CONSOLIDATED BALANCE SHEETS
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
234,380
|
|
|
352,498
|
|
Accounts receivable
|
|
|
63,497
|
|
|
27,557
|
|
Other receivable
|
|
|
68,510
|
|
|
59,827
|
|
Inventory
|
|
|
4,572
|
|
|
4,395
|
|
Prepaid expenses
|
|
|
52,942
|
|
|
50,525
|
|
Total Current Assets
|
|
|
423,901
|
|
|
494,802
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
141,197
|
|
|
155,029
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
565,098
|
|
|
649,831
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
Accounts payable, advances and accrued expenses
|
|
$
|
530,488
|
|
|
582,781
|
|
Accounts payable and accrued expenses-related party
|
|
|
2,711
|
|
|
508,853
|
|
Convertible debt, related parties
|
|
|
721,564
|
|
|
-
|
|
Income tax payable
|
|
|
80,000
|
|
|
80,000
|
|
Advances from a related party
|
|
|
-
|
|
|
341,355
|
|
Notes payable, third parties
|
|
|
49,287
|
|
|
47,921
|
|
Total Current Liabilities
|
|
|
1,384,050
|
|
|
1,560,910
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
1,384,050
|
|
|
1,560,910
|
|
|
|
|
|
|
|
|
|
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, 2018 and December 31, 2017
|
|
|
-
|
|
|
-
|
|
Common stock, par value $0.0001, 700,000,000 shares authorized;
256,033,852 shares issued and outstanding as of March 31, 2018 and 238,385,684 shares issued and outstanding as of December 31, 2017
|
|
|
25,603
|
|
|
23,838
|
|
Additional paid-in capital
|
|
|
|
|
|
33,819,056
|
|
Retained Deficit
|
|
|
(35,430,148
|
)
|
|
(34,736,633
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
(48,221
|
)
|
|
(17,340
|
)
|
Stockholders' equity (deficit)
|
|
|
(818,952
|
)
|
|
(911,079
|
)
|
Total Liabilities and Stockholders' Equity (Deficit)
|
|
$
|
565,098
|
|
|
649,831
|
|
See Notes to Unaudited Consolidated Financial Statements
HCi Viocare
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
|
|
For the Three Months ended
|
|
|
|
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
$
|
131,780
|
|
|
$
|
86,440
|
|
Cost of goods sold
|
|
|
39,503
|
|
|
|
47,557
|
|
Gross Profit
|
|
|
92,277
|
|
|
|
38,883
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
19,455
|
|
|
|
20,908
|
|
Office rent
|
|
|
28,586
|
|
|
|
18,704
|
|
Office expenses
|
|
|
63,412
|
|
|
|
40,208
|
|
Consultancy Fees
|
|
|
537,225
|
|
|
|
357,772
|
|
Professional fees
|
|
|
19,436
|
|
|
|
239,139
|
|
Research and development
|
|
|
83,328
|
|
|
|
78,066
|
|
Travel and entertainment
|
|
|
35,561
|
|
|
|
19,285
|
|
Total Operating Expenses
|
|
|
787,003
|
|
|
|
774,082
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations
|
|
|
(694,726
|
)
|
|
|
(735,199
|
)
|
|
|
|
|
|
|
|
|
|
Other Income (Expenses)
|
|
|
|
|
|
|
|
|
Gain (Loss) on foreign currency transaction
|
|
|
1,825
|
|
|
|
(910
|
)
|
Interest Expenses due to third party
|
|
|
(614
|
)
|
|
|
(1,536
|
)
|
Total Other Income (Expenses)
|
|
|
1,211
|
|
|
|
(2,446
|
)
|
|
|
|
|
|
|
|
|
|
Income (Loss) before Provision for Income Tax
|
|
|
(693,515
|
)
|
|
|
(737,645
|
)
|
|
|
|
|
|
|
|
|
|
Provision for Income Tax
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
(693,515
|
)
|
|
$
|
(737,645
|
)
|
|
|
|
|
|
|
|
|
|
Basic and fully diluted loss per share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
246,048,657
|
|
|
|
192,943,733
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss) :
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(693,515
|
)
|
|
$
|
(737,645
|
)
|
Effect of foreign currency translation
|
|
|
(30,881
|
)
|
|
|
(14,296
|
)
|
Comprehensive Loss
|
|
$
|
(724,396
|
)
|
|
$
|
(751,941
|
)
|
See Notes to Unaudited Consolidated Financial Statements
HCi Viocare
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(693,515
|
)
|
|
$
|
(737,645
|
)
|
Adjustments to reconcile net loss to net cash used by operating activities:
|
|
|
|
|
|
|
|
|
Stock option expense
|
|
|
184,643
|
|
|
|
122,543
|
|
Shares issued for stock award
|
|
|
272,500
|
|
|
|
388,900
|
|
Depreciation
|
|
|
19,455
|
|
|
|
20,908
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease (Increase) in accounts receivable
|
|
|
(34,143
|
)
|
|
|
(9,835
|
)
|
Decrease (Increase) in prepaid expense
|
|
|
(3,879
|
)
|
|
|
1,201
|
|
Decrease (Increase) in other receivable
|
|
|
(881
|
)
|
|
|
(1,066
|
)
|
Decrease (Increase) in inventory
|
|
|
-
|
|
|
|
522
|
|
Increase (Decrease) in accounts payable and accrued expenses
|
|
|
(53,412
|
)
|
|
|
34,319
|
|
Increase (Decrease) in accounts payable and accrued expenses, related party
|
|
|
(102,149
|
)
|
|
|
62,192
|
|
Net cash used by operating activities
|
|
|
(411,381
|
)
|
|
|
(117,961
|
)
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
Net cash (used) by investing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
Advances and Loans from related parties
|
|
|
64,603
|
|
|
|
61,365
|
|
Repayments, advances and loans from related party
|
|
|
(122,427
|
)
|
|
|
(41,959
|
)
|
Loans from third parties
|
|
|
-
|
|
|
|
103,818
|
|
Proceeds from private placement
|
|
|
359,381
|
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
301,557
|
|
|
|
123,224
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
|
|
|
(109,824
|
)
|
|
|
5,263
|
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period
|
|
|
352,498
|
|
|
|
2,492
|
|
Effects of exchange rates on cash
|
|
|
(8,294
|
)
|
|
|
(1,324
|
)
|
Cash at end of period
|
|
$
|
234,380
|
|
|
$
|
6,431
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental Non-Cash Activities
|
|
|
|
|
|
|
|
|
