NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
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 an 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 October 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 October
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 October 31, 2016 the Company has a working capital deficit of $1,319,224 and accumulated deficit of
$3,435,046.
Prior
to July 7, 2016 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, the full balance would have 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. . On October 1, 2016, the Company and Integumen entered into the APA. Under the APA the Company agreed to sell substantially
all of its assets to Integumen. The total consideration payable to the Company is a sum equal to £3,030,000, subject to
adjustment depending on the level of Enhance’ s current liabilities as at Completion. In addition, Integumen also assumed
the costs of Enhance from the date of signature of the APA until Completion and certain post completion costs.
ENHANCE
SKIN PRODUCTS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2016 (Unaudited)
(Expressed
in United States Dollar)
NOTE
3. GOING CONCERN (continued)
The
Company received $25,000 on October 14, 2016 and $30,000 on November 16, 2016 from Integumen in respect of its obligations to
meet the Interim Costs for October and November.
On
October 31, 2016 the Company filed a Definitive Information Statement on Form 14C, a copy of which was subsequently mailed to
shareholders on November 7, 2016. The Transaction Completed on December 2, 2016 and the Company received 2,632,868 ordinary shares
in Integumen at a price of £1 per share. This comprised the total Consideration of £3,030,000 ($3,939,000) less assumed
liabilities of £ 320,209 ($416,272) and the prepayment of the Note in the amount of £76,923 ($100,000).
The
APA provides that 80 per cent of the Consideration Shares should be issued on completion of the APA and the remaining 20 per cent
(subject to an adjustment depending on the value of the assumed liabilities) should be issued within 30 days of Admission of Integumen
to AIM. However, prior to completion of the APA, the parties to the APA agreed upon the adjustment to the number of Consideration
Shares to be issued to the Company by Integumen Limited and, consequently at completion, the Company was issued with 2,632,868
Ordinary Shares in full and final satisfaction of the obligations of Integumen Limited and Integumen, Inc to provide consideration
to the Company for the acquisition of the business assets.
The
Company intends to hold the shares in Integumen as an investment for a minimum of 12 months after Completion to allow for an orderly
transition of the technology and products. After the Completion Date, the Company shall not engage in any business activities
except to the extent necessary to preserve the value of its assets, transfer its assets and knowhow, wind up its business affairs
and give effect to the dissolution of the Company in accordance with the Plan.
Integumen
was established on May 28, 2016 for the purpose of building a business in the area of Human Surface Science. The acquisition of
Enhance and other complementary businesses in the areas of Skin Science, Oral-health and Wound-care completed by way of the issue
of new shares in Integumen and the assumption of certain liabilities. Integumen plans to seek admission of its shares to trading
on the AIM market of the London Stock Exchange and plans to raise capital to fund the future development and commercialisation
of its technology portfolio. Integumen has appointed advisors in this regard. Prior to a potential listing and fundraise, Integumen
intends to fund its activities out of existing cash reserves and a bank loan facility for €1m which Venn Life Sciences, the
former owner of one of the acquired businesses currently guarantees.
Given
the early stage of development of Integumen, uncertainties around the timing of its trading on AIM and the timing and size of
its fundraising it is difficult for the Company to value its investment in Integumen. In addition, there can be no certainty that
there will be a liquid market in the shares of Integumen and whether it will be able to meet its obligations to the Company in
respect of funding the Company’s ongoing activities to dissolution.
The
foregoing, and any subsequent, description of the Option Agreement, Note and the APA 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, 10.2, 10.3, 10.4 and 10.5
to the Company’s Current Report on Form 8-K filed on October 5, 2016 and Schedule 14C Information Statement filed October
31, 2016.
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.
