beauty industry experience and relationships to undertake an audit of the Visible Youth products and brand and to help reposition the brand and develop a strategy for its re-launch in the US and other markets, both as a consumer and professional brand. The principals of this firm have over 80 years of combined experience within the beauty and professional services businesses. We also prepared a business and marketing plan to enable us to commence the next step of the exercise, namely a “refreshed design” and creative concepts, the creation of a retail plan and ultimately commercialization and re-launch. On August 12, 2015, the Company entered into a services agreement with Snowbell Management Limited (“Snowbell”) to project manage and develop the Visible Youth™ consumer skin care brand for its relaunch. The project encompasses refining the brand plan and product briefs and involves the management and development of the brand and product line from re-formulation and re-branding through to delivered finished goods. During the period the Company also engaged a product formulation and manufacturing company and is currently in the process of reformulating its first six consumer products containing HA and bioactive glass. The first complete skincare system will comprise: Visible Youth Cleansing melt, Visible Youth Pro Skin Facial Serum, Visible Youth Under Eye Super Serum, Visible Youth Moisturising Day Cream SPF20, Visible Youth Renewal Night Cream, and Visible Youth Resurfacing Toner. In addition, the Company engaged design consultancy firms to create its new brand identity and packaging, encompassing both the Visible Youth consumer and professional brands. The work is well advanced and the new formulations and brand identity are expected to be completed by the end of the current quarter. The Company then intends to place the products on three months accelerated stability and to conduct various challenge and compatibility tests with a view to the start of pilot manufacture and the commencement of two further marketing clinical studies for the Visible Youth Pro Skin Facial Serum and our Visible Youth Moisturising Day Cream SPF20 as soon as resources are available. It is expected that final study results will be available approximately four months after their start.

 

In March 2016, the Company’s Board of Directors announced that having considered its options it had decided to take a low risk approach to the market launch of its products and not to seek to build its own US consumer marketing structure but to utilize the services of marketing partners with established and proven infrastructures. In the opinion of the Board this will enable the Company to bring the products to market quicker and at less cost and risk to shareholders. Implicit in this was the realization that the Company neither had the personnel resources or financial resources to fully commercialize its technology and products on its own. Consequently, the Company started to seek wider strategic collaboration partners as well as marketing and licensing partners.

 

If study results are satisfactory and necessary funding and collaboration or marketing partners can be obtained, management aims to re-launch the Visible Youth products in the consumer markets in Europe and the USA approximately six to nine months from clinical study completion.

 

Additional funding will be required to implement the marketing plan and to conduct the clinical studies to support the marketing plan. There can be no assurance that the Company will be able to secure the required additional funding on terms acceptable to the Company or at all.

 

Marketing Strategy and Distribution Methods

 

The Company’s overall marketing strategy is to continue to develop and market a full line of cosmetic and cosmeceutical products, the main active ingredients of which are HA and bioactive glass. All Visible Youth products are intended to be competitively priced in the mid- to upper-quadrant of high quality products and brands.

 

Direct to Consumer

 

We plan to take a lower cost and lower risk approach to the launch of our consumer products in the US by utilizing the services of established marketing and collaboration partners with proven marketing, sales and distribution infrastructure. We will also consider licensing the Visible Youth consumer products or other wider collaboration structures, if in the opinion of the board this would be beneficial based on cost and time to market.

 

We may also first launch the product range in Europe, given the ready availability of premium cosmetic formulation, branding and contract manufacturing, prior to transitioning the product to the US market.

 

We intend to market our products in the US via a US marketing partner to the consumer through a combination of major prestige beauty and grooming retailers, home shopping and on-line retail. We plan to focus on prestige beauty retailers who want to expand and stock the best, most innovative and differentiated yet simple anti-aging products on the market. Our target consumers are young women and men ages 25-35 who are becoming educated about the onset of ageing and medium to older consumers ages 35 – 65 who are concerned with anti-aging treatments and are versed consumers in beauty treatments and devices. We also believe that Home Shopping could be a major venue for our products. Home shopping, also known as e-commerce, commonly refers to the electronic retailing/home shopping channels industry, which includes such billion dollar television-based and e-commerce companies as QVC, HSN, and other Television based shopping channels. QVC for example reaches 250 million homes and had online sales in 2012 of $9 billion. We also plan to make use of new communication methods such as blogs, web-based social networks (Facebook, Twitter, You Tube), email, etc., to introduce, and seek to acquire customers for Visible Youth On-Line sales. This will require significant modification to the current Visible Youth web-site to take account of the new branding and the most up-to-date web-site design and functionality (www.visibleyouth.com). On-Line sales have the potential to be a significant revenue stream. We also plan to focus on cost effective marketing campaigns to support the brand through fashion magazines, Blogs and On-Line forums and to identify “brand representatives” within beauty and fashion who could act as spokespeople for the brand.

 

We plan to launch the Visible Youth brand directly to consumers initially with six products; Visible Youth Repairing Serum, Visible Youth Corrective Eye Serum, Visible Youth Hydrating Moisturizer, Visible Youth Revitalizing Cleanser, Visible Youth Night Repair Complex, and Visible Youth Daily Moisturizer with SPF. The first four products are reformulations of our existing products designed originally for the professional market and the Visible Youth Night Repair Complex and Visible Youth Daily Moisturizer will be new formulations. We would anticipate launching two to three additional Visible Youth formulations per year after the re-launch of the Visible Youth Brand Professional Markets.

 

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Management is currently pursuing a wider strategic collaboration under a plan of reorganisation to enable the commercialisation of its technologies and products. In the event that this collaboration does not progress management will evaluate alternative options and structures to enable the Company to commercialize it technologies and products. These range from Licensing and marketing arrangements to alternative strategic collaborations and the sale of its assets.

 

Professional

 

We plan to seek a US marketing partner, already established in the professional channel to market Visible Youth Healing Complex and Visible Youth Healing Complex plus 3% Lidocaine to skin care professionals, such as physicians and aestheticians. The line may include reformulated versions of the Skin Formula, Eye Zone Gel and Moisturizer, all of which would be marketed under the Visible Youth “Professional” brand or a marketing partners own brand. We are also currently seeking development and marketing partners for our development products utilizing HA and bioactive glass to enhance and extend the beneficial cosmetic effects of certain non-surgical dermal interventions, in particular the anti-wrinkle effects of cosmetic treatments associated with aesthetic injectables such as Botox (botulinum toxin) and cosmetic dermal fillers. Additional applications may include the alleviation of symptoms of rosacea such as redness, dryness and itchiness. These products are expected to be marketed under the Visible Youth “Professional” brand.

 

To aid the licensing and marketing of the Healing Complex as the basis of skin resurfacing products, we believe that we will need to complete a limited clinical evaluation. The clinical evaluation will assist in establishing the credibility necessary to approach to physicians. It is anticipated that marketing partners initial direct dispense efforts will be the aesthetics practices of dermatologists who are familiar with Solaraze, the prescription dermatology product that utilizes the same fraction of hyaluronan as Visible Youth, to deliver its active ingredient to the dermis. Additional studies are also planned for the Botox and cosmetic dermal fillers products.

 

International

 

We plan to seek a development and marketing partner or partners for the Visible Youth Consumer and Professional products in Europe and the Rest of the World.

 

We have engaged business development professionals to help us identify and contact potential partners in the US for our Professional range and in Europe for Consumer and Professional. We are currently in early stage discussions with several potential European and Far Eastern partners. The primary focus short term remains on the US consumer re-launch. We may however first launch the product range in Europe, given the ready availability of premium cosmetic formulation, branding and contract manufacturing, prior to transitioning the product to the US market.

 

Raw Materials and Suppliers

 

Hyaluronan or Hyaluronic Acid (“HA”) and bio-active glass are the primary “active” ingredients in our products. The other ingredients in our current products are standard ingredients for cosmetic products that are readily available in the cosmetic industry.

 

Many forms of HA are available. The Visible Youth skin care line only utilizes high purity, medical-grade HA of specific molecular size to deliver hydration to the skin. We believe that our combination of grade, purity and molecular size provides optimum hydration and dermal delivery. This is in contrast to most other cosmetics which utilise cosmetic grade HA.

 

HA comes from a number of sources. Two of the most popular are extraction from rooster combs and bacterial fermentation. We prefer bacterial fermentation as the source of our HA. Accordingly, we seek to acquire our HA from manufacturers that produce HA using a bacterial fermentation process. Not all HA manufacturers produce product to our specifications. Accordingly, we acquire our HA from manufacturers who produce HA to our specifications.

 

Kyowa Hakko, our historic supplier of Hyaluronan has informed the Company that it is no longer able to supply HA. We have identified and tested six alternative sources of HA which meet our specifications, and have selected our two preferred candidates which are both currently being used in formulation activities. We intend to qualify two alternative sources of HA for our future products.

 

Vitryxx/HA Bio-active Glass Serum is a new, effective and easy-to-formulate anti-aging ingredient for use in a wide variety of personal care products. It is based on a proprietary formulation of Hyaluronic Acid and bioactive glass in a serum, developed by Enhance Skin Products Inc. This unique formulation has been designed to deliver both the product benefits of Hyaluronic Acid and Bioactive Glass Powder as well as provide additional advantages from the combination of both materials. Bioactive glass has been reported to have strong anti-inflammatory activity. Hyaluronan, also has strong anti-inflammatory activity, and we thus believe should provide synergistic benefits to the bioactive glass.

 

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The Company is also evaluating other patented bio-active glass combinations which in combination with hyaluronan may have enhanced healing properties.

 

We do not anticipate a shortage of any ingredient or raw material used in our products.

 

Competition

 

The market for skincare/cosmeceuticals is highly competitive with many established manufacturers, suppliers and distributors engaged in all phases of the business. Competitive factors in our market include:

 

  product efficacy and uniqueness;
  brand awareness and recognition, product quality, reliability of performance and convenience of use;
  cost effectiveness;
  breadth of product offerings;
  sales and marketing capabilities and methods of distribution;
  resources devoted to product education and technical support; and
  speed of introducing new competitive products and existing product upgrades.

 

We face and will continue to face intense competition. A number of our competitors have far greater research and development and marketing capabilities and far greater financial resources than we do. These competitors may have developed, or could in the future develop, new technologies that compete with our products or render our products obsolete. We are also likely to encounter increased competition as we enter new markets and as we attempt to further penetrate existing markets. Some of our competitors have, in the past, and may, in the future, compete by lowering prices on their products. We may respond by lowering our prices, exiting the market or competing by investing in the development of new, improved products.

 

Approximately 400 companies compete in the U.S. cosmeceutical industry, divided fairly evenly among chemical and end-use product segments. The seven largest producers of cosmeceutical products are Johnson & Johnson, Procter & Gamble, L’Oreal, Allergan, Avon, Estee Lauder and Medicis. These companies control more than 60% of the U.S. cosmeceutical market. Our products also compete with similar products sold in prestige locations, such as department stores, high-end specialty retailers, door-to-door, by television and infomercials or mail-order or telemarketing by representatives of direct sales companies.

 

We expect to compete on the basis of brand awareness, product functionality, design, quality, pricing, marketing, order fulfilment and delivery.

 

ITEM 1A. RISK FACTORS.

 

As a smaller reporting company, the Company is not required to provide information under this Item 1A.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS.

 

Not applicable.

 

ITEM 2. PROPERTIES.

 

We do not own any real property. Our principal executive offices are located at 50 West Liberty Street, Suite 880, Reno NV 89501.

 

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ITEM 3. LEGAL PROCEEDINGS.

 

The Company received a Section 45 Notice from the Canadian Intellectual Property Office dated December 18, 2012 requesting that the Company, in accordance with Section 45 of the Trade-marks Act, furnish evidence within three months from the date of the notice demonstrating use of the trademark Visible Youth in Canada at any time during the three year period immediately preceding the date of the notice. The Company provided such evidence in the form of an affidavit on March 14, 2013. On August 26, 2013 the Company received a response from the purported requesting party, Glycobiocsiences Inc. (“Glcyobiosciences”) response, dated August 12, 2013, to its evidence. The Company filed its response to that submission on December 23, 2013.

 

On January 9, 2014 Glycobiosciences requested an oral hearing, which was held on June 25, 2014. On September 17, 2014 the Company was informed that the Canadian Intellectual Property Office issued a decision dated September 7, 2014 rejecting the Section 45 application and maintaining the Company’s Canadian trademark. On November 13, 2014 the Company was informed that the applicant has appealed this decision to the Federal Court of Canada. The Company filed a Notice of Appearance with the Federal Court of Canada on November 21, 2014 indicating that it intends to oppose this application. On January 20, 2015 the Company filed further evidence in the form of an affidavit with the Court.

 

On April 20, 2015 the Company received a notice of Change of Solicitors from Glycobiosciences, the alleged requesting party. Glycobiosciences has not filed a response in a timely manner and on April 24, 2015 the Company filed a response requesting that the matter be dismissed for delay. On April 28, 2015 the Company was notified by the Federal Court that the alleged applicant will be required to bring a Motion requesting an extension of time to file a response. On July 8, 2015 the Federal Court issued a Notice of Status Review because more than 180 days have elapsed since the issuance of the Notice of Application. Accordingly, the Applicant now had until July 23, 2015, to serve and file representations stating the reasons why the proceeding should not be dismissed for delay. On July 30, 2015 the Company filed its written Submissions in response. On August 6, 2015 the Applicant filed its reply to the Company’s response. On August 19, 2015 the Federal Court found that the application should not be dismissed for delay and ordered that the application proceed as a specially managed proceeding under a Case Management Judge. On September 16, 2015 a Case Management Judge was appointed. Despite repeated attempts both Glycobiosciences and its attorneys failed to supply dates for a case management teleconference and subsequently informed the Company that it was no longer represented by attorneys. Consequently, on November 17, 2015 the Company again asked the Federal Court that the matter be dismissed for delay. Glycobiosciences was given until December 19, 2015 by the Federal Court to retain new counsel in this matter. On December 8, 2015 Glycobiosciences retained new counsel. On January 12, 2016 Glycobiosciences discontinued the case putting an end to the Section 45 proceedings. As a result, the Company maintains its Canadian trademark.