Reclassification of related party accounts payable and advances to convertible debt, related parties
|
|
$
|
721,564
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
See Notes to Unaudited Consolidated Financial Statements
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2018
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 segment 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 operate a prosthetic and orthotic (P&O) total rehabilitation clinic in Glasgow, Scotland.
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 center 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.
HCi Viocare
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2018
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 planning and development of a P&O clinic in Athens, Greece. On August 2, 2017 the Company commenced the dissolution and liquidation of this corporation. As at the date of this report, the dissolution has not yet been concluded.
Note 2 - GOING CONCERN
The Company incurred net losses of $693,515 and $737,645 for the three months ended March 31, 2018 and 2017, respectively and has a retained deficit of $35,430,148. In addition, the Company had a working capital deficiency of $960,149 and a stockholders' deficit of $818,952 at March 31, 2018. 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 up until the close of fiscal 2017 on its Chief Executive Officer and President as more fully disclosed in Note 10.
Note 3 - CONTROL BY PRINCIPAL STOCKHOLDER/OFFICER
Up until March 30, 2018 our Chief Executive Officer owned beneficially and, in the aggregate, the majority of the voting power of the Company.
On March 22, 2018 and March 30, 2018 respectively, Sotirios Leontaritis, the President, Chief Executive Officer and a Director of the Company, entered into a Share Purchase Agreement (the "SPA") and an amendment thereto (the "Addendum"), (collectively herein referred to herein as the "Agreement") with Maschari Ltd. ("Maschari"), a Company incorporated in Cyprus, pursuant to which Mr. Leontaritis sold 122,710,562 of his restricted common shares to Maschari.
The shares sold by Mr. Leontaritis represent approximately 49.1% of the Company's total outstanding shares of common stock. Mr. Leontaritis continues to hold 20,000,000 shares of the Company's common stock representing approximately 8% of the issued and outstanding shares. As a result of the aforementioned transaction, Maschari
has the ability to control the approval of most corporate actions, including increasing the authorized capital stock and the dissolution, merger or sale of the Company's assets, as may be presented at Shareholder meetings from time to time.
HCi Viocare
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2018
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. On August 2, 2017 the Company commenced the dissolution and liquidation of HCi Viocare Clinics (Hellas) S.A. All significant intercompany balances and transactions have been eliminated.
Basis of Presentation
The interim unaudited financial information referred to above has been prepared and presented in conformity with accounting principles generally accepted in the United States applicable to interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. The interim financial information has been prepared on a condensed basis, such that certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted in accordance with rules and regulations of the Securities and Exchange Commission. These interim financial statements include all adjustments that, in the opinion of management, are necessary in order to make the financial statements not misleading.
This report on Form 10-Q should be read in conjunction with the Company's financial statements and notes thereto included in the Company's Form 10-K for the fiscal year ended December 31, 2017 filed on May 17, 2018. Results of the three ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ended December 31, 2018 and any other future periods.
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.
HCi Viocare
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2018
Note 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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=0.81158EUR, 1USD=0.71239GBP (March 31, 2018), and;
1USD=0.8347EUR, 1USD=0.74108GBP (December 31, 2017);
ii)
|
income and expenses are translated at average exchange rates for three months ended March 31, or
|
1USD=0.8137EUR, 1USD=0.7189GBP (March 31, 2018), and;
1USD=0.93136EUR, 1USD=0.80731GBP (March 31, 2017);
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.
Revenue Recognition
Effective January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue Recognition. Under ASC 605, revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the performance of service has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid by a customer is fixed and determinable; and (4) the collectibility of the fee is reasonably assured.
The Company recognizes revenue when the earnings process is complete and persuasive evidence of an arrangement exists. This generally occurs for revenue recorded in our P&O Clinics division 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 collectibility is reasonably assured. Revenue is recognized upon issuance of an invoice and completion of each concluded stage of work performed on a prosthetic product. The Company recognizes revenue from its technology licensing fees and/or product development fees upon conclusion of services provided under contract.
