UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarter ended July 31, 2016

 

OR

 

[  ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________________ to ________________

 

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

 

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 [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “Accelerated filer,” and “smaller 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 September1, 2016: 115,889,205.

 

 

 

ENHANCE SKIN PRODUCTS INC.

 

INDEX

 

	PART I – FINANCIAL INFORMATION
Item 1	Condensed Consolidated Financial Statements	3
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3	Quantitative and Qualitative Disclosures About Market Risk	20
Item 4	Controls and Procedures	20
	PART II – OTHER INFORMATION
Item 1	Legal Proceedings	21
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3	Defaults Upon Senior Securities	23
Item 4	Mine Safety Disclosures	23
Item 5	Other Information	23
Item 6	Exhibits	23
Signatures		24

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. Condensed Consolidated Financial Statements.

 

	Page Number
Condensed Consolidated Balance Sheets	4
Condensed Consolidated Statements of Operations and Comprehensive Loss	5
Condensed Consolidated Statements of Cash Flows	6
Notes to Condensed Consolidated Financial Statements	7-16

 

 

ENHANCE SKIN PRODUCTS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS AT JULY 31, 2016 (UNAUDITED) AND APRIL 30, 2016 (AUDITED)

(Expressed in United States Dollar)

 

		July 31, 2016				April 30, 2016
		$				$
ASSETS
Cash			47,377				2,847
Prepaid Expenses			13,423				—
Total current assets			60,800				2,847
Goodwill			1				1
Total assets			60,801				2,848
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Liabilities
Accounts payable and accrued liabilities			271,475				271,635
Accounts payable to a related party (Note 4)			107,941				75,607
Accounts payable to related parties convertible into shares (Note 4)			318,880				248,600
Advances from a related party (Note 4)			96,489				96,489
Advances from a related party convertible into shares (Note 4)			316,575				305,540
Secured promissory note (Note 5)			100,000				—
Total current liabilities			1,211,360				997,871
Total liabilities			1,211,360				997,871
Stockholders’ deficit
Authorized:
600,000,000 common shares par value $0.001 as of July 31, 2016 (April 30, 2016: 300,000,000 common shares) - (Note 6)
Issued and outstanding 115,889,205 common shares as of July 31, 2015 (April 30, 2016: 113,951,705 common shares) - (Note 6)			115,889				113,951
Additional paid-in capital			1,991,963				1,971,548
Accumulated other comprehensive gain			9,032				8,809
Accumulated deficit			(3,267,443	)			(3,089,331	)
Total stockholders’ deficit			(1,150,559	)			(995,023	)
Total liabilities and stockholders’ deficit			60,801				2,848

 

See accompanying notes

 

 

ENHANCE SKIN PRODUCTS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE THREE MONTHS ENDED JULY 31, 2016 AND 2016 (UNAUDITED)

(Expressed in United States Dollar)

 

		Three Months				Three Months
		Ended July 31, 2016				Ended July 31, 2015
		$				$
SALES			185				155
EXPENSES
General and administrative			8,420				4,287
Legal and professional fees			166,347				17,298
Marketing			—				—
Total operating expenses			174,767				21,585
Exchange gain			(4,291	)			—
Interest expense			7,821				7,143
Net loss for the period before income taxes			(178,112	)			(28,573	)
Income taxes			—				—
Net loss for the period			(178,112	)			(28,573	)
Foreign currency translation adjustment			223				(749	)
Comprehensive loss			(177,889	)			(29,322	)
Loss per share, basic and diluted			(0.0015	)			(0.0003	)
Weighted average number of common shares outstanding			115,253,490				101,017,881

 

See accompanying notes

 

 

ENHANCE SKIN PRODUCTS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED JULY 31, 2016 AND 2015 (UNAUDITED)

(Expressed in United States Dollar)

 