 

In the course of preparing the affidavit in the Section 45 proceedings the Company discovered that Glycobiosciences has been offering for sale and selling “VISIBLE YOUTH VY” anti-aging revitalizing formula containing hyaluronate sodium to the public. The Company also discovered that on December 20, 2012, Glycobiosciences filed a Canadian trademark application to register VISIBLE YOUTH for cosmetics. On March 13, 2013, the Company filed a Notice of Infringement of Trademark on Glycobiosciences. On April 9, 2015 the Company filed a Statement of Claim against Glycobiosciences in the Federal Court of Canada claiming, amongst other matters, infringement of our Visible Youth trademark and seeking damages. On May 29, 2015 the defendant filed a Statement of Defence and Counterclaim denying each of the allegations in our Statement of Claim and alleged that they are not using the trademark Visible Youth. The Company filed its Reply and Defence to the Counterclaim on June 29, 2015. The defendant had until July 9. 2015 to file a reply. As no reply was received the pleadings closed on July 9, 2015. Consequently, on August 25, 2015 the Company served its Affidavit of Documents on Glycobiosciences Inc. On August 25, 2015 an Affidavit of Documents was received from Glycobiosciences. The Company responded on September 4, 2015 and has had no response to date. The Company has been in correspondence with the defendant and its respective attorneys since September 17, 2015 concerning a settlement of outstanding matters and since January 12 concerning costs in respect of Section 45 proceeding. Communication from the defendant is however slow and infrequent.

 

The Company received a further Section 45 Notice by Glycobiosciences from the Canadian Intellectual Property Office dated June 22, 2016 requesting that the Company, in accordance with Section 45 of the Trade-marks Act, furnish evidence within three months from the date of the notice demonstrating use of the trademark Visible Youth in Canada at any time during the three year period immediately preceding the date of the notice. The Company remains confident that its trademark will prevail.

 

On September 17, 2015 the Company discovered that Glycobiosciences had applied for and been granted a trademark for Visible Youth in the European Union on May 10, 2015. No system of searches for prior trademark registration exists in the European Union prior to grant. On September 18, 2015 the Company filed an application for a declaration of invalidity of Glycobiosciences trademark due to the Company’s earlier granted trademark. . On March 18, 2016 Glycobiosciences filed a response to the Company’s application for invalidity. On June 6, 2016 the Company filed its response and Glycobiosciences have until August 14, 2016 to submit their reply . The Company intends to vigorously defend its Visible Youth trademark.

 

On June 19, 2012, the Company entered into a written Agreement and Plan of Merger (the “Merger Agreement”) with Age Reversal, Inc., a Maryland corporation (“ARI”) as disclosed in Note 12 to the financial statements for the year ended April 30, 2012. On January 14, 2013, the Company received notice from ARI that ARI was withdrawing from the proposed merger with the Company to pursue other options. ARI thereby terminated the Agreement and Plan of Merger entered into on June 19, 2012 and the Amendment to Agreement and Plan of Merger entered into on August 31, 2012 between the Company and ARI. The Company and ARI have had discussions over ARI’s obligations on termination of the Merger Agreement to reimburse the company for certain expenses of the Merger. Pursuant to Section 7.1(b) of the Merger Agreement, the Company has demanded payment of the ESP Expense Reimbursement (as defined in the Merger Agreement) of $40,000 it claims is due under the Merger Agreement. ARI claims that it has reimbursed, advanced or otherwise paid to date amounts that satisfy this obligation. The Company continues to maintain that ARI owes the ESP Expense Reimbursement of $40,000 under the Merger Agreement. The Company has not as yet started legal proceeding against ARI due to its financial position, but reserves the right to commence proceedings once it has obtained adequate funding.

 

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We are not aware of any other material legal proceedings, other than ordinary routine litigation incidental to the business, to which our Company or any of our subsidiaries are a party or of which any of their property is the subject. We are not aware of any material proceedings to which any director, officer or affiliate of the our Company, any owner of record or beneficially of more than five percent of any class of voting securities of our Company, or any associate of any such director, officer, affiliate of our Company, or security holder is a party adverse to our Company or any of its subsidiaries or has a material interest adverse to our Company any of its subsidiaries.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

The Company’s common stock is listed for quotation on the OTC Pink Market under the symbol “EHSK”. During 2013 and until August 30, 2014, the Company’s common stock was listed for quotation on the OTCQB Market. The Company’s common stock is thinly traded, and transactions in that stock are infrequent and sporadic. No established trading market exists for the Company’s common stock.

 

The following table specifies the high and low bid quotations for the Company’s common stock for the periods indicated. These quotations indicate prices among securities dealers, do not include retail mark-ups, markdowns, or commissions, and may not necessarily represent actual transactions.

 

Period  High   Low 
         
Quarter ended April 30, 2016  $.005   $.003 
Quarter ended January 31, 2016  $.011   $.003 
Quarter ended October 31, 2015  $.011   $.006 
Quarter ended July 31, 2015   $.020   $.008 
Quarter ended April 30, 2015  $.060   $.010 
Quarter ended January 31, 2015  $.020   $.010 
Quarter ended October 31, 2014  $.015   $.010 
Quarter ended July 31, 2014   $.020   $.010 

 

Shares of our common stock are issued in registered form. VStock Transfer, LLC 18 Lafayette Place, Woodmere, NY 11598 Telephone 212-828-8436 is the registrar and transfer agent for our common shares. On April 30, 2016 we had 113,951,705 shares outstanding.

 

As of April 30, 2016, the approximate number of holders of our common stock is 33.

 

DIVIDENDS

 

We have not declared any dividends since incorporation and do not anticipate that we will do so in the foreseeable future. Although there are no restrictions that limit the ability to pay dividends on our common shares, our intention is to retain future earnings for use in our operations and the expansion of our business.

 

EQUITY COMPENSATION PLAN INFORMATION

 

We have not adopted any equity compensation plans.

 

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PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

 

None.

 

RECENT SALES OF UNREGISTERED SECURITIES

 

On June 24, 2015, we completed a financing pursuant to a securities purchase agreement (the “SPA”) with Vis Vires Group, Inc. (“VVG”) dated June 19, 2015 under which we borrowed $43,000 through the issue of a convertible promissory note (the “VVG Note”).

 

The VVG Note was due on March 23, 2016 and beared interest at 8% per annum. The VVG Note became convertible 180 days after the date of the note. The VVG Note and any accrued interest could then be converted into shares of the Company’s common stock at a rate of 58% multiplied by the market price, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date. On December 28, 2015, VVG elected to convert $12,000 of the principal amount of the VVG Note into the Company’s common stock. On December 30, 2015 the Company issued seven million fifty eight thousand eight hundred and twenty four (7,058,824) common shares of its stock to VVG to satisfy the conversion pursuant to the terms of the VVG Note. On March 23, 2016, the Company repaid in full the outstanding principal and interest on the VVG Note in the amount of $33,344. In the event of non-payment, the Company would have been due to pay 150% of the then outstanding principal plus interest and the interest rate would have increased from 8% to 22% per annum until repaid or conversion took place. The issuance of the VVG Note and the issuance of common stock pursuant to VVG’s election to partially convert the VVG Note was made in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933 and/or Rule 506 of Regulation D promulgated thereunder. The foregoing description of SPA and the VVG Note does not purport to be complete and is qualified in its entirety by reference to the complete text of the foregoing documents, which were filed as Exhibits 10.1 and 10.2 for our Form 8-K filed on June 25, 2015 all of which are incorporated herein by this reference.

 

On August 1, 2015, the Company entered into a services agreement with Snowbell Management Limited (“Snowbell”) which was amended on February 3, 2016 to project manage and develop the Visible Youth™ consumer skin care brand for its relaunch. As consideration for the services provided under the agreement as amended, the Company will pay Snowbell fees monthly as invoiced and issued 3,875,000 common shares to satisfy £20,000 of the Company’s obligations to Snowbell. The agreement contains certain anti dilution provisions in the event that the Company issues shares to non-related third parties of less than $0.008 per share during the 9 month period from the date of the agreement. The shares were issued in two equal tranches of 1,937,500 shares on August 13, 2015 and February 22, 2016. The sale of these securities was made in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933.

 

On August 19, 2015, the Company entered into a services agreement with StockVest pursuant to which StockVest will provide certain communication and investor relation services. As consideration for these services, the Company has paid StockVest $16,000 satisfied through the issue of 2,000,000 common shares. The agreement contains certain anti dilution provisions in the event that the Company issues shares to non-related third parties of less than $0.008 per share during the 12 month period from the date of the agreement. The shares were issued on August 19, 2015. The sale of these securities was made in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933. 

 

As at April 30, 2016 there were 113,951,705 shares of common stock issued out of the authorized 600,000,000 common shares.

 

ITEM 6. SELECTED FINANCIAL DATA.

 

Not applicable.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

During the period the Company has continued prosecution and protection of its patent and trademark portfolio. In April 2015, the Company received Notice of Allowability for its base patent in Japan which subsequently issued. On May 5, 2015 the Company announced the acceptance by the US Patent and Trademark Office of a new patent application for the use of HA and bioactive glass to enhance and extend the beneficial cosmetic effects of certain non-surgical dermal interventions, in particular the anti-wrinkle effects of cosmetic treatments associated with aesthetic injectables such as Botox (botulinum toxin) and cosmetic dermal fillers. Additional applications may include the alleviation of symptoms of rosacea such as redness, dryness and itchiness. An international application under the Patent Cooperation Treaty has also been accepted.

 

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On August 12, 2015, the Company entered into a services agreement with Snowbell Management Limited (“Snowbell”) to project manage and develop the Visible Youth™ consumer skin care brand for its relaunch. The project encompasses refining the brand plan and product briefs and involves the management and development of the brand and product line from re-formulation and re-branding through to delivered finished goods. During the period the Company also engaged a product formulation and manufacturing company and is currently in the process of reformulating its first six products. The first complete skincare system will comprise: Visible Youth Cleansing melt, Visible Youth Pro Skin Facial Serum, Visible Youth Under Eye Super Serum, Visible Youth Moisturising Day Cream SPF20, Visible Youth Renewal Night Cream, and Visible Youth Resurfacing Toner. In addition, during the prior quarter the Company engaged a design consultancy to create its new brand identity and packaging, encompassing both the Visible Youth consumer and professional brands. The work is well advanced and the new formulations and brand identity are expected to be completed by the end of the current quarter. The Company then intends to place the products on three months accelerated stability and to conduct various challenge and compatibility tests with a view to the start of pilot manufacture and the commencement of two further marketing clinical studies for the Visible Youth Pro Skin Facial Serum and our Visible Youth Moisturising Day Cream SPF20 as soon as resources are available. It is expected that final study results will be available approximately four months after their start.

 

Having considered its options the Board announced in March 2016 that it had decided to take a low risk approach to the market launch of its products and not to build its own US consumer marketing structure but to utilise the services of marketing partners with established and proven infrastructures. In the opinion of the Board this will enable the Company to bring the products to market quicker and at less cost and risk to shareholders. Implicit in this was the realization that the Company neither had the personnel resources or financial resources to fully commercialize its technology and products on its own. The Company has signed a non-binding term sheet and binding option agreement in respect of a wider strategic collaboration under a plan of reorganisation to allow for the commercialisation of its technologies and products. The Company has also continued discussions with other potential marketing and licensing partners for the US and Europe in respect of our Visible Youth professional and consumer products

 

If study results are satisfactory and necessary funding and collaboration or marketing partners can be obtained, management aims to re-launch the Visible Youth products in the consumer markets in Europe and the USA approximately six to nine months from clinical study completion.

  

There can be no assurances, however, that management’s efforts to obtain additional funding and collaboration, licensing or marketing partners on terms satisfactory to the Company, or at all will, be realized or that future sales will be realized.

 

Consolidated balance sheets – April 30, 2016

 

Cash

 

At April 30, 2016 the Company had $2,847 of cash on hand, an increase of $1,265 from the April 30, 2015 balance of $1,582, mainly because of advances from a related party.

 

Goodwill

 

On October 31, 2015, the Company acquired 100% of the issued and outstanding shares of Visible Youth Ltd. for a consideration of $2,500. Management decided to immediately impair goodwill amounting to $2,499 and brought it at $1 as Visible Youth Ltd. was inactive as at October 31, 2015.

 

Accounts payable and accrued liabilities

 

At April 30, 2016 accounts payable and accrued liabilities was $271,635, an increase of $35,834 from the April 30, 2015 balance of $235,801. The increase represented accruals pursuant to various consulting agreements for the provision of services principally in respect of patents and trademarks, business development and product formulation activities.

 

Accounts payable to related parties (including accounts payable to related parties convertible into shares)

 

At April 30, 2016 accounts payable to related parties including accounts payable to related parties convertible into shares was $324,207, an increase of $250,500 from the April 30, 2015 balance of $73,707. The increase represents accrual of consulting and remuneration charges in connection with the consulting and employment agreement amendments effective August 1, 2015 and signed on November 19 and November 25, 2015.

 

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Advances from related parties (including advances from a related party convertible into shares)

 

At April 30, 2016 advances from related parties including advances from a related party convertible into shares was $402,029, an increase of $131,123 from the April 30, 2015 balance of $270,906. The increase represents additional advances from related parties during the year ended April 30, 2016 to meet the working capital requirements of the Company.

 

Common stock

 

At April 30, 2016, there were shares of 113,951,705 common stock issued and outstanding as compared to common stock 101,017,881 as at April 30, 2015. The increase represents issuance of 12,933,824 common stock during the year ended April 30, 2016 as described in Part II - ITEM 5. ; Recent Sales of Unregistered Securities.

 

Accumulated other comprehensive income

 

The Company has a 100% owned subsidiary in Canada. In the consolidation of the Canadian subsidiary a translation adjustment was resulted which is not reflected in the statement of operations. This translation adjustment is maintained in the consolidated statement of stockholders’ equity. The balance at April 30, 2016 was $8,809, an increase of $9,748 from the April 30, 2015 balance of $(939).