ENHANCE
SKIN PRODUCTS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2016 (Unaudited)
(Expressed
in United States Dollar)
NOTE
4. RELATED PARTY TRANSACTIONS AND BALANCES
The
details of related party balances are as follows:
|
|
October
31, 2016
|
|
|
April
30, 2016
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
Unpaid
remuneration
|
|
|
136,680
|
|
|
|
75,150
|
|
Unreimbursed
expenses
|
|
|
2,854
|
|
|
|
457
|
|
Accounts
payable to related parties
|
|
|
139,534
|
|
|
|
75,607
|
|
Unpaid remuneration
|
|
|
358,982
|
|
|
|
215,412
|
|
Balances
owing to Mercuriali Ltd.
|
|
|
33,188
|
|
|
|
33,188
|
|
Advances
to related parties convertible into shares
|
|
|
392,170
|
|
|
|
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 $136,680 as at October 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, March 21, 2016 and October 1, 2016 (the “Mercuriali Amendment Agreements”).
On
August 14, 2008, the Company entered into an employment agreement with Samuel Asculai, the Company’s 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 pre-tax 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 instalments 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 forgave 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.
ENHANCE
SKIN PRODUCTS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2016 (Unaudited)
(Expressed
in United States Dollar)
NOTE
4. RELATED PARTY TRANSACTIONS AND BALANCES (continued)
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,
March 21, 2016 and October 1, 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 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, March 21, 2016 and October 1, 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 Company 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 up to the date of Completion of the APA as defined in the APA, 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 the Company at a price
calculated by dividing Transaction Monies received under the APA by the number of issued shares plus the unissued shares to be
issued as a result of the conversion of debts owed under existing agreements as of the date of receipt of Transaction Monies under
the APA, including debts owed under certain sections of the Mercuriali Amendment Agreements, the Asculai Amendment Agreements
and the Puseljic Amendment Agreements, as the case may be, and 30% in cash, all such payments to be made within 30 days of the
receipt of Threshhold Funding (as such term is defined in the relevant agreements).
ENHANCE
SKIN PRODUCTS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2016 (Unaudited)
(Expressed
in United States Dollar)
NOTE
4. RELATED PARTY TRANSACTIONS AND BALANCES (continued)
For
the period from the Completion of the APA as defined in the APA until dissolution of the Company, service fee obligations under
the Mercuriali Amendment Agreement, Asculai Amendment Agreement and Puseljic Amendment Agreement each comprise a monthly retainer
of three thousand five United States dollars (US$3,500) for up to seven (7) hours of Services per week, plus one hundred United
States dollars ($100) per hour of Services provided in excess of seven (7) 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 a price
calculated by dividing Transaction Monies received under the APA by the number of issued shares plus the unissued shares to be
issued as a result of the conversion of debts owed under existing agreements as of the date of receipt of Transaction Monies under
the APA, including debts owed under certain sections of the Mercuriali Amendment Agreements, the Asculai Amendment Agreements
and the Puseljic Amendment Agreements, as the case may be, and 30% in cash, all such payments to be made within 30 days of the
receipt of Threshhold Funding (as such term is defined in the relevant agreements).
Upon
any termination of this Mercuriali Agreement, Asculai Agreement or Puseljic Agreement including as a result of any proposed or
actual bankruptcy, insolvency or dissolution of the Company, the Company shall pay the executive all accrued compensation (including
retainer) plus a contract termination fee (“Termination Fee”) equal to the executive’s then average annualized
remuneration (including retainer) based on the amounts invoiced in prior six months, whether the payment condition is satisfied
or not, provided the Termination Fee shall be at least equal to eighty-five thousand ($85,000) . The Termination Fee to be satisfied
70% in common shares of Corporation at a price calculated by dividing Transaction Monies received under the APA by the number
of issued shares plus the unissued shares to be issued as a result of the conversion of debts owed under existing agreements as
of the date of dissolution, including debts owed under certain sections of the Mercuriali Amendment Agreements, the Asculai Amendment
Agreements and the Puseljic Amendment Agreements, as the case may be, and 30% in cash, all such payments to be satisfied on or
prior to the dissolution of the Corporation.
