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EX-31.1 - CERTIFICATION - Rafina Innovations Inc.ex311.htm
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549

Form 10-Q

(Mark One)
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the quarterly period ended September 30, 2014
   
[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the transition period from __________ to __________

000-53089
Commission File Number
 
HCi VioCare
(Exact name of registrant as specified in its charter)
   
Nevada
30-0428006
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
   
Centrum Offices, 38 Queen Street, Glasgow, U.K.
G1 3DX
(Address of principal executive offices)
(Zip Code)
 
44 141 548 8000
(Registrant’s  telephone number, including area code)
 
 N/A
 (Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 
Yes
 [X]
No
 [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 
Yes
 [   ]
No
 [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

 
 

 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 
Yes
 [  ]
No
 [X]

 
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST 5 YEARS:

Indicate by check mark whether the issuer has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

 
Yes
 [   ]
No
 [   ]
 
APPLICABLE ONLY TO CORPORATE REGISTRANTS

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

 
5,503,650 shares of common stock issued and outstanding as of November 18, 2014
 
 

 
2

 

HCI VIOCARE

TABLE OF CONTENTS

   
Page
 
PART I – Financial Information
 
     
Financial Statements
  5
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  6
Quantitative and Qualitative Disclosures About Market Risk
  13
Controls and Procedures
  13
     
 
PART II – Other Information
 
     
Legal Proceedings
  14
Risk Factors
  14
Unregistered Sales of Equity Securities and Use of Proceeds
  14
Defaults Upon Senior Securities
  14
Mine Safety Disclosures
  14
Other Information
  14
Exhibits
  15
    16

 

 
3

 

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  These statements relate to future events or our future financial performance.  A number of important factors could cause our actual results to differ materially from those expressed in any forward-looking statements made by us in this Form 10-Q.  In some cases, you can identify forward-looking statements by terminology such as "may," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or "continue" or the negative of these terms or other comparable terminology.  These statements are only predictions and involve known and unknown risks, uncertainties and other factors, which may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.
 
These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.
 
Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.
 
CERTAIN TERMS USED IN THIS REPORT
 
When this report uses the words “we,” “us,” “our,” and the “Company,” they refer to HCi VioCare and its consolidated subsidiaries, and “SEC” refers to the Securities and Exchange Commission.

 


 
4

 

PART I -- FINANCIAL INFORMATION.


The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 210 8-03 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments considered necessary for a fair presentation have been included.  All such adjustments are of a normal recurring nature.  Operating results for the three and nine month periods ended September 30, 2014, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2014.  For further information refer to the audited financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 as filed with the Securities and Exchange Commission on April 15, 2014.
 

 

 
5

 

HCi VioCare
CONSOLIDATED BALANCE SHEETS

   
September 30,
2014
   
December 31,
2013
 
   
(Unaudited)
   
(Audited)
 
             
ASSETS
           
Current Assets:
           
Cash and cash equivalents
 
$
127,400
   
$
-
 
Accounts receivable
   
966
         
Inventory
   
6,745
         
Prepaid expenses (Note 6)
   
19,703
     
-
 
          Total Current Assets
   
154,814
     
-
 
                 
Long-term Assets
               
Property, and equipment, net (Note 8)
   
40,952
     
-
 
Goodwill
   
172,389
         
          Total Long-term Assets 
   
213,341
     
-
 
                 
Total Assets
 
$
368,155
   
$
-
 
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
                 
Current Liabilities:
               
Accounts payable and accrued expenses (Note 7)
 
$
134,004
   
$
8,941
 
Accounts payable and accrued expenses-related party (Note 13)
   
171,498
     
30,959
 
Loan from a related party (Note 13)
   
76,647
     
32,252
 
Liabilities to be settled with common stock
   
-
     
1,250,000
 
          Total Current Liabilities
   
382,149
     
1,322,152
 
                 
Long-term Liabilities:
               
Convertible notes from a related party, net of discount (Note 11 and Note 13)
   
3,392
     
-
 
Deferred taxes
   
211
     
-
 
           Total Long-term Liabilities
   
3,603
     
 -
 
                 
Total Liabilities
   
385,752
     
1,322,152
 
                 
Commitments and Contingencies
               
                 
Stockholders' Deficit:
               