 

Consolidated statements of operations – April 30, 2016

 

Sales

 

Sales for the year ended April 30, 2016 were $613 compared to the previous year of $730. Management is currently seeking additional financing for ongoing project management and formulation costs, to complete the design work currently underway for the consumer rebranding and packaging, to manufacture prototypes for studies and promotion, to undertake marketing clinical studies on the Visible Youth Repairing Serum and the Visible Youth Moisturising Day Cream SPF20, to pay on-going patent and consultancy costs and to provide working capital. Current and previous period nominal sales represent sales of our existing Visible Youth products through the Company’s existing website primarily to existing customers.

 

Expenses

 

General & administrative. 

 

General & administrative expenses incurred for year ended April 30, 2016 were $21,664 compared to the $21,159 incurred in the year ended April 30, 2015. The change is not significant as the expenditures remained relatively consistent to the year ended April 30, 2015.

 

Legal and professional fees.

 

Legal and professional fees for the year ended April 30, 2016 were $436,263 compared to $69,570 incurred for the year ended April 30, 2015, respectively. The significant increase of $366,693 is mainly due to recording of $250,500 in management fees in connection with consulting and employment agreement amendments finalized during the year ended April 30, 2016. The other increase is associated with increase in patent registration and the related product formulation and business development activities during the year ended April 30, 2016.

 

Marketing

 

Marketing expense for the year ended April 30, 2016 represents fair valuation of issuance of 2,000,000 shares to a consultant in connection with marketing activities.

 

Other income.

 

Other income represents a reduction in the Company’s obligations in respect of consultancy services provided pursuant to an amendment agreement with Nolex LLC effective April 30, 2015.

 

Page│17 
 

 

Impairment of goodwill.

 

On October 31, 2015, the Company acquired 100% of the issued and outstanding shares of Visible Youth Ltd. for a consideration of $2,500. Management decided to immediately impair goodwill amounting to $2,499 and brought it at $1 as Visible Youth Ltd. was inactive as at April 30, 2016.

 

Interest expense.

 

Interest expense for the year ended April 30, 2016 were $138,937 compared to $54,708 for the year ended April 30, 2015. For the current year ended April 30, 2016 interest expense of $107,143 (2015: $54,708) represents beneficial conversion feature of the advances from a related party, $29,449 (2015: $Nil) represents accretion expense on the convertible promissory note obtained and settled during the current year and $2,345 (2015: $Nil) represents interest expense on the convertible promissory note.

 

Liquidity and Capital Resources

 

At April 30, 2016, the Company had a working capital deficit of $995,024 compared to a working capital deficit of $578,832 at the year ended April 30, 2015. The increase in working capital deficit is due entirely to the continued losses of the Company.

 

At April 30, 2016 the total assets were $2,848 as compared to the total assets $1,582 at April 30, 2015. The increase is due to the increase in cash balance.

 

Income Taxes

 

At April 30, 2016, the Company had potential unused net operating loss carryovers of approximately $3,089,331 (April 30, 2015: $2,476,581). These losses may be available to offset taxable income in the future and to the extent available will expire between 2027 and 2032. The Company has not filed tax returns in the US since 2011 and has filed no Federal or Provincial returns in Canada to date. The Company is in the process of filing overdue tax returns which may have an impact on the amount of net operating loss carryovers which might be available to the Company. No deferred tax asset attributable to the net operating loss carry forward has been recognized, as based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

 

Financing

 

During the year ended April 30, 2016, the Company continued to rely on advances from Mercuriali Ltd a company controlled by the Company’s CEO.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our short term money market investments. The Company does not have any financial instruments held for trading or other speculative purposes and does not invest in derivative financial instruments, interest rate swaps or other investments that alter interest rate exposure. The Company does not have any credit facilities with variable interest rates.

 

Page│18 
 

  

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

SEALE AND BEERS, CPAs

PCAOB REGISTERED AUDITORS

www.sealebeers.com

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

Enhance Skin Products, Inc.

 

We have audited the accompanying balance sheets of Enhance Skin Products, Inc. as of April 30, 2016 and 2015, and the related statements of operations and comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended April 30, 2016. Enhance Skin Product, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Enhance Skin Products, Inc. as of April 30, 2016 and 2015, and the results of its operations and comprehensive loss, and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 4 to the financial statements, the Company has minimal revenues, has negative working capital at April 30, 2016, has incurred recurring losses and recurring negative cash flow from operating activities, and has an accumulated deficit which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 4. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Seale and Beers, CPAs  
Seale and Beers, CPAs  
Las Vegas, Nevada  
July 21, 2016  

 

Page│19 
 

 

ENHANCE SKIN PRODUCTS INC.

CONSOLIDATED BALANCE SHEETS

AS AT APRIL 30, 2016 AND 2015

(Expressed in United States Dollars)

 

    2016   2015
      $       $  
ASSETS                
Cash     2,847       1,582  
Total current assets     2,847       1,582  
                 
Goodwill (Note 10)     1        
Total assets     2,848       1,582  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
Liabilities                
Accounts payable and accrued liabilities     271,635       235,801  
Accounts payable to related parties (Note 5)     75,607       457  
Accounts payable to related parties convertible into shares (Note 5)     248,600       73,250  
Advances from a related party (Note 5)     96,489       96,489  
Advances from a related party convertible into shares (Note 5)     305,540       174,417  
Total current liabilities     997,871       580,414  
Total liabilities     997,871       580,414  
                 
Stockholders’ deficit                
Authorized:                
600,000,000 common shares par value $0.001 as of April 30, 2016 (April 30, 2015: 300,000,000 common shares) - (Note 6)                
Issued and outstanding 113,951,705 common shares as of April 30, 2016 (April 30, 2015: 101,017,881 common shares) - (Note 6)     113,951       101,017  
Additional paid-in capital     1,971,548       1,797,671  
Accumulated other comprehensive gain/(loss)     8,809       (939 )
Accumulated deficit     (3,089,331 )     (2,476,581 )
Total stockholders’ deficit     (995,023 )     (578,832 )
Total liabilities and stockholders’ deficit     2,848       1,582  

 

See accompanying notes

 

Page│20 
 

 

ENHANCE SKIN PRODUCTS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE YEARS ENDED APRIL 30, 2016 AND 2015

(Expressed in United States Dollars)

 

   2016   2015 
   $   $ 
         
SALES   613    730 
           
EXPENSES          
General and administrative   21,664    21,159 
Legal and professional fees   436,263    69,570 
Marketing   14,000    279 
Total operating expenses   471,927    91,008 
           
Other Income (Note 11)       (30,000)
Impairment of goodwill (Note 10)   2,499      
Interest expense (Notes 8 and 9)   138,937    54,708 
Net loss for the year before income taxes   (612,750)   (114,986)
           
Income taxes        
Net loss for the year   (612,750)   (114,986)
           
Foreign currency translation adjustment   9,733    318 
Comprehensive loss   (603,017)   (114,668)
           
Loss per share, basic and diluted   (0.0057)   (0.0011)
           
Weighted average number of common shares outstanding   106,707,188    101,017,881 

 

See accompanying notes

 

Page│21 
 

 

ENHANCE SKIN PRODUCTS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE YEARS ENDED APRIL 30, 2016 and 2015

(Expressed in United States Dollars)

 

   Common stock   Shares to be issued   Additional paid-in   Accumulated other comprehensive   Accumulated     
   Shares   Amount   Amount   capital   loss   deficit   Total 
       $   $   $   $   $   $ 
As at April 30, 2014   100,267,881    100,267    750    1,742,963    (1,257)   (2,361,595)   (518,872)
                                   
Issuance of shares for services (Note 6)   750,000    750    (750)                
                                   
Beneficial conversion feature on advances (Note 8)               54,708            54,708 
                                   
Foreign currency translation                   318        318 
                                   
Net loss for the year                       (114,986)   (114,986)
As at April 30, 2015   101,017,881    101,017        1,797,671    (939)   (2,476,581)   (578,832)
                                    
Issuance of shares for services (Note 6)   5,875,000    5,875        32,344            38,219 
                                    
Beneficial conversion feature on advances (Note 8)               107,143            107,143 
                                    
Beneficial conversion feature on promissory note (Note 8)               29,449            29,449 
                                    
Conversion of promissory note (Note 8)   7,058,824    7,059         4,941              12,000 
                                    
Foreign currency translation                   9,748        9,748 
                                    
Net loss for the year                       (612,750)   (612,750)
                                    
As at April 30, 2016   113,951,705    113,951        1,971,548    8,809    (3,089,331)   (995,023)

 

See accompanying notes

 

Page│22 
 

 

ENHANCE SKIN PRODUCTS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED APRIL 30, 2016 and 2015

(Expressed in United States Dollars)

 

   2016   2015 
   $   $ 
         
OPERATING ACTIVITIES          
Net loss for the year   (612,750)   (114,986)
           
Other Income        (30,000)
Beneficial conversion feature on advances from a related party   107,143     
Accretion expense on convertible promissory note   29,449    54,708 
Shares issued against consulting and marketing expenses   38,218     
Impairment of goodwill   2,499     
           
Net change in non-cash working capital balances:          
Accounts payable to related parties   75,150     
Accounts payable to related parties convertible into shares   175,350     
Accounts payable and accrued liabilities   35,834    35,698 
Cash used in operating activities   (149,107)   (54,580)
           
FINANCING ACTIVITIES          
Proceeds from issuance of promissory convertible note   43,000     
Repayment of promissory convertible note and interest   (33,500)    
Advances from a related party convertible into shares   131,123    54,708 
Cash provided by financing activities   140,623    54,708 
           
Net increase in cash during the year   (8,484)   128 
Effect of foreign currency translation   9,749    318 
Cash, beginning of the year   1,582    1,136 
Cash, end of year   2,847    1,582 
           
Supplemental disclosure with respect to cash flows:          
Cash paid for income taxes        
Cash paid for interest        

 

See accompanying notes

 

Page│23 
 

 

ENHANCE SKIN PRODUCTS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2016

 

NOTE 1. BASIS OF PRESENTATION

 

The Company was originally incorporated under the laws of the state of Nevada on November 14, 2006 as Zeezoo Software Corp. (“Zeezoo”)

 

Pursuant to an Asset Purchase Agreement by and between Zeezoo and Enhance Skin Products Inc., a privately owned Ontario corporation (“Enhance Private”), which closed on August 14, 2008, Zeezoo acquired all of the intellectual property and certain liabilities of Enhance Private (the “Assets”). In addition to shares issued for the asset purchase and the cancellation of certain securities of Zeezoo, Enhance Private acquired approximately 57.6% of the issued and outstanding shares of common stock, par value $0.001 per share (the “Common Stock”), of Zeezoo. On August 28, 2008 Zeezoo changed its name to Enhance Skin Products Inc.

 

For accounting purposes, this transaction was treated as an acquisition of Zeezoo and a recapitalization of Enhance Skin Products Inc. Enhance Private was the accounting acquirer and the results of its operations carried over. Accordingly, all prior year financial statements presented for comparative purposes are those of Enhance Private and not Zeezoo. Accordingly, the operations of Zeezoo are not carried over and adjusted to $0. Immediately prior to the Merger, Zeezoo had minimal assets and liabilities.

 

The financial statements are presented based on this recapitalization, whereby the Company had 49,250,000 common shares outstanding as of August 14, 2008.

 

The Company is now a developer of premium cosmetics and cosmeceutical products marketed under its “Visible Youth trademark. Cosmeceuticals are topically applied products containing ingredients that influence the biological function of skin and can be described as a marriage between cosmetics and pharmaceuticals. These products may improve the appearance and condition of the skin by delivering nutrients or protectants necessary for healthy skin.

 

These consolidated financial statements contain the consolidated accounts of the Company and its wholly owned subsidiary Enhance Skin Products (Canada) Limited. All material inter-company accounts and transactions have been eliminated on consolidation.

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The Company maintains its accounts on the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America. The accompanying financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (SEC). In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations have been reflected herein below:

 

CASH AND CASH EQUIVALENTS

 

Cash and cash equivalents include cash and all highly liquid financial instruments with original purchased maturities of three months or less. At April 30, 2016 the Company had a cash balance of $2,847 compared to a cash balance of $1,582 at April 30, 2015.

 

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The Company’s financial instruments consist of cash, account receivable and prepayments. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these consolidated financial statements.

 

USE OF ESTIMATES

 

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Page│24 
 

 

ENHANCE SKIN PRODUCTS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2016

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

REVENUE RECOGNITION

 

The Company’s revenue is generated primarily from the sale of its line of skin care products. The Company recognizes product sales generally at the time the product is shipped. In certain instances the Company recognizes revenue on a C.O.D. basis. Concurrent with the recognition of revenue, the Company is determining a suitable provision for the estimated cost of product returns. Once this provision is determined revenue will be reduced for estimated product returns. However, as of April 30, 2016 there have been no product returns. Sales incentives are classified as a reduction of revenue and are recognized when revenue is recognized. Shipping and handling charges to the customer are included in revenue and the associated costs are included in cost of goods sold. Although the Company has written down the inventory to nil as the value of the inventory is considered to be impaired due to lack of significant sales the products are still available for sale on the Company’s web site.

 

SALES RETURN POLICY

 

The Company will accept returns for damaged goods only, the goods must be returned unused and in the original packaging. To date there have been no returns. The Company is presently determining an appropriate provision for returns and allowances which will be applied on future sales. Although the Company has written down the inventory to nil as the value of the inventory is considered to be impaired due to lack of significant sales the products are still available for sale on the Company’s web site.

 

ADVERTISING EXPENSE

 

The Company’s policy regarding advertising is to expense advertising when incurred.

 

BASIC AND DILUTED LOSS PER SHARE

 

The Company reports basic loss per share in accordance with the FASB ASC 260, “Earnings Per Share”. Basic loss per share is computed using the weighted average number of shares outstanding during the period. Diluted loss per share has not been provided as it would be anti-dilutive. Dilution is computed by applying the treasury stock method.

