VICA Rafina Innovations Inc (CE)

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.

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HCi  Viocare

Notes to Unaudited Consolidated Financial Statements

Nine months ended September 30, 2017

 

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.

 

Note 2 - GOING CONCERN

The Company incurred net losses of $1,498,738 and $1,215,551 for the nine months ended September 30, 2017 and 2016, respectively and has a retained deficit of $33,247,945 as of September 30, 2017. In addition, the Company had a working capital deficiency of $1,298,512 and a stockholders' deficit of $1,125,272 at September 30, 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.

 

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HCi  Viocare

Notes to Unaudited Consolidated Financial Statements

Nine months ended September 30, 2017

 

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., up until its dissolution. 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 nine months ended September 30, 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=0.84722EUR, 1USD=0.74614GBP (September 30, 2017), and;

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

ii) income and expenses are translated at average exchange rates for nine months ended September 30, or 1USD=0.9000EUR, 1USD=0.7846GBP (September 30, 2017), and;

1USD=0.8960EUR, 1USD=0.7186GBP (September 30, 2016);

income and expenses are translated at average exchange rates for three months ended September 30, or 1USD=0.851277EUR, 1USD=0.76413GBP (September 30, 2017), and;

1USD=0.89164EUR, 1USD=0.76124GBP (September 30, 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.
 

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HCi  Viocare

Notes to Unaudited Consolidated Financial Statements

Nine months ended September 30, 2017

 

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 collectibility 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 and nine months ended September 30, 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 $49,627 and $222,214 for the three and nine months ended September 30, 2017, and $75,723 and $279,658 for the three and nine months ended September 30, 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.

 

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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 2014, 2015 and 2016 are open to examination by the taxing authorities.

 

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 September 30, 2017 and September 30, 2016, respectively, however, since the Company reflected a net loss in the three and nine-month period ended September 30, 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.
 

 

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.

 

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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.

In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting. The new guidance provides clarity and reduces both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. The accounting standard update will be effective for The Company beginning January 1, 2018 on a prospective basis, and early adoption is permitted. The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on the consolidated financial statements.

In August of 2017, the FASB issued guidance to better align the financial reporting related to hedging activities with the economic objectives of those activities and to simplify the application of current hedge accounting guidance. Entities are required to apply the guidance using a modified retrospective method as of the period of adoption. This guidance is effective for annual and interim periods beginning after December 31, 2018. Early adoption is permitted. Management is evaluating

 

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.

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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.

 

Machine equipment and lab equipment are amortized over 4 years.

 

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HCi  Viocare

Notes to Unaudited Consolidated Financial Statements

Nine months ended September 30, 2017

 

Note 7 - OFFICE LEASE

 

Office in Greece

-	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.

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HCi  Viocare

Notes to Unaudited Consolidated Financial Statements

Nine months ended September 30, 2017

 

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 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$25,940 (GBP £20,000) per annum (exclusive of VAT). On the second anniversary of the date of entry, the lease will increase to USD$51,880 (GBP £40,000) per annum (exclusive of VAT). In the third anniversary of the date of entry, the lease will be USD$51,880 (GBP £40,000) per annum (exclusive of VAT). In the fourth anniversary of the date of entry, the lease will decrease to USD$38,910(GBP £30,000) per annum (exclusive of VAT). In the fifth anniversary of the date of entry, the lease will be USD$51,880 (GBP £40,000) per annum (exclusive of VAT).

 

Under the term of the lease agreement, the Company paid a total of $25,940 (GBP £20,000) as security deposit which amount is included on the Company's balance sheet in prepaid expenses.
 

 

As of September 30, 2017, the approximate future aggregate minimum lease payments in respect of our current obligations were as follows:
 

⁽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 and DEBT SETTLEMENT

Loan #1

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$45,642) with an annual interest rate of 5%, payable within one year from the date of the agreement. As at September 30, 2017 a total of $48,943 remained due and payable in respect of this loan. Interest expenses of $584  and $1,629 were accrued in the thee and nine months ended September 30, 2017.