		Three Months				Three Months
		Ended July 31, 2016				Ended July 31, 2015
		$				$
OPERATING ACTIVITIES
Net loss for the period			(178,112	)			(28,573	)
Interest expense			7,821				7,143
Net change in non-cash working capital balances:
Shares issued against consulting expenses			14,532				—
Prepayments			(13,423	)			—
Accounts payable to related party			32,334				—
Accounts payable to related parties convertible into shares			70,280				—
Accounts payable and accrued liabilities			(160	)			(4,789	)
Cash used in operating activities			(66,728	)			(26,219	)
FINANCING ACTIVITIES
Proceeds from issuance of secured promissory note			100,000				43,000
Advances from a related party			11,035				2,183
Cash provided by financing activities			111,035				45,183
Net increase in cash during the period			44,307				18,964
Effect of foreign currency translation			223				(749	)
Cash, beginning of the period			2,847				1,582
Cash, end of period			47,377				19,797
Supplemental disclosure with respect to cash flows:
Cash paid for income taxes			—				—
Cash paid for interest			—				—

 

See accompanying notes

 

 

ENHANCE SKIN PRODUCTS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2016 (Unaudited)

(Expressed in United States Dollar)

 

NOTE 1. BASIS OF PRESENTATION

 

The accompanying unaudited interim condensed consolidated financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial positions, results of operations, and cash flows at July 31, 2016 and 2015, have been made.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these unaudited interim condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s April 30, 2016 and 2015 audited financial statements. The results of operations for the period ended July 31, 2016 and 2015 are not necessarily indicative of the operating results for the full year.

 

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS

 

The management has evaluated all recent pronouncements issued by the FASB or other authoritative standards groups with their effective dates. The management believes that these are either not applicable or are not expected to be significant to the condensed consolidated financial statements of the Company.

 

NOTE 3. GOING CONCERN

 

The accompanying unaudited interim condensed 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 July 31, 2016 the Company has a working capital deficit of $1,150,560 and accumulated deficit of $3,267,443.

 

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 Integumen Limited (formerly Biosurface Limited) (“Integumen”) 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 Integumen a secured promissory note in the amount of $100,000 (the “Note”). Under the Note, Integumen 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”). As explained in Note 5, on July 7, 2016, the full balance will become due on the earlier of (i) the demand made by the Noteholder or on the 6 month anniversary date (ii) the completion of the Asset Purchase Agreement or (iii) when, upon the occurrence and during the continuance of an event of default. . In the event of non-payment, the company becomes due to pay 5% per annum of the outstanding principal from the Maturity date. The expiration of the Option Agreement has been extended to September 8, 2016.

 

The Option Agreement grants Integumen 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 ($4,013,293) comprised of £2,760,000 ($3,655,620) in shares of Integumen, less all sums due and owing under the Note, and the assumption of certain liabilities of the Company to the value of £270,000 ($357,615).

 

 

ENHANCE SKIN PRODUCTS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2016 (Unaudited)

(Expressed in United States Dollar)

 

NOTE 3. GOING CONCERN (continued)

 

The foregoing, and any subsequent, description of the 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.

 

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, the continuation of the promissory note and the Company’s successful efforts to conclude the APA with Integumen or to obtain and continue to obtain additional funding 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 September 8, 2016. In the event this strategic collaboration does not progress, management intends to seek alternative wider strategic collaborations and in parallel pursue alternative funding structures including debt and equity finance, asset sales, licensing and marketing partnerships. The Company would seek to appoint a broker to help it identify suitable alternative collaboration partners. . There can be no assurances, however, that management’s efforts to conclude the APA or to find alternative strategic collaborations or obtain alternative funding, licensing partners, marketing partners 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 the Company’s President & CEO, CSO and General Counsel have agreed to amend their respective Consultancy Agreements and Employment Agreements, as amended, such that payment for services is contingent upon the Company having received cumulative Transaction Monies (as such term is defined in the relevant agreements) 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 4. RELATED PARTY TRANSACTIONS AND BALANCES

 

The details of related party balances are as follows:

 

		July 31, 2016				April 30, 2016
		$				$
Unpaid remuneration			107,484				75,150
Unreimbursed expenses			457				457
Accounts payable to a related party			107,941				75,607
Unpaid remuneration			285,692				215,412
Balances owing to Mercuriali Ltd.			33,188				33,188
Accounts payable to related parties convertible into shares			318,880				248,600
Advances from a related party			96,489				96,489
Advances from a related party convertible into shares			316,575				305,540

 

ACCOUNTS PAYABLE TO RELATED PARTIES:

 

Unpaid remuneration

 

The outstanding balance of $107,484 as at July 31, 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, the Company 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 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 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”).