There was no impact on the Company's financial statements as a result of adopting Topic 606 for the three months ended March 31, 2018 and 2017, or the fiscal year ended December 31, 2017.
HCi Viocare
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2018
Note 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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, 2018 and 2017, 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 $83,328 and $78,066 for the three months ended March 31, 2018 and 2017, 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.
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.
HCi Viocare
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2018
Note 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes (continued)
The Company has a 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 and recorded a valuation allowance offsetting the entire potential tax benefit.
Income tax years for 2014 through 2016 have been remitted timely and remain open to examination by the taxing authorities. The tax return for fiscal 2017 has not yet been filed. The Company has been assessed late filing penalties of $10,000 per year, as well as accrued interest thereon, for each of the late filed returns for the periods from inception to December 31, 2012. Prior to a change in control at the close of fiscal 2013, prior management had not timely filed their annual tax returns. We have estimated and accrued penalties of $80,000 as taxes payable in our financial statements. The Company has retained a tax professional to assist in reaching a settlement with the IRS.
Basic and Diluted 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, 2018 and December 31, 2017, respectively, however, since the Company reflected a net loss in the three months ended March 31, 2018 and 2017, 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, 2018
|
|
December 31, 2017
|
|
Convertible debt at $0.03 per share
|
|
|
24,052,133
|
|
|
-
|
|
Common stock issuable upon conversion of 25,000 Series A Preferred Stock Options
|
|
|
500,000
|
|
|
500,000
|
|
Common stock issuable upon exercise of stock options
|
|
|
38,000,000
|
|
|
28,000,000
|
|
Total
|
|
|
62,552,133
|
|
|
28,500,000
|
|
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.
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2018
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
There were various accounting standards and interpretations issued recently, none of which are expected to have a material effect on the Company's operations, financial position or cash flows.
Note 5 - PREPAID EXPENSES
Prepaid expenses consist of the following:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Office lease, including security deposits
|
|
$
|
41,134
|
|
|
$
|
39,582
|
|
Travel advances and other expenses
|
|
|
11,808
|
|
|
|
10,943
|
|
Total prepaid expense
|
|
$
|
52,942
|
|
|
$
|
50,525
|
|
HCi Viocare
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2018
Note 6 - PROPERTY AND EQUIPMENT
Property and improvements consisted of the following as of March 31, 2018 and December 31, 2017:
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
Cost
|
|
|
|
|
|
|
|
|
$
|
211,628
|
|
|
$
|
203,990
|
|
Furniture and fixture
|
|
|
33,967
|
|
|
|
32,781
|
|
Computers and equipment
|
|
|
35,406
|
|
|
|
33,144
|
|
Vehicle
|
|
|
61,608
|
|
|
|
59,902
|
|
Machine and plant
|
|
|
9,577
|
|
|
|
9,206
|
|
Lab equipment
|
|
|
35,497
|
|
|
|
34,123
|
|
|
|
|
387,683
|
|
|
|
373,146
|
|
Less: accumulated depreciation and impairment
|
|
|
(246,486
|
)
|
|
|
(218,117
|
)
|
|
|
$
|
141,197
|
|
|
$
|
155,029
|
|
Leasehold improvements are amortized over the term of the lease: three to ten years.
Furniture is depreciated over three to five years and computer and equipment is depreciated over three years.
Vehicles are depreciated over five years.
Machine equipment and lab equipment are depreciated over 4 years.
Depreciation expense amounted to $19,455 and $20,908 for the three months ended March 31, 2018 and 2017, respectively.
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 $1,900 (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 a deposit and $20,963 (EUR €15,540) for ten months' rental fee upon executing the agreement. As of March 31, 2018, $3,697 (EUR €3,000) is shown as deposits in the prepaid account. The lease has been renewed effective June 13, 2017 for a term of 3 years terminating on February 28, 2020 at a rate of $1,960 (EUR€1,592) plus a fee of 3.6%
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2018
Note 7 - OFFICE LEASE (continued)
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 deposits 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, 2018 and December 31, 2017:
|
March 31,
2018
|
|
December 31,
2017
|
|
|
|
|
|
|
Amount owed for maintenance charges
|
|
$
|
16,700
|
|
|
$
|
16,238
|
|
Amount owed for utility charges
|
|
|
17,287
|
|
|
|
16,807
|
|
|
|
$
|
33,987
|
|
|
$
|
33,045
|
|
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 March 1, 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$28,000 (GBP £20,000) per annum (exclusive of VAT). On the second anniversary of the date of entry, the lease will increase to USD$56,000 (GBP £40,000) per annum (exclusive of VAT). In the third anniversary of the date of entry, the lease will be USD$56,000 (GBP £40,000) per annum (exclusive of VAT). In the fourth anniversary of the date of entry, the lease will decrease to USD$42,000 (GBP £30,000) per annum (exclusive of VAT). In the fifth anniversary of the date of entry, the lease will be USD$56,000 (GBP £40,000) per annum (exclusive of VAT).
HCi Viocare
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2018
Note 7 - OFFICE LEASE (continued)
Lease in UK (continued)
Under the term of the lease agreement, the Company paid a total of $28,075 (GBP £20,000) as security deposits which amount is included on the Company's balance sheet in prepaid expenses.