 

PRODUCT DEVELOPMENT COSTS

 

Product development costs are expensed as incurred. Product development expenses were nil for the years ended April 30, 2016 and 2015.

 

INCOME TAXES

 

Income taxes are provided in accordance with FASB ASC 740 Accounting for Income Taxes. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carry forwards. Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities.

 

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of all of the deferred tax assets will be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

 

FOREIGN CURRENCY TRANSACTIONS

 

The Company’s functional currency is the Canadian dollar (“CDN”). The Company translates from the functional currency to U.S. dollars using the current rate method in accordance with FASB ASC 830. The Company uses the U.S. dollar as its reporting currency for consistency with registrants of the Securities and Exchange Commission and in accordance with FASB ASC 830.

 

Transactions undertaken in currencies other than the functional currency of the entity are translated using the exchange rate in effect as of the transaction date. Any exchange gains and losses would be included in other income (expenses) on the Statement of Operations.

 

Page│25 
 

 

ENHANCE SKIN PRODUCTS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2016

 

NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS

 

On May 28, 2014, the FASB issued a new financial accounting standard on revenue from contracts with customers, Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The accounting standard is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017. Early adoption is not permitted. The Company is currently evaluating the impact of this accounting standard.

 

On August 27, 2014, the FASB issued a new financial accounting standard on going concern, Update 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The standard provides guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern. The amendments in this Update apply to all companies. They become effective in the annual period ending after December 15, 2016, with early application permitted. The Company is currently evaluating the impact of this accounting standard.

 

On April 7, 2015, the FASB issued Accounting Standards Update (ASU) No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts and the accounting for debt issue costs under IFRS. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The amendments in this Update apply to all companies. They become effective for public business entities in the annual period ending after December 15, 2015, and interim periods within those fiscal years, with early application permitted. The Company is currently evaluating the impact of this accounting standard.

 

All other recent pronouncements issued by the FASB or other authoritative standards groups with future effective dates are either not applicable or are not expected to be significant to the condensed consolidated financial statements of the Company.

 

NOTE 4. GOING CONCERN

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. As at April 30, 2016 the Company has a working capital deficit of $ 995,024 (2015: $578,832) and accumulated deficit of $3,089,331 (2015: $2,476,581). The Company has relied on advances from its former CEO, director, Mercuriali Ltd and a related party to meet the working capital requirements. On June 19, 2015, the Company issued a convertible promissory note in the amount of $43,000 to Vis Vires Group Inc. On December 28, 2015, Vis Vires Group Inc. issued a notice of conversion and elected to convert $12,000 of the principal amount at an applicable conversion price of $0.0017 per share of common stock. Resultantly, the Company issued 7,058,824 shares of common stock. The principal amount and interest in total of $33,500 was paid on March 23, 2016. On September 29, 2015, as amended January 22, 2016, Mercuriali Ltd agreed to advance the Company an additional $90,000. Effective March 21, 2016, the Company entered into a Loan Agreement (Amendment 5) with Mercuriali Ltd. and Samuel Asculai providing for an increase in the loan amounts by Mercuriali Ltd. and Samuel Asculai in the event no additional third party monies are received by the Company from US$90,000 to US$150,000.

 

On July 7, 2016, the Company and Biosurface Limited (“Biosurface”) entered into a non-binding term sheet in respect of a strategic collaboration and an option agreement (the “Option Agreement”). The Company also issued to Biosurface a secured promissory note in the amount of $100,000 (the “Note”).

 

The Option Agreement grants Biosurface an option to acquire substantially all of the Company’s assets under a plan of reorganization (the “Option”). The consideration payable upon exercise of the Option is a sum equal to £3,030,000 ($3,912,033 ) comprised of £2,760,000 ( $3,563,436 ) in shares of Biosurface, less all sums due and owing under the Note, and the assumption of certain liabilities of the Company to the value of £270,000 ($348,597 ). The Option expires on July 31, 2016 and the US$100,000 was received by the Company on July 12, 2016.

 

Under the Note, Biosurface agreed to loan the Company US$100,000 conditional upon the Company entering into the Option Agreement and entering into good faith negotiations with a view to entering into a strategic collaboration via an asset purchase agreement (the “APA”). See Note 12: Subsequent Events.

 

Page│26 
 

 

ENHANCE SKIN PRODUCTS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2016

 

NOTE 4. GOING CONCERN (continued)

 

The ability of the Company to continue as a going concern and become a profitable entity is dependent upon the continued financial support of Mercuriali Ltd, and the Company’s successful efforts to conclude the APA or to obtain and continue to obtain alternative additional funding, obtain alternative licensing, marketing or collaboration partners to enable it to reposition and re-launch its product line and generate sales and then attain profitable operations.

 

Additional financing will be required for ongoing project management and product development costs, to complete the design work currently underway for the consumer rebranding and packaging, to manufacture prototypes for studies and promotion, to undertake marketing clinical studies, to pay on-going patent and trademark costs and to provide day to day working capital. Further funding will also be required to manage the launch process, design and implement e-Commerce platforms, undertake any additional marketing clinical studies, marketing, advertising and media support, and to provide working capital prior to market launch.

 

Management is consequently focused on concluding the APA prior to July 31, 2016. In the event this strategic collaboration does not progress, management intends to pursue alternative funding structures including debt and equity finance, asset sales, licensing, marketing partnerships and alternative wider strategic collaborations. There can be no assurances, however, that management’s efforts to conclude the APA or to obtain alternative funding, licensing partners, marketing partners or enter into alternative strategic collaborations on terms satisfactory to the Company, or at all will, be realized or that future sales will be realized.

 

In addition, on November 19, 2015 as amended effective March 21, 2016 the Company’s President & CEO, CSO and General Counsel have agreed to amend their respective Consultancy Agreements and Employment Agreement such that payment for services is contingent upon the Company having completed cumulative financings of at least one million United States dollars ($1,000,000) prior to April 30, 2017. Each of these agreements was amended to bring forward the start of remuneration payments with such payment being contingent on receipt of Transaction Monies (as such term is defined in the agreements), in exchange for a reduction in minimum payment obligations and minimum termination payments payable in certain circumstances. In the opinion of the Board the revised remunerations structure incentivizes management, aligns better with the Company’s future strategy and service requirements, and reduces the potential cost on a change of control which may have had a negative effect on future potential corporate transactions.

 

These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

NOTE 5. RELATED PARTY TRANSACTIONS AND BALANCES

 

The details of balances due to related parties are as follows:

 

    April 30, 2016   April 30, 2015
    $   $
         
Unpaid remuneration     75,150      
Unreimbursed expenses     457       457  
Accounts payable to related parties     75,607       457  
                 
Unpaid remuneration     215,412       40,062  
Balances owing to Mercuriali Ltd.     33,188       33,188  
Accounts payable to related parties convertible into shares     248,600       73,250  
                 
Advances from a related party     96,489       96,489  
                 
Advances from a related party convertible into shares     305,540       174,417  

 

Page│27 
 

 

ENHANCE SKIN PRODUCTS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2016

 

NOTE 5. RELATED PARTY TRANSACTIONS AND BALANCES (Continued)

 

ACCOUNTS PAYABLE TO RELATED PARTIES:

 

The outstanding balance comprise of unpaid remuneration to related parties and a balance due in connection with unreimbursed expenses detailed below:

 

Unpaid remuneration

 

The outstanding balance of $75,150 as at April 30, 2016 represents the cash element of amounts due to related parties in connection with the consulting and employment amendment agreements effective August 1, 2015 and signed on November 19 and November 25, 2015.

 

On February 13, 2013 Mr Donald Nicholson was appointed to the roles of President, CEO and CFO of the Company. On March 5, 2013 the Company entered into a consulting agreement with Mercuriali for the services of Mr. Nicholson as the Company’s President, CEO and CFO (the “Mercuriali Consulting Agreement”), as amended by agreements entered effective March 3, 2014, August 1, 2015 and March 21, 2016 (the “Mercuriali Amendment Agreements”).

 

On August 14, 2008, we entered into an employment agreement with Samuel Asculai, our former President and Chief Executive Officer. That employment agreement had an initial term of ten (10) years and a base salary of $150,000 per annum. Pursuant to that employment agreement, Dr. Asculai received a base salary and an annual bonus equal to at least two percent (2%) of the Company’s pretax earnings, as defined, for each fiscal year. If Dr. Asculai’s employment were to be terminated without “cause”, as defined in that employment agreement, then Dr. Asculai would be entitled to receive all accrued by unpaid salary and bonus plus a payment equal to two (2) times Dr. Asculai’s highest base salary (but not less than $300,000) plus two (2) times his highest bonus. This payment would be received, at Dr. Asculai’s option, in one lump sum or in equal monthly installments over a 24 month period.

 

On March 5, 2013, as amended March 3, 2014 Dr. Asculai, and Biostrategies (a company wholly owned by Dr. Asculai) entered a termination agreement with the Company terminating the employment agreement with Dr. Asculai as President and CEO. Pursuant to this termination agreement upon the Company substantially completing the Restructuring Plan, Biostrategies and Dr. Asculai forgive all of the unpaid fees under Dr. Asculai except for $20,031 which amount will be converted into five million three hundred twenty seven thousand four hundred and sixty (5,327,460) common shares of the Company’s stock upon the Company receivingcumulative Transaction Monies (as such term is defined in the relevant agreements) of at least one hundred and fifty thousand United States dollars ($150,000). During the year ended April 30, 2013 the Company substantially completed the Restructuring Plan. Resultantly, Dr. Asculai forgave all of the unpaid fees except for $20,031 which was transferred, together with the associated share conversion, to the balance of Mr. Puseljic.

 

On March 5, 2013 Biostrategies entered into a new consulting agreement with the Company for the services of Dr. Asculai as the Company’s CSO (the “Asculai Consulting Agreement”), as amended by agreements entered effective March 3, 2014, August 1, 2015 and March 21, 2016 (the “Asculai Amendment Agreements”).

 

Mr. Puseljic had a 10-year service agreement with the Company to assist in business development, contract administration and co-ordination of SEC filings with management and the Company’s SEC counsel with base fees of $150,000 per annum. At March 5, 2013 Mr. Puseljic was owed $400,625 in unpaid fees. On March 5, 2013 Mr. Puseljic entered a termination agreement with the company as amended March 3, 2014 (the “Puseljic Termination Agreement”) terminating the service agreement and pursuant to which upon the Company substantially completing the Restructuring Plan, Mr. Puseljic forgives all of the unpaid fees except for $20,031.25 which amount will be converted into five million three hundred twenty seven thousand four hundred and sixty (5,327,460) common shares of the Company’s stock upon the Company reveivingcumulative Transaction Monies (as such term is defined in the relevant agreements) of at least one hundred and fifty thousand United States dollars ($150,000).

 

On March 5, 2013 Mr. Puseljic entered into a new employment agreement with the Company (the “Puseljic Employment Agreement”), as amended by agreements entered effective March 3, 2014, August 1, 2015 and March 21, 2016 (the “Puseljic Amendment Agreements”).

 

Page│28 
 

 

ENHANCE SKIN PRODUCTS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2016

 

NOTE 5. RELATED PARTY TRANSACTIONS AND BALANCES (Continued)

 

Under the Mercuriali Amendment Agreements, the Asculai Amendment Agreements and the Puseljic Amendment Agreements, the Corporation may be liable to pay $21,000 to each of Mr. Asculai and Mr. Puseljic and $35,500 to Mercuriali for the period August 1, 2015 to October 31, 2015 to be satisfied seventy percent (70%) in common shares of Corporation at $0.0018 and thirty percent (30%) in cash, all such payments conditional on the receipt of Transaction Monies (as such term is defined in the relevant agreements) of $1,000,000 on or prior to April 30, 2017. For the period November 1, 2015 to January 31, 2016, service fee obligations under the Mercuriali Amendment Agreement, Asculai Amendment Agreement and Puseljic Amendment Agreement each comprise a monthly retainer of seven thousand United States dollars (US$7,000) for up to fourteen (14) hours of Services per week, plus one hundred United States dollars ($100) per hour of Services provided in excess of fourteen (14) hours per week based on the level of services provided and invoiced as further set out in the agreements to be satisfied seventy percent (70%) in common shares of Corporation at $0.0018 and thirty percent (30%) in cash, all such payments conditional on the receipt of Transaction Monies (as such term is defined in the relevant agreements) of $1,000,000 on or prior to April 30, 2017. For the period from February 1, 2016, service fee obligations under the Mercuriali Amendment Agreement, Asculai Amendment Agreement and Puseljic Amendment Agreement each comprise a monthly retainer of seven thousand United States dollars (US$7,000) for up to fourteen (14) hours of Services per week, plus one hundred United States dollars ($100) per hour of Services provided in excess of fourteen (14) hours per week based on the level of services provided and invoiced as further set out in the agreements to be satisfied seventy percent (70%) in common shares of Corporation at the weighted average price of the new shares issued to non-related third parties after the March 21, 2016 (excluding shares issued under the VVG Note) and thirty percent (30%) in cash, all such payments conditional on the receipt of Transaction Monies (as such term is defined in the relevant agreements) of $1,000,000 on or prior to April 30, 2017.

 

The foregoing information regarding the Mercuriali Consulting Agreement and the Mercurial Amendment Agreements are not intended to be complete and are qualified in their entirety by reference to the complete text of the Mercuriali Consulting Agreement, which is attached as Exhibit 99.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2013 and filed on March 19, 2013 and the complete text of the Mercurial Amendment Agreements which were attached as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2014 and filed on March 5, 2014, as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 25, 2015 and as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on March 24, 2016.

 

The foregoing information regarding the Asculai Consulting Agreement and the Asculai Amendment Agreement are not intended to be complete and are qualified in their entirety by reference to the complete text of the Asculai Consulting Agreement, which was attached as Exhibit 99.8 to the Company’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2013 and filed on March 19, 2013 and the complete text of the Asculai Amendment Agreements which were attached as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2014 and filed on March 5, 2014 as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on November 25, 2015 and as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 24, 2016.

