VICA Rafina Innovations Inc (CE)

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

      If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. [  ]

 

 

 

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PART I -- FINANCIAL INFORMATION.

ITEM 1.  FINANCIAL STATEMENTS

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 210 8-03 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments considered necessary for a fair presentation have been included.  All such adjustments are of a normal recurring nature.  Operating results for the three-month period ended March 31, 2017, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2017.  For further information, refer to the audited financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 as filed with the Securities and Exchange Commission on April 19, 2017.

 

	Page
Consolidated Balance Sheets	F-1
Consolidated Statements of Operations and Comprehensive Loss (Unaudited)	F-2
Consolidated Statements of Cash Flows (Unaudited)	F-3
Notes to Consolidated Financial Statements (Unaudited)	F-4 to F-20

 

 

 

 

4

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HCi Viocare

CONSOLIDATED BALANCE SHEETS

	March 31, 2017 (unaudited)				December 31, 2016
ASSETS
Current Assets:
Cash and cash equivalents		$	6,431			$	2,492
Accounts receivable			25,233				15,212
Other receivable			36,963				39,371
Inventory			4,058				4,524
Prepaid expenses (Note 5)			42,914				43,560
Total Current Assets			115,599				105,159
Long-term Assets
Property, plant and equipment, net (Note 6)			198,139				214,131
Total Assets		$	313,738			$	319,290
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable, advances and accrued expenses		$	545,668			$	511,652
Accounts payable and accrued expenses-related party (Note 10)			578,598				509,299
Advances from a related party (Note 10)			410,977				383,164
Notes payable, third parties			103,818				-
Total Current Liabilities			1,639,061				1,404,115
Total Liabilities			1,639,061				1,404,115
Commitments and Contingencies
Stockholders' Equity (Deficit):
Preferred stock, par value $0.0001, 5,000,000 shares authorized; none issued and outstanding as of March 31, 2017 and December 31, 2016			-				-
Common stock, par value $0.0001, 700,000,000 shares authorized; 195,064,844 shares issued and outstanding as of March 31, 2017 and 192,814,844 shares issued and outstanding as of December 31, 2016			19,506				19,281
Additional paid-in capital			31,073,148				30,561,930
Retained Deficit			(32,486,852	)			(31,749,207	)
Accumulated other comprehensive income			68,875				83,171
Stockholders' equity (deficiency)			(1,325,323	)			(1,084,825	)
Total Liabilities and Stockholders' Equity (Deficiency)		$	313,738			$	319,290

See Notes to Unaudited Consolidated Financial Statements

 

F-1

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HCi Viocare

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

 

			For the Three Months Ended
			March 31,
			2017			2016
Sales		$	86,440			$	140,520
Cost of goods sold			(47,557	)			(67,188	)
Gross Profit			38,883				73,332
Operating Expenses
Depreciation			20,908				20,814
Office rent			18,704				27,746
Office expenses			40,208				63,309
Consultancy Fees			357,772				670,908
Professional fees			239,139				214,026
Research and development			78,066				127,105
Travel and entertainment			19,285				36,568
Total Operating Expenses			774,082				1,160,476
Income (Loss) from Operations			(735,199	)			(1,087,144	)
Other Income (Expenses)
Gain (Loss) on foreign currency transaction			(910	)			(319	)
Interest Expenses due to third party			(1,536	)			-
Interest Expenses due to related party			-				(2,364	)
Total Other Income (Expenses)			(2,446	)			(2,683	)
Income (Loss) before Provision for Income Tax			(737,645	)			(1,089,827	)
Provision for Income Tax			-				-
Net Income (Loss)		$	(737,645	)		$	(1,089,827	)
Basic and fully diluted loss per share		$	(0.00	)		$	(0.01	)
Weighted average shares outstanding			192,943,733				191,228,721
Comprehensive Income (Loss) :
Net loss		$	(737,645	)		$	(1,089,827	)
Effect of foreign currency translation			(14,296	)			(92,200	)
Comprehensive Loss		$	(751,941	)		$	(1,182,027	)

See Notes to Unaudited Consolidated Financial Statements

 

F-2

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HCi Viocare

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

		For the Three Months Ended
		March 31,
		2017				2016
Operating Activities
Net loss		$	(737,645	)		$	(1,089,827	)
Adjustments to reconcile net loss to net cash used by operating activities:
Amortization of stock option			122,543				-
Shares issued for stock award			388,900				126,250
Shares issued for services provided			-				465,250
Gain on foreign currency transactions			-				(8,658	)
Depreciation			20,908				20,814
Changes in operating assets and liabilities:
Decrease (Increase) in accounts receivable			(9,835	)			(2,566	)
Decrease (Increase) in prepaid expense			1,201				9,675
Decrease (Increase) in other receivable			(1,066	)			1,445
Decrease (Increase) in inventory			522				54
Increase (Decrease) in accounts payable and accrued expenses			34,319				8,891
Increase (Decrease) in accounts payable and accrued expenses, related party			62,192				61,333
Increase (Decrease) in liability of unissued shares			-				141,400
Net cash used by operating activities			(117,961	)			(265,939	)
Investing Activities
Additions to Property, plant and equipment			-				(2,598	)
Net cash (used) by investing activities			-				(2,598	)
Financing Activities
Advances and Loans from related parties			61,365				166,121
Repayments, advances and loans from related party			(41,959	)			(89,296	)
Loans from third parties			103,818				-
Proceeds from private placement			-				228,400
Net cash provided by financing activities			123,224				305,225
Increase (decrease) in cash			5,263				36,688
Cash at beginning of period			2,492				9,579
Effects of exchange rates on cash			(1,324	)			10,793
Cash at end of period		$	6,431			$	57,060
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest		$	-			$	-
Income taxes		$	-			$	-

See Notes to Unaudited Consolidated Financial Statements

 

F-3

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HCi  Viocare

Notes to Unaudited Consolidated Financial Statements

 

Note 1 - ORGANIZATION AND BUSINESS BACKGROUND

 

HCi Viocare ("VICA" or the "Company") was incorporated on March 26, 2007 under the laws of the State of Nevada. The Company has selected December 31 as its fiscal year end.

 

While the Company has generated revenues from a portion of its planned principal operations, we are not yet able to meet operational overheads and are not yet profitable. We are considered an emerging growth enterprise. The Company was originally formed to sell medical devices with an emphasis on portable medical devices designed for home treatments with the initial focus in the northern regions of China.  The Company’s intent was to seek strategic relationships with medical device manufacturers both in China and North America with the aim to be their sales and distribution agent in Northern China and to assist Chinese medical device manufacturers on the development of the North American market.

On September 10, 2013, the controlling shareholder of the Company sold his controlling interest in the shares of the Company and there was a change in the Board of Directors of the Company, effecting a change in control of the Company. The business of the Company remains in the field of medical devices and other opportunities related to their uses. We are currently engaged in the technology development and licensing of bioengineering innovations for the health, sports and wellness sectors, and we intend to be engaged in the operation of prosthetic and orthotic (P&O) total rehabilitation clinics.

On January 15, 2014, the Company incorporated two wholly-owned subsidiaries in Scotland, U.K., HCi Viocare Technologies Limited and HCi Viocare Clinics UK Limited. The Company intends to operate in Scotland under these two subsidiaries, one of which will undertake the development and marketing of technologies and the other which is a P&O clinic, which will serve as the centre of reference and training for the company’s further clinics.

On February 12, 2014, through our wholly owned subsidiary, HCi Viocare Technologies Limited, the Company acquired an interest in a patented technology known as “Socket-Fit”. SocketFit is a system that will help overcome technical and resource hurdles endemic to the prosthetic sector. The system has been designed with the aim of offering optimally fitted prosthetic sockets that will reduce the number of prostheses made for patients, resulting in a reduced number of visits by the patient to the prosthetic, and also assisting in the rehabilitation of amputees.  Socket-Fit is a digital system for assessing an amputee’s residual limb and for the production of truly functional and comfortable prosthetic sockets. The technology takes account of the external and internal geometry of the amputee’s stump, the biomechanical properties of each individual soft tissue layer and the boundary and loading conditions of a complete prosthesis to generate a virtual 3D model of the residual limb making it possible to produce an accurate, functional and comfortable prosthetic socket. By minimizing the time and cost of socket production and reducing the number of faulty sockets there will be a reduction in costs incurred by health services and insurance companies worldwide as well as benefits to the amputee. The Company intends to undertake and fund, through its U.K. subsidiary, a project to improve the nature of the data used in socket modeling software with a view to creating a system that will enable prosthetists to build a socket that evenly distributes weight, provides enhanced comfort, and can be marketed and used across the industry for improved socket creation.

On February 19, 2014, the Company filed a Certificate of Amendment with the Secretary of State of Nevada to change the name of the Company to HCi Viocare effective March 21, 2014.  Effective March 21, 2014, in accordance with approval from FINRA, we changed our name from China Northern Medical Device, Inc. to HCi Viocare. Concurrently we commenced trading on the Over-the-Counter Bulletin Board under the symbol “VICA”.

On April 16, 2014, through our wholly owned subsidiary HCi Viocare Technologies Limited, we acquired all rights and interest in and to the background Intellectual Property Rights (“IPR”) for a developing technology known as “Smart Insole”.  The Smart Insole system is believed to be a state-of-the-art, pressure and shear (friction)-sensing insole that can wirelessly communicate with connected devices.  The insole has a number of applications, including the mitigation of diabetic foot complications, such as ulceration, infection and amputation, in clinical gait analysis and in sports, as a wearable device to help athletes optimize their performance and prevent injury. The sensing system is very low cost, compared to traditional pressure sensing technologies, in our opinion making such applications affordable to the consumer for the first time.

 

 

F-4

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HCi Viocare

Notes to Unaudited Consolidated Financial Statements

 

Note 1 - ORGANIZATION AND BUSINESS BACKGROUND (continued)

On June 9, 2014, the Company, through our wholly owned subsidiary, HCi Viocare Clinics, acquired W D Spence Prosthetics Limited (the “Clinic”). The Clinic is located in Glasgow, Scotland, and is a fully operational prosthetics and orthotics clinic. The acquisition of the Clinic is the first step to the Company’s and HCi Viocare Clinics’ intention to develop the first chain of prosthetics and orthotics (P&O) and diabetic foot rehabilitation clinics in the European market, covering Southern Europe, the Middle East and North Africa.

On March 31, 2015, the Company’s wholly owned subsidiary HCi Viocare Clinics and its subsidiary W D Spence Prosthetics Limited completed a merger with the resulting combined entity having the name HCi Viocare Clinics UK Limited.

On July 8, 2015, the Company incorporated HCi Viocare Clinics (Hellas) S A in order to carry out operations for the the planning and development of a P&O clinic in Athens, Greece.

On August 8, 2015 FINRA approved a seven (7) new for one (1) old forward split of our authorized and issued and outstanding shares of common.  A Certificate of Change for the stock split was filed and became effective with the Nevada Secretary of State on August 7, 2015.  Consequently, our authorized share capital increased from 100,000,000 to 700,000,000 shares of common stock and our issued and outstanding common stock increased accordingly, all with a par value of $0.0001.  Our preferred stock remained unchanged.  All share and per share figures contained herein reflect the impact of the forward split.

Note 2 - GOING CONCERN

 

The Company incurred net losses of $737,645 and $1,089,827 for the three months ended March 31, 2017 and 2016, respectively and has a retained deficit of $32,486,852 as of March 31, 2017. In addition, the Company had a working capital deficiency of $1,523,462 and a stockholders' deficit of $1,325,323 at March 31, 2017. These factors raise substantial doubt about the Company's ability to continue as a going concern.

 

There can be no assurance that sufficient funds required during the next year or thereafter will be generated from operations or that funds will be available from external sources such as debt or equity financings or other potential sources. The lack of additional capital resulting from the inability to generate cash flow from operations or to raise capital from external sources would force the Company to substantially curtail or cease operations and would, therefore, have a material adverse effect on its business. Furthermore, there can be no assurance that any such required funds, if available, will be available on attractive terms or that they will not have a significant dilutive effect on the Company's existing stockholders.

 

The accompanying financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.

 

The Company has relied heavily for its financing needs on its Chief Executive Officer and President as more fully disclosed in Note 10.

Note 3 - CONTROL BY PRINCIPAL STOCKHOLDER/OFFICER

 

Our Chief Executive Officer owns beneficially and in the aggregate, the majority of the voting power of the Company. Accordingly, the Chief Executive Officer has the ability to control the approval of most corporate actions, including approving significant expenses, increasing the authorized capital stock and the dissolution, merger or sale of the Company's assets.

 

F-5

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HCi Viocare

Notes to Unaudited Consolidated Financial Statements

Note 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principals of Consolidation

The consolidated financial statements include the accounts of HCi Viocare and its wholly-owned subsidiaries, HCi Viocare Technologies Limited, HCi Viocare Clinics UK Limited and HCi Viocare Clinics (Hellas) S.A. All significant intercompany balances and transactions have been eliminated.

Basis of Presentation

 

The unaudited interim consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). They do not include all information and footnotes required by GAAP for complete financial statements. Except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended December 31, 2016, included in the Company’s Annual Report on Form 10-K, filed with the SEC. The interim unaudited consolidated financial statements should be read in conjunction with those audited financial statements included in Form 10-K. In the opinion of management, all adjustments considered necessary for fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results when ultimately realized could differ from these estimates.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash on hand, deposits in banks with maturities of three months or less, and all highly liquid investments which are unrestricted as to withdrawal or use, and which have original maturities of three months or less.

