Washington, D.C. 20549
ENHANCE SKIN PRODUCTS INC.
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.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:
Number of shares outstanding of the registrant's class of common stock as of July 31, 2011: 53,250,000
ENHANCE SKIN PRODUCTS INC.
ENHANCE SKIN PRODUCTS INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
July 31, 2011
(unaudited)
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, 2011 and 2010, 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 interim condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's April 30, 2011 and 2010 audited financial statements. The results of operations for the periods ended July 31, 2011 and 2010 are not necessarily indicative of the operating results for the full year.
NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS
The company’s management has evaluated all the recently issued accounting pronouncements through the filing date of these financial statements and does not believe that they will have a material effect on the company’s financial position and results of operations.
NOTE 3. GOING CONCERN
The accompanying 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. The Company has net losses for the three months ended July 31, 2011 of $177,040, and a working capital deficit of $1,284,821. The Company has relied on two small equity raises of $30,000 each as well as advances from the CEO director and major shareholder for vital operating expenditures, in addition employees accrued wages have not been paid.
The ability of the Company to become a profitable entity is dependent upon the Company’s successful efforts to generate sales and then attain profitable operations. In response to these problems, management has planned the following actions:
| | ■ | Management is presently seeking financing to fund its direct to consumer sales campaign. There can be no assurances, however, that management’s expectations of future sales will be realized. |
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
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. is 100% privately owned by Dr Samuel Asculai the CEO and a director of the Company. Mr. Puseljic has 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 has become a “related party”. Mr Puselic billed the Company $150,000 during the fiscal year ended April 30, 2011 and $37,500 for the first three months of the current fiscal year. At July 31, 2011 Mr Puselic was owed $288,125 in unpaid fees.
Accounts Payable to Related Party.
On July 12, 2010 the Company entered into a Termination and Settlement Agreement (the "Settlement Agreement") with Mercuriali Ltd., a company controlled by Donald Nicholson, a director of the Company (“Mercuriali”). 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 GBP22,082 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. At July 31, 2011 the Company has raised $60,000 of funds from the issuance of Common Stock, 5% of this or $3,000 should have been has been paid to satisfy this obligation; however, only $1,500 has been paid at July 31, 2011. As of July 31, 2011 the balance owed to Mercuriali is $34,718.
On December 20, 2010 we entered into an employment agreement with Brian Lukian, our Chief Financial Officer. The agreement has an initial term of five years, which may be renewed for additional two year periods after such initial term and provides for payment of services provided by Mr. Lukian from May 1, 2010. Pursuant to the agreement, Mr. Lukian receives a base salary and and is eligible to participate in any bonus plan established by the company for employees and consultants. Mr. Lukian's base salary for fiscal 2010 is $150,000. If Mr. Lukian's employment is terminated by the Company, then Mr. Lukian shall be entitled to receive all accrued and unpaid salary plus a termination fee of $150,000. Mr Lukian billed the Company $150,000 during the fiscal year ended April 30, 2011 and $37,500 for the first three months of the current fiscal year. At July 31, 2011 Mr Lukian was owed $194,547 in unpaid fees.
The amount due to related parties consists of unpaid remuneration and unreimbursed expenses to the CEO, CFO, COO and a contract consultant. The CEO and COO are also directors. Also included in accounts payable related party is the balance owing Mercuriali a company controlled by a director. These liabilities are unsecured, non-interest bearing, and have no specific terms of repayment.
Comparative balances are:
| | July 31 | | | April 30 | |
| | | 2011 | | | 2011 | |
| Unpaid remuneration | | $ | 1,058,297 | | | $ | 908,297 | |
| Balance owing Mercuriali | | | 34,718 | | | | 35,231 | |
| Unreimbursed expenses | | | 12,816 | | | | 9,822 | |
| | | $ | 1,105,831 | | | $ | 953,350 | |
During the three months ended July 31, 2011 as well as the year ended April 30, 2011 the Company incurred a monthly consulting fee expenses of $12,500 to Biostrategies Consulting Group Inc., a private Ontario company wholly owned by the Company’s CEO who is also a Director. The Company recorded $37,500 and $150,000 as an expense in the three months ended July 31, 2011 and the twelve months ended April 31, 2011 respectively. At July 31, 2011 $288,125 of these expenses are unpaid and included in accounts payable related party.