 

 

ENHANCE SKIN PRODUCTS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2016 (Unaudited)

(Expressed in United States Dollar)

 

NOTE 4. RELATED PARTY TRANSACTIONS AND BALANCES (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 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 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).

 

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.

 

 

ENHANCE SKIN PRODUCTS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2016 (Unaudited)

(Expressed in United States Dollar)

 

NOTE 4. RELATED PARTY TRANSACTIONS AND BALANCES (continued)

 

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.

 

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.

 

 

ENHANCE SKIN PRODUCTS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2015 (Unaudited)

(Expressed in United States Dollar)

 

NOTE 4. RELATED PARTY TRANSACTIONS AND BALANCES (continued)

 

ACCOUNTS PAYABLE TO RELATED PARTIES CONVERTIBLE INTO SHARES:

 

The outstanding balance comprise of unpaid remuneration to related parties 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 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 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 January 31, 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).

 

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 July 31, 2016.

 

In addition, the outstanding balance as at July 31, 2016 includes $245,630 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.

 

 

ENHANCE SKIN PRODUCTS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2016 (Unaudited)

(Expressed in United States Dollar)

 

NOTE 4. RELATED PARTY TRANSACTIONS AND BALANCES (continued)

 

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 July 31, 2016, the Company owes $96,489 (April 30, 2016 - $96,489) in respect of advances from Dr. Asculai, its former CEO and current Chief Scientific Officer and Chairman of the Board, pursuant to the Loan Agreement. 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 July 31, 2016, Mercuriali has advanced a total of $316,575 (April 30, 2016 - $305,540) to the Company pursuant to the Loan Agreement. Mercuriali shall convert $188,357 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 $128,218 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.

 

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.

 

 

NHANCE SKIN PRODUCTS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2016 (Unaudited)

(Expressed in United States Dollar)

 

NOTE 4. RELATED PARTY TRANSACTIONS AND BALANCES (continued)

 

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 5. SECURED PROMISSORY NOTE

 

On July 7, 2016, the Company and Integumen Limited (formerly Biosurface Limited) 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 Integumen 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 ($4,013,293) comprised of £2,760,000 ($3,655,620) in shares of Integumen, less all sums due and owing under the Note, and the assumption of certain liabilities of the Company to the value of £270,000 ($357,615). The Option expires on September 8, 2016 and may only be exercised after the Note has been entered into and Integumen 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, Integumen 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.

 

US dollar amounts are provided for the convenience of readers only and are based on the amounts in pounds sterling translated into US dollars at the closing sterling/dollar interbank rate on July 31, 2016.

 

NOTE 6. STOCKHOLDERS’ DEFICIT

 

COMMON SHARES - AUTHORIZED

 

As at July 31, 2016, the Company had 600,000,000 common shares authorized (April 30, 2016: 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.

 

COMMON SHARES - ISSUED AND OUTSTANDING

 

On July 29, 2016, the Company issued 1,937,500 shares of common stock to Snowbell Management Limited in connection with the services provided by them to develop the Visible Youth™ consumer skin care brand for its relaunch. Management had agreed on the share price of $0.00702 per common stock on July 15, 2016. These shares were then valued at market price of $0.0075 per common stock and accordingly $14,531 has been recorded, of which $6,585 was included in legal and professional fees and $7,947 in prepaid expenses, for the three months ended July 31, 2016.

 

As at July 31, 2016 there were 115,889,205 shares of common stock issued an outstanding (April 30, 2016: 113,951,705 common shares).