 

Fair Value of Financial Instruments

 

The carrying value of financial instruments including cash and cash equivalents, receivables, prepaid expenses, accounts payable and accrued expenses, approximates their fair value due to the relatively short-term nature of these instruments.

Foreign Currencies

Items included in the consolidated financial statements of each of the Company and its subsidiaries are measured using the currency of the primary economic environment in which the entity operates (the ‘functional currency’).  The Company's reporting currency is the U.S. dollar.  The functional currency of subsidiaries based in the UK is pound sterling and the functional currency of the Company's subsidiary based in the Greece is the Euro. All transactions initiated in Pounds and Euro are translated into U.S. dollars in accordance with Accounting Standards Codification (“ASC”) 830-30, "Translation of Financial Statements," as follows:

 

i) assets and liabilities are translated at the closing rate at the date of the balance sheet or 1USD=0.93136EUR, 1USD=0.80286GBP (March 31, 2017), and;

1USD=0.9490EUR, 1USD=0.8127GBP (December 31, 2016);

ii) income and expenses are translated at average exchange rates, or 1USD=0.93136EUR, 1USD=0.80731GBP (March 31, 2017), and;

1USD=0.88058EUR, 1USD=0.69565GBP (March 31, 2016)

iii) all resulting exchange differences are recognized as other comprehensive income, a separate component of equity.

 

Adjustments arising from such translations are included in accumulated other comprehensive income (loss) in stockholders’ equity.

 

 

F-6

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HCi Viocare

Notes to Unaudited Consolidated Financial Statements

Note 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue Recognition

 

The Company recognizes revenue when the earnings process is complete and persuasive evidence of an arrangement exists. This generally occurs when prosthetic products are fitted to customers, both title and the risks and rewards of ownership are transferred or services have been rendered and accepted, the selling price is fixed or determinable, and collectability is reasonably assured.

Inventory

 

Inventories,  which consist principally of raw materials and parts,  are stated at the lower of cost or market. Cost is determined using the first-in, first-out method and are adjusted to actual cost quarterly based on a physical count. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.  Work-in-process inventory consists of materials, labor and a predetermined fixed rate of overhead which is valued based on established standards for the stage of completion of each custom order. We do not carry finished goods on hand. Material, labor and overhead costs are determined at the individual clinic level. Presently we only maintain very limited parts and raw materials inventory.

 

Warranty

 

We do not record warranty liabilities at the time of sale for the estimated costs that may be incurred under the terms of the applicable limited warranty as all component parts are covered by our respective industry suppliers.

 

Advertising Costs

 

The Company expenses advertising costs as incurred or the first time the advertising takes place, whichever is earlier, in accordance with ASC 720-35. Advertising costs were immaterial for the three months ended March 31, 2017 and 2016, respectively.

Research and Development Costs

 

The Company charges research and development costs to expense when incurred in accordance with FASB ASC 730, “Research and Development”. Research and development costs were $78,066 and $127,105 for the three months ended March 31, 2017 and 2016, respectively.

Related parties

 

For the purposes of these financial statements, parties are considered to be related if one party has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Company and the party are subject to common control or common significant influence. Related parties may be individuals or other entities.

Stock-based compensation

For stock-based compensation the Company follows the guidance codified in the Compensation – Stock Compensation Topic of FASB ASC (“ASC 718”). The Company determines the value of stock issued at the date of grant. It also determines at the date of grant, the value of stock at fair market value or the value of services rendered (based on contract or otherwise) whichever is more readily determinable.

 

F-7

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HCi Viocare

Notes to Unaudited Consolidated Financial Statements

Note 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income Taxes

 

The Company accounts for income taxes in accordance with FASB ASC 740, "Income Taxes", which requires the asset and liability approach for financial accounting and reporting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  A valuation allowance related to deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The Company has retained deficit from operations. Because there is no certainty that we will realize taxable income in the future, the Company did not record any deferred tax benefit as a result of these losses.

Income tax years for 2013, 2014, 2015 and 2016 are open to examination by the taxing authorities.

 

Basic and Diluated Loss per Share

The Company reports earnings per share in accordance with FASB ASC 260, “Earnings Per Share.” FASB ASC 260 requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company had potentially dilutive securities outstanding (convertible debt and liabilities) for the period ended March 31, 2017 and March 31, 2016, respectively, however, since the Company reflected a net loss in the three-month period ended March 31, 2017 and 2016, the effect of considering any common stock equivalents, if outstanding, would have been anti-dilutive. A separate computation of diluted earnings (loss) per share is not presented. 

 

		March 31, 2017				March 31, 2016
Common stock issuable upon conversion of 25,000 Series A Preferred Stock Options			500,000				500,000
Common stock issuable upon exercise of stock option			3,000,000				-
Total			3,500,000				500,000

Comprehensive Income

 

FASB ASC 220, “Comprehensive Income”, establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income, as defined, includes all changes in equity during a period, exclusive of shareholder transactions. Accordingly, comprehensive income (loss) may include certain changes in shareholders’ equity (deficit) that are excluded from net income (loss).

 

Segment Reporting

 

FASB ASC 820 “Segments Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in financial statements. Our proposed business segments are expected to span more than one geographical area. Specifically, the Company intends to operate prosthetic and orthotic rehabilitation clinics with various European based locations, as well as a corporate development and technology center which will undertake ongoing research and marketing activities.

 

 

F-8

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HCi Viocare

Notes to Unaudited Consolidated Financial Statements

Note 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair Value of Measurements

Accounting principles generally accepted in the United States define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Additionally, the inputs used to measure fair value are prioritized based on a three-level hierarchy. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level 1:  Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2:  Input other than quoted market prices that are observable, either directly or indirectly, and reasonably available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the Company.

 

Level 3:  Unobservable inputs. Unobservable inputs reflect the assumptions that the Company develops based on available information about what market participants would use in valuing the asset or liability.

An asset or liability’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Availability of observable inputs can vary and is affected by a variety of factors. The Company uses judgment in determining fair value of assets and liabilities and Level 3 assets and liabilities involve greater judgment than Level 1 and Level 2 assets or liabilities.

Recent Issued Accounting Pronouncements

 

In January 2017, the FASB issued ASU 2017-01, “Clarifying the Definition of a Business” with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years with early adoption permitted. This guidance will be applied prospectively to any transactions occurring within the period of adoption.

In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment” that eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) to measure a goodwill impairment charge. Instead, an impairment charge will be based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on Step 1 of the current goodwill impairment test). This guidance is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019, with early adoption permitted for annual and interim goodwill impairment testing dates after January 1, 2017. This guidance will be adopted on a prospective basis.

In March 2017, the FASB issued ASU 2017-08, “Premium Amortization on Purchased Callable Debt Securities” that shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. This guidance is effective for annual periods beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted. This guidance will be adopted using a modified retrospective transition approach. The adoption of this guidance is not expected to materially impact our results of operations, financial condition or liquidity.

 

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption.

 

F-9

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HCi Viocare

Notes to Unaudited Consolidated Financial Statements

Note 5 - PREPAID EXPENSES

 

Prepaid expenses consist of the following:

 

		March 31, 2017				December 31, 2016
Office lease, including security deposits		$	36,440			$	35,977
Travel advances and other expenses			6,474				7,583
Total prepaid expense		$	42,914			$	43,560

Note 6 - PROPERTY AND EQUIPMENT

		Leasehold Improvement				Office Furniture				Computer & Equipment				Vehicles				Plant & Machine				Lab Equipment				Total
Cost
At December 31, 2015			210,663				33,338				27,429				54,532				1,286				37,430				364,678
Additions - purchase			3,413				416				5,343				-				7,844				-				17,016
Foreign exchange			(29,649	)			(4,230	)			(3,078	)			(1,846	)			(734	)			(6,313	)			(45,850	)
At December 31, 2016			184,427				29,524				29,694				52,686				8,396				31,117				335,844
Foreign exchange			2,553				428				455				999				102				379				4,916
At March 31, 2017			186,980				29,952				30,149				53,685				8,498				31,496				340,760

Amortization
At December 31, 2015		$	24,616			$	6,889			$	6,703			$	11,779			$	134			$	3,945			$	54,066
Charge for the period			33,612				8,024				7,330				10,560				1,008				7,113				67,647
At December 31, 2016			58,228				14,913				14,033				22,339				1,142				11,058				121,713

At December 31, 2016			58,228				14,913				14,033				22,339				1,142				11,058				121,713
Charge for the period			10,185				2,474				2,383				3,215				545				2,106				20,908
At March 31, 2017			68,413				17,387				16,416				25,554				1,687				13,164				142,621
Carrying Amounts
At December 31, 2016		$	126,202			$	14,611			$	15,660			$	30,347			$	7,253			$	20,058			$	214,131
At March 31, 2017		$	118,567			$	12,565			$	13,733			$	28,131			$	6,811			$	18,332			$	198,139

Leasehold improvements are amortized over the term of the lease: three to ten years.

Furniture is amortized over three to five years and computer and equipment is amortized over three years.

Vehicles are amortized over five years.

Plant and machine equipment and lab equipment is amortized over 4 years.

 

F-10

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HCi Viocare

Notes to Unaudited Consolidated Financial Statements

Note 7 - OFFICE LEASE

Office in Greece

On February 3, 2014, the Company leased office space in Paleo Faliro, Greece on a three-year lease, commencing on March 1, 2014 and ending on February 28, 2017. The monthly rental fee is $1,700 (EUR € 1,554) including applicable taxes in the first year. Thereafter, for every further lease year and for the whole duration of the lease agreement, as well as in case of compulsory statutory extension or extension by tacit agreement, the monthly rent shall be annually adjusted by a percentage equal to the Consumer Price Index of the adjustment month with respect to the respective month of the year before (simple annual rate of change), as this is calculated by the Hellenic Statistical Authority (ELSTAT), plus two (2) percentage points (+2%).

Under the term of the lease agreement, the Company paid a total of $25,010 (EUR €18, 540) including $4,047 (EUR €3,000) for deposit and $20,963 (EUR €15,540) for ten months’ rental fee upon executing the agreement. As of December 31, 2016, $3,161 (EUR €3,000) is shown as deposit in the prepaid account.  The lease expired subsequent to fiscal year end and is currently under negotiation for renewal on similar terms.

Clinic in Greece

On December 29, 2014, the Company leased office space at Peania Region of Attica in Greece on a ten-year lease, commencing on January 1, 2015 and ending on October 5, 2024. The monthly rental fee is $6,996 (EUR €6,233) plus applicable taxes and the monthly operating cost estimate is $1,120 (EUR €997).

Under the term of the lease agreement, the Company paid a total of $13,991 (EUR €12,465) as deposit in the prepaid account. 

On October 9, 2015, the terms of the lease were amended to include the following provisions:

 

-	Effective September 1, 2015, the monthly rental fee shall be reduced to $3,500 (EUR €3,116) for a period of 12 months ending August 31, 2016.

 

-	In the event that the Lessee commences leasehold improvements prior to August 31, 2016, it shall inform the Lessor respectively and pay retroactively the remaining balance of the total amount of monthly rental in full from the period commencing September 1, 2015, as if they have not been reduced;

 

-	In the event that the Company does not proceed with leasehold improvements in the 12-month period, the lease agreement will terminate and the Lessor with retain the deposit.

 

-	The Lessor until such time as the leasehold improvements commence, may at any time and without indemnity terminate the lease agreement with a 30-day prior written notice to the Lessee.

As of December 31, 2016, the Company and the Lessor concluded the Termination of Lease Agreement dated August 1, 2016, and the Lessor waived all maintenance charges and utility charges for fiscal 2016. The following table is the summary of balance owing to Lessor as at March 31, 2017 and December 31, 2016:

Amount owed for rent
Balance, December 31, 2016		$	472
Payment during the period			(472	)
Balance, March 31, 2017		$	-
Amount owed for maintenance charges
Balance, December 31, 2016		$	15,459
Foreign exchange			235
Balance, March 31, 2017		$	15,694
Amount owed for utility charges
Balance, December 31, 2016		$	13,606
Foreign exchange			207
Balance, March 31, 2017		$	13,813

 

F-11

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HCi Viocare

Notes to Unaudited Consolidated Financial Statements

Note 7 - OFFICE LEASE (continued)

Lease in UK

On March 2, 2015, the Company entered into a lease agreement for a modern, stand-alone 5,300 square foot facility in Glasgow, Scotland with an entry date of 1 March, 2015. The building will host the Company’s first Viocare center, a full-service Prosthetic and Orthotic (“P&O”) practice with a superior standard of personalized care. The renovations to the clinic were completed in June, and the facility was opened on August 1, 2015 with an official ribbon cutting on 25 September 2015. During the first year from the date of entry, the lease fees are USD$24,900 (GBP £20,000) per annum (exclusive of VAT). On the second anniversary of the date of entry, the lease will increase to USD$49,800 (GBP £40,000) per annum (exclusive of VAT). In the third anniversary of the date of entry, the lease will be USD$49,800 (GBP £40,000) per annum (exclusive of VAT). In the fourth anniversary of the date of entry, the lease will decrease to USD$37,350(GBP £30,000) per annum (exclusive of VAT). In the fifth anniversary of the date of entry, the lease will be USD$49,800 (GBP £40,000) per annum (exclusive of VAT).