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 and as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on October 5, 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 and as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 5, 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 and as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on October 5, 2016.
ENHANCE
SKIN PRODUCTS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2016 (Unaudited)
(Expressed
in United States Dollar)
NOTE
4. RELATED PARTY TRANSACTIONS AND BALANCES (continued)
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 agreements effective March 21, 2016 and October 1, 2016 (the “Botnevik Services Amendment”). Under the Botnevik
Services Agreement and the Botnevik Services Amendment, the Company 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 the Company at a price calculated by dividing Transaction Monies received under the APA by the number
of issued shares plus the unissued shares to be issued as a result of the conversion of debts owed under existing agreements as
of the date of dissolution, including debts owed under certain sections of the Botnevik Services Amendment, and 30% in cash, all
such payments to be made within 30 days of the receipt of Threshhold Funding..
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 $2,854 represents amounts due to a related parties in connection with the expenses incurred by them 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 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
ENHANCE
SKIN PRODUCTS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2015 (Unaudited)
(Expressed
in United States Dollar)
NOTE
4. RELATED PARTY TRANSACTIONS AND BALANCES (continued)
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 forgave 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 forgave 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 October 31, 2016.
In
addition, the outstanding balance as at October 31, 2016 includes $318,920 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 October 31, 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.
ENHANCE
SKIN PRODUCTS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2016 (Unaudited)
(Expressed
in United States Dollar)
NOTE
4. RELATED PARTY TRANSACTIONS AND BALANCES (continued)
ADVANCES
FROM A RELATED PARTY
As
of October 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 instalments 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 RELATED PARTIES CONVERTIBLE INTO SHARES
These
advances are from Mercuriali Ltd. pursuant to the Loan Agreement . As at October 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 the Company received no additional third party monies. 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. 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.
ENHANCE
SKIN PRODUCTS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2016 (Unaudited)
(Expressed
in United States Dollar)
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 granted Biosurface an option
to acquire substantially all of the Company’s assets under a plan of reorganization (the “Option”). The total
consideration payable upon exercise of the Option is a sum equal to £3,030,000 comprised of shares of Integumen, less all
sums due and owing under the Note, and the assumption of certain liabilities of the Company. The Company received the $100,000
on July 12, 2016. 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 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.
On
October 14, 2016, the Company received a $25,000 interim payment and a further interim payment on November 16, 2016 of $30,000
from Integumen in respect of its obligations to meet the Interim Costs under the APA.
The
Transaction Completed on December 2, 2016 and the Company received 2,632,868 ordinary shares in Integumen at a price of £1
per share. This comprised the total Consideration of £3,030,000 ($3,939,000) less assumed liabilities of £ 320,209
($416,272) and the prepayment of the Note in the amount of £76,923 ($100,000).
The
APA provides that 80 per cent of the Consideration Shares should be issued on completion of the APA and the remaining 20 per cent
(subject to an adjustment depending on the value of the assumed liabilities) should be issued within 30 days of Admission of Integumen
to AIM. However, prior to completion of the APA, the parties to the APA agreed upon the adjustment to the number of Consideration
Shares to be issued to the Company by Integumen Limited and, consequently at completion, the Company was issued with 2,632,868
Ordinary Shares in full and final satisfaction of the obligations of Integumen Limited and Integumen, Inc to provide consideration
to the Company for the acquisition of the business assets.
NOTE
6. STOCKHOLDERS’ DEFICIT
COMMON
SHARES - AUTHORIZED
As
at October 31, 2016, the Company had 600,000,000 common shares authorized (April 30, 2016: 600,000,000 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 $14,531was included in legal and professional fees for the six months ended
October 31, 2016.