Location
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
$
|
3,697
|
|
|
$
|
3,594
|
|
UK
|
|
|
37,437
|
|
|
|
35,988
|
|
|
|
$
|
41,134
|
|
|
$
|
39,582
|
|
As of March 31, 2018, the approximate future aggregate minimum lease payments in respect of our current obligations were as follows:
Location
|
|
Greece
|
|
|
United Kingdom
|
|
2018
|
|
|
17,200
|
|
|
|
33,340
|
|
2019
|
|
|
23,000
|
|
|
|
53,810
|
|
2020
|
|
|
3,800
|
|
|
|
9,360
|
|
|
|
$
|
44,000
|
|
|
$
|
96,510
|
|
Note 8 - LOANS
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$49,287) with an annual interest rate of 5%, payable within one year from the date of the agreement. As at March 31, 2018 and December 31, 2017 a total of $52,325 and $50,276, respectively, including accrued interest to date, remained due and payable in respect of this loan. Interest expenses of $614 were accrued in the three months ended March 31, 2018. The loan was not repaid in January 2018 and is currently in default.
|
Consulting Agreement with Dr. Christos Kapatos
|
On April 16, 2014, the Company entered into a Consulting Agreement with Christos 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. 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). Details of compensation under the terms of the consulting agreement are included in Note 10(ii).
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2018
Note 9 - COMMITMENTS (continued)
|
Consulting Agreement with JAMB
|
Effective July 10, 2017, the Company entered into a business consulting agreement (the "Consulting Agreement") with JAMB Group LLC. ("Consultant") for services to commence July 15, 2017 and to continue for a period of twelve (12) months thereafter. Under the terms of the Agreement, the Consultant shall provide consulting services to the Company for the development and expansion of its business, including the introduction to specific Targets for the purposes of financing transactions or other business relationship. The Consultant is entitled to compensation for the provision of services in the form of 500,000 shares of the common stock which were issued upon execution of the Consulting Agreement, as well as certain other fees and consideration.
500,000 shares have been valued at $79,950, the fair market value of $0.1599 per share, on issue date, which amount has been expensed as consulting expenses in the year ended December 31, 2017.
|
Consulting Agreement with Mr. Stefanos Batzakis
|
On September 1, 2017, the Company entered into a one-year consulting agreement (the "Agreement") with Mr Stefanos Batzakis. As per terms of said Agreement Batzakis will provide services to the Company as IT Solutions Manager, for a term of one (1) year and receive compensation in the form of stock, namely five hundred thousand (500,000) common shares, which were issued upon signing of this Agreement.
500,000 shares have been valued at $40,000, the fair market value of $0.08 per share on issue date, which amount has been expensed as consulting expenses in the year ended December 31, 2017
(4)
|
Consulting Agreement with Dr. Ioannis Doupis
|
On October 9, 2017, the Company appointed Dr. Ioannis Doupis, to the Advisory Board of the Company originally formed on April 15, 2014 and Concurrently entered into an advisory board agreement. Compensation shall be the grant of a total of 500,000 shares of the Company's common stock valued at the fair market price on the date of grant of $0.07 per share. The advisory board appointment is for a term of one year.
500,000 shares have been valued at $35,000, the fair market value of $0.07 per share on issue date, which amount has been expensed as consulting expenses in the year ended December 31, 2017
(5)
|
Consulting Agreement with Ms. Paraskevi Pilarinou
|
On December 12, 2017, the Company entered into a consulting agreement (the "Agreement") with an Ms. Paraskevi Pilarinou (the "Consultant"). Under the terms and conditions of the Agreement the Consultant shall be employed in the position of Financial Controller of the Company. The Agreement has a three-year term starting on January 2, 2018 and ending on January 1, 2021 and the Consultant shall be remunerated with a monthly fee of EUR2,000 (IUSD$2,460) and was issued 2,000,000 shares of the Company's common stock. The 2,000,000 shares were issued as compensation as of the date of the agreement and were valued at $0.05 per share or $100,000, the fair market value on the date of issuance in the year ended December 31, 2017.
HCi Viocare
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2018
Note 9 - COMMITMENTS (continued)
(6)
|
Consulting Agreement with Charalampos Sgardelis
|
On January 2, 2017, the Company entered into a one-year consulting agreement (the "Agreement") with Mr. Charalampos Sgardelis ("Sgardelis"). Under the terms of the Agreement, Sgardelis provides services to the Company as Business Development Manager, for a term of one (1) year and receives compensation of Two Thousand Euros (2,000 €) per month.
On February 26, 2018 the Company approved a three (3) year extension to the Agreement (the "Addendum") between the Company and Sgardelis. Under the terms and conditions of the Addendum, Sgardelis is entitled to receive compensation of Three Thousand Euros (3,000 €) per month and shall be awarded five million (5,000,000) common shares upon execution of the Addendum. The shares were valued at fair market value on the date of issuance or $0.049 per share for total consideration of $245,000.