 

 

ENHANCE SKIN PRODUCTS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2016 (Unaudited)

(Expressed in United States Dollar)

 

NOTE 7. INTEREST EXPENSE

 

		July 31, 2016				July 31, 2015
		$				$
Beneficial conversion feature on advances from a related party			7,821				2,183
Accretion expense on convertible promissory note			—				4,555
Interest accrued on convertible promissory note			—				405
Total interest expense			7,821				7,143

 

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 and interest accrued for the period ended July 31, 2015 related to a convertible promissory note issued and settled during the previous year ended April 30, 2016.

 

NOTE 8. 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 July 31, 2016.

 

 

ENHANCE SKIN PRODUCTS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2016 (Unaudited)

(Expressed in United States Dollar)

 

NOTE 9. SUBSEQUENT EVENTS

 

The Company’s management has evaluated subsequent events up to September 1, 2016, the date the condensed financial statements were issued, pursuant to the requirements of ASC Topic 855 and has determined the following material subsequent event to report.

 

On August 12, 2016, the Company and Integumen Limited (formerly Biosurface) entered into an agreement amending the Option Agreement entered into by the parties on July 7, 2016 as amended July 29, 2016 (refer Note 5). The Option Amendment Agreement extends the expiration date of the option in the Option Agreement from August 12, 2016 to August 24, 2016. All other terms of the Option Agreement remained unchanged.

 

On August 24, 2016, the Company and Integumen Limited (formerly Biosurface) entered into an agreement amending the Option Agreement entered into by the parties on July 7, 2016 as amended July 29, 2016 and August 12, 2016 (refer Note 5). The Option Amendment Agreement extends the expiration date of the option in the Option Agreement from August 24, 2016 to September 1, 2016. All other terms of the Option Agreement remain unchanged.

 

On September 1, 2016, the Company and Integumen Limited (formerly Biosurface) entered into an agreement amending the Option Agreement entered into by the parties on July 7, 2016 as amended July 29, 2016, August 12, 2016 and August 24, 2016 (refer Note 5). The Option Amendment Agreement extends the expiration date of the option in the Option Agreement from September 1, 2016 to September 8, 2016. All other terms of the Option Agreement remain unchanged.

 

 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Cautionary Note Regarding Forward-Looking Statements

 

This quarterly report contains “forward-looking statements” that involve risk and uncertainties. The Company uses forward-looking statements that you can identify by words or terminology such as “may”, “should”, “could”, “predict”, “potential”, “continue”, “expect”, “anticipate”, “future”, “intend”, “plan”, “believe”, “estimate”, and similar expressions (or the negative of these expressions). This quarterly report includes statements that are “forward-looking statements,” including statements regarding our expectations, hopes, beliefs, intentions or strategies regarding the future in particular statements relating to the Restructuring Plan and Future Funding. All statements regarding our financial position, funding plans, business strategy and other plans and objectives for future operations, and future product demand, supply, costs, marketing, and pricing factors, are forward-looking statements. Actual results, levels of activity, performance, achievements and events are most likely to vary materially from those implied by the forward-looking statements. All forward-looking statements included in this quarterly report are based on information available to us on the date hereof, and we assume no obligation to update such forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct or that we will take any actions that may presently be planned. Certain important factors could cause actual results to differ materially from our expectations. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date of this quarterly report. Readers should carefully review this report in its entirety, including, but not limited to, our financial statements and the notes thereto. Except for our ongoing obligations to disclose material information under the federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.

 

Review of Operations

 

During the quarter the Company has continued prosecution and protection of its patent and trademark portfolio. 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 2015 the Company engaged a product formulation and manufacturing company and is currently in the final stages of reformulating its first six products. In addition, during 2015 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 certain marketing clinical studies for certain of the Visible Youth products as soon as resources are available The exact nature of these studies are currently being evaluated by the cCompany and its advisors.. It is expected that final study results will be available approximately four months after their start. In the opinion of the board these further marketing studies are necessary to refine the marketing strategy and to obtain further funding on acceptable terms. If study results are satisfactory and necessary funding 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.