 

The foregoing information regarding the Puseljic Employment Agreement and the Puseljic Amendment Agreement are not intended to be complete and are qualified in their entirety by reference to the complete text of the Puseljic Employment Agreement, which was attached as Exhibit 99.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2013 and filed on March 19, 2013 and the complete text of the Puseljic Amendment Agreements which were attached as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2014 and filed on March 5, 2014, as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on November 25, 2015 and as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on March 24, 2016.

 

On November 25, 2015, the Company and Mr. Frode Botnevik entered into a Director’s Services Agreement effective August 1, 2015 relating to Mr Botnevik’s services as a Director of the Company (the “Botnevik Services Agreement”) as amended by an agreement effective March 21, 2016 (the “Botnevik Services Amendment”). Under the Botnevik Services Agreement and the Botnevik Services Amendment, the Corporation may be liable to pay $2,500 to Mr. Botnevik for the period August 1, 2015 to October 31, 2015 to be satisfied seventy percent (70%) in common shares of Corporation $0.0018 and thirty percent (30%) in cash, all such payments conditional on the receipt of Transaction Monies (as such term is defined in the relevant agreements) of $1,000,000 on or prior to April 30, 2017.

 

Page│29 
 

 

ENHANCE SKIN PRODUCTS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2016

 

NOTE 5. RELATED PARTY TRANSACTIONS AND BALANCES (Continued)

 

For the period November 1, 2015 to January 31, 2016, service fee obligations under the Botnevik Services Agreement and Botnevik Services Amendment comprises a quarterly retainer of two thousand five ($2,500) United States dollars for up to twenty five (25) hours of Services per quarter, plus one hundred United States dollars ($100) per hour of Services provided in excess of twenty five (25) hours per quarter based on the level of services provided and invoiced as further set out in the agreements to be satisfied seventy percent (70%) in common shares of Corporation at $0.0018 and thirty percent (30%) in cash, all such payments conditional on the receipt of Transaction Monies (as such term is defined in the relevant agreements) of $1,000,000 on or prior to April 30, 2017. For the period from February 1, 2016, service fee obligations under the Botnevik Services Agreement and Botnevik Services Amendment comprises a quarterly retainer of two thousand five ($2,500) United States dollars for up to twenty five (25) hours of Services per quarter, plus one hundred United States dollars ($100) per hour of Services provided in excess of twenty five (25) hours per quarter based on the level of services provided and invoiced as further set out in the agreements to be satisfied seventy percent (70%) in common shares of Corporation at the weighted average price of the new shares issued to non-related third parties after the March 21, 2016 (excluding shares issued under the VVG Note) and thirty percent (30%) in cash, all such payments conditional on the receipt of Transaction Monies (as such term is defined in the relevant agreements) of $1,000,000 on or prior to April 30, 2017.

 

The foregoing information regarding the Botnevik Services Agreement and the Botnevik Services Amendment are not intended to be complete and are qualified in their entirety by reference to the complete text of the Botnevik Services Agreement which was filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on November 25, 2015 and the Botnevik Services Amendment which was filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on March 24, 2016.

 

Unreimbursed expenses

 

The outstanding balance of $457 represents amounts due to a related party in connection with the expenses incurred by it on behalf of the Company. The amounts due do not bear any interest and is repayable on demand.

 

ACCOUNTS PAYABLE TO RELATED PARTIES CONVERTIBLE INTO SHARES:

 

The outstanding balance comprise of unpaid remuneration to a related party and a balance owing to Mercuriali Ltd as detailed below:

 

Unpaid remuneration

 

On May 12, 2010 Biostrategies Consulting Group Inc. the holder of 27,500,000 shares of common stock of the Company transferred 9,166,666 of these shares to Drasko Puseljic. Biostrategies Consulting Group Inc. (“Biostrategies”) is 100% privately owned by Dr. Samuel Asculai, the CSO and a director of the Company. Mr. Puseljic had a 10-year service agreement with the company to assist in business development, contract administration and co-ordination of SEC filings with management and the Company’s SEC counsel. With his holdings, Mr. Puseljic has more than 5% of the outstanding equity of the Company and became a “related party”. Mr Puseljic billed the Company $150,000 during each of the previous fiscal years ended up to April 30, 2012.

 

At April 30, 2013 Mr. Puseljic was owed $400,625 in unpaid fees On March 5, 2013 Mr. Puseljic entered a termination agreement with the company (the “Puseljic Termination Agreement”) pursuant to which upon the Company substantially completing the Restructuring Plan, Mr. Puseljic forgives all of the unpaid fees except for $20,031 which amount will be converted into five million three hundred twenty seven thousand four hundred and sixty (5,327,460) common shares of the Company’s stock upon the Company receivingcumulative Transaction Monies (as such term is defined in the relevant agreements) of at least one hundred and fifty thousand United States dollars ($150,000). During the year ended April 30, 2013 the Company substantially completed the Restructuring Plan. Resultantly, Mr. Puseljic forgave all of the unpaid fees except for $20,031.

 

Further, the unpaid fee balance of Dr. Asculai of $20,031 described in the following paragraph, together with the associated share conversion, was also transferred to Mr. Puseljic’s balance. Therefore, Mr. Puseljic’s balance of $40,062 is included in total unpaid remuneration balance as at April 30, 2016, which amount will be converted into ten million six hundred fifty four thousand nine hundred and twenty (10,654,920) common shares of the Company’s stock upon the Company receiving cumulative Transaction Monies (as such term is defined in the relevant agreements) of at least one hundred and fifty thousand United States dollars ($150,000).

 

Page│30 
 

 

ENHANCE SKIN PRODUCTS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2016

 

NOTE 5. RELATED PARTY TRANSACTIONS AND BALANCES (Continued)

 

The Company incurred monthly consulting fee expenses of $12,500 to either Biostrategies or Samuel Asculai, the Company’s then CEO and Director. The Company recorded $150,000 as an expense during each of the previous fiscal years ended up to April 30, 2012. At April 30, 2013, $400,625 of these expenses were unpaid On March 5, 2013 Biostrategies and Dr. Asculai entered a termination agreement with the Company (the “Asculai Termination Agreement”) pursuant to which upon the Company substantially completing the Restructuring Plan, Biostrategies and Dr. Asculai forgive all of the unpaid fees except for $20,031 which amount will be converted into five million three hundred twenty seven thousand four hundred and sixty (5,327,460) common shares of the Company’s stock upon the Company receiving cumulative Transaction Monies (as such term is defined in the relevant agreements) of at least one hundred and fifty thousand United States dollars ($150,000). During the previous year ended April 30, 2013 the Company substantially completed the Restructuring Plan. Resultantly, Dr. Asculai forgave all of the unpaid fees except for $20,031 which was transferred, together with the associated share conversion, to the balance of Mr. Puseljic, which amounted to $40,062 at April 30, 2016.

 

In addition, the outstanding balance as at April 30, 2016 includes $175,350 representing amounts due to related parties, which may be payable in shares, under the consulting and employment amendment agreements effective August 1, 2015 and signed on November 19 and November 25, 2015 as summarised above under Accounts Payable to Related Parties; Unpaid remuneration.

 

Balance owing to Mercuriali Ltd.

 

On July 12, 2010 the Company entered into a Termination and Settlement Agreement (the “Settlement Agreement”) with Mercuriali Ltd. (“Mercuriali”), a company controlled by Donald Nicholson, a then director of the Company and now a director and the Company’s President, Chief Executive Officer and Chief Financial Officer. The Settlement Agreement terminated a Letter of Intent between the Company and Mercuriali regarding a proposed merger between the Company and Mercuriali as part of a larger transaction involving the reverse merger of the Company into a company listed on AIM, a sub-market of the London Stock Exchange. Neither the merger between Mercuriali and the Company, nor the reverse merger of the Company and the AIM listed company took place. Under the Settlement Agreement, the Company agreed to pay Mercuriali expenses incurred pursuant to the Letter of Intent of GBP 22,082 payable at a rate of 5% of gross funds raised by the Company. After receiving proceeds from financing the Company will pay 5% of the gross proceeds to Mercuriali until the obligation has been paid. Other than the items provided for in the Termination Agreement, the Company and Mercuriali released each other from all claims relating to the Letter of Intent. Through the previous year ended April 30, 2012 the Company has raised $60,000 of funds from the issuance of Common Stock, 5% of this or $3,000 should have been paid to satisfy this obligation; however, only $1,500 was paid during the previous fiscal years ended April 30, 2013. As of April 30, 2016 the balance owed to Mercuriali is $33,188. The balance is secured by the assets of the Company. Upon the Company restructuring at least seventy five percent (75%) of its outstanding debt substantially in accordance with the Restructuring Plan and upon the Company receiving additional Transaction Monies (as such term is defined in the relevant agreements) of at least $250,000, Mercuriali shall convert the total amounts owed to it under the Loan Agreement into common shares of the Company at a conversion price of $0.00376 per share. The balance is secured by all of the assets of the Company and does not bear interest.

 

ADVANCES FROM A RELATED PARTY

 

As of April 30, 2016, the Company owes $96,489 (2015 - $96,489) in respect of advances from Dr. Asculai, its former CEO and current Chief Scientific Officer and Chairman of the Board, pursuant to a loan agreement entered between the Company, Dr. Asculai and Mercuriali Ltd. dated March 4, 2013. This balance is to be paid in quarterly installments after the Company has cumulatively raised one million United States dollars. The Advances are secured by all of the assets of the Company and do not bear interest.

 

ADVANCES FROM A RELATED PARTY CONVERTIBLE INTO SHARES

 

These advances are from Mercuriali Ltd. pursuant to the Loan Agreement . As at April 30, 2016, Mercuriali has advanced a total of $305,540 (April 30, 2015 - $174,417) to the Company pursuant to the Loan Agreement. Mercuriali shall convert $186,943 of the amounts owed to it under the Loan Agreement into common shares of the Company at a conversion price of $0.00376 per share and $118,597 of the amounts owed to it under the Loan Agreement into common shares of the Company at a conversion price of $0.0018 per share upon the Company receiving additional Transaction Monies (as such term is defined in the relevant agreements) of at least $250,000.

 

Page│31 
 

 

ENHANCE SKIN PRODUCTS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2016

 

NOTE 5. RELATED PARTY TRANSACTIONS AND BALANCES (Continued)

 

Effective September 29, 2015, the Company entered into a Loan Agreement (Amendment 3) with Mercuriali Ltd. and Samuel Asculai. This agreement amended loan agreements between the parties dated March 4, 2013 and March 3, 2014 and provided for a loan of US$45,000 from Mercuriali Ltd. and Samuel Asculai in the event no additional third party monies were received by the Company. Upon certain conditions set out in the Loan Agreement (Amendment 3), the amounts so loaned by Mercuriali Ltd. and Samuel Asculai will be convertible into common shares of the Company at the lower of $0.0047753 or the conversion price at which the promissory note the Company issued to Vis Vires converts. See Note 5; Convertible Promissory Note. The price of $0.0047753 was set at 58% of the average of the lowest three closing trading prices for the common stock during the ten trading days prior to September 25, 2015, on the calculation basis described in the Vis Vires promissory note.

 

Effective January 22, 2016, the Company entered into a Loan Agreement (Amendment 4) with Mercuriali Ltd. and Samuel Asculai. This agreement amends loan agreements between the parties dated March 4, 2013, March 3, 2014 and September 29, 2015 and provides for an increase in the loan amounts by Mercuriali Ltd. and Samuel Asculai in the event no additional third party monies are received by the Company from US$45,000 to US$90,000. Upon certain conditions set out in the Loan Agreement (Amendment 4), the amounts so loaned by Mercuriali Ltd. and Samuel Asculai will be convertible into common shares of the Company at the lower of $0.0047753 or the conversion price at which the promissory note the Company issued to Vis Vires converts.

 

Effective March 21, 2016, the Company entered into a Loan Agreement (Amendment 5) with Mercuriali Ltd. and Samuel Asculai This agreement amends loan agreements between the parties dated March 4, 2013, March 3, 2014, September 29, 2015 and January 22, 2016 and provides for an increase in the loan amounts by Mercuriali Ltd. and Samuel Asculai in the event no additional third party monies are received by the Company from US$90,000 to US$150,000. Upon certain conditions set out in the Loan Agreement (Amendment 5), the amounts so loaned by Mercuriali Ltd. and Samuel Asculai will be convertible into common shares of the Company at $0.0018, based on the conversion price at which the promissory note the Company issued to Vis Vires converted or was repaid.

 

The advances from Mercuriali Ltd and Samuel Asculai are secured on all of the assets of the Company and do not bear interest.

 

NOTE 6. STOCKHOLDERS’ DEFICIT

 

COMMON SHARES - AUTHORIZED

 

As at April 30, 2016, the Company had 600,000,000 common shares authorized (April 30, 2015: 300,000,000 common shares). The common shares have a $0.001 par value. All common stock shares have equal voting rights, are non-assessable and have one vote per share. Voting rights are not cumulative and, therefore, the holders of more than 50% of the common stock could, if they chose to do so, elect all of the directors of the Company.

 

On July 3, 2015, the Company’s Board of Directors unanimously approved the amendment to Articles of Incorporation (the “Articles of Amendment”) to increase authorized stock from 300,000,000 shares of common stock with a par value of $0.001 to 600,000,000 shares of common stock with a par value of $0.001 per share. Subsequent to the approval of the amendment by the Board of Directors, on July 3, 2015, the holders of the majority of the outstanding shares of common stock of the Company provided written consent to the Articles of Amendment. A Preliminary Information Statement was filed with the SEC on July 7, 2015. The Definitive Information Statement was filed with the SEC, and mailed to all stockholders of record as of the record date, on July 20, 2015. The Articles of Amendment to our Articles of Incorporation were filed with the Nevada Secretary of State on August 17, 2015, and became effective, on that date.