(7)
|
Advisory Agreement with Ravi Vaidyanathan
|
On March 27, 2018, the Company entered into a one-year advisory agreement (the "Agreement") with an Mr. Ravi Vaidyanathan (the "Advisor"). Under the terms and conditions of the Agreement, the Advisor is appointed to the Company's Scientific Advisory Board and is entitled to remuneration for the provision of services in the form of 500,000 shares of the common stock to be issued upon signing of the Agreement. Further, the Advisor shall be granted additional 250,000 shares of the common stock to be issued after a time-period of six (6) months from the signing of the Agreement. The Advisor shall serve on the Scientific Advisory Board in the position of Biomechatronics and Human Augmentation Advisor. The Company or the Advisor may terminate the agreement upon 30 days written notice. The issued shares were valued at fair market value on the date of issuance or $0.055 per share for total consideration of $27,500.
Note 10 - RELATED PARTY TRANSACTIONS
The following table provides details of the Company's related party transactions during the three months ended March 31, 2018 and 2017
(a)
|
Services provided from related parties:
|
|
|
Three Months ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Consulting fees from CEO and President (i)
|
|
$
|
38,867
|
|
|
$
|
30,000
|
|
Consulting fees from a Director (ii)
|
|
|
15,361
|
|
|
|
10,655
|
|
Professional fees from Director (iii)
|
|
|
3,687
|
|
|
|
3,196
|
|
Consulting fees for VP (iv)
|
|
|
12,903
|
|
|
|
6,393
|
|
Stock options granted to CEO and President (i)
|
|
|
122,543
|
|
|
|
122,543
|
|
Stock options granted to Director (ii)
|
|
|
45,300
|
|
|
|
-
|
|
Stock options granted to VP (iv)
|
|
|
16,800
|
|
|
|
-
|
|
Stock award granted to Director (iii)
|
|
|
-
|
|
|
|
172,000
|
|
Stock-based compensation (VP) (iv)
|
|
|
-
|
|
|
|
187,200
|
|
|
|
$
|
255,461
|
|
|
$
|
409,444
|
|
HCi Viocare
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2018
Note 10 - RELATED PARTY TRANSACTIONS (cont'd)
(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 regard to the Company's management and operations for the period from January 1, 2014 to December 31, 2016. 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. In January 2018, the Company agreed to revise the currency of Mr. Leontaritis salary, and his compensation changed from US$10,000 per month to EUR$10,000 per month. 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 recognized stock-based compensation expense allocated to consulting fees of $122,543 during the three months ended March 31, 2018 and 2017. The unrecognized amount of $1,838,151 will be expensed in future periods.
Over the remaining term of his contract which expires in fiscal 2019, Mr. Leontaritis is entitled to total minimum payments of EUR$210,000 (US$258,080).
|
(ii)
|
On September 30, 2013, the Board of Directors of the Company appointed Dr. Christos Kapatos as a director of the Company. On April 16, 2014, the Company entered into a consulting contract with Dr. Kapatos where under his compensation shall be USD$49,290 (€40,000) per year payable in equal monthly installments beginning on May 1, 2014. On May 1, 2015, the Company approved a one-year extension of the consulting agreement, and on August 2, 2016 the Company approved a further one-year extension so that the agreement will expire April 16, 2017. During fiscal 2017 and fiscal 2016 Dr. Kapatos invoiced the Company
Euros €40,000 for services rendered in each fiscal year respectively.
On December 12, 2017, the Company approved the issuance of 18,500,000 common shares to Dr. Christos Kapatos, CTO and Director of the Company, as consideration for the transfer of certain complementary technological developments and work in progress, in the form of a stock award which vested as of the date of grant. The 18,500,000 shares have been valued at $925,000, or $0.05 per share, the fair market value on grant date, which amount has been expensed as research and development expenses. Concurrently, the Company approved a six-year extension to the consulting agreement with Dr. Kapatos. The revision to the Agreement ("Addendum No. 3") has a term of six years, being effective as of April 16, 2017, and ending on April 15, 2023, renewable for such further term as may be mutually agreed between the parties. As per Addendum No. 3 Mr. Kapatos shall receive annual compensation of EUR50,000 (US$61,610) and shall be entitled to a 100% bonus of the total annual compensation for every profitable year of the Company. Dr Kapatos shall also be entitled to acquire at his discretion 25,000,000 shares of the common stock at a price of $US0.05 for a term of six years.
The Company recognized stock-based compensation expense allocated to consulting fees of $45,300 during the three months ended March 31, 2018. The unrecognized amount of $1,030,200 will be expensed in future periods.
Over the remaining term of his contract which expires in fiscal 2023, Dr. Kapatos is entitled to total minimum payments of EUR287,500 (US$353,324).
|
(iii)
|
|
On September 10, 2013, the Board of Directors of the Company elected Nikolaos Kardaras as Secretary and a director of the Company. During each of fiscal 2017 and fiscal 2016, Mr. Kardaras invoiced the Company EUR12,000 for services rendered in his capacity as a director which amount totaled US$13,500 and $13,300 respectively.
On March 3, 2017, the Company approved the issuance of 1,000,000 common shares for the services provided by Mr. Nikolaos Kardaras in the form of a stock award which vested as of the date of grant. 1,000,000 shares have been valued at $172,000, the fair market value of $0.172 per share on issue date, which amount has been expensed as stock based compensation.
|
HCi Viocare
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2018
Note 10 - RELATED PARTY TRANSACTIONS (continued)
(a) Services provided from related parties:(cont'd)
|
|
On September 1, 2015, the Board of Directors of the Company approved a consulting agreement with Sergios Katsaros and appointed Mr. Katsaros Vice President.