 

Management is focused on concluding the APA with Integumen prior to September 8, 2016. In the event this strategic collaboration does not progress, management intends to seek alternative wider strategic collaborations and in parallel pursue alternative funding structures including debt and equity finance, asset sales, licensing and marketing partnerships. There can be no assurances, however, that management’s efforts to conclude the APA or find alternative strategic collaborations or to obtain alternative funding, licensing partners, marketing partnerson terms satisfactory to the Company, or at all will, be realized or that future sales will be realized.

 

 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued).

 

Balance sheet – July 31, 2016 balances compared to April 30, 2016

 

Cash

 

As at July 31, 2016 the Company had $47,377 of cash on hand, an increase of $44,530 from April 30, 2016 balance of $2,847, mainly due to proceeds from issuance of a secured promissory note from Integumen Limited and advances from Mercurilai Ltd.

 

Goodwill

 

Goodwill of $1 represents the excess of cost over fair value of net assets acquired, less impairment.

 

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. 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. The Company intends to use Visible Youth Ltd to market its products in the European Union.

 

Accounts payable and accrued liabilities

 

As at July 31, 2016 accounts payable and accrued liabilities was $271,475, a decrease of $160 from April 30, 2016 balance of $271,635. The small decrease is mainly due to an increase in outstanding suppliers’ invoices being offset by payments to suppliers during the three months period ended July 31, 2016.

 

Accounts payable to related parties convertible into shares

 

As at July 31, 2016 accounts payable to related parties convertible into shares was $318,880, an increase of $70,280 from April 30, 2016 balance of $248,600. 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.

 

Advances from a related party convertible into shares

 

As at July 31, 2016 advances from a related party convertible into shares was $316,575, an increase of $11,035 from April 30, 2016 balance of $305,540. The increase represents additional advances from Mercuriali Limited to meet the working capital requirements of the Company prior to the issue of the secured promissory note to Integumen Limited.

 

Secured promissory note

 

On July 7, 2016, the Company issued a secured promissory note to Integumen Limited under which Integumen agreed to loan the Company US$100,000 conditional upon the Company entering into an Option Agreement and entering into good faith negotiations with a view to entering into a strategic collaboration via an asset purchase agreement. The full balance will become due on the earlier of (i) the demand made by the Noteholder or on the 6 month anniversary date (ii) the completion of the Asset Purchase Agreement or (iii) when, upon the occurrence and during the continuance of an event of default. . In the event of non-payment, the company becomes due to pay 5% per annum of the outstanding principal from the Maturity date. The expiration of the Option Agreement has been extended to September 8, 2016. See Note 5; Secured Promissory Note.

 

As of July 31, 2016, no interest has been accrued on the promissory note.

 

 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued).

 

Statement of Operations – Three months ended July 31, 2016 balances compared to three months ended July 31, 2015

 

Sales

 

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

 

Our expenses are classified primarily into the following categories.

 

General and administrative.

 

General and administrative expenses incurred for the three months ended July 31, 2016 were $8,420 compared to $4,287 for the three months ended July 31, 2015. The increase in general and administrative expenses is mainly due to additional expenditures related to package design fees and general accruals.

 

Legal and professional fees.

 

Legal and professional fees incurred for the three months ended July 31, 2016 were $166,347 compared to $17,298 for the three months ended July 31, 2015. The significant increase for the three months amount is mainly due to the recording of $100,400 management fees in connection with consulting and employment agreement amendments project management fees and costs associated with product formulation and branding and business development costs, partly offset by a fall in patents registration activities and related costs in the three months period ended July 31, 2016, respectively.

 

Interest expense.

 

Interest expense for the three months ended July 31, 2016 were $7,821 compared to $7,143 for the three months ended July 31, 2015. The major reason for the small increase in the three months period is mainly due to the increase in expenses in connection with the beneficial conversion feature of the advances from a related party convertible into shares, expensed immediately due to short term conversion terms of these advances.