Advances - Related Party
As of July 31, 2011 and April 30, 2011, the Company owes $114,455 and $99,233, respectively in advances to its CEO and Director. The advances are due on demand, do not bear interest and have no specific terms or repayment.
NOTE 5. INVENTORY
The Company has been unsuccessful for the past two years in its effort to raise sufficient funds to implement its marketing strategy. As a result of not being able to implement the marketing strategy sales for the past two years have been insignificant. At this time the Company is continuing its efforts to secure adequate financing however to date the efforts have been unsuccessful and there is no reason to believe sales will increase without having these funds to implement the marketing strategy. As a result at April 30, 2011 the company therefore made the decision to impair the value of the inventory to nil.
Comparative inventory balances consists of:
| | | July 31 | | | April 30, 2011 | |
| | | 2011 | | | Unadjusted | | | Impairment | | | Final | |
| Finished Goods | | $ | - | | | $ | 31,737 | | | $ | (31,737 | ) | | $ | - | |
| Raw materials | | | - | | | | 43,798 | | | | (43,798 | ) | | | - | |
| | | $ | - | | | $ | 75,535 | | | $ | (75,535 | ) | | $ | - | |
NOTE 6. STOCKHOLDERS' EQUITY
AUTHORIZED
In July 2011 the Board of Directors approved the increase of authorized common shares to 200,000,000 shares from the 100,000,000 previously authorized. 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
NOTE 7. FINANCING
On August 3, 2010, the Company entered into an Indirect Primary Offering Agreement (“IPOA”) and a Registration Rights Agreement (“RRA”) with Crisnic Fund S.A. (“Crisnic”). Pursuant to the IPOA, the Company, in its sole discretion, has the right to sell to Crisnic and Crisnic has the obligation to purchase, through advances to the Company, shares of the Company’s common stock subject to the terms of those agreements and subject to a maximum aggregate purchase of Two Million Dollars ($2,000,000). Crisnic is not required to purchase those shares, unless those shares have been registered for resale and are freely tradable in accordance with the federal securities laws, including the Securities Act of 1933, as amended. The Company is obligated to file with the Securities and Exchange Commission a registration statement on Form S-1 within thirty (30) days from the date of the RRA registering only the shares subject to registration under the IPOA and to use all commercially reasonable efforts to have such registration statement declared effective at the earliest possible date. The Company has agreed to pay Crisnic (i) due diligence expenses of $10,000.00; (ii) 1,750,000 shares of its common stock; and (iii) 1% of the amount of each advance made by Crisnic under the IPOA.
On August 3, 2010, the Company entered into a Stock Purchase Agreement (“First SPA”) with Crisnic. Pursuant to the First SPA, the Company sold 750,000 shares of the Company’s common stock to Crisnic for an aggregate purchase price of U.S.$30,000. The sale of those shares was made in reliance on the exemption from registration provided by Regulation D to the Securities Act of 1933 as Crisnic is an accredited investor, as defined therein.
On November 4, 2010, the Company entered into a Stock Purchase Agreement (“Second SPA”) with Crisnic. Pursuant to the Second SPA, the Company sold 1,500,000 shares of the Company’s common stock to Crisnic for an aggregate purchase price of U.S.$30,000. The sale of those shares was made in reliance on the exemption from registration provided by Regulation D to the Securities Act of 1933 as Crisnic is an accredited investor as defined therein.
As of filing of this Form 10-Q Crisnic has not made any additional purchases of the Company’s common stock. The Crisnic funds available for this purpose were diverted by Crisnic for other purposes.
NOTE 8. SUBSEQUENT EVENTS
The Company’s management has evaluated subsequent events through the filing date of these financial statements and has determined that there are no material subsequent events to report.
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. All statements regarding our financial position, 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.