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$2,460 (€2,000)
per month.
On March 1, 2016, the Company approved a one-year extension to the consulting agreement
and 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. During fiscal 2016 a total of $169,000 in respect of 200,000 vested shares was recorded as stock based compensation. 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 in 2017.
On March 17, 2017, the Company approved the issuance of a further 1,000,000 common shares for the services provided by Mr. Katsaros, in the form of a stock award which vested as of the date of grant. 1,000,000 shares have been valued at $170,000, the fair market value of $0.17 per share on grant date, which amount has been expensed as stock-based compensation.
On December 12, 2017 the Company approved a three-year extension to the consulting agreement between the Company and Mr. Katsaros effective as of January 2, 2018. The revision to the Agreement has a term of three years, being effective as of January 2, 2018, and ending on January 1, 2021, renewable for such further term as may be mutually agreed between the parties. Mr. Katsaros shall be remunerated with a monthly stipend of EUR3,500 (US$4,310), and shall be entitled to a 100% bonus of the total annual compensation for every profitable year of the Company.
Mr. Katsaros shall also be entitled to acquire at his discretion 10,000,000 shares of the common stock at a price of $US0.05 for a term of five years commencing January 2, 2018.
The Company recognized stock-based compensation expense allocated to consulting fees of $16,800 during the three months ended March 31, 2018. The unrecognized amount of $320,300 will be expensed in future periods.
Over the remaining term of his contract which expires in fiscal 2021, Mr. Katsaros is entitled to total minimum payments of EUR115,500 (US$141,944).
|
(b)
|
Accounts payable and accrued liabilities from related parties:
|
|
|
March 31,
|
|
December 31,
|
|
|
|
2018
|
|
2017
|
|
|
|
$
|
306,423
|
|
$
|
413,010
|
|
Director (ii)
|
|
|
116,229
|
|
|
95,843
|
|
Director (iii)
|
|
|
863
|
|
|
-
|
|
VP (iv)
|
|
|
1,848
|
|
|
-
|
|
Reclassification to Convertible Debt, Related parties
|
|
|
(422,652
|
)
|
|
|
|
|
|
$
|
2,711
|
|
$
|
508,853
|
|
(c)
|
Advances from related parties:
|
|
|
March 31,
|
|
December 31,
|
|
|
|
2018
|
|
2017
|
|
|
|
$
|
283,191
|
|
$
|
287,073
|
|
Director (ii)
|
|
|
15,721
|
|
|
54,282
|
|
Reclassification to Convertible Debt, Related Parties
|
|
|
(298,912
|
)
|
|
|
|
|
|
$
|
-
|
|
$
|
341,355
|
|
(d)
|
Convertible Debt, related parties:
|
On February 15, 2018, the Company and certain shareholders holding in excess of 5% of the Company's common stock and concurrently holding a position on the Company's Board, or acting in the capacity of any officer of the Company or its subsidiaries, agreed that repayment against pre-existing debt payable by the Company on the agreement date shall be suspended until such time as the Company concludes a full profitable year of operations. Further the parties agreed that any such pre-existing debt or portion thereof shall be convertible at any time into restricted shares of the Company's common stock at a price equal or greater to $0.03 per share. On the date of the agreement the fair market value of the Company's common stock as traded on OTCMarkets was $0.0403 per share. The Company accounted for this transaction by applying ASC 470-20-35. As the convertible debt has no stated redemption date, the Company will recognize the discount as interest expense on the earliest conversion date.
The Company has reclassified all debts payable as of February 15, 2018 to our CEO and CTO from advances and accounts payable, related party, to convertible debt, related party. At March 31, 2018 a total of $721,564 in debt was convertible into 24,052,133 shares of restricted common stock.
HCi Viocare
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2018
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 13 below)
Share issuances during the three months ended March 31, 2018
During the three months ended March 31, 2018
, 12,148,168 shares of common stock were issued in respect of various private placements for total cash proceeds of $359,381.
During the three months ended March 31, 2018, the Company issued 5,500,000 shares to employees, board members and consultants valued at $272,500, for services rendered. The Company valued these issuances based on the closing price of the Company's stock as reflected on the OTC Markets on the respective dates of issuance.
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.
A total of 25,000 stock options granted during April and June of fiscal 2014 entitling each holder 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 remain unexercised and outstanding as at March 31, 2018. The Series A Preferred shares are 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.
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2018
Note 12 - STOCK OPTIONS (continued)
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.
On December 12, 2017, Dr. Christos Kapatos, director, was issued a stock option as part of an extension to his employment contract whereunder, at his discretion, he may to acquire 25,000,000 shares of the common stock at a price of $US0.05 for a term of six years.
Mr. Katsaros shall also be entitled to acquire at his discretion 10,000,000 shares of the common stock at a price of $US0.05 for a term of five years commencing January 2, 2018.
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 $184,643 and $122,543 during the three months ended March 31, 2018 and 2017, respectively. The unrecognized amount of $3,188,651 will be expensed in future periods.