 

Liquidity and Capital Resources

 

During the three months ended July 31, 2016, the Company raised $100,000 through issuance of a secured convertible note and Mercuriali Ltd. made advances to the Company of $11,035. At July 31, 2016 the total advances from Mercuriali Ltd. were $316,575.

 

At July 31, 2016, the Company had a working capital deficit of $1,150,560 compared to a working capital deficit of $995,024 at April 30, 2016. The increase in working capital deficit is due to increase in current liabilities from the secured promissory note and from advances made by Mercuriali Ltd.

 

At July 31, 2016 the total assets were $60,801 as compared to the total assets $2,848 at April 30, 2016. The increase of $57,953 is mainly due to an increase on cash balances and prepaid expenses during the three months ended July 31, 2016.

 

 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued).

 

Income Taxes

 

At July 31, 2016, the Company had potential unused net operating loss carryovers of approximately $3,267,443 (April 30, 2016: $3,089,331). 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 recently filed tax returns in the US for the periods ended April 30, 2012 to April 30, 2015 and has filed its Federal tax returns in Canada for all periods to April 30, 2016. The Company is currently in the process of preparing its US tax return for the period to April 30, 2016.. Reviews of the respective tax returns 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 three months ended July 31, 2016 the Company relied on proceeds from the issuance of a secured promissory note to Integumen Limited and advances from Mercuriali Ltd., a related party.

 

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable.

 

ITEM 4. 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 period covered by this report, being July 31, 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.

 

 

ITEM 4. Controls and Procedures (continued).

 

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 and 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.

 

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.

 

Changes in internal control over financial reporting.

 

There have been no changes in our internal controls over financial reporting that occurred during our last fiscal quarters and have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

 

 

PART II – OTHER INFORMATION

 

ITEM 1. 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 of the response of the purported requesting party, Glycobiocsiences Inc. (“Glcycobiosciences”) response, dated August 12, 2013, to its evidence. The Company filed its response to that submission on December 23, 2013.

 

ITEM 1. Legal Proceedings (continued).

 

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 had 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. On July 23, 2015, the Applicant served and filed representations stating the reasons why they believed that 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 allege 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. In the absence of a response from Glycobiosciences, and in response to a status review of July 20, 2016 the Company filed a proposed timetable for the progression of this action with the Federal Court. On August 24, 2016 the Federal Court issued a written Direction granting our requested timetable. The parties have until September 30, 2016 to exchange documents listed on the respective schedules of Affidavits of Documents.

 

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 is in the process of preparing its response demonstrating sales and use of the trademark in Canada during the relevant period and 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 had until August 14, 2016 to submit their reply. No response has been received to date. The Company intends to vigorously defend its Visible Youth trademark.

 

 

ITEM 1. Legal Proceedings (continued).

 

On May 18, 2016 the Company filed applications for a new Visible Youth Trademark and its new VY logo in the European Union. On August 17 the Company was informed that Glycobiosciences has filed an opposition to the Visible Youth trademark based on its granted EU trademark which the Company is in the process of seeking to invalidate. The Company has requested that the opposition proceedings be suspended pending the outcome of its invalidation proceedings.

 

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.

 

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 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

On July 29, 2016, the Company issued 1,937,500 shares of common stock to Snowbell Management Limited in connection with the services provided by them to develop the Visible Youth™ consumer skin care brand for its relaunch. Management had agreed on the share price of $0.00702 per common stock on July 15, 2016. These shares were then valued at market price of $0.0075 per common stock and accordingly $14,531 has been recorded, of which $6,585 was included in legal and professional fees and $7,947 in prepaid expenses, for the three months ended July 31, 2016.

 

ITEM 3. Defaults Upon Senior Securities.

 

None.

 

ITEM 4. Mine Safety Disclosures.

 

None.

 

ITEM 5. Other Information.

 

None.

 

ITEM 6. Exhibits.

 

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

 

 

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 6^th day of September 2016.

 

	ENHANCE SKIN PRODUCTS INC.
Date: September 6, 2016	By:	/s/ Donald Nicholson
	Name:	Donald Nicholson
	Title:	CEO, Chief Financial Officer and Principal Executive Officer