Under the term of the lease agreement, the Company paid a total of $28,738 (GBP £20,000) as deposit in the prepaid account.

Location		Greece				United Kingdom
As of December 31, 2016		$	3,161			$	32,816
Foreign exchange on the deposits			60				403
As of March 31, 2017		$	3,221			$	33,219

 

As of March 31, 2017, the approximate future aggregate minimum lease payments in respect of our current obligations were as follows:

Location		Greece				United Kingdom
2017 (1)		$	-			$	37,400
2018			-				39,400
2019			-				47,750
2020			-				8,310
		$	-			$	132,860

(1)The Company’s lease for its Athens corporate office expired February 2017 and is currently under negotiation for extension.  The Company is presently operating this lease on a month to month basis.

 

Note 8 -   LOAN

On January 5, 2017, HCi Viocare Clinics Hellas S.A., the Company’s subsidiary, entered into a loan agreement with a third party to borrow a total of EUR 40,000 (US$42,948) with an annual interest rate of 5%, payable within one year from the date of the agreement.

On January 23, 2017, HCi Viocare Clinics UK Ltd., the Company’s subsidiary, entered into a loan agreement with a third party to borrow a total amount of GBP 58,000 (US$60,875) with an annual interest rate of 10%, payable within one year from the date of the agreement.

 

F-12

---

 

HCi Viocare

Notes to Unaudited Consolidated Financial Statements

Note 9 -   COMMITMENTS

(1)	Consulting Agreement with Kapatos

On April 16, 2014, the Company entered into a Consulting Agreement with Kapatos whereby he will provide his services as Chief Technical Officer for the Company and the Company’s wholly-owned subsidiaries.  The contract has a term of one year, renewable for such further term as may be mutually agreed between the parties. Compensation shall be USD$42,150  (€40,000) per year payable in equal monthly installments beginning on May 1, 2014. In the case that a research and development project is initiated and completed during the term of the agreement, Kapatos shall receive one million four hundred thousand (1,400,000) shares of the Company’s common stock for each research project completed with a valuation less than twenty million dollars ($20,000,000 USD), three million five hundred thousand (3,500,000) shares of the Company’s common stock for each research project completed with a valuation equal or greater than twenty million US dollars ($20,000,000 USD).

On May 1, 2015, the Company approved a one-year extension of the consulting agreement entered into with Dr. Christos Kapatos. Further on August 2, 2016 the Company approved a further one-year extension so that the agreement will expire April 16, 2017.

 

(2)	Consulting Agreement with Sergios Katsaros

On September 1, 2015, the Board of Directors of the Company approved a consulting agreement with Sergios Katsaros and appointed Mr. Katsaros Vice President of HCi Viocare. Under the terms of the consulting agreement, Mr. Katsaros will work directly with the Company’s President and CEO in order to create and implement the Company’s strategic plan and assist in securing additional financing to meet the needs of the Company’s business plan and corporate objectives.  The initial term of the contract is six months and Mr. Katsaros will receive compensation of USD$2,100 (€2,000 ) per month. On March 1, 2016, the Company approved a one-year extension to the consulting agreement (the “Agreement”) between the Company and its Vice - President, Sergios Katsaros, originally entered into on September 1, 2015.   On March 1, 2017, the Company approved a further one-year extension to the consulting agreement.

 

(3)	Services Agreement with KCN Ltd.

On November 3, 2016, the Company entered into a services agreement with a company under the name KCN Ltd. for the introduction of the Company to potential investors in the Middle East and specifically in Saudi Arabia in view of the Company project to expand its business and establish three (3) Prosthetic and Orthotic Clinics in the region. The services agreement has a six-month term ending on May 2, 2017, and the Consultant shall be remunerated with a success fee of 2% of the investment amount.

 

 

F-13

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HCi Viocare

Notes to Unaudited Consolidated Financial Statements

Note 10 -   RELATED PARTY TRANSACTIONS

The following table provides details of the Company’s related party transactions during the three months ended March 31, 2017 and 2016:

(a) Services provided from related parties:

		Three Months Ended March 31,
		2017				2016
Consulting fees from CEO and President (i)		$	30,000			$	15,000
Consulting fees from a Director (ii)			10,655				11,028
Professional fees from Director (iii)			3,196				3,308
Consulting fees for VP (iv)			6,393				6,617
Consulting fees for COO (v)			-				16,113
Stock-based compensation (VP) (iv)			187,200				84,500
Stock award granted to Director (iii)			172,000				-
		$	409,444			$	136,566

(i)		On September 10, 2013 Mr. Leontaritis was appointed President. On January 15, 2014, the Board of Directors of the Company approved the execution of a consulting agreement between the Company and Sotirios Leontaritis (“Leontaritis”), whereby Leontaritis shall provide services to the Company as the Company’s President and Chief Executive Officer in regards to the Company’s management and operations for the period from January 1, 2014 to December 31, 2017.   Under the terms of the agreement, the Company agreed to pay to Leontaritis US$60,000 per annum payable in monthly payments of US$5,000 a month for the term of the contract. On January 1, 2017, the Company approved a three-year extension to the consulting agreement. Mr. Leontaritis will continue to serve for a term of three years, effective as of January 1, 2017, and ending on December 31, 2019; the Company shall pay to Leontaritis US$120,000 per annum payable in monthly payments of US$10,000 a month for the term of the contract.  Further, Mr. Leontaritis is entitled to acquire at his discretion 3,000,000 shares of the common stock at a price of $0.30 per share for a term of five (5) years. Over the remaining term of his contract which expires in fiscal 2019, Mr. Leontaritis is entitled to total minimum payments of $360,000.
(ii)		On September 30, 2013, the Board of Directors of the Company appointed Dr. Christos Kapatos as a director of the Company. During fiscal 2016 and fiscal 2015 Dr. Kapatos invoiced the Company GBP$40,000 for services rendered in each fiscal year respectively. For the three months ended March 31, 2017 Mr. Kapatos invoiced a total of GBP$10,000.
(iii)		On September 10, 2013, the Board of Directors of the Company elected Nikolaos Kardaras as Secretary and a director of the Company. On May 28, 2015, the Company approved the issuance of 700,000 common shares as compensation for prior services provided by director Nikolaos Kardaras in the form of fully vested stock awards. During fiscal 2016 and fiscal 2015 Mr. Kardaras invoiced the Company EUR $12,000 for services rendered in his capactiy as a director in each fiscal year respectively.  During the three months ended March 31, 2017 Mr. Kardaras invoiced a total of EUR$3,000   On March 3, 2017, the Company approved the issuance of 1,000,000 common shares for the services provided by Mr. Nikolaos Kardaras, Director of the Company, in the form of stock award which shall vest as of the date of grant. 1,000,000 shares have been valued at $172,000, the fair market value on grant date, which amount has been expensed as stock based compensation.

(iv)

On September 1, 2015, the Board of Directors of the Company approved a consulting agreement with Sergios Katsaros and appointed Mr. Katsaros Vice President of HCi Viocare. Under the terms of the consulting agreement, the initial term of the contract is six months and Mr. Katsaros will receive compensation of EUR€2,000 (USD$2,180) per month. On March 1, 2017, the Company approved a further one-year extension to the consulting agreement.   On March 1, 2016, the Company approved the grant of a stock award of 300,000 common shares as compensation for the services provided by Vice President, Sergios Katsaros.  The award vests in three equal instalments of 100,000 shares as of the date of grant, the six-month anniversary of the date of grant and the 12-month anniversary of date of grant. On March 1, 2017, the final instalment of 100,000 shares were issued in accordance with the terms of the award valued at $17,200, the fair market value on grant date, which amount has been expensed as stock based compensation.   On March 17, 2017, the Company approved the issuance of 1,000,000 common shares for the services provided by Mr. Katsaros, in the form of stock award which shall vest as of the date of grant. 1,000,000 shares have been valued at $170,000, the fair market value on grant date, which amount has been expensed as stock based compensation.

 

F-14

---

 

HCi Viocare

Notes to Unaudited Consolidated Financial Statements

Note 10 -   RELATED PARTY TRANSACTIONS (continued)

(v)

On November 7, 2014, the Company’s subsidiary, HCi Viocare Clinics (formerly W.D. Spence Prosthetics Limited) entered into a service agreement with Mrs. Heleen Francoise Kist (the “Agreement”) whereby she will provide her services as Chief Operating Officer (“COO”) of the Company. The contract has a term of one year, being effective as of October 1, 2014, and ending on September 30, 2015, renewable for such further term as may be mutually agreed between the parties. Compensation shall be thirty thousand GBP (£30,000) (USD$43,180) per year payable monthly in arrears on the last Friday of every month by credit transfer.    On October 15, 2015, the Company’s COO, Heleen Kist and wholly owned subsidiary, HCI Viocare Clinics UK, signed an Addendum to an employment contract to extend the term to September 30, 2016, with a remuneration increase to forty-five thousand GBP (£45,000) (USD$ 64,800) per year.    On August 30, 2016, the Board of Directors of the Company approved the termination of the services agreement of Mrs. Heleen Francoise Kist, Chief Operation Officer of the Company following her resignation from any and all positions with the Company and its subsidiaries.

(b) Accounts payable and accrued liabilities from related parties:

		Balance, December 31, 2016 ($)			Services provided during the period ($)		Reimbursement on Company’s expenses and interest on loan ($)				Payments ($)				Foreign exchange ($)				Balance, March 31, 2017 ($)
Consulting fees from CEO and President (i)			466,098		30,000			19,390				-			6,204					521,692
Consulting fees from a Director (ii)			42,149		10,655			-				-			881					53,685
Professional fees from Director (iii)			1,052		3,196			-				(3,174	)			-				1,074
Consulting fees for VP (iv)			-		6,393			-				(4,246	)			-				2,147
Consulting fees for COO (v)			-		-			-				-				-				-
			509,299		50,244			19,390				(7,420	)			7,085				578,598

(c) Advances from related parties:

		Balance, December 31, 2016 ($)				Addition ($)				Payment ($)				Foreign exchange  ($)				Balance, March 31, 2017 ($)
CEO and President (i)			316,077				61,365				(41,959	)			7,135				342,618
Director (ii)			67,087				-				-				1,272				68,359
			383,164				61,365				(41,959	)			8,407				410,977

Note 11 -   CAPITAL STOCK

 

The Articles of Incorporation authorize the Company to issue 5,000,000 shares of preferred stock with a par value of $0.0001, and 700,000,000 shares of common stock with a par value of $0.0001.  No shares of preferred stock have been issued, however, the Company has granted 25,000 fully vested stock options for the purchase of 25,000 shares of Series A Preferred Stock of the Company at a price of $0.04 per share for a period of five (5) years from the date of vesting. (ref: Note 14 below).

 

 

F-15

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HCi  Viocare

Notes to Unaudited Consolidated Financial Statements

Note 11 -   CAPITAL STOCK (continued)

On August 8, 2015 FINRA approved a seven (7) new for one (1) old forward split of our authorized and issued and outstanding shares of common.  A Certificate of Change for the stock split was filed and became effective with the Nevada Secretary of State on August 7, 2015.  Consequently, our authorized share capital increases from 100,000,000 to 700,000,000 shares of common stock and our issued and outstanding common stock increases accordingly, all with a par value of $0.0001.  Our preferred stock remains unchanged.  

Share issuances during the three months ended March 31, 2017

On March 1, 2016, the Company approved the grant of a stock award of 300,000 common shares as compensation for the services provided by Vice President, Sergios Katsaros.  The award vests in three equal instalments of 100,000 shares as of the date of grant, the six-month anniversary of the date of grant and the 12-month anniversary of date of grant. On March 1, 2017, 100,000 shares have been issued in accordance with the terms of the award valued at $17,200, the fair market value on grant date, which amount has been expensed as stock based compensation.

On March 3, 2017, the Company approved the issuance of 1,000,000 common shares for the services provided by Mr. Nikolaos Kardaras, Director of the Company, in the form of stock award which shall vest as of the date of grant. 1,000,000 shares have been valued at $172,000, the fair market value on grant date, which amount has been expensed as stock based compensation.

On March 6, 2017, the Company approved the issuance of 50,000 common shares for the services provided by a consultant in the form of stock award which shall vest as of the date of grant. 50,000 shares have been valued at $8,600, the fair market value on grant date, which amount has been expensed as stock based compensation.

On March 7, 2017, the Company approved the issuance of 50,000 common shares for the services provided a consultant in the form of stock award which shall vest as of the date of grant. 50,000 shares have been valued at $8,600, the fair market value on grant date, which amount has been expensed as stock based compensation.

 

On March 17, 2017, the Company approved the issuance of 1,000,000 common shares for the services provided by Mr. Sergios Katsaros, Vice-president, officer of the Company, in the form of stock award which shall vest as of the date of grant. 1,000,000 shares have been valued at $170,000, the fair market value on grant date, which amount has been expensed as stock based compensation.

 

On March 22, 2017, the Company approved the issuance of 50,000 common shares for the services provided by Mr. Brian Maguire, Director of HCi Viocare Clinics UK Ltd., subsidiary of the Company, in the form of stock award which shall vest as of the date of grant. 50,000 shares have been valued at $12,500, the fair market value on grant date, which amount has been expensed as stock based compensation.

As at March 31, 2017 and December 31, 2016 the Company had a total of 195,064,844 and 192,814,844 shares issued and outstanding, respectively.