The following table summarizes information concerning stock options outstanding as of March 31, 2018, and December 31, 2017:
Series A Preferred Stock:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
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 canceled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at the period
|
|
|
25,000
|
|
|
|
0.04
|
|
|
|
25,000
|
|
|
|
0.04
|
|
The aforementioned options have an average remaining life of 1.07 years.
HCi Viocare
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2018
Note 12 - STOCK OPTIONS (continued)
Common stock:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
Common
stock
|
|
|
Weighted Average Exercise Price
$
|
|
|
Common
stock
|
|
|
Weighted Average Exercise Price
$
|
|
Outstanding at beginning of the year
|
|
|
28,000,000
|
|
|
|
0.076
|
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
10,000,000
|
|
|
|
0.05
|
|
|
|
28,000,000
|
|
|
|
0.076
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired or canceled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at the period
|
|
|
38,000,000
|
|
|
|
0.070
|
|
|
|
28,000,000
|
|
|
|
0.076
|
|
The aforementioned options have an average remaining life of 5.55 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 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:
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
|
|
|
|
Options Granted date
|
|
Fair value of options granted
|
|
0.038 ~ 0.925
|
|
Assumptions used:
|
|
|
|
Expected life (years) (a)
|
|
5 ~ 6
|
|
Risk free interest rate (b)
|
|
1.93% ~ 2.25%
|
|
Volatility (c)
|
|
175.40% ~ 254.86%
|
|
Dividend yield (d)
|
|
0.00
|
|
HCi Viocare
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2018
Note 12 - STOCK OPTIONS (continued)
Valuation Assumptions (continued)
The Company utilizes the Black-Scholes option pricing model to determine the fair value of each option award. Expected volatilities are based on the historical volatility of the Company's common stock over a period consistent with that of the expected term of the options. The expected term of the options are estimated based on factors such as vesting periods, contractual expiration dates and historical exercise behavior. The risk-free rates for periods within the contractual life of the options are based on the yields of U.S. Treasury instruments with terms comparable to the estimated option terms.
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 criteria required to be met to qualify for such relief.
The Company has experienced losses since inception. As a result, it has incurred no U.S. 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, 2018 was $2,891,200 in the U.S., $1,391,200 in Greece and $301,680 in the U.K. and as at December 31, 2017 was $
2,888,000 in the U.S., $
1,343,400 in Greece and $307,080 in the U.K.
On December 22, 2017, the 2017 Tax Cuts and Jobs Act (the Tax Act) was enacted into law including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective January 1, 2018, among others. We are required to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax, remeasuring our U.S. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities. While the Company has revenue we have no foreign earnings and therefore, we do not anticipate the impact of a transition tax. We have remeasured our U.S. deferred tax assets at a statutory income tax rate of 21% during fiscal 2017. Since the Tax Act was passed late in the fourth quarter of 2017, and ongoing guidance and accounting interpretation are expected over the next 12 months, we consider the accounting of any transition tax, deferred tax re-measurements, and other items to be incomplete due to the forthcoming guidance and our ongoing analysis of final year-end data and tax positions. We expect to complete our analysis within the measurement period in accordance with SAB 118, and no later than fiscal year end December 31, 2018.
HCi Viocare
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2018
Note 13 – PROVISION FOR INCOME TAXES: (continued)
The provision for income taxes in US consists of the following:
|
|
Three months ended March 31,
|
|
|
|
2018
|
|
2017
|
|
Current operations
|
|
$
|
99,200
|
|
$
|
204,457
|
|
Timing differences, Stock based compensation
|
|
|
(96,000
|
)
|
|
(132,226
|
)
|
Less, Change in valuation allowance
|
|
|
(3,200
|
)
|
|
(72,231
|
)
|
Net refundable amount
|
|
$
|
-
|
|
$
|
-
|
|
The provision for income taxes in Greece consists of the following:
|
Three months ended March 31,
|
|
|
2018
|
|
|
2017
|
|
Current operations
|
$
|
47,800
|
|
|
|
$
|
15,380
|
|
Less, Change in valuation allowance
|
|
(47,800
|
)
|
|
|
|
(15,380
|
)
|
Net refundable amount
|
$
|
-
|
|
|
|
$
|
-
|
|
The provision for income taxes in UK consists of the following:
|
|
Three months ended March 31,
|
|
|
|
2018
|
|
2017
|
|
Current operations
|
|
$
|
11,200
|
|
$
|
16,654
|
|
Research and development
|
|
|
(16,600
|
)
|
|
(13,113
|
)
|
Less, Change in valuation allowance
|
|
|
5,400
|
|
|
(3,541
|
|
Net refundable amount
|
|
$
|
-
|
|
$
|
-
|
|
The cumulative tax effect at the expected rates in the U.S., in Greece and in the U.K. for significant items comprising our net deferred tax amounts reported in US Dollars as of March 31, 2018 and December 31, 2017 are as follows:
|
March 31, 2018
|
|
December 31, 2017
|
|
|
US Expected rate 21%
|
|
Greece Expected rate 29%
|
|
UK Expected rate 20%
|
|
US Expected rate 21%
|
|
Greece Expected rate 29%
|
|
UK Expected rate 20%
|
|
Deferred tax asset attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryover
|
|
|
2,891,200
|
|
|
|
1,391,200
|
|
|
|
301,680
|
|
|
|
4,654,100
|
|
|
|
1,343,400
|
|
|
|
307,080
|
|
Change in effective tax rates
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,766,100
|
)
|
|
|
-
|
|
|
|
-
|
|
Less, Valuation allowance
|
|
|
(2,891,200
|
)
|
|
|
(1,391,200
|
)
|
|
|
(301,680
|
)
|
|
|
(2,888,000
|
)
|
|
|
(1,343,400
|
)
|
|
|
(307,080
|
)
|
Net deferred tax asset
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
HCi Viocare
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2018
Note 13 – PROVISION FOR INCOME TAXES: (continued)
The Company has no tax position at December 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. As a result of a re-assessment of certain late tax filings completed for the fiscal years ended 2007 through 2012 the IRS has assessed late filing penalties of approximately $80,000, which we have recognized and accrued in our balance sheets at December 31, 2017. The Company had no accruals for interest and penalties at December 31, 2016. The Company is aggressively negotiating with the IRS to have a portion or all of these penalties waived in a future period. 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.