As
at December XX, 2016 there were 338,344,678 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
OCTOBER
31, 2016 (Unaudited)
(Expressed
in United States Dollar)
NOTE
7. INTEREST EXPENSE
|
|
Three
months ended
|
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
Six
months ended
|
|
|
|
October
31, 2016
|
|
|
October
31, 2015
|
|
|
October
31, 2016
|
|
|
October
31, 2015
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Beneficial conversion feature
on advances from a related party
|
|
|
—
|
|
|
|
19,983
|
|
|
|
7,821
|
|
|
|
22,166
|
|
Accretion expense on convertible promissory
note
|
|
|
—
|
|
|
|
9,746
|
|
|
|
—
|
|
|
|
14,301
|
|
Interes t accrued
on convertible promissory note
|
|
|
—
|
|
|
|
867
|
|
|
|
—
|
|
|
|
1,272
|
|
Total interest
expense
|
|
|
—
|
|
|
|
30,596
|
|
|
|
7,821
|
|
|
|
37,739
|
|
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 October 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.
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 October
31, 2015. Visible Youth Limited remains inactive as at October 31, 2016. As part of the APA the Company sold all of its shares
in Visible Youth Ltd. to Integumen on December 2, 2016.
ENHANCE
SKIN PRODUCTS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2016 (Unaudited)
(Expressed
in United States Dollar)
NOTE
9. SUBSEQUENT EVENTS
The
Company’s management has evaluated subsequent events up to December 2, 2016, the date the unaudited interim condensed consolidated
financial statements were issued, pursuant to the requirements of ASC Topic 855 and has determined the following material subsequent
event to report:
On
December 2, 2016, the Asset Purchase Agreement (the “APA”) executed on October 1, 2016 between the Company, Integumen
Inc., Integumen Limited, Donald Nicholson and Samuel Asculai was completed. Pursuant to the APA, the Company has sold to Integumen
Inc. substantially all of its assets and certain of its liabilities.
The
Company received 2,632,868 ordinary shares in Integumen at a price of £1 per share. This comprised the total Consideration
of £3,030,000 ($3,939,000) less assumed liabilities of £ 320,209 ($416,272) and the prepayment of the Note in the
amount of £76,923 ($100,000).
The
APA provides that 80 per cent of the Consideration Shares should be issued on completion of the APA and the remaining 20 per cent
(subject to an adjustment depending on the value of the assumed liabilities) should be issued within 30 days of Admission of Integumen
to AIM. However, prior to completion of the APA, the parties to the APA agreed upon the adjustment to the number of Consideration
Shares to be issued to the Company by Integumen Limited and, consequently at completion, the Company was issued with 2,632,868
Ordinary Shares in full and final satisfaction of the obligations of Integumen Limited and Integumen, Inc to provide consideration
to the Company for the acquisition of the business assets.
The
Company received $25,000 on October 14, 2016 and $30,000 on November 16, 2016 from Integumen in respect of the Interim Costs for
October and November under the APA.
As
a result of completion of the APA, certain amounts owing to Mercuriali Limited, Samuel Asculai, Drasko Puseljic and Frode Botnevik
became payable in shares of the Company and such shares were issued on December 2, 2016. The Company converted Advances payable
to related parties convertible into shares of $385,702, and Advances from a related party convertible into shares of $316,575,
being the balances as at October 20, 2016, into 222,455,472 shares in accordance with the respective Loan and Consultancy Agreements
as set out below.
The
Company issued a total of 168,235,216 common shares to Mercuriali Ltd. This issuance comprised of (a) the issuance of 8,826,595
common shares in conversion of $33,188 of debt at $0.00376 per share under a Termination and Settlement Agreement dated July 12,
2010; (b) the issuance of 50,094,947 common shares in conversion of $188,357 of debt at $0.00376 per share under a Loan Agreement
dated March 4, 2013, as amended September 20, 2013, March 3, 2014, September 29, 2015, January 22, 2016 and March 21, 2016 (the
“Loan Agreements”); (c) the issuance of 71,232,222 common shares in conversion of $128,218 of debt at $0.0018 per
share under the Loan Agreements; (d) the issuance of 27,261,111 common shares in conversion of debt of $49,070 under a Consultancy
Agreement dated March 5, 2013 as amended March 3, 2014, August 1, 2015, March 21, 2016, and October 1, 2016 (the “Mercuriali
Consultancy Agreements”); and (e) the issuance of 10,820,340 common shares in conversion of $110,029 of debt at $0.01017
under the Mercuriali Consultancy Agreements.