 

Designation of Series A Preferred Stock

On January 13, 2014, the Company filed a Certificate of Designation with the Secretary of State of the State of Nevada.   The Certificate of Designation sets forth the rights, preferences and privileges of a class of the Company’s preferred stock.  Such class shall be designated as the “Series A Preferred Stock” and the number of shares constituting such series shall be 5,000,000 shares.  The holders of Series A Preferred Stock will be entitled to a preference over all of the shares of the Company’s common stock.  Holders of Series A Preferred Stock shall have 50 votes per share of Series A Preferred Stock held by them and shall be entitled to notice of any stockholders’ meeting and to vote as a single class upon any matter submitted to the stockholders for a vote.  Each share of Series A Preferred Stock is convertible into 20 shares of our common stock at any time at the holder’s option.  Shares of Series A Preferred Stock shall not be entitled to any dividends.  The preferred stock shall be entitled to a preference over all of the shares of common stock of the Company with respect to the distribution of assets in the event of the liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, or any other distribution of the assets of the Company among its shareholders for the purpose of winding up its affairs.

 

F-16

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HCi Viocare

Notes to Unaudited Consolidated Financial Statements

Note 12 - STOCK OPTIONS

On April 15, 2014, the Company appointed Professor Martha Lucia Zequera, Professor William Sandham, Professor Stephan Solomonidis and Doctor Christos Kapatos to the Advisory Board of the Company and entered into advisory board agreements with respect to services to be provided. Compensation for the members of the Advisory Board shall be the grant of a total of 5,000 stock options entitling the advisory board member the right to purchase a total of 5,000 shares of Series A Preferred Stock of the Company at a price of $0.04 per share for a period of five (5) years from the date of vesting. The advisory board appointments are for a term of one year and the options granted under the agreements will vest on completion of the term of the appointment. All of the aforementioned stock options vested in April 2015.  The Series A Preferred shares when vested will be convertible on the basis of 20 shares of common stock for each one share held and have voting rights of 50 votes per share of Series A Preferred stock held at any meetings of the stockholders.

On June 9, 2014, the Company appointed Mr. William Spence to the Advisory Board of the Company and entered into an advisory board agreement with Mr. Spence. Compensation shall be the grant of a total of 5,000 stock options entitling Mr. Spence the right to purchase a total of 5,000 shares of Series A Preferred Stock of the Company at a price of $0.04 per share for a period of five (5) years from the date of vesting. The advisory board appointment is for a term of one year and the options granted under the agreement will vest on completion of the term of the appointment. The aforementioned options vested upon the one-year anniversary of the date of appointment. The Series A Preferred shares when vested will be convertible on the basis of 20 shares of common stock for each one share held and have voting rights of 50 votes per share of Series A Preferred stock held at any meetings of the stockholders.

On January 1, 2017, the Company approved a three-year extension to the consulting agreement. Mr. Leontaritis will continue to serve for a term of three years, effective as of January 1, 2017, and ending on December 31, 2019. Further, Mr. Leontaritis is entitled to acquire at his discretion 3,000,000 shares of the common stock at a price of $0.30 per share for a term of five (5) years.

The Company accounts for share-based payments pursuant to ASC 718, “Stock Compensation” and, accordingly, the Company records compensation expense for share-based awards based upon an assessment of the grant date fair value for stock options using the Black-Scholes option pricing model. The fair value of stock options under the Black-Scholes model requires management to make assumptions regarding projected employee stock option exercise behaviors, risk-free interest rates, volatility of the Company’s stock price and expected dividends.

Stock compensation expense for stock options is recognized over the vesting period of the award.

The Company recognized stock-based compensation expense allocated to consulting fees of $122,543 during the three months ended March 31, 2017. Unrecognized amount of $2,328,325 will be expensed in future period.

The following table summarizes information concerning stock options outstanding as of March 31, 2017 and December 31, 2016:

Series A Preferred Stock:

	March 31, 2017								December 31, 2016
		Series A Preferred stock				Weighted Average Exercise Price $				Series A Preferred stock				Weighted Average Exercise Price $
Outstanding at beginning of the year			25,000				0.04				25,000				0.04
Granted			-				-				-				-
Exercised			-				-				-				-
Expired or cancelled			-				-				-				-
Outstanding at the period			25,000				0.04				25,000				0.04

 

The aforementioned options have an average remaining life of 2.5 years.

Common stock:

	March 31, 2017								December 31, 2016
		Common stock				Weighted Average Exercise Price $				Common stock				Weighted Average Exercise Price $
Outstanding at beginning of the year			-				-				-				-
Granted			3,000,000				0.30				-				-
Exercised			-				-				-				-
Expired or cancelled			-				-				-				-
Outstanding at the period			3,000,000				0.30				-				-

 

The aforementioned options have an average remaining life of 4.75 years.

Valuation Assumptions

The Company accounts for share-based payments pursuant to ASC 718, “Stock Compensation” and, accordingly, the Company records compensation expense for share-based awards based upon an assessment of the grant date fair value for stock options using the Black-Scholes option pricing model. The fair value of stock options under the Black-Scholes model requires management to make assumptions regarding projected employee stock option exercise behaviors, risk-free interest rates, volatility of the Company’s stock price and expected dividends.

Stock compensation expense for stock options is recognized over the vesting period of the award.

The following table presents the range of the weighted average fair value of options granted and the related assumptions used in the Black-Scholes model for stock option grants:

 

F-17

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HCi  Viocare

Notes to Unaudited Consolidated Financial Statements

Note 12 - STOCK OPTIONS (continued)

Series A Preferred Stock:

		Options Granted September 30, 2014
Fair value of options granted		1.40 ~ 2.00
Assumptions used:
Expected life (years) (a)			1.00
Risk free interest rate (b)			0.11%
Volatility (c)		117.09 ~ 119.83 %
Dividend yield (d)			0.00

 

Common stock:

		Options Granted on January 1, 2017
Fair value of options granted			0.925
Assumptions used:
Expected life (years) (a)			5
Risk free interest rate (b)			1.93%
Volatility (c)			175.4%
Dividend yield (d)			0.00

	a)	Expected life : The expected term of options granted is determined using the “shortcut” method allowed by SAB No.107. Under this approach, the expected term is presumed to be immediately after the vesting date at the end of the contractual term of one (1) year.
	b)	Risk-free interest rate : The rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected life of the options.
	c)	Volatility:  The expected volatility of the Company’s common stock is calculated by using the historical daily volatility of the Company’s stock price calculated over a period of time representative of the expected life of the options.
	d)	Dividend yield : The dividend yield rate is not considered in the model, as the Company has not established a dividend policy for the stock.

Note 13– PROVISION FOR INCOME TAXES:

 

The Company's operations in Greece have no tax free income threshold and  are subject to taxation at a rate of 29% applied to all net income earned after $1 Euro.  Further, after its first year of profitable operations, the Company is required to remit estimated income taxes prorated monthly based on the prior year's calculated income taxes payable.

 

The Company's operations in the United Kingdom are  subject to Corporation Tax at a single taxation rate of 20% calculated on net income.  The Company's operations are subject to certain relief from taxation with respect to R&D credit claims and may be subject to  "Patent Box" relief which provides for a lower rate of income tax payable on all licensing income generated from the corporate owned patents.  There are numerous critera required to be met to qualify for such relief.

 

The Company has experienced losses since inception. As a result, it has incurred no Federal income tax. The Internal Revenue Code allows net operating losses (NOL's) to be carried forward and applied against future profits for a period of twenty years. The Greece Tax Code permits such carryforwards for a period of five years. The United Kingdom Tax Code permits such carryforwards indefinitely. The total of these NOL's at March 31, 2017 was $4,832,000 in the U.S., $1,297,572 in Greece and $324,386 in the U.K and at December 31, 2016 was $4,619,000 in the U.S., $1,244,000 in Greece and $306,000 in the U.K.

 

F-18

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HCi  Viocare

Notes to Unaudited Consolidated Financial Statements

Note 13– PROVISION FOR INCOME TAXES: (continued)

 

The provision for income taxes in US consists of the following:

		Three months ended
		2017				2016
Current operations		$	204,457			$	534,200
Timing differences, Stock based compensation			(132,226	)			-
Less, Change in valuation allowance			(72,231	)			(534,200	)
Net refundable amount		$	-			$	-

The provision for income taxes in Greece consists of the following:

		Three months ended
		2017				2016
Current operations		$	15,380			$	51,300
Less, Change in valuation allowance			(15,380	)			(51,300	)
Net refundable amount		$	-			$	-

The provision for income taxes in UK consists of the following:

 

		Three months ended
			2017				2016
Current operations		$	16,654			$	17,164
Research and development			(13,113	)			(19,466	)
Less, Change in valuation allowance			(3,541	)			2,302
Net refundable amount		$	-			$	-

The cumulative tax effect at the expected rates in U.S., in Greece and in U.K. for significant items comprising our net deferred tax amounts as of March 31, 2017 and 2016 are as follows:

 

		March 31, 2017												December 31, 2016
		US Expected rate 34%				Greece Expected rate 29%				UK Expected rate 20%				US Expected rate 34%				Greece Expected rate 29%				UK Expected rate 20%
Deferred tax asset attributable to:
Net operating loss carryover		$	4,832,000			$	1,297,572			$	324,386			$	4,619,000			$	1,244,000			$	306,000
Less, Valuation allowance			(4,832,000	)			(1,297,572	)			(324,386	)			(4,619,000	)			(1,244,000	)			(306,000	)
Net deferred tax asset		$	-			$				$	-			$	-			$	-			$	-

The Company has no tax position at March 31, 2017 and December 31, 2016 for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. No such interest or penalties were recognized during the period presented. The Company had no accruals for interest and penalties at March 31, 2017 and December 31, 2016. The Company’s utilization of any net operating loss carry forward may be unlikely as a result of its intended activities.

The Company recognized deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carryforwards. The Company will establish a valuation allowance to reflect the likelihood of realization of deferred tax assets.

 

 

F-19

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HCi  Viocare

Notes to Unaudited Consolidated Financial Statements

Note 14 - SEGMENT REPORTING

 

The Company’s operations are classified into two reportable segments that provide different products or services. Separate management of each segment is required because each business unit is subject to different marketing, operations, and growth and technology development strategies.

 

The Clinics segment derives its revenue from provision of services at our P&O Clinic located in Glasgow, Scotland. The Technology segment derives its income from the licensing of its proprietary technologies and ultimately recurring royalty income as well as technology access fees. Presently we are only deriving income from our UK-based operations.  We expect this to be the case until such time as we are able to expand our chain of P&O Clinics.

 

There are no inter-segment sales however, the Company’s two primary operating segments do share cost on certain operational overheads including facility rent and staff salaries.

 

Three months ended March 31, 2017:

		Clinics (UK)				Technology (UK)				All Other (Greece)				Total
Revenue		$	83,884			$	2,556			$	-			$	86,440
Depreciation & amortization		$	2,231			$	10,771			$	7,906			$	20,908
Loss from operations		$	(23,319	)		$	(58,947	)		$	(652,933	)		$	(735,199	)
Interest expenses		$	(1.040	)		$	-			$	(496	)		$	(1,536	)
Assets		$	60,154			$	158,104			$	95,480			$	313,738
Expenditure on long-lived assets		$	-			$	-			$	-			$	-

 

Three months ended March 31, 2016:

		Clinics (UK)				Technology (UK)				All Other (Greece)				Total
Revenue		$	116,135			$	24,385			$	-			$	140,520
Depreciation & amortization		$	1,532			$	10,802			$	8,480			$	20,814
Loss from operations		$	(28,753	)		$	(57,068	)		$	(1,001,322	)		$	(1,087,144	)
Interest expenses		$	-			$	-			$	(2,364	)		$	(2,364	)
Assets		$	55,586			$	247,477			$	164,602			$	467,665
Expenditure on long-lived assets		$	-			$	-			$	-			$	-

Note 14 - SUBSEQUENT EVENTS

On April 20, 2017, the Company entered into Private Placement Subscription Agreements (the “Agreement”) with certain individuals. Under the terms of the agreements the individuals subscribed for a total of 539,507 shares of the Company’s common stock at a purchase price of US$0.20 per share for total cash proceeds of US$107,901. The shares are subject to applicable resale restrictions and have not yet been issued.

The Company has evaluated subsequent events from the balance sheet date through the date that the financial statements were issued and determined that there are no additional subsequent events to disclose.

 

 

F-20

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Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations

 

The following discussion and analysis of the results of operations and financial condition of HCi Viocare for the period ended September 30, 2016 shall be read in conjunction with the financial statements and notes. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results of the timing of events could differ materially from those projected in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Special Note Regarding Forward-Looking Statements and Business sections in our Form 10-K as filed with the Securities and Exchange Commission on March 30, 2016 We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

 

BUSINESS OVERVIEW

 

We were incorporated in the State of Nevada on March 26, 2007 as a company intending to sell medical devices in the northern regions of China. Our intent was to seek strategic relationships with medical device manufacturers both in China and North America with the aim to be their sales and distribution agent in northern China. We also intended to assist Chinese medical device manufacturers on the development of the North American market. The Company did not find suitable relationships with which to progress its business until it undertook a change in management in September 2013. With the change in management, the Company determined that it would initially concentrate on the development and marketing of medical devices in Europe, more particularly initially in Scotland, where management had identified several opportunities for entry into the markets for prosthetics and orthotics. We are currently engaged in healthcare innovation in the fields of prosthetics and orthotics (P&O), and we intend to be engaged in the operation of P&O total rehabilitation clinics.   Further during fiscal 2014 we acquired various patents for the development of certain healthcare innovations including various athletic applications.  We have two wholly-owned Scottish subsidiaries: HCi Viocare Technologies Limited and HCi Viocare Clinics UK Limited, and one wholly owned Greek subsidiary, HCi Viocare Clinics (Hellas) S A.