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 costs on certain operational overhead including facility rent and staff salaries.
Three months ended March 31, 2018:
|
|
Clinics
(UK)
|
|
|
Technology
(UK)
|
|
|
All Other
(Greece)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
126,890
|
|
|
$
|
4,890
|
|
|
$
|
-
|
|
|
$
|
131,780
|
|
Depreciation & amortization
|
|
$
|
2,357
|
|
|
$
|
11,247
|
|
|
$
|
5,851
|
|
|
$
|
19,455
|
|
Net (Loss) from operations
|
|
$
|
20,469
|
|
|
$
|
(76,551
|
)
|
|
$
|
(637,433
|
)
|
|
$
|
(693,515
|
)
|
Interest expenses
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(614
|
)
|
|
$
|
(614
|
)
|
Assets
|
|
$
|
277,638
|
|
|
$
|
146,554
|
|
|
$
|
140,906
|
|
|
$
|
565,098
|
|
Expenditure on long-lived assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
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
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
HCi Viocare
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2018
Note 16 - SUBSEQUENT EVENTS
On May 3, 2018 the Company awarded 100,000 shares of the Company's restricted common stock to Mr. Nikolaos Gemelos as consideration for his services rendered as Consultant. The shares were valued at fair market value on the date of issuance or US$0.067 per share for total consideration of $6,700.
On May 23, 2018 the Company approved an amendment to the term of the scientific advisory agreement with Dr. Christos Kapatos, board member CTO and member of the Scientific Advisory Board, originally entered into on April 15, 2014 in order to extend the term to April 15, 2019.
On May 24, 2018 the Company incorporated a wholly owned subsidiary for purposes of completing a merger and name change from HCi Viocare to Rafina Innovations, Inc. Concurrently the Company's Board of Directors approved a reverse share split on the basis 20 for 1. Upon effect of the reverse split, our authorized capital will decrease from 700,000,000 shares of common stock to 35,000,000 shares of common stock and correspondingly, our current issued and outstanding shares of common stock will decrease from 259,762,025 to approximately 12,988,101 shares of common stock, all with a par value of $0.0001. Our preferred shares will remain unchanged. The Company has filed the agreement and plan of merger as well as the articles of amendment with the State of Nevada and the Financial Industry Regulatory Authority ("FINRA").
The Company's trading symbol will remain unchanged and is OTCMarkets:VICA. The Company's CUSIP will change to 75063R106.
The Company expects the aforementioned transactions to become effective on July 3, 2018. We will announce the completion of FINRA review and the effectiveness of these changes on the market by filing a Current Report on Form 8-K.
On May 31, 2018, the Company entered into a Debt Settlement and Subscription Agreement with the President of the Company, Mr. Sotirios Leontaritis. At March 31, 2018, the Company was indebted to Leontaritis in the amount of US$589,614 in respect to certain unpaid salary, advances for operational shortfalls and certain unsettled expense reimbursements. Leontaritis has agreed to accept 3,333,333 shares of the Company's common stock at a price of US$0.03 per share to settle US$100,000 of the debt pursuant to the terms and conditions set forth in the agreement.
On June 7, 2018, the Company entered into a six-month services agreement with Mr. Georgios Dritsoulas. As per terms of said Agreement, Mr. Dritsoulas will provide services to the Company as Consultant for the development and expansion of the Company's business for a term of six (6) months. Mr. Dritsoulas received compensation of fifty thousand (50,000) restricted common shares as compensation for the services provided.
On June 11, 2018, the Company entered into a Private Placement Subscription Agreement with Mr. Constantinos Zertalis, Director and beneficial owner of our controlling shareholder, Maschari Ltd. ("Maschari"). Under the terms of the Agreement Mr. Zertalis subscribed directly for a total of 294,840 shares of the Company's common stock at a purchase price of US$0.05 per share for total cash proceeds of US$14,724. The shares are subject to applicable resale restrictions. Prior to the aforementioned subscription agreement, Mr. Zertalis owned 122,710,562 shares of the common stock of HCi Viocare indirectly through Maschari, and 986,815 shares of the Company's common stock directly.
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.