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HCi  Viocare

Notes to Unaudited Consolidated Financial Statements

Nine months ended September 30, 2017

Note 8 -   LOAN (continued)

 

Loan #2

On January 23, 2017, HCi Viocare Clinics UK Ltd., the Company's subsidiary, entered into a loan agreement with a third party to borrow EUR58,000 (US$63,393) with an annual interest rate of 10%, payable within one year from the date of the agreement.  On August 28, 2017, the note holder assigned EUR61,369 (USD$74,019) including the principal amount of EUR58,000 and all accrued interest thereon to a third party. During the period ended August 28, 2017, the interest expenses was $3,618 (EUR3,368)

Loan #3

On April 12, 2017, the Company entered into a loan agreement with a third party to borrow US$7,500 with an annual interest rate of 10%, payable within one year from the date of the agreement. On August 28, 2017, the note holder assigned $7,773 including the principal amount of $5,000 and accrued interest thereon of $273 to a third party. During the period ended August 28, 2017, the interest expenses was $273'

Loan #4

On August 14, 2017, the Company entered into a loan agreement with a third party to borrow US$5,000 with an annual interest rate of 1.5%, payable within one year from the date of the agreement . On August 28, 2017, the note holder assigned the principal balance of $5,000 to a third party. Interest thereon was negligible at the assignment date and was waived.

Loans settled by issuance of shares

On August 28, 2017, a third party was assigned Loan 2, Loan 3 and Loan 4 above in the cumulative amount of $86,792 and the Company settled such amount by the issuance of 1,000,000 shares of the Company's common stock at a deemed price of USD$0.087. the Company record $17,707 as a loss on debt settlement due to the difference between the market price on the date of transactions and the value of the debt.

Note 9 -   COMMITMENTS
 

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$47,213  (€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. Currently the Company and Dr. Kapatos are negotiating terms of the contract extension.

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HCi  Viocare

Notes to Unaudited Consolidated Financial Statements

Nine months ended September 30, 2017

 

Note 9 -   COMMITMENTS (continued)
 

 

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. This agreement terminated on expiry.
 

500,000 shares have been valued at $79,950, the fair market value on grant date, which amount has been expensed as consulting expenses.

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 on grant date, which amount has been expensed as consulting expenses.

Note 10 -   RELATED PARTY TRANSACTIONS

The following table provides details of the Company's related party transactions during the nine months ended September 30, 2017 and 2016:

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HCi  Viocare

Notes to Unaudited Consolidated Financial Statements

Nine months ended September 30, 2017

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HCi  Viocare

Notes to Unaudited Consolidated Financial Statements

Nine months ended September 30, 2017
 

Note 10 -   RELATED PARTY TRANSACTIONS (continued)

(a) Services provided from related parties:(cont'd)

 

 

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

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HCi  Viocare

Notes to Unaudited Consolidated Financial Statements

Nine months ended September 30, 2017

 

Note 11 -   OTHER EVENTS

Effective July 19, 2017, HCi Viocare Clinics UK Limited and Tharawat Holdings Company ("Tharawat"), a company incorporated under the laws of Saudi Arabia, entered into a Joint Venture agreement for the formation of a company in the Kingdom of Saudi Arabia, with the purpose of setting up a network of Prosthetics and Orthotics centres throughout the Middle East. The agreement foresees the establishment of Prosthetics and Orthotics centres throughout the agreed territory, with a total annual capacity of 10,000 amputees and 30,000 orthotic clients, as per International Society for Prosthetics and Orthotics ("ISPO") standards. 

 

Note 12 -   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)
 

Share issuances during the nine months ended September 30, 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.

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HCi  Viocare

Notes to Unaudited Consolidated Financial Statements

Nine months ended September 30, 2017

Note 12 -   CAPITAL STOCK (continued)

 

Share issuances during the nine months ended September 30, 2017 (cont'd)

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.

On April 20, 2017, the Company entered into Private Placement Subscription Agreements 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.

On April 28, 2017, the Company entered into Private Placement Subscription Agreements with certain individuals. Under the terms of the agreements the individuals subscribed for a total of 250,000 shares of the Company's common stock at a purchase price of US$0.20 per share for total cash proceeds of US$50,000. The shares are subject to applicable resale restrictions.