Presently we are primarily engaged in the research and development, commercialization and marketing of innovative medical technologies including wearable devices and on body applications that have use in insoles, in shoes, in cushions, seats, mattresses, saddles and any other wearable devices such as smart apparel and sports equipment.  Further we are in development for more far reaching applications including use in automotive tires and other targeted industries where sensor technology may have valuable application.  Further we continue to operate and expand our brand of prosthetics and orthotics (“P&O”) and diabetic foot total rehabilitation clinics. During fiscal 2016 our flagship prosthetics clinic in Glasgow Scotland completed its first full year of operations after relocation to a larger state of the art facility which allowed for a substantive increase in our year over year revenues.  Presently our revenue stream is derived primarily from the Company’s flagship P&O clinic located in Glasgow, Scotland, and with some initial commercial income from prospective licensing partners for the Technologies businesses.

The Company’s technologies and R&D portfolio presently consists of:

 

•

Filing of 3 patents in the UK: pressure sensor system; pressure & shear; pressure & positioning (Dec 2014) (all of which patents were abandoned upon the filing of a new International (PCT) patent application in December 2015 which covers over 140 countries around the world, and includes further advances made to the sensor systems, and a wider range of applications in products that touch people’s everyday lives;

•

2 further patents drafted and pending filing during fiscal 2017;

•	In excess of 4 prototypes:  pressure & shear insole; smart cushion, smart mattress, with several of these prototypes in the commercialization stage;
•	1 proof of concept device: robotic surgical assistive device;

•	High level diagrams or complex documentation and software for other innovations in the portfolio.
•	Various customized prototypes in testing and development with commercial partners.

Background and key developments

On December 27, 2013, pursuant to approval of the Board of Directors and the majority stock holder on November 28, 2013 and November 29, 2013 respectively, the Company filed a Certificate of Amendment to the Articles of Incorporation of the Company for the purpose of clearly providing the directors of the Company with the authority to issue both common and preferred stock without approval by the stockholders and to grant the authority of the directors of the Company to issue such shares of common and/or preferred stock in one or more series, with such voting power, designation, preferences and rights or qualifications, limitations or restrictions as they may determine by resolution of the Board of Directors.

On January 13, 2014, the Company filed a Certificate of Designation with the Secretary of State of the State of Nevada. The Certificate of Designation sets forth the rights, preferences and privileges of a class of the Company’s preferred stock. Such class shall be designated as the “Series A Preferred Stock” and the number of shares constituting such series shall be 5,000,000 shares. The holders of Series A Preferred Stock will be entitled to a preference over all of the shares of the Company’s common stock. The holders of common stock and the holders of Series A preferred stock vote together as a single class with the holders of the Series A preferred stock having 50 votes per share of Series A preferred stock and the holders of common stock having 1 vote per share of common stock. Holders of Series A Preferred Stock are entitled to notice of any stockholders’ meeting. No shares of Series A preferred stock have been issued as of the filing date of this report.

On the 15th of January, 2014, we formed our wholly-owned subsidiary, HCi Viocare Technologies Limited (“Viocare Technologies”), a corporation incorporated pursuant to the laws of Scotland, under registration number SC467480. Viocare Technologies undertakes research, development and commercialization of state of the art, new, innovative medical devices, methods and products in the fields of prosthetics, orthotics, rehabilitation, bioengineering, mobility, diabetes, diabetic foot, tissue mechanics, ultrasonics, medical signal processing and analysis, medical technology, orthopedics and robotic surgery. Viocare Technologies also plans to expand its research and development reach, to create a stable pipeline of new products and upgrades in the fields of prosthetics, orthotics, and diabetes.

 

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On the 12th of February, 2014 we acquired intellectual property rights ("IPR”) over an innovative medical technology entitled ‘SocketFit’ from our Board Member Dr. Christos Kapatos, as well as over any additional technologies under development or that may be developed in the future. Consideration for the acquisition of the exclusive, perpetual, revocable, transferable, royalty free worldwide ownership of the IPR, and know how to develop and exploit the IPR was the issuance of 3,500,000 shares of the common stock of the Company to Kapatos. SocketFit is a system that will help overcome technical and resource hurdles endemic to the prosthetic sector. The system has been designed with the aim of offering optimally fitted prosthetic sockets that will reduce the number of prostheses made for, resulting in a reduced number of visits by the patient to the prosthetic, and also assisting in the rehabilitation of amputees.

On March 21, 2014, the Company’s name changed from China Northern Medical Device, Inc. to HCi Viocare in regard to actions taken on November 28, 2013, when the Board of Directors of the Company approved, and recommended to the majority stockholder that they approve the name change. On November 29, 2013, the majority stockholder approved the name change by written consent in lieu of a meeting, in accordance with Nevada State Law. FINRA approved the name change with an effective date of March 21, 2014. Our trading symbol is “VICA”. We filed an amendment to our Articles of Incorporation with the Secretary of State of Nevada changing our name to HCi Viocare to be effective on March 21, 2014.

On April 17, 2014, the Company, through our Scottish subsidiary, HCi Viocare Technologies Limited, entered into an acquisition agreement with Dr. Christos Kapatos, a director of both the Company and HCi Viocare Technologies (“Kapatos”), to acquire all rights and interest in and to the background IPR for a developing technology now known as “Flexisense”. Kapatos has conceived and been working on a Smart Insole System which is believed to be a state-of-the-art, pressure and shear force sensing insole with an incorporated real-time global display application and a fully featured support web-space that suggests to the user and his podiatrist/physiotherapist when inappropriate or dangerous conditions are developing on the feet. The product is being designed to help mitigate diabetic foot complications, such as ulceration, infection and amputation

The competing insoles that were commercially available at this time can only monitor vertical pressure on the foot and not shear and have a significantly higher cost, and are intended for use in clinical or research environments.

As consideration for the acquisition:

·

HCi Viocare Technologies shall cause the parent Company to issue to Kapatos a total of 3,500,000 shares of the common stock of the Company on execution of the agreement and 3,500,000 shares of the common stock of the Company for each and every new version of the technology (new version to mean any update or improvement to the initial commercial product to be developed from the technology, after the commercial development of the first Market Ready Insole from the technology acquired, should the new version be developed to commercial market ready stage);

·	a cash bonus in the amount of $10,000,000USD should the technology be sold at any stage of development for an amount equal or greater than five hundred million ($500,000,000) cash or the equivalent thereof by way of any other consideration.

On May 8, 2015, the Company through its wholly owned subsidiary company HCi Viocare Technologies Limited entered into an agreement with Dr. Christos Kapatos, to amend the acquisition agreement (“Amendment of Acquisition Agreement”) dated April 17, 2014. Under the Amendment of Acquisition Agreement, the parties agreed, among certain other terms and conditions, to the issuance of 7,000,000 restricted shares of the common stock of the Company as additional consideration for all other applications of the Smart Insole technology. Furthermore, under the terms of the Amendment of Acquisition Agreement no cash bonus shall be provided to Kapatos.

On April 16, 2014, the Company entered into a Consulting Agreement with Kapatos whereby he will provide his services as Chief Technical Officer for the Company and the Company’s wholly-owned subsidiaries.  The contract has a term of one year, renewable for such further term as may be mutually agreed between the parties. Compensation shall be forty thousand Euros (€40,000) (USD$43,625) per year payable in equal monthly installments beginning on May 1, 2014. In the case that a research and development project is initiated and completed during the term of the agreement, Kapatos shall receive one million four hundred thousand (1,400,000) shares of the Company’s common stock for each research project completed with a valuation less than twenty million dollars ($20,000,000 USD), three million five hundred thousand (3,500,000) shares of the Company’s common stock for each research project completed with a valuation equal or greater than twenty million US dollars ($20,000,000 USD).

Mr. Kapatos abstained from voting on the acquisition of the IPR and the Consulting Agreement. Kapatos is an officer of the Company, and formerly an officer of the Company’s subsidiaries.

On May 1, 2015, the Company approved a one-year extension of the consulting agreement entered into with Dr. Christos Kapatos. During fiscal 2016 this agreement was extended for a further year.

On April 15, 2014, the Company established a scientific advisory board whereby the Company intends to appoint certain advisors that can contribute to the Company’s overall business strategy and future direction.

Concurrently, the Company appointed Professor Martha Lucia Zequera, Professor William Sandham, Professor Stephan Solomonidis and Doctor Christos Kapatos to the Advisory Board of the Company and entered into advisory board agreements with each member. Compensation for the members of the Advisory Board shall be the grant of a total of 5,000 stock options entitling the advisory board member the right to purchase a total of 5,000 shares of Series A Preferred Stock of the Company at a price of $0.04 per share for a period of five years from the date of vesting. The advisory board appointments are for a term of one year and the options granted under the agreements will vest on completion of the term of the appointment. The Series A Preferred shares when vested will be convertible on the basis of 20 shares of common stock for each one share held and have voting rights of 50 votes per share of Series A Preferred stock held at any meetings of the stockholders.

 

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On May 1, 2015, the Company approved a one-year extension of the advisory agreements entered into with Professor William Sandham, Professor Stephan Solomonidis and Doctor Christos Kapatos which thereafter shall expire on April 15, 2016.

 

Further, on April 16, 2014, the Company entered into Consulting Agreements with the members of its Scientific Advisory Board as follows:

	-	Professor Stephan Solomonidis (“Solomonidis”) will provide services as Head of Research for the Company and the Company’s wholly owned subsidiaries. The contract has a term of one year, renewable for such further term as may be mutually agreed between the parties. Compensation shall be twenty thousand pounds (£20,000 GBP) (USD$29,650) per year payable in equal monthly installments beginning on May 1, 2014. In the case that a research and development project is initiated and completed during the term of the agreement, Solomonidis’ fee will be readjusted to the amount of forty thousand pounds (£40,000 GBP) (USD$59,300) per annum, and he shall receive one million four hundred thousand (1,400,000) shares of the Company’s common stock for each research project completed with a valuation less than twenty million dollars ($20,000,000 USD), three million five hundred thousand (3,500,000) shares of the Company’s common stock for each research project completed with a valuation equal or greater than twenty million dollars ($20,000,000 USD).   On May 1, 2015, the Company approved a one-year extension of the consulting agreement entered into with Professor Stephan Solomonidis. When the contract came up for renewal in April, 2016,it was not renewed for a further term.
	-	Professor Martha Lucia Zequera (“Zequera”) will provide services as Director of Diabetic Foot Related Products and Services for the Company and the Company’s wholly owned subsidiaries.  The contract has a term of one year, renewable for such further term as may be mutually agreed between the parties. Compensation shall be twenty thousand dollars ($20,000 USD) per year payable in equal monthly installments beginning on May 1, 2014. In the case that a research and development project is initiated and completed during the term of the agreement, Zequera’s fee will be readjusted to the amount of forty thousand dollars ($40,000 USD) per annum, and she shall receive one million four hundred thousand (1,400,000) shares of the Company’s common stock for each research project completed with a valuation less than twenty million dollars ($20,000,000 USD), three million five hundred thousand (3,500,000) shares of the Company’s common stock for each research project completed with a valuation equal or greater than twenty million dollars ($20,000,000 USD).   The consulting agreement entered into with Professor Martha Lucia Zequera was not renewed upon its expiration.

-

Professor William Sandham (“Sandham”) will provide services as Director of Diabetes Technology Research for the Company and the Company’s wholly owned subsidiaries.  The contract has a term of one year, renewable for such further term as may be mutually agreed between the parties. Compensation shall be Twenty Thousand pounds (£20,000 GBP) (USD$29,650) per year payable in equal monthly installments beginning on May 1, 2014.  In the case that a research and development project is initiated and completed during the term of the agreement, Sandham’s fee will be readjusted to the amount of forty thousand pounds (£40,000 GBP) (USD$59,300) per annum, and he shall receive one million four hundred thousand (1,400,000) shares of the Company’s common stock for each research project completed with a valuation less than twenty million dollars ($20,000,000 USD), three million five hundred thousand (3,500,000) shares of the Company’s common stock for each research project completed with a valuation equal or greater than twenty million dollars ($20,000,000 USD).   On May 1, 2015, the Company approved a one-year extension of the consulting agreement entered into with Professor William Sandham. When the contract came up for renewal in April, 2016,it was not renewed for a further term.

-

On June 9, 2014, the Company appointed Mr. William Spence to the Advisory Board of the Company and entered into an advisory board agreement. Compensation shall be the grant of a total of 5,000 stock options entitling Mr. William Spence the right to purchase a total of 5,000 shares of Series A Preferred Stock of the Company at a price of $0.04 per share. The advisory board appointment is for a term of one year and the options granted under the agreement will vest on completion of the term of the appointment. The Series A Preferred shares when vested will be convertible on the basis of 20 shares of common stock for each one share held and have voting rights of 50 votes per share of Series A Preferred stock held at any meetings of the stockholders.   The consulting agreement entered into with Mr. William Spence was not renewed upon its expiration.