The following selected comparative financial information has been derived from and should be read in conjunction with the financial statements of the Company for the three months ended July 31, 2011.
| | Fiscal Three Months ended July 31, | | | | |
| | | 2010 | | | 2011 | | | $ Change | | | % Change | |
| Total Sales | | $ | 335 | | | $ | 294 | | | $ | (41 | ) | | | -12.2 | % |
| Cost of goods sold | | | 43 | | | | - | | | | (43 | ) | | | -100.0 | % |
| Gross (loss) profit | | | 292 | | | | 294 | | | | 2 | | | | 0.7 | % |
| Operating expenses | | | 173,310 | | | | 177,334 | | | | 4,024 | | | | 2.3 | % |
| Net loss befor other items | | | (173,018 | ) | | | (177,040 | ) | | | (4,022 | ) | | | -2.3 | % |
| Other items | | | | | | | | | | | | | | | | |
| Legal settlement expense | | | 34,537 | | | | - | | | | (34,537 | ) | | | 100.00 | % |
| Net loss | | $ | (207,555 | ) | | $ | (177,040 | ) | | $ | 30,515 | | | | 14.7 | % |
| | | | | | | | | | | | | | | | | |
| Net loss per share | | $ | 0.00 | | | $ | 0.00 | | | $ | 0.00 | | | | 0.0 | % |
| | | | | | | | | | | | | | | | | |
| Total assets | | $ | 167,006 | | | $ | 5,265 | | | $ | (161,741 | ) | | | -96.8 | % |
| Working capital | | $ | (530,961 | ) | | $ | (1,284,821 | ) | | $ | (753,860 | ) | | | -142.0 | % |
Sales
Sales for the three months ended July 31, 2011 were $294 a decrease of $41 from the July 31, 2010 sales of $335. The decrease was due the lack of funds to initiate a marketing and sales campaign.
Cost of goods sold
The cost of the sales for the three months ended July 31, 2011 were $0 resulting in a gross profit percent of 100% compared to the three months ended July 31, 2010 cost of sales of $43 and gross profit percent of 87%. The explanation for the increase in gross profit percent for the three months ended July 31, 2011 is the result of the impairment of the Company’s inventory in the year ended April 30, 2011.
Operating Expenses
General & administrative expenses for the three months ended July 31, 2011 were $177,334, an increase of $4,024 over the $173,310 recorded in the same period ended July 31, 2010.
Other Items
Legal settlement expense.
During the three months ended July 31, 2011 there were no other items to record. However during the three months ended July 31, 2010 the Company recorded the following settlement.
On July 12, 2010 the Company entered into a Termination and Settlement Agreement (the "Settlement Agreement") with Mercuriali Ltd., a company controlled by Donald Nicholson, a director of the Company (“Mercuriali”). 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 GBP22,082 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. At July 31, 2011 the Company has raised $60,000 of funds from the issuance of Common Stock, 5% of this or $3,000 should have been has been paid to satisfy this obligation; however, only $1,500 has been paid at July 31, 2011. As of July 31, 2011 the balance owed to Mercuriali is $34,718 after adjusting for current exchange rates with pound sterling.
Liquidity and Capital Resources
At July 31, 2011, the Company had a working capital deficit of $1,284,821, as compared to a working capital deficit of $1,107,718 at April 30, 2011, resulting in an increase in working capital deficit of $177,103.
The Company’s CEO and director continues to make further advances to the Company, increasing the balance in advances related party. These funds are being used to finance current essential operating expenses.
Financing
On August 3, 2010, the Company entered into an Indirect Primary Offering Agreement (“IPOA”) and a Registration Rights Agreement (“RRA”) with Crisnic Fund S.A. (“Crisnic”). Pursuant to the IPOA, the Company, in its sole discretion, has the right to sell to Crisnic and Crisnic has the obligation to purchase, through advances to the Company, shares of the Company’s common stock subject to the terms of those agreements and subject to a maximum aggregate purchase of Two Million Dollars ($2,000,000). Crisnic is not required to purchase those shares, unless those shares have been registered for resale and are freely tradable in accordance with the federal securities laws, including the Securities Act of 1933, as amended. The Company is obligated to file with the Securities and Exchange Commission a registration statement on Form S-1 within thirty (30) days from the date of the RRA registering only the shares subject to registration under the IPOA and to use all commercially reasonable efforts to have such registration statement declared effective at the earliest possible date. The Company has agreed to pay Crisnic (i) due diligence expenses of $10,000.00; (ii) 1,750,000 shares of its common stock; and (iii) 1% of the amount of each advance made by Crisnic under the IPOA.