 

Page│32 
 

 

ENHANCE SKIN PRODUCTS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2016

 

NOTE 6. STOCKHOLDERS’ DEFICIT (Continued)

 

COMMON SHARES - ISSUED AND OUTSTANDING

 

In May 2014, the Company issued 750,000 common shares to Beauty Scouts against a liability of $6,000 pursuant to a consulting agreement dated January 21, 2014.

 

On August 1, 2015, the Company issued 1,937,500 shares of common stock to a consultant. These shares were valued at a rate of $0.007 per share, being the market value on that date, and consulting charges amounting to $13,562 is included in condensed consolidated statements of operations and comprehensive loss.

 

On August 19, 2015, the Company issued 2,000,000 shares of common stock to a consultant. These shares were valued at a rate of $0.007 per share, being the market value on that date, and marketing amounting to $14,000 is included in condensed consolidated statements of operations and comprehensive loss.

 

On December 28, 2015, the Company issued 7,058,824 shares of common stock to Vis Vires Group Inc. pursuant to notice of conversion as explained in Note 5 to the condensed consolidated financial statements.

 

On February 22, 2016, the Company issued 1,937,500 shares of common stock to Snowbell Management Limited in connection with their services to develop the Visible Youth™ consumer skin care brand for its relaunch. These shares were valued at a rate of $0.0055 per share.

 

As at April 30, 2016 there were 113,951,705 shares of common stock issued and outstanding (April 30, 2015: 101,017,881 common shares).

 

NOTE 7. INCOME TAXES

 

The Company follows FASB ASC 740, “Accounting for Income Taxes.” Deferred income taxes reflect the net effect of (a) temporary difference between carrying amounts of assets and liabilities for financial purposes and amounts used for income tax reporting purposes, and (b) net operating loss carry forwards. No net provision for refundable Federal income tax has been made in the accompanying statement of loss because no refundable taxes were paid previously. Similarly, no deferred tax asset attributable to the net operating loss carry forward has been recognized, as based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

 

At April 30, 2016, the Company had unused net operating loss carryovers of approximately $3,089,331 (2015: $2,476,581). These losses are available to offset taxable income and will expire between 2027 and 2034. The Company has not filed tax returns in the US since 2011 and has filed no Federal or Provincial returns in Canada to date. The Company is in the process of filing overdue tax returns which may have an impact on the amount of net operating loss carry overs which might be available to the Company.

 

ASC 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

 

Page│33 
 

 

ENHANCE SKIN PRODUCTS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2016

 

NOTE 7. INCOME TAXES (continued)

 

The provision for income taxes differs from the amounts which would be provided by applying the statutory United States federal corporate income tax rate of 39% (2015 – 39%) to the net loss before provision for income taxes for the following reasons:

 

      April 30, 2016       April 30, 2015  
         
Income tax benefit at statutory rate   $ 238,972     $ 44,845  
Valuation analysis     (238,972 )     (44,845 )
Income tax benefit per books   $     $  

 

Net deferred tax assets consist of the following components as of:

 

      April 30, 2016       April 30, 2015  
         
NOL carryover   $ 1,193,290     $ 954,318  
Valuation allowance     (1,193,290 )     (954,318 )
Net deferred tax asset   $     $  

 

NOTE 8. CONVERTIBLE PROMISSORY NOTE

 

On June 19, 2015, the Company issued a convertible promissory note in the amount of $43,000 to Vis Vires Group Inc., which was fully settled during the year ended April 30, 2016. The loan became convertible 180 days after the date of the note. The loan and any accrued interest could be converted into shares of the Company’s common stock at a rate of 58% multiplied by the market price, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date. The Note also contained certain representations, warranties, covenants and events of default, and increases in the amount of the principal and interest rates under the Note in the event of such defaults.

 

On December 28, 2015, Vis Vires Group Inc. issued a notice of conversion and elected to convert $12,000 of the principal amount at an applicable conversion price of $0.0017 per share of common stock. Resultantly, the Company issued 7,058,824 shares of common stock.

 

On March 23, 2016 the outstanding principal amount and unpaid interest at 8% per annum in the total amount of $33,500 became immediately due and payable. In the event of non-payment the company would become due to pay 150% of the then outstanding principal plus interest and the interest rate increases to 22% per annum until repaid or conversion took place. The holder’s ability to convert the note, however, was limited in that it would not be permitted to convert any portion of the note if the number of shares of our common stock beneficially owned by the holder and its affiliates, together with the number of shares of our common stock issuable upon any full or partial conversion, would exceed 9.99% of our outstanding shares of common stock. The holder had the right to waive this term upon 61 days’ notice to us. The principal amount and interest in total of $33,500 was paid on March 23, 2016.

 

The Company’s management determined the beneficial conversion feature of the note of $29,449 in accordance with the requirements of ASC Topic 470. The beneficial conversion feature determined at the time of note issuance has been credited to additional paid-in-capital and was accreted over the term of the note.

 

Page│34 
 

 

ENHANCE SKIN PRODUCTS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2016

 

NOTE 9. INTEREST EXPENSE

 

      April 30, 2016       April 30, 2015  
         
Beneficial conversion feature on advances from a related party   $ 107,143     $ 54,708  
Accretion expense on convertible promissory note   $ 29,449     $  
Interest expense on convertible promissory note   $ 2,345     $  
Total interest expense   $ 138,937     $ 54,708  

 

Interest expense represents beneficial conversion feature of the advances from a related party convertible into shares, expensed immediately due to short term conversion terms of these advances. Accretion expense of $29,449 and interest expense of $2,345 were recognized during the year ended April 30, 2016 (Also refer Note 8).

 

NOTE 10. BUSINESS ACQUISITION

 

ASC Topic 805, “Business Combinations” requires that all business combinations be accounted for using the acquisition method and that certain identifiable intangible assets acquired in a business combination be recognized as assets apart from goodwill. ASC Topic 350, “Intangibles-Goodwill and Other” (“ASC 350”) requires goodwill and other identifiable intangible assets with indefinite useful lives not be amortized, such as trade names, but instead tested at least annually for impairment (which the Company tests each year end, absent any impairment indicators) and be written down if impaired. ASC 350 requires that goodwill be allocated to its respective reporting unit and that identifiable intangible assets with finite lives be amortized over their useful lives.

 

Pursuant to Share Purchase Agreement (the “Agreement”) dated October 31, 2015, among the Company, Mercuriali Ltd. a Corporation incorporated under the laws of United Kingdom (100% owner of issued and outstanding share of Visible Youth Ltd.) and Donald Nicholson, the Company acquired 100% of the issued and outstanding shares of Visible Youth Ltd. for a consideration of $2,500. As a result of this transaction, Visible Youth Ltd. became a wholly owned subsidiary of the Company. The Company intends to use Visible Youth Limited for the marketing of its products in the European Union.

 

This acquisition was accounted for using the acquisition method of accounting. Visible Youth Ltd. did not have any assets or liabilities as at October 31, 2015. Goodwill of $1 represents the excess of cost over fair value of net assets acquired, less impairment.

 

The Company test for impairment of goodwill at the reporting unit level. In assessing whether goodwill is impaired, the Company utilize the two-step process as prescribed by ASC 350. The first step of this test compares the fair value of the reporting unit, determined based upon discounted estimated future cash flows, to the carrying amount, including goodwill. If the fair value exceeds the carrying amount, no further work is required and no impairment loss is recognized. If the carrying amount of the reporting unit exceeds the fair value, the goodwill of the reporting unit is potentially impaired and step two of the goodwill impairment test would need to be performed to measure the amount of an impairment loss, if any. In the second step, the impairment is computed by comparing the implied fair value of the reporting unit’s goodwill with the carrying amount of the goodwill. If the carrying amount of the reporting unit’s goodwill is greater than the implied fair value of its goodwill, an impairment loss in the amount of the excess is recognized and charged to statement of operations.

 

Management decided to immediately impair goodwill amounting to $2,499 and brought it at $1 as Visible Youth Ltd. was inactive as at April 30, 2016.

 

NOTE 11. OTHER INCOME

 

Other income represents a reduction in the Company’s obligations in respect of consultancy services provided pursuant to an amendment agreement with Nolex LLC effective April 30, 2015 as further described in Recent Sales of Unregistered Securities above.

 

Page│35 
 

 

ENHANCE SKIN PRODUCTS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2016

 

NOTE 12. SUBSEQUENT EVENTS

 

On July 7, 2016, the Company and Biosurface Limited (“Biosurface”) entered into a non-binding term sheet in respect of a strategic collaboration and an option agreement (the “Option Agreement”). The Company also issued to Biosurface a secured promissory note in the amount of $100,000 (the “Note”).

 

The Option Agreement grants Biosurface an option to acquire substantially all of the Company’s assets under a plan of reorganization (the “Option”). The consideration payable upon exercise of the Option is a sum equal to £3,030,000 ($3,912,033) comprised of £2,760,000 ($3,563,436) in shares of Biosurface, less all sums due and owing under the Note, and the assumption of certain liabilities of the Company to the value of £270,000 ($348,597). The Option expires on July 31, 2016 and may only be exercised after the Note has been entered into and Biosurface has transferred sum equal to US$100,000 in accordance with the terms of the Note. The Company received the $100,000 on July 12, 2016.

 

Under the Note, Biosurface agrees to loan the Company US$100,000 conditional upon the Company entering into the Option Agreement and entering into good faith negotiations with a view to entering into an asset purchase agreement (the “APA”). All unpaid principal is due and payable on or following the six month anniversary of the Note (the “Maturity Date”), the completion of the APA or upon an event of default as defined in the Note. The Note shall not accrue interest prior to the Maturity Date, but interest shall accrue at 5% per annum following the Maturity Date or following certain Events of Default as set out in the Note. The Note is secured by a first fixed and floating charge over the Company’s intellectual property.

 

In the event Biosurface exercises the Option, the strategic collaboration which contemplates the sale of the Company’s assets would be subject to the parties entering into the APA and the Company complying with all applicable state and federal law related to such sale.

 

The UK Pound Sterling (£) amounts have been converted into US dollars at the closing US$/£ sterling interbank spot rate on July 7, 2016 of 1.2911.

 

The foregoing description of Option Agreement and the Note does not purport to be complete and is qualified in its entirety by reference to the complete text of the documents, which are filed as Exhibits 10.1 and 10.2 to the Company’s Current Report on Form 8-K filed on July 12, 2016.

 

On July 15, 2016, the Company agreed to issue 1,937,500 shares of common stock to Snowbell Management Limited in connection with their services to develop the Visible Youth™ consumer skin care brand for its relaunch. These shares were valued at a rate of $0.00702 per share.

 

The Company’s management has evaluated subsequent events through the filing date of these consolidated financial statements and has determined that there are no other material subsequent events to report.

 

Page│36 
 

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We recently evaluated the effectiveness of our disclosure controls and procedures, as required by paragraph (b) of Rule 13a-15 or Rule 15d-15 under the Securities Exchange Act of 1934, as of the end of the year covered by this report, being April 30, 2016. This evaluation was conducted with the participation of our principal executive officer and our principal accounting officer.

 

We maintain disclosure controls and procedures designed to provide reasonable assurance that material information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that the 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. We performed an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on their evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were not effective in giving us reasonable assurance that the information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to our management, including our Principal Executive and Principal Financial Officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. This conclusion was based on the existence of significant deficiencies in our internal control over financial reporting previously disclosed and discussed below.

 

We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

Management Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our consolidated financial statements; providing reasonable assurance that receipts and expenditures of our assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our consolidated financial statements would be prevented or detected.

 

Management conducted an evaluation of the effectiveness of our internal control over financial reporting as of April 30, 2016. In making this assessment, management used the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation, management has concluded that our internal control over financial reporting was not effective as of April 30, 2016. Management identified significant deficiencies in internal control over financial reporting.

 

A material weakness is a deficiency, or combination of deficiencies, in internal control over the financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

 

A significant deficiency is a deficiency, or a combination of deficiencies, that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting. Currently, we do not have sufficient in-house expertise in US GAAP reporting. Instead, we rely very much on the expertise and knowledge of external financial advisors in US GAAP conversion. External financial advisors have helped prepare and review our consolidated financial statements. To remediate this situation, we are seeking to recruit experienced professionals to augment and upgrade our financial staff to address issues of timeliness and completeness in US GAAP financial reporting as soon as resources are available. In addition, we do not believe we have sufficient documentation with our existing financial processes, risk assessment and internal controls. We plan to work closely with external financial advisors to document the existing financial processes, risk assessment and internal controls systematically as soon as resources are available. To address the need for more effective internal controls, management has plans to improve the existing controls and implement new controls appropriate to a business of its size and scale as our financial position and capital availability improves. In addition the Company intends to seek to strengthen the composition of its Board of Directors.

 

Page│37 
 

 

ITEM 9A. CONTROLS AND PROCEDURES (continued)

 

Although we have not identified any material weaknesses with our financial reporting or any other significant deficiencies with our internal controls, no assurances can be given that there are no such material weaknesses or significant deficiencies existing.

 

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

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes during the year ended April 30, 2016 in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

All directors of our company hold office until the next annual meeting of the stockholders or until their successors have been elected and qualified. The officers of our company are appointed by our board of directors and hold office until their death, resignation or removal from office. Our directors and executive officers, their ages, positions held, and duration as such, are as follows:

 

The following table sets forth information regarding our current and proposed executive officers and directors:

 

 

Name

  Age   Position with the Company   Served as an Officer and Director since
             
Donald Nicholson   57   President and Chief Executive Officer and Director(1)  

Director since February 6, 2009

Officer since February 13, 2013

             
Frode Botnevik   68   Director   August 30, 2008
             
Samuel Asculai, Ph.D.   73   Chief Scientific Offer and Director(1)   August 30, 2008
             
Drasko Puseljic   48   General Counsel   March 5, 2013

 

The following is a brief summary of the background of each director and executive officer of the Company:

 

Donald Nicholson. Mr. Nicholson has more than 27 years of experience in the healthcare industry. From February 2009 to the present, Mr. Nicholson has been a member of the Company’s Board of Directors. From February 13, 2013 to present, Mr. Nicholson has been President and Chief Executive Officer of the Company. Mr. Nicholson is, currently, the founding shareholder, and Chief Executive Officer of Mercuriali Ltd., a development stage United Kingdom private healthcare company. From February 2007 until January 2010, Mr. Nicholson was the founding shareholder and Chief Financial Officer of Stravencon Ltd., an European developer and marketer of generic pharmaceutical products manufactured in China.