 

On June 9, 2014, the Company, through our Scottish subsidiary, HCi Viocare Clinics, entered into a Share Purchase Agreement with Mr. William Donald Spence, Miss Catriona Ann Spence, and Mrs. Eilidh Isabel Malcolm (together the “vendors”), to acquire 100% of the issued capital of W D Spence Prosthetics Limited (the “Clinic”). The Clinic is incorporated in Scotland under company number SC307652, having its registered office at 8 Tomcroy Terrace, Pitlochry, Perthshire, PH16 5JA, UK. The Clinic is a private company limited by shares, with no registered charges, and the total issued share capital amounts to 1,000 ordinary shares par value of £1 each. The vendors to the Share Purchase Agreement are the beneficial owners and registered holders of all (100%) the shares of the Clinic, with Mr. William Donald Spence holding 520 ordinary shares, and Miss Catriona Ann Spence and Mrs. Eilidh Isabel Malcolm each holding 240 ordinary shares. Mr. Spence is also the director of the Clinic, and Miss Malcolm is the secretary. The Clinic has no employees or subsidiaries, and is not a subsidiary of another company.

The Clinic is located in Glasgow, Scotland, and is a fully operational prosthetics clinic. The acquisition of the Clinic is the first step to the Company’s and HCi Viocare Clinics’ intention to develop the first chain of prosthetics and orthotics (P&O) and diabetes clinics in the European market, covering Southern Europe, the Middle East and North Africa.

 

 

7

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As consideration for the acquisition, HCi Viocare Clinics shall pay to the vendors in cash the amount of one hundred thousand GBP (£100,000) (USD$168,121) on execution of the agreement.

Further, on June 10, 2014, HCi Viocare Clinics entered into a Taxation Undertaking with the vendors pursuant to the Share Purchase Agreement. Concurrently, on June 10, 2014, the Company made the required payment under the agreement to the vendors, thus completing the acquisition of the Clinic.

Also on June 9, 2014, HCi Viocare Clinics entered into an agreement with Mr. William Donald Spence (the “Employment Agreement”) whereby he will provide his services as Director of Clinical Operations of HCi Viocare Clinics and its wholly-owned subsidiary clinics. The contract has a term of one year, starting on June 10, 2014, and ending on June 9, 2015, renewable for such further term as may be mutually agreed between the parties. Compensation shall be sixty thousand GBP (£60,000) (USD$88,950) per year payable monthly in arrears on the last Friday of every month by credit transfer. HCi Viocare Clinics shall also pay any fees in connection with the membership of Mr. Spence to any professional, regulatory or other such body of which Mr. Spence’s membership is required to carry out his role with HCi Viocare Clinics, as well as all insurance payments. During the period ended June 30, 2015 Mr. Spence resigned as the Director of Clinical Operations and his annual contract was not renewed.  

Further, on June 9, 2014, the Company appointed Mr. William Spence to the Advisory Board of the Company and entered into an advisory board agreement. Compensation shall be the grant of a total of 5,000 stock options entitling Mr. William Spence the right to purchase a total of 5,000 shares of Series A Preferred Stock of the Company at a price of $0.04 per share for a period of five (5) years from the date of vesting. The advisory board appointment is for a term of one year and the options granted under the agreement will vest on completion of the term of the appointment. The Series A Preferred shares when vested will be convertible on the basis of 20 shares of common stock for each one share held and have voting rights of 50 votes per share of Series A Preferred stock held at any meetings of the stockholders.

The advisory board agreement entered into with William Spence was not renewed upon its expiration date.

 

On November 7, 2014, the Company’s subsidiary, HCi Viocare Clinics entered into a service agreement with Mrs. Heleen Francoise Kist whereby she will provide her services as Chief Operating Officer (“COO”) of the Company. The contract has a term of one year, being effective as of October 1, 2014, and ending on September 30, 2015, renewable for such further term as may be mutually agreed between the parties. Compensation was thirty thousand GBP (£30,000) (USD$44,475) per year payable monthly in arrears on the last Friday of every month by credit transfer. On October 15, 2015, the Company’s COO, Heleen Kist and wholly owned subsidiary, HCI Viocare Clinics UK, signed an Addendum to an employment contract to extend the term to September 30, 2016, with a remuneration increase to forty five thousand GBP (£45,000) (USD$ 66,712) per year.  Subsequently, on August 29, 2016 the Company’s subsidiary, HCi Viocare Clinics UK Ltd. approved a termination agreement with Heleen Kist which became effective at the close of her existing contract.  Mrs. Kist resigned her positions as an officer and under the terms of the termination agreement the Company has undertaken to repurchase a total of seven hundred thousand (700,000) shares of the Company’s common stock  at a purchase price of US$0.02 per share for total of fourteen thousand (US$14,000) USD for return to treasury and cancellation.

On January 1, 2015, the Company entered into a consulting agreement with an individual residing in the Czech Republic, for the provision of Investor Relations Services for the Company. Under the terms of the agreement, Mikulas Dylowicz shall be an independent contractor and shall provide services including responding to shareholder and investor email and telephone inquiries, dissemination of the Company’s public press releases and working with the Company to continue to raise operating capital. Mikulas Dylowicz shall receive monthly consideration of Euros €2,000 per month and shall be reimbursed for all approved out-of-pocket expenses including travel and office expense. During fiscal 2016 the consulting agreement with Mr. Dylowicz was terminated.

On March 2, 2015, the Company announced the conclusion of a lease agreement for a modern, stand-alone 5,300 square foot facility in Glasgow, Scotland with an entry date of 1 March, 2015. The building hosts the Company’s first Viocare centre, a full service Prosthetic and Orthotic (“P&O”) practice with a superior standard of personalised care. This new facility serves as the centre of reference and training for the intended chain of Viocare P&O and diabetic foot centres across Europe, ensuring their adherence to British and International standards. The Company’s Technologies subsidiary occupies the first floor of the building to continue to develop its portfolio of bioengineering innovations.

 

On March 31, 2015, the Company’s wholly owned subsidiary HCi Viocare Clinics and its subsidiary W D Spence Prosthetics Limited completed a merger with the resulting combined entity having the name HCi Viocare Clinics UK Limited.

On May 7, 2015, the Company entered into an agreement with HELLENIC AMERICAN SECURITIES S.A. (“HAS S.A.”) for a term of one year. According to the respective agreement HAS S.A. shall provide its services and advice to the Company regarding the capital structure, industry strategy and similar matters, as well mergers and acquisitions under the Greek Law, an introduction of the Company’s securities to Greek and Foreign Investors, both Private and Institutional ones, as well as preparation of analyses for the Company which will be circulated to various websites and media groups.

HAS S.A. is a Public Limited Stock Brokerage Company, member of the Athens Stock Exchange and Athens Derivative Exchange, incorporated in Greece, with registered office in Athens.

 

HAS S.A. is entitled to the following consideration under the Agreement:

1. $3,000 per month or its current equivalent in Euro, plus applicable VAT, payable monthly on the first day of the month, for each quarter;

2. Issuance of 168,000 restricted shares of the Company’s common stock quarterly (the “Shares”), payable in monthly installments as to 56,000 shares per month, to be issued and delivered within 10 days after the 1st day of each month.

The contract expired and on July 6, 2016 at which time the Company and HAS S.A. entered into a Mutual Release and Waiver of Compensation Agreement where under HAS S.A. has agreed to waive all further compensation payable under the terms of the original Agreement in the total amount of $33,000 and 560,000 shares of common stock as at the expiry date. The Company recorded a gain of $469,640 against consulting fees due to this debt extinguishment.

On June 11, 2015, the Company entered into a Loan Agreement with the Company’s CEO, President and Director, Sotirios Leontaritis, (the “Lender”), whereby the Lender, in order to provide general working capital and to allow the Company to effectuate its business plan, agreed to provide the Company a loan facility of EUR150,000 with an annual interest of 5%, payable on maturity, and the Company agreed to repay the loan within 5 years from the date of the loan agreement. This loan was settled in full during fiscal 2016.

On July 8, 2015, the Company incorporated HCi Viocare Clinics (Hellas) S.A. in order to carry out operations for the P&O clinic under development in Athens, Greece.

 

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On August 8, 2015 FINRA approved a seven (7) new for one (1) old forward split of our authorized and issued and outstanding shares of common.  A Certificate of Change for the stock split was filed and became effective with the Nevada Secretary of State on August 7, 2015.  Consequently, our authorized share capital increased from 100,000,000 to 700,000,000 shares of common stock and our issued and outstanding common stock increased accordingly, all with a par value of $0.0001.  Our preferred stock remained unchanged.  All share and per share figures contained herein reflect the impact of the forward split.

On July 18, 2015, the Company appointed Mr. Yiannis Levantis as a member of the Board of Directors.

On September 1, 2015, the Board of Directors approved a consulting agreement with Sergios Katsaros and appointed Mr. Katsaros Vice President of HCi Viocare.

Under the terms of the consulting agreement, Mr. Katsaros will work directly with the Company’s President and CEO in order to create and implement the Company’s strategic plan and assist in securing additional financing to meet the needs of the Company’s business plan and corporate objectives.  The initial term of the contract is six months and Mr. Katsaros will receive compensation of EUR2,000 per month. Further, on March 1, 2016 the Company approved a one-year extension to the consulting agreement between the Company and its Vice - President, Sergios Katsaros, originally entered into on September 1, 2015.  On March 1, 2017, the Company approved another one-year extension to the consulting agreement between the Company and its Vice - President, Sergios Katsaros. The revision to the Agreement ("Addendum No. 2") has a term of one year, being effective as of March 1, 2017, and ending on February 28, 2018.  All other terms and conditions remain valid and in force.

On September 1, 2015, the Company appointed Ms. Evaggelia Moschidou as Marketing Director of the Company. Subsequently during fiscal 2016 the contract with Ms. Moshidou was not renewed and the parties agreed to services on a month to month basis.

 

On September 25, 2015, the official opening of the Company’s new Research and Development (R&D) center together with its first Prosthetics and Orthotics (P&O) clinic in the UK took place in Glasgow, Scotland with an official ribbon cutting by Scotland’s First Minister, Nicola Sturgeon MSP. Additional information and updates on the Company’s Clinic and R&D center can be found at the new Glasgow clinic website: www.hci-viocare.co.uk and on Twitter: @HCiVioClinic.

On February 1, 2016, the Company entered into a consulting agreement with Sitimo Ltd. for the development and expansion of its business and establishment of Prosthetics and Orthotics clinics in the region of South Eastern Europe as well as the Middle East. The Consultant undertakes to introduce the Company to the healthcare market of South Eastern Europe and Middle East.

The Agreement has a term of twelve (12) months and the Consultant is entitled to remuneration for the provision of services in the form of 100,000 shares of the common stock to be issued within thirty days from the enforcement of the Agreement.

On February 2, 2016, the Company entered into an Agreement with LXM Finance LLP (“LXM”), a company with a registered office in London, UK in order to be assisted with fund raising. LXM is member of LXM Group is a joint venture between the company’s management and the owners of the Libra Group, an international business group with operations spanning five continents and 30 locations worldwide. The group has a multi-billion dollar diversified investment portfolio with interests principally in shipping, aviation, hospitality, real estate and renewable energy.

On February 10, 2016, the Company entered into a consulting agreement with an individual for the introduction of the Company to the healthcare market of Spain in view of the Company's plans to expand its clinics business and establish a Prosthetic and Orthotic Clinic in Spain. The Agreement has a six-month term ending on August 2, 2016, and the Consultant shall be remunerated with 50,000 shares of the Company's common stock.

On February 18, 2016, the Company entered into a consulting agreement with an individual for the introduction of the Company to the healthcare market of Middle East and specifically of Saudi Arabia in view of the Company project to expand its business and establish a Prosthetic and Orthotic Clinic in the Middle East. The Agreement has a six-month term ending on August 18, 2016 and the Consultant shall be remunerated with 200,000 shares of the common stock.

On February 19, 2016, the Company entered into a consulting agreement with an individual for the introduction of the Company to the healthcare market of Turkey in view of the Company project to expand its business and establish a Prosthetic and Orthotic Clinic in Turkey. The Agreement has a six-month term ending on August 19, 2016 and the Consultant shall be remunerated with 200,000 shares of the common stock.

On April 11, 2016 the Company announced the branding of its unique smart insole technology as “Flexisense TM ”.

On May 18, 2016, the Company entered into a Professional Relations and Consulting Agreement with Acorn Management Partners, LLC (“Acorn”), a Georgia limited liability company, for a term of 12 months.  Under the terms of the agreement, Acorn will create a market awareness program and introduce financial professionals to the Company targeting the US marketplace.  The program shall be designed to build long-term relationships between the Company and licensed financial professionals.  In consideration of the Services, the Company agrees to pay to Acorn the following fees:

 

·	First 6 Month period

 

    -Cash:  $17,500 per month, monthly payment made upon the execution of the contract

 

    -Stock: $250,000 dollars’ worth of restricted 144 common stock of the Company (“VICA”), due upon the execution of contract .  The number of the shares to be determined by dividing $250,000 by the closing price on the last trading day’s closing price on the day before the execution day.

 

 

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·	Second 6 Month period

 

    -Cash:  $17,500 per month, monthly payment made upon the execution of the contract

   

    -Stock: $250,000 dollars’ worth of restricted 144 common stock of the Company (“VICA”), due upon the execution of contract .  The number of the shares to be determined by dividing $250,000 by the closing price on the last trading day’s closing price on the day before the execution day.  The Company terminated its agreement with Acorn prior to the close of the initial six-month period.