On August 3, 2010, the Company entered into a Stock Purchase Agreement (“First SPA”) with Crisnic. Pursuant to the First SPA, the Company sold 750,000 shares of the Company’s common stock to Crisnic for an aggregate purchase price of U.S.$30,000. The sale of those shares was made in reliance on the exemption from registration provided by Regulation D to the Securities Act of 1933 as Crisnic is an accredited investor, as defined therein.
On November 4, 2010, the Company entered into a Stock Purchase Agreement (“Second SPA”) with Crisnic. Pursuant to the Second SPA, the Company sold 1,500,000 shares of the Company’s common stock to Crisnic for an aggregate purchase price of U.S.$30,000. The sale of those shares was made in reliance on the exemption from registration provided by Regulation D to the Securities Act of 1933 as Crisnic is an accredited investor as defined therein.
As of filing of this Form 10-K Crisnic has not made any additional purchases of the Company’s common stock. The Crisnic funds available for this purpose were diverted by Crisnic for other purposes.
The Company is presently seeking equity financing to launch it’s planned direct to consumer sales campaign as well as for general working capital requirements. In the three months ended July 31, 2011 the Company relied on advances from the CEO and director of $15,222 as well as all related party management continuing to accrue unpaid remunerations.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
ITEM 4T. Controls and Procedures.
Evaluation of 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, 2011. 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 are 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.
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.
Changes in Internal Control Over Financial Reporting
Based upon their evaluation of our controls over financial reporting, as required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Securities Exchange Act of 1934, our principal executive officer and principal accounting officer have concluded that our disclosure controls are, and will be, effective in providing reasonable assurance that material information relating to us is accumulated and communicated to management, including our principal executive and principal financial officers(s), or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. There were no changes in our internal controls that occurred during the quarter covered by this report that have materially affected, or are reasonably likely to affect materially our internal controls over financial accounting.
Our management did, however, identify a significant deficiency; 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. Although we have not identified any material errors with our financial reporting or any material weaknesses with our internal controls, no assurances can be given that there are no such material errors or weaknesses existing. 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. 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.
We believe that the remediation measures we are taking, if effectively implemented and maintained, will remediate the significant deficiency discussed above.
Except as described above, there have been no changes in our internal controls over financial reporting that occurred during our last fiscal quarter to which this Quarterly Report on Form 10-Q relates that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. Legal Proceedings.
We are not aware of any material legal proceedings, other than ordinary routine litigation incidental to the business, to which the registrant or any of its subsidiaries is 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 registrant, any owner of record or beneficially of more than five percent of any class of voting securities of the registrant, or any associate of any such director, officer, affiliate of the registrant, or security holder is a party adverse to the registrant or any of its subsidiaries or has a material interest adverse to the registrant or any of its subsidiaries.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
ITEM 3. Defaults Upon Senior Securities.
None.
ITEM 4. (Removed and Reserved)
ITEM 5. Other Information.
None
(a) Pursuant to rule 601 of Regulation S-K, the following exhibits are included herein or incorporated by reference.
Exhibit Number | | Description |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 14th day of September, 2011.
| | ENHANCE SKIN PRODUCTS INC. | |
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Date: September 14, 2011 | By: | /s/ Dr. Samuel S. Asculai | |
| | | Name: Dr. Samuel S. Asculai | |
| | | Title: President/CEO, Principal Executive Officer | |
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 14th day of September, 2011.
| | ENHANCE SKIN PRODUCTS INC. | |
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Date: September 14, 2011 | By: | /s/ Brian Lukian | |
| | | Name: Brian Lukian | |
| | | Title: Chief Financial Officer, Principal Financial Officer | |