 

From February 1996 to November 2006, Mr. Nicholson was Chief Financial Officer of SkyePharma Plc, a United Kingdom specialty pharmaceutical company. Mr. Nicholson was the Chief Financial Officer and Finance Director of SkyePharma Plc from February 1996 until November 2006. From January 1989 until September 1995, Mr. Nicholson was with Corange London Limited (Boehringer Mannheim) in various capacities, including Corporate Strategy and Finance Director, Financial Reporting and Strategy Director and Assistant Group Financial Controller. From September 1986 until December 1998, Mr. Nicholson was with the Wellcome Foundation Ltd., London, where he was the assistant to the Group Financial Accountant.

 

Page│38 
 

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE (continued)

 

In 1980, Mr. Nicholson received a BCom Law degree (with Honors) in Business and Law from the University of Edinburgh. Mr. Nicholson is a member of the Institute of Chartered Accountants of Scotland.

 

Mr. Nicholson has extensive experience in product and company acquisitions and disposals, arrangements, sale/royalty agreements and financial strategy and funding structures. His industry experience includes Pharmaceuticals; Biochemicals; Orthopaedics; Diagnostics; and Drug Delivery, including Dermatology.

 

We believe that Mr. Nicholson’s knowledge of the history of the Company, knowledge of topical hyaluronic acid technology, experience as Chief Financial Officer of several pharmaceutical companies, as well as his education, financial and international management experience in such matters as acquisitions and financing transactions have resulted in strong skills in corporate finance, product development, and marketing that provide him with a wide ranging understanding of business organizations generally, and pharmaceutical and related products in particular, that qualify him to be the President, CEO and a member of the Company’s Board of Directors.

 

Samuel S. Asculai. From 2008 to present, Dr. Asculai has been a director of the Company. From 2008 to February 13, 2013, Dr. Asculai was President and Chief Executive Officer of the Company. In 1965, Dr. Asculai received a B.S. in biology/chemistry from Pace University. In 1970, Dr. Asculai received a MSc Degree and a Ph.D. in microbiology from Rutger’s University. Dr. Asculai has more than 40 years of experience in the life science industry. Dr. Asculai is the inventor of more than 50 United States patents, including more than 30 patents related to hyaluronic acid, the primary component of the Company’s products. Dr.

 

Asculai has contributed to the development of products that have achieved cumulative sales of close to $2,000,000,000, including Monistat; Delfen Cream, for herpes virus infection; Ganciclovir; Solaraze; and MACI.

 

Prior to joining the Company, Dr. Asculai was the sole owner of Enhance Skin Products Inc., a private company, whose assets are the basis for the Company’s operations. For 10 years, Dr. Asculai served as the Chief Executive Officer of Hyal Pharmaceutical Corporation, where he developed the technology which is the basis for the Visible Youth brand. Also, while at Hyal Pharmaceutical Corporation, Dr. Asculai invented and developed Solaraze, a topical treatment for actinic keratosis, a pre-cancerous skin condition that is commonly referred to as “sunspots”.

 

Dr. Asculai has held senior positions with Verigen AG, a tissue engineering company; ens Bio-Logicals; Monsanto Corporation, a multinational agricultural bio-technology company; and the Ortho Pharmaceutical Corporation division of Johnson&Johnson, a multinational pharmaceutical company.

 

We believe that Dr. Asculai’s long history of leadership and comprehensive experience in the management of the Company, his role in developing and extensive knowledge of our products and product candidates and the market for those products, his scientific experience and expertise, including his Ph.D. in Microbiology, and strong knowledge of research and product development qualify him to be the a director of the Company.

 

Frode Botnevik. Since 2003, Mr. Botnevik has been a partner of Management & Finance AS, a Norwegian financial consulting firm that provides services in the areas of project and export financing, structured finance, risk management, financial restructuring, strategic partners and mergers and acquisitions. Mr. Botnevik has over 30 years of experience of industrial and financial experience and has been involving in the process of listing companies on the Oslo and Singapore stock exchanges and on Nasdaq. Mr. Botnevik has served on the boards of directors of companies in more than twelve countries.

 

We believe that Mr. Botnevik’s extensive public company, investment, management (as a member of numerous Board of Directors), financial and transactional experience significantly qualifies him to be a member of the Company’s Board of Directors.

 

Page│39 
 

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE (continued)

 

Drasko Puseljic. Mr. Puseljic has been the Company’s General Counsel since March 5, 2013. . He is the holder of a B.Sc., Honours in Biology from McMaster University, an LL.B. from Osgoode Hall Law School and an M.B.A from the University of Toronto. He has held legal and/or business development roles at Hyal Pharmaceutical Corporation, Visible Genetics Inc., Verigen AG and Enhance Skin Products Inc., a private company whose assets are the basis for the Company’s operations. He also has investment banking experience with Eureka Capital Markets, a boutique investment bank. Currently, in addition to his role with Enhance Skin Products, Mr. Puseljic is a senior consultant with Kidd Consultants LLC, a firm providing financial and strategic consulting services internationally to life sciences companies.

 

We believe that Mr. Puseljic’s extensive experience in legal, business development and investment banking in the life sciences industries, and his experience with the originator of the Company’s products and technologies, qualify him to be the Company’s General Counsel.

 

Audit Committee and Financial Expert

 

We do not have an audit committee. Our directors perform the same functions of an audit committee, such as recommending a firm of independent certified public accountants to audit our annual financial statements; reviewing the independent auditors independence, the financial statements and their audit reports; and reviewing management’s administration of the system of internal accounting controls. We do not, currently, have a written audit committee charter or similar document.

 

We have no financial expert. We believe the cost related to retaining a financial expert at this time is prohibitive. Further, because of the status of our operations, we believe the services of a financial expert are not warranted.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended (“Section 16(a)”), requires our directors and executive officers, and persons who beneficially own more than 10% of a registered class of our equity securities, to file reports of beneficial ownership and changes in beneficial ownership of our securities with the SEC on Forms 3 (Initial Statement of Beneficial Ownership), 4 (Statement of Changes of Beneficial Ownership of Securities) and 5 (Annual Statement of Beneficial Ownership of

 

Securities). Directors, executive officers and beneficial owners of more than 10% of our common stock are required by SEC regulations to furnish us with copies of all Section 16(a) forms that they file. During the fiscal year ended April 30, 2015, to the best of our knowledge, none of our directors, executive officers, or beneficial owners of 10% or more of our issued and outstanding common stock filed any such form late.

 

Code of Ethics

 

As we have not had the funds to engage the resources necessary and appropriate for us to determine and adopt an appropriate Code of Ethics, we have not adopted a Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions; provided, however, we intend to a Code of Ethics as soon as we have those funds.

 

Corporate Governance

 

Director Independence

 

Frode Botnevik is an independent director.

 

Nominating Committee

 

We do not have a nominating committee or nominating committee charter. Our directors perform the functions associated with a nominating committee. We have decided to not have a nominating committee, considering the nature of our operations.

 

Page│40 
 

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE (continued)

 

Director Nomination Procedures

 

Nominees for directors are identified and suggested by the members of our Board of Directors (the “Board”) or management. The Board has not retained any executive search firms or other third parties to identify or evaluate director candidates and does not intend to in the near future. In selecting a nominee for director, the Board or management considers the following criteria:

 

  1. Whether the nominee has the personal attributes for successful service on the Board, such as demonstrated character and integrity; experience at a strategy/policy setting level; managerial experience dealing with complex problems; an ability to work effectively with others; and sufficient time to devote to our affairs;
     
  2. Whether the nominee has been the chief executive officer or senior executive of a public company or a leader of a similar organization, including industry groups, universities or governmental organizations;
     
  3. Whether the nominee, because of particular experience, technical expertise or specialized skills or contacts relevant to our current or future business, will add specific value as a Board member; and
     
  4. Whether there are any other factors related to the ability and willingness of a nominee to serve, or an existing Board member to continue his or her service.

 

The Board or management has not established any specific minimum qualifications that a candidate for director must satisfy to be recommended for Board membership. Rather, the Board or management evaluates the combination of skills and experience that a particular candidate offers, considers how that candidate satisfies the Board’s current expectations with respect to each such criterion and makes a determination regarding whether that candidate should be recommended to the stockholders for election as a director. During our fiscal year ended April 30, 2014, we received no recommendation for directors from our stockholders. The Board intends to expand and strengthen its membership as soon as resources allow.

 

We will consider for inclusion in our nominations of new Board of Directors nominees proposed by stockholders who hold at least 5% of our issued and outstanding voting securities. Board candidates referred by such stockholders will be considered on the same basis as Board candidates referred from other sources. Any stockholder who wishes to recommend for our consideration a prospective nominee to serve on the Board may do so by providing the candidate’s name and qualifications in writing to our Secretary at the following address: 50 West Liberty Street, Suite 880, Reno NV 89501.

 

FAMILY RELATIONSHIPS

 

There are no family relationships between our officers and directors.

 

INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

 

Our directors, executive officers and control persons have not been involved in any of the following events during the past ten years:

 

(1) No petition under the federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of any of our officers or directors, or any partnership in which any such officer or director was a general partner at or within two years before the time of such filing, or any corporation or business association of which any such officer or director was an executive officer at or within two years before the time of such filing;

 

Page│41 
 

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE (continued)

 

(2) None of our officers or directors has been convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

 

(3) None of our officers or directors has been the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining any such officer or director from, or otherwise limiting, the following activities:

 

(i) Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;

 

(ii) Engaging in any type of business practice; or

 

(iii) Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws;

 

(4) None of our officers or directors has been the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any federal or state authority barring, suspending or otherwise limiting for more than 60 days the right of any such officer or director to engage in any activity described in paragraph (f) (3) (i) of Item 401(f) of Regulation S-K, or to be associated with persons engaged in any such activity;

 

(5) None of our officers or directors has been found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission to have violated any federal or state securities law, and the judgment in such civil action or finding by the Securities and Exchange Commission has not been subsequently reversed, suspended, or vacated;

 

(6) None of our officers or directors has been found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;

 

(7) None of our officers or directors has been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:

 

(i) Any federal or state securities or commodities law or regulation; or

 

(ii) Any law or regulation respecting financial institutions or insurance companies, including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or

 

(iii) Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

 

(8) None of our officers or directors has been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3 (a) (26) of the Exchange Act (15 U.S.C. 78c (a) (26)), any registered entity (as defined in Section 1 (a) (29) of the Commodity Exchange Act (7 U.S.C. 1 (a) (29)), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

CONFLICT OF INTEREST

 

None of our officers or directors is subject to a conflict of interest.

 

Page│42 
 

 

ITEM 11. EXECUTIVE COMPENSATION.

 

The following table sets forth the compensation accrued by the Registrant for services rendered for the past two completed fiscal years to the principal executive officer and to the company’s most highly compensated executive officers.

 

Summary Compensation Table

 

Name and Principal Position   Year     Salary($)     Bonus ($)     Other Compensation     Total  
                               
Donald Nicholson CEO     2015-2016       -       -     $ 117,000     $ 117,000  
      2014-2015       -       -       -       -  
                                         
Samuel Asculai CSO     2015-2016       -       -     $ 63,000     $ 63,000  
      2014-2015       -       -       -       -  
                                         
Drasko Puseljic GC     2015-2016       -       -     $ 63,000     $ 63,000  
      2014-2015       -       -       -       -  
                                         
Frode Botnevik, Dir     2015-2016       -       -     $ 7,500     $ 7,500  
      2014-2015       -       -       -       -  

 

Other compensation represents remunerations of 30% to be paid in cash and 70% to be converted in shares as explained below.

 

Employment & Consultancy Agreements

 

On February 13, 2013 Mr Donald Nicholson was appointed to the roles of President, CEO and CFO of the Company. On March 5, 2013 the Company entered into a consulting agreement with Mercuriali for the services of Mr. Nicholson as the Company’s President, CEO and CFO (the “Mercuriali Consulting Agreement”), as amended by agreements entered effective March 3, 2014, August 1, 2015 and March 21, 2016 (the “Mercuriali Amendment Agreements”).

 

On August 14, 2008, we entered into an employment agreement with Samuel Asculai, our former President and Chief Executive Officer. That employment agreement had an initial term of ten (10) years and a base salary of $150,000 per annum. Pursuant to that employment agreement, Dr. Asculai received a base salary and an annual bonus equal to at least two percent (2%) of the Company’s pretax earnings, as defined, for each fiscal year. If Dr. Asculai’s employment were to be terminated without “cause”, as defined in that employment agreement, then Dr. Asculai would be entitled to receive all accrued by unpaid salary and bonus plus a payment equal to two (2) times Dr. Asculai’s highest base salary (but not less than $300,000) plus two (2) times his highest bonus. This payment would be received, at Dr. Asculai’s option, in one lump sum or in equal monthly installments over a 24 month period.

 

On March 5, 2013 Dr. Asculai, and Biostrategies (a company wholly owned by Dr. Asculai) entered a termination agreement with the Company terminating the employment agreement with Dr. Asculai as President and CEO. Pursuant to this termination agreement upon the Company substantially completing the Restructuring Plan, Biostrategies and Dr. Asculai forgive all of the unpaid fees under Dr. Asculai except for $20,031 which amount will be converted into five million three hundred twenty seven thousand four hundred and sixty (5,327,460) common shares of the Company’s stock upon the Company entering into cumulative fundraisings of at least one hundred and fifty thousand United States dollars ($150,000). During the year ended April 30, 2013 the Company substantially completed the Restructuring Plan. Resultantly, Dr. Asculai forgave all of the unpaid fees except for $20,031 which was transferred, together with the associated share conversion, to the balance of Mr. Puseljic.