 

On September 15, 2016, the Company appointed Mr. Nikolaos Kardaras as Director of its subsidiary HCi Viocare Clinics UK Ltd. and HCi Viocare Technologies, Inc. subsequent to the resignation of Dr. Christos Kapatos from both corporations effective June 27, 2016.

On September 23, 2016 the Company entered into a licensing agreement with respect to certain applications of its Flexisense™ Technology with Carilex Medical Inc. a leading medical mattresses manufacturer.  Under the terms of the agreement the Company will receive a Technology Access Fee, as well as certain staggered success fee payments as each commercialized product under the scope of the agreement is completed.  In addition, there are product based royalty fees payable to the Company on a sliding scale based on production levels for all commercial products sold into the marketplace.

On November 3, 2016, the Company entered into a services agreement with a company under the name KCN Ltd. for the introduction of the Company to potential investors in the Middle East and specifically in Saudi Arabia in view of the Company project to expand its business and establish three (3) Prosthetic and Orthotic Clinics in the region. The services agreement has a six-month term ending on May 2, 2017, and the Consultant shall be remunerated with a success fee of 2% of the investment amount.

On December 20, 2016, the Company appointed Mr. Brian Maguire as Director of its subsidiary HCi Viocare Clinics UK Ltd.

On January 1, 2017 the Company approved a three-year extension to the consulting agreement between the Company and its President & CEO and controlling shareholder, Sotirios Leontaritis, originally entered into on January 1, 2014.

The revision to the Agreement ("Addendum No. 1") has a term of three years, being effective as of January 1, 2017, and ending on December 31, 2019, renewable for such further term as may be mutually agreed between the parties.  As per Addendum No. 1 the Company shall pay to Leontaritis US$120,000 per annum payable in monthly payments of US$10,000 a month for the term of the contract.  Further, under the terms of the Addendum No. 1, Leontaritis is entitled to acquire at his discretion 3,000,000 shares of the common stock at a price of $0.30 per share for a term of five (5) years.

Additional information on the Company’s activities, technologies and management team can be found at the Company’s website:  http://www.hciviocare.com

Other than as set out herein, we have not been involved in any bankruptcy, receivership or similar proceedings, nor have we been a party to any material reclassification, merger, consolidation or purchase or sale of a significant amount of assets not in the ordinary course of our business.

RESULTS OF OPERATIONS

 

Comparison of the Three Months Ended March 31, 2017 and 2016

Revenue, Cost of Revenue, and Gross Profit  - We have incurred losses since inception. We generated $86,440in revenues from operations and $47,557 in cost of goods sold for the three months ended March 31, 2017, compared to $140,520 in revenue and $67,188 in costs of goods sold for the three month periods ended March 31, 2016.  We experienced significant growth to our Glasgow P&O clinic customer base in fiscal 2016, and a substantive increase in revenues in fiscal 2016 as compared to fiscal 2015.  The current quarter decrease in revenue period over period is due to certain one time revenue items recorded in the three months ended March 31, 2016, including a one time technology access fee of $24,38 with no similar fees earned in the three months ended fiscal 2017.  In addition quarter over quarter from fiscal 2016 to fiscal 2017 the GBP declined substantially in value, which greatled impacts our US dollar reporting results as the majority of our income is earned in GBP. Operating expenses for the three months ended March 31, 2017 were $774,082, compared to $1,160,476 for the three months ended March 31, 2016.

Operating Expenses  – Operating expenses totaling $774,082 in the three months ended March 31, 2017 decreased by $386,394 or approximately 33% compared to $1,160,476 in operating expenses in 2016.  The substantial decrease period over period is almost entirely attributable to the termination of certain consulting agreements over the comparative periods, which reduced our consulting fees considerably. .  Further, there was a substantive decrease in both research and development expenses and travel and entertainment expenses in the comparative periods.

 

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Loss from Operations –  During the three-month periods ended March 31, 2017 and 2016 we recorded losses from operations of $735,199 and $1,087,144 respectively.

Other expenses  - During the three months ended March 31, 2017, the Company recorded losses from other expense including interest and foreign currency losses of $2,446 and $2,683 respectively.

Net Loss  - ADuring the comparative three month periods the Company recorded net losses of $737,645 and $1,089,827 respectively.

CAPITAL RESOURCES AND LIQUIDITY

 

At March 31, 2017, we had $6,431 cash on hand, $62,196 in receivables, $4,058 in inventory, and prepaid expenses of $42,914 for total current assets of $115,599.  Further we had current liabilities of $1,124,266 in accounts payable and accrued expenses (including amounts due to related parties), $410,977 in advances from related parties and $103,818 in advances from third parties.   We had a working capital deficit of $1,523,462 as at March 31, 2017. While the Company’s prosthetics and orthotics clinic in Glasgow has greatly increased its patient through-put year over year, sales in the first quarter of fiscal 2017 were substantially reduced from the prior comparative quarter.  We commenced generating revenue from commercial evaluation of our available technologies in fiscal 2016, however we had limited revenue in this segment in the three months ended March 31, 2017.   Presently we rely on our President and director, as well as private placements from qualified investors to fund our general operating expenses.   We secured loans and advances from related and unrelated parties during the three months ended March 31, 2017 of $165,183 and made repayments to related party advances of $41,959. The Company has closed additional private placements in the amount of $107,901 after March 31, 2017.  These amounts contribute to our ongoing operating expenses and obligations until such time as the Company can conclude a larger equity based financing, anticipated during the fiscal year 2017.

The Company expects it will need to raise a total of $5,000,000 to $15,000,000 to fund its proposed operations for the next twelve to thirty-six months, including the planned expansion of its Viocare Clinics to add up to 5 additional site locations. It intends to fund operations by a combination of related party loans, debt financing and equity placements. The Company is seeking equity private placements from qualified investors with which to fund operations until such time as it can secure alternate financing arrangements.  The Company is also seeking joint venture partners for its various Insole technology applications as a further means to fund ongoing commercialization efforts.

There can be no assurance that continued funding will be available on satisfactory terms.

 

GOING CONCERN

The Company incurred net losses of $737,645 and $1,089,827 for the three months ended March 31, 2017 and 2016, respectively and has a retained deficit of $32,486,852as of March 31, 2017. In addition, the Company had a working capital deficiency of $1,523,462 and a stockholders' deficit of $1,325,323 at March 31, 2017. These factors raise substantial doubt about the Company's ability to continue as a going concern.

 

There can be no assurance that sufficient funds required during the next year or thereafter will be generated from operations or that funds will be available from external sources such as debt or equity financings or other potential sources. The lack of additional capital resulting from the inability to generate cash flow from operations or to raise capital from external sources would force the Company to substantially curtail or cease operations and would, therefore, have a material adverse effect on its business. Furthermore, there can be no assurance that any such required funds, if available, will be available on attractive terms or that they will not have a significant dilutive effect on the Company's existing stockholders.

 

The accompanying financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.

 

NEED FOR ADDITIONAL FINANCING

 

Costs associated with being a public company are much higher than those of a private company. HCi Viocare has chosen public registration before the business has developed a predictable cash flow. There are present registration expenses and future legal and accounting expenses, future reporting requirements to the SEC, future exchange listing requirements, and future investor relations costs that must be borne by a public company but not by a private company. These costs can be a burdensome expense which could adversely affect our financial survival. The ongoing regulatory costs, reporting requirements, and management details, which must be met when registering and maintaining a public company, may make the economic viability of HCi Viocare very doubtful.  In addition, the Company requires additional financing in order to continue to execute its business plan which includes the commercialization of one or more technologies, the ongoing operation of a P&O clinic in Glasgow, the opening of a new clinic planned for 2016 in Athens, as well as other strategically placed P&O clinics, as well as ongoing research and development to bring new technologies to market.

 

In the past we have relied on advances from our president and private placements to cover our operating costs. There can be no assurance that our president will continue to fund the Company or that any other capital will be available if and when required from qualified investors.   Our need for capital may change dramatically if we acquire an interest in a business opportunity during that period. At present, we have no commitments or agreements with respect to the acquisition of any business venture, however, we are currently looking at a number of business opportunities in the medical field. There can be no assurance that we will identify a business venture suitable for acquisition in the future. Further, we cannot assure that we will be successful in consummating any acquisition on favorable terms or that we will be able to profitably manage any business venture we acquire. Should we require additional capital, we may seek additional advances from officers, sell common stock or find other forms of debt financing.

 

 

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CRITICAL ACCOUNTING POLICIES

 

Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, and revenue and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

 

Our significant accounting policies are summarized in Note 4 of our financial statements for the period ended March 31, 2017.  While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause a material effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

In January 2017, the FASB issued ASU 2017-01, “Clarifying the Definition of a Business” with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years with early adoption permitted. This guidance will be applied prospectively to any transactions occurring within the period of adoption.

In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment” that eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) to measure a goodwill impairment charge. Instead, an impairment charge will be based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on Step 1 of the current goodwill impairment test). This guidance is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019, with early adoption permitted for annual and interim goodwill impairment testing dates after January 1, 2017. This guidance will be adopted on a prospective basis.

In March 2017, the FASB issued ASU 2017-08, “Premium Amortization on Purchased Callable Debt Securities” that shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. This guidance is effective for annual periods beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted. This guidance will be adopted using a modified retrospective transition approach. The adoption of this guidance is not expected to materially impact our results of operations, financial condition or liquidity.

 

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption.

OFF BALANCE SHEET ARRANGEMENTS

 

We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).

 

Item  3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable.

 

Item 4. Controls and Procedures.

 

(a)	Evaluation of Disclosure Controls and Procedures

Our management, under supervision and with the participation of the Company’s Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures, as defined under Exchange Act Rule 13a-15(e). Based upon this evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of March 31, 2017, because of the material weakness in our internal control over financial reporting (“ICFR”) described below, our disclosure controls and procedures were not effective.

 

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Disclosure controls and procedures are controls and other procedures that are designed to ensure that required information to be disclosed in our reports filed or submitted under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that required information to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

(b)	Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined under Exchange Act Rules 13a-15(f) and 14d-14(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

All internal control systems, no matter how well designed, have inherent limitations and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can only provide reasonable assurance with respect to financial reporting reliability and financial statement preparation and presentation. In addition, projections of any evaluation of effectiveness to future periods are subject to risk that controls become inadequate because of changes in conditions and that the degree of compliance with the policies or procedures may deteriorate.

 

Management assessed the effectiveness of our internal control over financial reporting as of March 31, 2017. In making the assessment, management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework 2013. Based on its assessment, management concluded that, as of March 31, 2017, our internal control over financial reporting was not effective and that material weaknesses in ICFR existed as more fully described below.

As defined by Auditing Standard No. 5, “An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statements” established by the Public Company Accounting Oversight Board (“PCAOB”), a material weakness is a deficiency or combination of deficiencies that results in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected. In connection with the assessment described above, management identified the following control deficiencies that represent material weaknesses as of March 31, 2017:

 

1)	Lack of an independent audit committee or audit committee financial expert, and no independent directors. We do not have any members of the Board who are independent directors and we do not have an audit committee. These factors may be counter to corporate governance practices as defined by the various stock exchanges and may lead to less supervision over management;
2)	Insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements;

Management's Remediation Initiatives

As of March 31, 2017, management assessed the effectiveness of our internal control over financial reporting. Based on that evaluation, it was concluded that during the period covered by this report, the internal controls and procedures were not effective due to deficiencies that existed in the design or operation of our internal controls over financial reporting. However, management believes these weaknesses did not have an effect on our financial results. During the course of our evaluation, we did not discover any fraud involving management or any other personnel who play a significant role in our disclosure controls and procedures or internal controls over financial reporting.

Due to a lack of financial and personnel resources, we are not able to, and do not intend to, immediately take any action to remediate these material weaknesses. We will not be able to do so until, if ever, we acquire sufficient financing and staff to do so. We will implement further controls as circumstances, cash flow, and working capital permits. Notwithstanding the assessment that our ICFR was not effective and that there were material weaknesses as identified in this report, we believe that our financial statements contained in our Quarterly Report on Form 10-Q for the period ended March 31, 2017, fairly presents our financial position, results of operations, and cash flows for the periods covered, as identified, in all material respects.

 

Management believes that the material weaknesses set forth above were the result of the scale of our operations and intrinsic to our small size. Management also believes that these weaknesses did not have an effect on our financial results.

Changes in Internal Control over Financial Reporting

During the period covered by this report, there were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

Viocare, Inc . a New Jersey corporation (the «Plaintiff») filed a complaint on October 24, 2016 in the United States District Court, District of Nevada objecting to the use of the name «viocare» by HCi Viocare , of Nevada (the «Defendant»). The Company and Viocare Inc . have agreed to terms of settlement, the details of which shall be published once fully executed by both parties and filed with the courts.

We know of no other material, active or pending legal proceedings against our Company, nor of any proceedings that a governmental authority is contemplating against us.

 

Item 1A. Risk Factors.

 

Smaller reporting companies are not required to provide the information required by this item.

 

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

There were no unregistered securities to report which were sold or issued by the Company without the registration of these securities under the Securities Act of 1933 in reliance on exemptions from such registration requirements, within the period covered by this report, which have not been previously included in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K.