The
Company issued a total of 20,558,939 common shares to Samuel Asculai. This issuance comprised of (a) the issuance of 16,333,333
common shares in conversion of $29,400 of debt at $0.0018 per share under a Consultancy Agreement at dated March 5, 2013 as amended
March 3, 2014, August 1, 2015, March 21, 2016, and October 1, 2016 (the “Asculai Consultancy Agreements”); and (b)
the issuance of 4,225,606 common shares in conversion of $42,969 of debt at $0.01017 per share under the Asculai Consultancy Agreements.
The
Company issued a total of 31,213,859 common shares to Drasko Puseljic. This issuance comprised of (a) the issuance of 10,654,920
common shares in conversion of $40,062 of debt at $0.00376 per share under a Termination Agreement dated March 5, 2013; (b) the
issuance of 16,333,333 common shares in conversion of $29,400 of debt at $0.0018 per share under an Employment Agreement dated
March 5, 2013 as amended March 3, 2014, August 1, 2015, March 21, 2016, and October 1, 2016 (the “Puseljic Employment Agreements”);
and (c) the issuance of 4,225,606 common shares in conversion of $42,969 of debt at $0.01017 per share under the Puseljic Employment
Agreements.
ENHANCE
SKIN PRODUCTS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2016 (Unaudited)
(Expressed
in United States Dollar)
NOTE
8. SUBSEQUENT EVENTS (continued)
The
Company issued a total of 2,447,458 common shares to Frode Botnevik. This issuance comprised of (a) the issuance of 1,944,444
common shares in conversion of $3,500 of debt at $0.0018 per share under a Directors Service Agreement dated August 1, 2015 as
amended March 21, 2016 and October 1, 2016 (the “Botnevik Services Agreements”); and (b) the issuance of 503,013 common
shares in conversion of $5,115 of debt at $0.01017 per share under the Botnevik Services Agreements.
The
sale of all the securities set out above was made in reliance on the exemption from registration provided by Section 4(2) of the
Securities Act of 1933.
The
Accounts payable to related parties’ convertible into shares and Advances from a related party convertible into shares,
which are convertible as a result of the completion of the APA are further described in Note 4; Related party Transactions and
Balances above.
The
conversion price of $0.01017is based on the estimated value of the consideration attributable to equity shareholders on a fully
diluted basis in pounds sterling translated into US dollars at the closing sterling/dollar interbank rate on October 19, 2016.
This price is subject to change based on any adjustments under the APA and the exchange rate at Completion. Any adjustments to
the number of shares to be issued will be made to the number of shares to be issued to related parties under the consultancy and
employment agreements for services rendered after October 20, 2016.
On
conversion of the above advances Mercuriali Limited and Dr Asculai released all security held over all the assets of the Company
as required by the APA. In addition, Integumen Inc. has assumed the costs of Enhance from the date of signature of the APA until
Completion (“Interim Costs”) and will assume certain Post Completion Period Costs up to dissolution.
The
foregoing description of APA and the conversions does not purport to be complete and is qualified in its entirety by reference
to the complete text of the APA, and the amendments to the Consulting Agreements, Employment Agreement and Services Agreement
which were filed as Exhibits 10.1, 10.2, 10.3, 10.4 and 10.5 to the Company’s Current Report on Form 8-K filed on October
5, 2016 and Schedule 14C Information Statement filed October 31, 2016 all of which are incorporated herein by reference.