Preferred stock, par value $0.0001, 5,000,000 shares authorized;
               
none issued and outstanding as of September 30, 2014 and December 31, 2013
   
-
     
-
 
Common stock, par value $0.0001, 100,000,000 shares authorized;
               
5,503,650 shares issued and outstanding as of September 30, 2014
               
3,503,650 shares issued and outstanding as of December 31, 2013
   
550
     
350
 
Additional paid-in capital
   
4,323,260
     
372,110
 
Deficit accumulated during the development stage
   
(4,347,872
)
   
(1,694,612
)
Accumulated other comprehensive income
   
6,465
     
-
 
         Stockholders' deficiency
   
(17,597
)
   
(1,322,152
)
Total Liabilities and Stockholders' Deficiency
 
$
368,155
   
$
-
 
 


See Notes to Financial Statements

 
 
F-1

 
HCi VioCare
(Unaudited)
 
 
For the Three Months Ended
   
For the Nine Months
Ended
 
   
September 30,
   
September 30,
 
   
2014
   
2013
     
2014
   
2013
 
Revenues:
                         
Sales
 
$
17,562
   
$
-
   
$
17,562
   
$
-
 
Cost of goods sold
 
16,390
   
-
     
16,390
   
-
 
          Gross Profit
   
1,172
     
-
     
1,172
     
-
 
                                 
Operating Expenses
                               
Depreciation
   
2,724
     
 -
     
3,101
     
 -
 
Office rent
   
15,768
     
800
     
34,978
     
3,200
 
Office expenses
   
15,701
     
2,179
     
50,676
     
9,167
 
Consultancy Fees
   
35,342
     
-
     
109,572
     
-
 
Professional fees
   
37,198
     
1,405
     
75,316
     
7,005
 
Research and development
   
354,397
     
-
     
2,319,993
     
-
 
Travel and entertainment
   
21,238
     
881
     
50,223
     
881
 
          Total Operating Expenses
   
482,368
     
5,265
     
2,643,859
     
20,253
 
                                 
Loss from Operations
   
(481,196
)
   
(5,265
)
   
(2,642,687
)
   
(20,253
)
                                 
Other Income (Expenses)
                               
Gain (Loss) on foreign currency transaction
   
29,295
     
-
     
27,601
     
-
 
Interest Expenses due to related party
   
(34,314
)
   
-
     
(38,174
)
   
-
 
          Total Other Income (Expenses)
   
(5,019
)
   
-
     
(10,573
)
   
-
 
                                 
Loss before Provision for Income Tax
   
(486,215
)
   
(5,265
)
   
(2,653,260
)
   
(20,253
)
                                 
Provision for Income Tax
   
-
     
-
     
-
     
-
 
                                 
Net Loss
 
$
(486,215
)
 
 $
(5,265
)
 
 $
(2,653,260
)
 
$
(20,253
)
                                 
Basic and fully diluted loss per share
 
$
(0.09
)
   
(0.001
)
   
(0.51
)
   
(0.006
)
                                 
Weighted average shares outstanding
   
5,503,650
     
3,550,000
     
5,159,328
     
3,550,000 
 
                                 
Comprehensive Income (Loss) :
                               
Net loss
 
$
(486,215
)
 
 $
(5,265
)
 
 $
(2,653,260
)
 
$
(20,253
)
Effect of foreign currency translation
   
7,164
     
-
     
6,465
     
-
 
Comprehensive Loss
 
$
(479,051
)
 
 $
(5,265
)
 
 $
(2,646,795
)
 
$
(20,253
)

See Notes to Financial Statements

 

 
F-2

 

HCi VioCare
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

   
For the Nine Months Ended
 
   
September 30,
 
   
2014
   
2013
 
             
Operating Activities
           
Net loss
 
$
(2,653,260
)
 
$
(20,253
)
Adjustments to reconcile net loss to net cash used by operating activities:
               
Shares issued for acquisition of patented technologies
   
1,750,000
     
-
 
Stock option vested gradually
   
411,158
     
-
 
Amortization of beneficial conversion feature
   
36,228
     
-
 
Depreciation
   
3,101
     
-
 
Gain on foreign currency transaction
   
(27,601
   
-
 
Changes in operating assets and liabilities:
               