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

On August 2, 2016 the Company approved a further one-year extension to the Consulting Agreement with Dr. Christos Kapatos on the same terms and conditions, so that the agreement will expire April 16, 2017. (ref: Note 9 – Commitments included the Financials Statements presented herein).

 

The listing of Company shares in the Berlin Stock Exchange has not been completed due to the inability of the Clearing Service (Clearstream) to set up stock for clearing in the clearing system. Clearstream has not provided further details and as a result the Company's stock will be removed from the Berlin Stock Exchange effective November 15, 2016

 

 

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ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Exhibits:	Description
3.1.1	Articles of Incorporation	Incorporated by reference to our Registration Statement filed with the SEC on Form SB-2 dated June 29, 2007.
3.1.2	Certificate of Amendment to the Articles of Incorporation	Incorporated by reference to our Definitive 14C filed with the SEC on December 27, 2013
3.1.3	Certificate of Amendment to the Articles of Incorporation	Incorporated by reference to our Definitive 14C filed with the SEC on March 3, 2014
3.1.4	Certificate of Change to the Articles of Incorporation	Incorporated by reference to our Form 8-K filed with the SEC on August 7, 2015
3.2	Bylaws	Incorporated by reference to our Registration Statement filed with the SEC on Form SB-2/A dated October 11, 2007.
4.1	Certificate of Designation	Incorporated by reference to our Definitive 14C filed with the SEC on December 27, 2013
10.1	Contract between the Company and Sotirios Leontaritis dated effective January 1, 2014	Incorporated by reference to our Form 8-K filed with the SEC on January 21, 2014
10.2	Acquisition Agreement between HCi VioCare Technologies Limited and Christos Kapatos dated February 2, 2014	Incorporated by reference to our Form 8-K filed with the SEC on February 14, 2014.
10.3	Acquisition Agreement between HCi VioCare Technologies Limited and Dr. Christos Kapatos dated April 16, 2014	Incorporated by reference to our Form 8-K filed with the SEC on May 6, 2014
10.4	Consulting Agreement between the Company and Dr. Christos Kapatos dated April 16, 2014	Incorporated by reference to our Form 8-K filed with the SEC on May 6, 2014
10.5	Consulting Agreement between the Company and Professor Stephan Solomonidis dated April 16, 2014	Incorporated by reference to our Form 8-K filed with the SEC on May 6, 2014
10.6	Consulting Agreement between the Company and Professor William Sandham dated April 16, 2014	Incorporated by reference to our Form 8-K filed with the SEC on May 6, 2014
10.7	Form of Advisory Board Agreement	Incorporated by reference to our Form 8-K filed with the SEC on May 6, 2014
10.8	Letter from Zhen dated June 19, 2014 regarding change in certified accountant.	Incorporated by reference to our Form 8-K filed with the SEC on June 25, 2014
10.9	Agreement between HCi Viocare Clinics UK Limited (Formerly W.D. Spence Prosthetics Limited) and Heleen Francoise Kist, dated November 7, 2014	Incorporated by reference to our Form 8-K filed with the SEC on November 12, 2014
10.10	Share purchase agreement between Sotirios Leontaritis and HCi Viocare Dated November 28, 2014	Incorporated by reference to our Form 8-K filed with the SEC on December 2, 2014
10.11	Private placement subscription agreement dated December 24, 2014	Incorporated by reference to our Form 8-K filed with the SEC on January 2, 2015
10.12	Consulting Agreement between the Company and Mikulas Dylowicz dated January 1, 2015	Incorporated by reference to our Form 8-K filed with the SEC on January 2, 2015
10.13	Form of Private Placement Subscription Agreement between the Company and a private investor  dated February 2, 2015	Incorporated by reference to our Form 8-K filed with the SEC on February 9, 2015
10.14	Form of Private Placement Subscription Agreement between the Company and a private investor  dated March 23, 2015	Incorporated by reference to our Form 10-K filed with the SEC on April 16, 2015
10.15	The Agreement with HELLENIC AMERICAN SECURITIES S.A. dated May 7, 2015	Incorporated by reference to our Form 8-K filed with the SEC on May 13, 2015
10.16	The Amendment of Acquisition Agreement between HCi VioCare Technologies Limited and Dr. Christos Kapatos dated May 8, 2015	Incorporated by reference to our Form 8-K filed with the SEC on May 13, 2015
10.17	The Addendums to the Consulting Agreements of April 16, 2014 with Dr. Christos Kapatos, Professor William Sandham and Professor Stephan Solomonidis dated May 1, 2015	Incorporated by reference to our Form 8-K filed with the SEC on May 13, 2015
10.18	The amendments to the scientific advisory agreements, dated May 8, 2015	Incorporated by reference to our Form 8-K filed with the SEC on May 13, 2015
10.19	The debt settlement agreement with Leontaritis dated May 28, 2015	Incorporated by reference to our Form 8-K filed with the SEC on June 3, 2015

 

 

 

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10.20	The grant notice for stock awards issued May 28, 2015	Incorporated by reference to our Form 8-K filed with the SEC on June 3, 2015
10.21	Loan agreement dated June 11, 2015 between the Company and its President, Sotirios Leontaritis	Incorporated by reference to our Form 8-K filed with the SEC on June 18, 2015
10.22	Trademark assignment dated March 18, 2015	Incorporated by reference to our Form 8-K filed with the SEC on June 18, 2015
10.23	The grant notice for stock award dated July 24, 2015	Incorporated by reference to our Form 8-K filed with the SEC on July 29, 2015
10.24	Consulting agreement between HCi Viocare and Sergios Katsaros, dated September 1, 2015	Incorporated by reference to our Form 8-K filed with the SEC on September 10, 2015
10.25	Form of Private Placement Subscription Agreement between the Company and a private investor	Incorporated by reference to our Form 8-K filed with the SEC on October 8, 2015
10.26	Form of Private Placement Subscription Agreement between the Company and the Individual	Incorporated by reference to our Form 8-K filed with the SEC on October 14, 2015
10.27	Addendum No. 1 to the services agreement between HCi Viocare Clinics UK Limited and Heleen Francoise Kist, dated October 15, 2015	Incorporated by reference to our Form 8-K filed with the SEC on October 16, 2015
10.28	Form of Private Placement Subscription Agreement between the Company and the Individuals	Incorporated by reference to our Form 10-Q filed with the SEC on November 16, 2015
10.29	Form of Private Placement Subscription Agreement between the Company and the Individual	Incorporated by reference to our Form 10-Q filed with the SEC on November 16, 2015
10.30	Form of Private Placement Subscription Agreement between the Company and the Individuals	Incorporated by reference to our Form 8-K filed with the SEC on January 8, 2016
10.31	The Agreement with LXM Finance LLP	Incorporated by reference to our Form 8-K filed with the SEC on February 11, 2016
10.32	The Agreement with Consultant dated February 1, 2016	Incorporated by reference to our Form 8-K filed with the SEC on February 11, 2016
10.33	The Agreement with Consultant dated February 18, 2016	Incorporated by reference to our Form 8-K filed with the SEC on February 11, 2016
10.34	The Agreement with Consultant dated February 19, 2016.	Incorporated by reference to our Form 8-K filed with the SEC on February 11, 2016
10.35	Form of Private Placement Subscription Agreement between the Company and the Individual	Incorporated by reference to our Form 8-K filed with the SEC on March 3, 2016
10.36	Form of Private Placement Subscription Agreement between the Company and the Individual	Incorporated by reference to our Form 8-K filed with the SEC on March 11, 2016
10.37	Addendum No. 1 to the consulting agreement between HCi Viocare and Sergios Katsaros, dated September 1, 2016	Incorporated by reference to our Form 8-K filed with the SEC on March 11, 2016
10.38	The grant notice for stock awards issued March 1, 2016	Incorporated by reference to our Form 8-K filed with the SEC on March 11, 2016
10.39	The grant notice for stock awards issued March 22, 2016	Incorporated by reference to our Form 8-K filed with the SEC on March 23, 2016
10.40	Form of Private Placement Subscription Agreement between the Company and the Individuals	Incorporated by reference to our Form 8-K filed with the SEC on April 18, 2016
10.41	The Agreement with Renell Wertpapierhandelsbank AG dated April 22, 2016	Incorporated by reference to our Form 8-K filed with the SEC on April 24, 2016
10.42	Form of Private Placement Subscription Agreement between the Company and the Individuals	Incorporated by reference to our Form 10-Q filed with the SEC on May 23, 2016
10.43	Professional Relations and Consulting Agreement between the Company and Acorn Management Partners, LLC	Incorporated by reference to our Form 10-Q filed with the SEC on May 23, 2016
10.44	The Agreement with HAS S.A. dated July 6, 2016	Incorporated by reference to our Form 10-Q filed with the SEC on August 22, 2016
10.45	Form of Private Placement Subscription Agreement between the Company and the Individuals	Incorporated by reference to our Form 8-K filed with the SEC on July 13, 2016
10.46	Form of Private Placement Subscription Agreement between the Company and the Individual	Incorporated by reference to our Form 8-K filed with the SEC on July 15, 2016
10.47	Form of Private Placement Subscription Agreement between the Company and the Individual	Incorporated by reference to our Form 8-K filed with the SEC on July 27, 2016
10.48	The Extension and Amendment of Engagement Letter with LXM Finance LLP	Incorporated by reference to our Form 10-Q filed with the SEC on August 22, 2016

 

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10.49	The Addendum No. 2 to the Consulting Agreement of April 16, 2014 with Dr. Christos Kapatos, dated August 2, 2016	Incorporated by reference to our Form 10-Q filed with the SEC on August 22, 2016
10.50	The Addendum No. 2 to the Scientific Advisory Board Agreement of April 15, 2014 with Dr. Christos Kapatos, dated August 2, 2016	Incorporated by reference to our Form 10-Q filed with the SEC on August 22, 2016
10.51	Form of termination relating to services agreement between HCi Viocare Clinics UK Limited and Heleen Francoise Kist, dated August 29, 2016	Incorporated by reference to our Form 8-K filed with the SEC on September 22, 2016
10.52	Form of Private Placement Subscription Agreements between the Company and the Individual subscribers	Incorporated by reference to our Form 8-K filed with the SEC on September 22, 2016
10.53	Form of Private Placement Subscription Agreement between the Company and the Individual	Incorporated by reference to our Form 10-Q filed with the SEC on November 14, 2016
10.54	Form of grant notice for stock awards issued October 24, 2016	Incorporated by reference to our Form 10-Q filed with the SEC on November 14, 2016
10.55	The agreement with KCN Ltd.	Incorporated by reference to our Form 10-Q filed with the SEC on November 14, 2016
10.56	Form of Private Placement Subscription Agreement between the Company and the Individual	Incorporated by reference to our Form 10-Q filed with the SEC on November 14, 2016
10.57	Form of Private Placement Subscription Agreement between the Company and the Individual	Incorporated by reference to our Form 8-K filed with the SEC on November 22, 2016
10.58	Form of Private Placement Subscription Agreement between the Company and the Individual	Incorporated by reference to our Form 8-K filed with the SEC on December 7, 2016
10.59	Addendum No. 2 to the consulting agreement between HCi Viocare and Sergios Katsaros, dated March 1, 2017	Incorporated by reference to our Form 8-K filed with the SEC on March 10, 2017
10.60	Addendum No. 1 to the consulting agreement between HCi Viocare and Sotirios Leontaritis dated January 1, 2017	Incorporated by reference to our Annual Report on Form 10-K filed with the SEC on April 19, 2017
10.61	The grant notice for stock awards issued March 3, 2017	Incorporated by reference to our Annual Report on Form 10-K filed with the SEC on April 19, 2017
10.62	The grant notice for stock awards issued March 6, 2017	Incorporated by reference to our Annual Report on Form 10-K filed with the SEC on April 19, 2017
10.63	The grant notice for stock awards issued March 7, 2017	Incorporated by reference to our Annual Report on Form 10-K filed with the SEC on April 19, 2017
10.64	The grant notice for stock awards issued March 17, 2017	Incorporated by reference to our Annual Report on Form 10-K filed with the SEC on April 19, 2017
10.65	The grant notice for stock awards issued March 22, 2017	Incorporated by reference to our Annual Report on Form 10-K filed with the SEC on April 19, 2017
10.66	Form of Private Placement Subscription Agreement between the Company and the Individuals	Incorporated by reference to our Form 8-K filed with the SEC on April 20, 2017.
14.1	Code of Ethics	Incorporated by reference to the registration statement filed with the SEC on Form 10-K dated April 6, 2009.
21	List of subsidiaries	- HCi Viocare Clinics UK Limited - HCi Viocare Technologies UK Limited - HCi Viocare Clinics (Hellas) S A
31.1	Certification of Principal Executive Officer and Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
32.1	Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
101.CAL	XBRL Taxonomy Extension Calculation Linkbase	Filed herewith
101.DEF	XBRL Taxonomy Extension Definition Linkbase	Filed herewith
101.INS	XBRL Instance Document	Filed herewith
101.LAB	XBRL Taxonomy Extension Label Linkbase	Filed herewith
101.PRE	XBRL Taxonomy Extension Presentation Linkbase	Filed herewith
101.SCH	XBRL Taxonomy Extension Schema	Filed herewith

 

 

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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.

		HCi Viocare
Date:	May 15, 2017	By:	/s/  Sotirios Leontaritis
		Name:	Sotirios Leontaritis
		Title:	Chief Executive Officer and President (Principal Executive Officer) Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

 

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