 

On March 5, 2013 Biostrategies entered into a new consulting agreement with the Company for the services of Dr. Asculai as the Company’s CSO (the “Asculai Consulting Agreement”) “), as amended by agreements entered effective March 3, 2014, August 1, 2015 and March 21, 2016 (the “Asculai Amendment Agreements”).

 

Page│43 
 

 

ITEM 11. EXECUTIVE COMPENSATION. (continued)

 

Mr. Puseljic had a 10-year service agreement with the Company to assist in business development, contract administration and co-ordination of SEC filings with management and the Company’s SEC counsel with base fees of $150,000 per annum. At March 5, 2013 Mr. Puseljic was owed $400,625 in unpaid fees. On March 5, 2013 Mr. Puseljic entered a termination agreement with the company (the “Puseljic Termination Agreement”) terminating the service agreement and pursuant to which upon the Company substantially completing the Restructuring Plan, Mr. Puseljic forgives all of the unpaid fees except for $20,031.25 which amount will be converted into five million three hundred twenty seven thousand four hundred and sixty (5,327,460) common shares of the Company’s stock upon the Company entering into cumulative fundraisings of at least one hundred and fifty thousand United States dollars ($150,000).

 

On March 5, 2013 Mr. Puseljic entered into a new employment agreement with the Company (the “Puseljic Employment Agreement”), as amended by agreements entered effective March 3, 2014, August 1, 2015 and March 21, 2016 (the “Puseljic Amendment Agreements”).

 

Under the Mercuriali Amendment Agreements, the Asculai Amendment Agreements and the Puseljic Amendment Agreements, the Corporation may be liable to pay $21,000 to each of Mr. Asculai and Mr. Puseljic and $35,500 to Mercuriali for the period August 1, 2015 to October 31, 2015 to be satisfied seventy percent (70%) in common shares of Corporation at $0.0018 and thirty percent (30%) in cash, all such payments conditional on the receipt of Transaction Monies (as such term is defined in the relevant agreements) of $1,000,000 on or prior to April 30, 2017. For the period November 1, 2015 to January 31, 2016, service fee obligations under the Mercuriali Amendment Agreement, Asculai Amendment Agreement and Puseljic Amendment Agreement each comprise a monthly retainer of seven thousand United States dollars (US$7,000) for up to fourteen (14) hours of Services per week, plus one hundred United States dollars ($100) per hour of Services provided in excess of fourteen (14) hours per week based on the level of services provided and invoiced as further set out in the agreements to be satisfied seventy percent (70%) in common shares of Corporation at $0.0018 and thirty percent (30%) in cash, all such payments conditional on the receipt of Transaction Monies (as such term is defined in the relevant agreements) of $1,000,000 on or prior to April 30, 2017. For the period from February 1, 2016, service fee obligations under the Mercuriali Amendment Agreement, Asculai Amendment Agreement and Puseljic Amendment Agreement each comprise a monthly retainer of seven thousand United States dollars (US$7,000) for up to fourteen (14) hours of Services per week, plus one hundred United States dollars ($100) per hour of Services provided in excess of fourteen (14) hours per week based on the level of services provided and invoiced as further set out in the agreements to be satisfied seventy percent (70%) in common shares of Corporation at the weighted average price of the new shares issued to non-related third parties after the March 21, 2016 (excluding shares issued under the VVG Note) and thirty percent (30%) in cash, all such payments conditional on the receipt of Transaction Monies (as such term is defined in the relevant agreements) of $1,000,000 on or prior to April 30, 2017.

 

The foregoing information regarding the Mercuriali Consulting Agreement and the Mercurial Amendment Agreements are not intended to be complete and are qualified in their entirety by reference to the complete text of the Mercuriali Consulting Agreement, which is attached as Exhibit 99.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2013 and filed on March 19, 2013 and the complete text of the Mercurial Amendment Agreements which were attached as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2014 and filed on March 5, 2014, as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 25, 2015 and as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on March 24, 2016.

 

The foregoing information regarding the Asculai Consulting Agreement and the Asculai Amendment Agreement are not intended to be complete and are qualified in their entirety by reference to the complete text of the Asculai Consulting Agreement, which was attached as Exhibit 99.8 to the Company’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2013 and filed on March 19, 2013 and the complete text of the Asculai Amendment Agreements which were attached as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2014 and filed on March 5, 2014 as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on November 25, 2015 and as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 24, 2016.

 

The foregoing information regarding the Puseljic Employment Agreement and the Puseljic Amendment Agreement are not intended to be complete and are qualified in their entirety by reference to the complete text of the Puseljic Employment Agreement, which was attached as Exhibit 99.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2013 and filed on March 19, 2013 and the complete text of the Puseljic Amendment Agreements which were attached as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2014 and filed on March 5, 2014, as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on November 25, 2015 and as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on March 24, 2016.

 

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ITEM 11. EXECUTIVE COMPENSATION. (continued)

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

As at April 30, 2016, we had not adopted any equity award/compensation plan and no stock, options, or other equity securities were awarded to our executive officers other than the conversion feature contained within the Employment and Consultancy agreements described above.

 

DIRECTOR COMPENSATION

 

On November 25, 2015, the Company and Mr. Frode Botnevik entered into a Director’s Services Agreement effective August 1, 2015 relating to Mr Botnevik’s services as a Director of the Company (the “Botnevik Services Agreement”) as amended by an agreement effective March 21, 2016 (the “Botnevik Services Amendment”). Under the Botnevik Services Agreement and the Botnevik Services Amendment, the Corporation may be liable to pay $2,500 to Mr. Botnevik for the period August 1, 2015 to October 31, 2015 to be satisfied seventy percent (70%) in common shares of Corporation $0.0018 and thirty percent (30%) in cash, all such payments conditional on the receipt of Transaction Monies (as such term is defined in the relevant agreements) of $1,000,000 on or prior to April 30, 2017. For the period November 1, 2015 to January 31, 2016, service fee obligations under the Botnevik Services Agreement and Botnevik Services Amendment comprises a quarterly retainer of two thousand five ($2,500) United States dollars for up to twenty five (25) hours of Services per quarter, plus one hundred United States dollars ($100) per hour of Services provided in excess of twenty five (25) hours per quarter based on the level of services provided and invoiced as further set out in the agreements to be satisfied seventy percent (70%) in common shares of Corporation at $0.0018 and thirty percent (30%) in cash, all such payments conditional on the receipt of Transaction Monies (as such term is defined in the relevant agreements) of $1,000,000 on or prior to April 30, 2017. For the period from February 1, 2016, service fee obligations under the Botnevik Services Agreement and Botnevik Services Amendment comprises a quarterly retainer of two thousand five ($2,500) United States dollars for up to twenty five (25) hours of Services per quarter, plus one hundred United States dollars ($100) per hour of Services provided in excess of twenty five (25) hours per quarter based on the level of services provided and invoiced as further set out in the agreements to be satisfied seventy percent (70%) in common shares of Corporation at the weighted average price of the new shares issued to non-related third parties after the March 21, 2016 (excluding shares issued under the VVG Note) and thirty percent (30%) in cash, all such payments conditional on the receipt of Transaction Monies (as such term is defined in the relevant agreements) of $1,000,000 on or prior to April 30, 2017.

 

The foregoing information regarding the Botnevik Services Agreement and the Botnevik Services Amendment are not intended to be complete and are qualified in their entirety by reference to the complete text of the Botnevik Services Agreement which was filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on November 25, 2015 and the Botnevik Services Amendment which was filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on March 24, 2016.

 

In the future we may grant options to our directors to purchase Common Shares as determined by our board of directors or a compensation committee that may be established. Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors. The board of directors may award special remuneration to any director undertaking any special services on behalf of our company other than services ordinarily required of a director. Other than as indicated herein, no director received and/or accrued any compensation for his or her services as a director, including committee participation and/or special assignments.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANGEMENT AND RELATED STOCKHOLDER MATTERS.

 

The following table sets forth, as of July XX, 2016, certain information regarding the Company’s outstanding shares of Common Stock beneficially owned by (1) each person (including any group) of more than five percent of our Common Stock, based solely on Schedule 13D and 13G filings with the Securities and Exchange Commission, and (2) the Company’s directors and officers.

 

Name of Beneficial Owner   Common Stock
Beneficially
Owned(1)
    Percent of
Class
 
             
Biostrategies Consulting Group Inc(2)     8,015,834       7.0 %
Samuel Asculai, Ph.D.(3)     32,419,105       28.5 %
Frode Botnevik(4)     3,324,468       2.9 %
Mercuriali Ltd.(5)     9,000,000       7.9 %
Donald Nicholson(6)     9,000,000       7.9 %
Drasko Puseljic     9,166,666       8.0 %
Directors and executive officers as a group (7 persons)     53,910,239       47.3 %

 

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANGEMENT AND RELATED STOCKHOLDER MATTERS. (continued)

 

  (1) Unless otherwise indicated, ownership represents sole voting and investment power. Unless otherwise indicated the address for all listed stockholders is 50 West Liberty Street, Suite 880. Reno, NV 89501.
     
  (2) Dr. Asculai, who is a director of the Company, is the sole owner of the Biostrategies Consulting Group Inc.
     
  (3) Common Stock Beneficially Owned by Samuel Asculai includes the 8,015,834 shares of Common Stock owned by Biostrategies Consulting Group Inc.and 24,403,271 owned by Sam Asculai.
     
  (4) Common Stock Beneficially Owned by Frode Botnevik includes 3,324,468 shares of Common Stock owned by Grim AS a company controlled by his spouse.
     
  (5) Donald Nicholson, who is a director of the Company, is the sole owner of Mercuriali Ltd.
     
  (6) Common Stock Beneficially Owned by Donald Nicholson includes the 9,000,000 shares of Common Stock of the Company owned by Mercuriali Ltd.

 

Changes in Control

 

We are unaware of any contract or other arrangement the operation of which may at a subsequent date result in a change of control of our company.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

As of April 30, 2016, the Company owes $96,489 (2015 - $96,489) in respect of advances from Dr. Asculai, its former CEO and current CSO and Chairman of the Board, pursuant to a loan agreement entered between the Company, Dr. Asculai and Mercuriali Ltd. dated March 4, 2013. This balance is to be paid in quarterly installments after the Company has cumulatively raised one million United States dollars.

 

As at April 30, 2016, Mercuriali has advanced a total of $305,540 to the Company pursuant to a loan agreement entered between the Company, Dr. Asculai and Mercuriali Ltd dated March 4, 2013 (2015 - $174,417). Mercuriali Ltd. is a company solely owned by Donald Nicholson the Company’s CEO and CFO. In addition, as of April 30, 2016 and April 30, 2015 the Company owes Mercuriali $33,188 included in Accounts Payable. Mercuriali Ltd. Mercuriali shall convert $186,943 of the amounts owed to it under the Loan Agreement and the $33,188 Accounts payable into common shares of the Company at a conversion price of $0.00376 per share and $118,597 of the amounts owed to it under the Loan Agreement into common shares of the Company at a conversion price of $0.0018 per share upon the Company raising additional financing of at least $250,000.

 

The advances and payables due to Dr. Asculai and Mercuriali Ltd are secured by the assets of the Company, and do not bear interest.

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

 

AUDIT FEES

 

The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal account for the audit of our financial statements on Form 10K and review of financial statements included in our quarterly Reports on Form 10-Q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:

 

    Financial Year Ended  
    2016     2015  
             
Audit fees   $ 14,500     $ 14,500  
Audit Related     -       -  
Tax Fees     -       -  
All Other Fees     -       -  
Total   $ 14,500     $ 14,500  

 

In each of the last two fiscal years ended April 30, 2016 and 2015, there were no fees billed for assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review of our financial statements and are not reported under Item 9(e)(1) of Schedule 14A, for professional services rendered by the principal account for tax compliance, tax advice, and tax planning, for products and services provided by the principal accountant, other than the services reported in Item 9(e)(1) through 9(d)(3) of Schedule 14A.

 

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. (continued)

 

POLICY ON PRE-APPROVAL BY AUDIT COMMITTEE OF SERVICES PERFORMED BY INDEPENDENT AUDITORS

 

We do not use Seale and Beers, CPAs for financial information system design and implementation. These services, which include designing or implementing a system that aggregates source data underlying the financial statements or generates information that is significant to our financial statements, are provided internally or by other service providers. We do not engage Seale and Beers, CPAs to provide compliance outsourcing services.

 

Effective May 6, 2003, the SEC adopted rules that require that before Seale and Beers, CPAs is engaged by us to render any auditing or permitted non-audit related service, and the engagement be:

 

approved by our audit committee (which, in effect, is our entire board of directors); or
   
entered into pursuant to pre-approval policies and procedures established by our board of directors, provided the policies and procedures are detailed as to the particular service, our board of directors is informed of each service, and such and policies and procedures do not include delegation of our board of directors’ responsibilities to management.

 

Our board of directors pre-approves all services provided by our independent auditors. All of the Step services and fees were reviewed and approved by our board of directors either before or after the respective services were rendered.

 

Our board of directors has considered the nature and amount of fees billed by Seale and Beers, CPAs and believes that the provision of services for activities unrelated to the audit is compatible with maintaining Seale and Beers, CPA’s independence.

 

ITEM 15. EXHIBITS

 

(a) Pursuant to Rule 601 of Regulation S-K, the following exhibits are included herein or incorporated by reference.

 

Exhibit

Number

  Description
     
31.1   Certification of CEO Pursuant TO 18 U.S.C. § 1350, Section 302
     
32.1   Certification Pursuant to 18 U.S.C. § 1350, Section 906

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 21st day of July, 2016.

 

  ENHANCE SKIN PRODUCTS INC.
     
Date: July 22, 2016 By: /s/ Donald Nicholson
  Name: Donald Nicholson
  Title: CEO, Chief Financial Officer,
    Principal Executive Officer and Director
     
    /s/ Samuel Asculai
  Name: Samuel Asculai
  Title: CSO and Director
     
    /s/ Frode Botnevik
  Name: Frode Botnevik
  Title: Director

 

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