On May 18, 2017, the Company entered into Private Placement Subscription Agreements with certain individuals. Under the terms of the agreements the individuals subscribed for a total of 400,000 shares of the Company's common stock at a purchase price of US$0.20 per share for total cash proceeds of US$80,000. The shares are subject to applicable resale restrictions.

On June 1, 2017, the Company entered into Private Placement Subscription Agreements with certain individuals. Under the terms of the agreements the individuals subscribed for a total of 500,000 shares of the Company's common stock at a purchase price of US$0.2239 ( €0.20) per share for total cash proceeds of US$111,949 (€100,000). The shares are subject to applicable resale restrictions.

On June 21, 2017 the Company received proceeds totaling US$11,327 in respect to a Private Placement Subscription Agreement entered into with an individual on July 5, 2017.  Under the terms of the agreements the individual subscribed for a total of 66,627 shares of the Company's common stock at a purchase price of US$0.17 per share. The shares are subject to applicable resale restrictions.

F-18

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HCi  Viocare

Notes to Unaudited Consolidated Financial Statements

Nine months ended September 30, 2017

Note 12 -   CAPITAL STOCK (continued)

 

Share issuances during the nine months ended September 30, 2017 (cont'd)

 

On July 26, 2017, the Company entered into a Private Placement Subscription Agreement with an individual. Under the terms of the agreement the individual subscribed for a total of 254,916 shares of the Company's common stock at a purchase price of US$0.12 per share for total cash proceeds of $30,590.

On August 10, 2017 the Company received proceeds totaling US$17,552 in respect to a Private Placement Subscription Agreement with an individual which closed on October 23, 2017.  Under the terms of the agreements the individual subscribed for a total of 292,531 shares of the Company's common stock at a purchase price of US$0.06 per share. The shares are subject to applicable resale restrictions.
 

On August 24, 2017, the Company approved the grant of stock awards totaling 100,000 common shares as compensation for the services provided by certain employees and consultants to its subsidiary companies.  Each of the awards was fully vested on the grant date. 100,000 shares have been valued at $12,500, the fair market value on grant date, which amount has been expensed as stock based compensation.
 

On August 24, 2017, the Company approved the grant of a stock award of 50,000 common shares as compensation for the services provided by Mr. Brian Maguire, Director of the Company's subsidiary, HCi Viocare Clinics UK Ltd. The stock award was fully vested on the grant date. 50,000 shares have been valued at $6,250, the fair market value on grant date, which amount has been expensed as stock based compensation.

 

As at September 30, 2017 and December 31, 2016 the Company had a total of 195,064,844 and 192,814,844 shares issued and outstanding, respectively.

F-19

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Note 12 -   CAPITAL STOCK (continued)

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.

Note 13 - 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.

F-20

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HCi  Viocare

Notes to Unaudited Consolidated Financial Statements

Nine months ended September 30, 2017

 

The aforementioned options have an average remaining life of 1.57 years. 

Common stock:

 

 

The aforementioned options have an average remaining life of 4.25 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.

F-21

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Common stock:

 

Note 14– 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.

F-22

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HCi  Viocare

Notes to Unaudited Consolidated Financial Statements

Nine months ended September 30, 2017

 

Note 14– PROVISION FOR INCOME TAXES: (continued)

 

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 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 September 30, 2017 was $ 5,303,600 in the U.S., $ 1,468,900 in Greece and $ 294,879 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.

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

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

		Nine months ended September 30,
		2017				2016
Current operations		$	56,210			$	113,500
Less, Change in valuation allowance			(56,210	)			(113,500	)
Net refundable amount		$	-			$	-

F-23

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HCi  Viocare

Notes to Unaudited Consolidated Financial Statements

Nine months ended September 30, 2017

 

The Company has no tax position at September 30, 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 September 30, 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.

Note 15 - 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 September 30, 2017:

 

F-24

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Nine months ended September 30, 2017:
 

 

Nine months ended September 30, 2016:
 

 

F-25

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