Decrease (Increase) in inventory
   
(178)
     
-
 
Decrease (Increase) in accounts receivable
   
16,037
     
-
 
Decrease (Increase) in prepaid expense
   
(19,148
)
   
800
 
Increase (Decrease) in corporate taxes
   
(4,872
)
   
-
 
Increase (Decrease) in accounts payable and accrued expenses
   
98,290
     
(3,120
)
Increase (Decrease) in accounts payable and accrued expenses, related party
   
160,116
     
-
 
Net cash used by operating activities
   
(230,129
)
   
(22,573
)
                 
Investing Activities
               
Office furniture
   
(7,151
)
   
-
 
Computer & equipment
   
(5,610
)
   
-
 
Leaseholder improvement
   
(34,148
)
   
-
 
Cash acquired from business combination
   
2,929
     
-
 
Net cash (used) by investing activities
   
(43,980
)
   
-
 
                 
Financing Activities
               
Loans from a shareholder
   
402,697
     
22,460
 
Net cash provided by financing activities
   
402,697
     
22,460
 
                 
Increase (decrease) in cash
   
128,588
     
(113
)
                 
Cash at beginning of period
   
-
     
113
 
Effects of exchange rates on cash
   
(1,188
)    
-
 
Cash at end of period
 
$
127,400
   
$
-
 
                 
Supplemental Disclosures of Cash Flow Information:
               
Cash paid (received) during year for:
               
Interest
 
$
-
   
$
-
 
Income taxes
 
$
-
   
$
-
 
Non-Cash Investing and Financing Activities:
               
Accounts receivable acquired from business combination
 
$
(17,603
)
   
-
 
Inventory acquired from business combination
   
(6,799
)
   
-
 
Prepaid expenses acquired from business combination
   
(574
)
   
-
 
Computer & Equipment acquired from business combination
   
(731
)
   
-
 
Accounts payable acquired from business combination
   
5,240
     
-
 
Accounts payable from related parties acquired from business combination
   
22,401
     
-
 
Corporate tax from related parties acquired from business combination
   
5,044
     
-
 
Deferred tax from related parties acquired from business combination
   
219
     
-
 
Advances from related party, converted to loan
   
540,193
     
-
 
 
See Notes to Financial Statements
 

 
F-3

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 -    ORGANIZATION AND BUSINESS BACKGROUND
 
HCi VioCare (formerly China Northern Medical Device, Inc.) ("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.
 
The Company has not yet generated significant revenues from planned principal operations and is considered a startup enterprise. The Company was 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 healthcare innovation by the technology development and marketing of prosthetics and orthotics (P&O), and we intend to be engaged in the operation of 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 intended to acquire or establish operating clinics related to the field of prosthetics and orthotics.

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 product any 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 with an incorporated real-time global display application and a fully featured support web-space that tells the user and his podiatrist/physiotherapist when inappropriate or dangerous conditions are developing on the feet. The product is being designed to mitigate diabetic foot complications, such as ulceration, infection and amputation, as well as improve the total health of a person with diabetes, by incorporating the readings from the insole system to a specialized web-space that will help the user monitor not just the health of his feet but also his diabetes by looking after his diet and exercise.

 
F-4

 

HCi VioCare
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 -    ORGANIZATION AND BUSINESS BACKGROUND (continued)
 
On June 9, 2014, the Company, through our wholly owned subsidiary, HCi VioCare Clinics, acquired W D Spence Prosthetics Limited (the “Clinic”). The Clinic is located in Glasgow, Scotland, and is a fully operational prosthetics clinic. The acquisition of the Clinic is the first step to the Company’s and HCi VioCare Clinics’ intention to develop the first chain of prosthetics and orthotics (P&O) and diabetes clinics in the European market, covering Southern Europe, the Middle East and North Africa.

Note 2 -    GOING CONCERN
 
The Company incurred net losses of $2,653,260 and $20,253 for the nine month periods ended September 30, 2014 and 2013, respectively and $4,347,872 for the period March 26, 2007 (inception) through September 30, 2014. In addition, the Company had a working capital deficiency of $227,335 and a stockholders' deficiency of $17,597 at September 30, 2014. 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.
 
During the period March 26, 2007 (inception) through September 30, 2014, the Company relied heavily for its financing needs on its Chief Executive Officer and President as more fully disclosed in Note 11.

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. 

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 and HCi VioCare Clinics UK Limited with W D Spence Prosthetics Limited which is the wholly-owned subsidiary of HCi VioCare Clinics UK. All significant intercompany balances and transactions have been eliminated.

Basis of Presentation
 
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP") and are presented in U.S. dollars.

 
F-5

 
 
HCi VioCare
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 -    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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.
 
Concentrations of Credit Risk
 
Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains its cash and cash equivalents with high-quality institutions.

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.

Business Combinations

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Company in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets and liabilities are recognized at their fair values at the acquisition date.

Goodwill arising on acquisition is recognized as an asset and initially measured at cost, being the excess of the cost of the business combination over the Company’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognized.

Intangible Assets

Acquired intangible assets include all rights and interest in and to a patented technology. These assets are capitalized on acquisition at cost and included in intangible assets. Intangible assets acquired by issuance of common stock of the Company are capitalized at the fair market value of the common stock as of the issuance date. Intangible assets are amortized over their estimated useful lives of 20 years, using an amortization method.
 
 
F-6

 

HCi VioCare
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 -    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
Goodwill
 
Goodwill arising on the acquisition of an entity represents the excess of the cost of acquisition over the Company’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the entity recognized at the date of acquisition.
 
Goodwill is initially recognized as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill is held in the currency of the acquired entity and revalued to the closing rate at each balance sheet date.
 
Goodwill is tested for impairment at least annually or whenever there is an indication that the asset may be impaired.
 
Impairment of Long-life Assets
 
Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
 
Foreign Currencies

Functional and presentation currency - 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 consolidated financial statements are presented in US Dollars, which is the Company’s functional and presentation currency.

Transactions and balances - Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at quarter end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement.

Subsidiaries The results and financial position of all subsidiaries that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
i) assets and liabilities are translated at the closing rate at the date of the balance sheet;
ii) income and expenses are translated at average exchange rates;
iii) all resulting exchange differences are recognized as other comprehensive income, a separate component of equity.

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

 
F-7

 

HCi VioCare
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 -    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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 nine month period ended September 30, 2014 and 2013, 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 $2,319,993 and $0 for the nine month periods ended September 30, 2014 and 2013, 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

Stock-based compensation 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.

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

All income tax years from inception are open to examination by the taxing authorities.
 
 
F-8

 

HCi VioCare
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 -    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Earnings (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.  There are no potentially dilutive securities outstanding (options and warrants) for the nine month periods ended September 30, 2014 and 2013, respectively.

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 from non-owner sources.

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.

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.


 
F-9

 

HCi VioCare
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 -    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent Accounting Pronouncements
 
On June 10, 2014, The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, consolidation, which removes all incremental financial reporting requirements from GAAP for development stage entities, including the removal of Topic 915 from the FASB Accounting Standards Codification. For the first annual period beginning after December 15, 2014, the presentation and disclosure requirements in Topic 915 will no longer be required for the public business entities. The revised consolidation standards are effective one year later, in annual periods beginning after December 15, 2015. Early adoption is permitted. The Company has adopted the amendment.
 
There are several new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) which are not yet effective. Each of these pronouncements, as applicable, has been or will be adopted by the Company. As of September 30, 2014, none of these pronouncements is expected to have a material effect on the financial position, results of operations or cash flows of the Company.

Note 5 -    BUSINESS COMBINATION

On June 9, 2014, through our Scottish subsidiary, HCi VioCare Clinics, the Company entered into a Share Purchase Agreement with Mr. William Donald Spence, Miss Catriona Ann Spence, and Mrs. Eilidh Isabel Malcolm (together the “vendors”), to acquire 100% of the issued capital of W D Spence Prosthetics Limited (the “Clinic”), located in Glasgow Scotland. The Clinic is incorporated in Scotland and is a private company limited by shares, with no registered charges, and the total issued share capital amounts to 1,000 ordinary shares par value of £1 each. The vendors to the Share Purchase Agreement are the beneficial owners and registered holders of all (100%) the shares of the Clinic. Mr. Spence is also the director of the Clinic, and Miss Malcolm is the secretary.
 
As consideration for the acquisition, HCi VioCare Clinics shall pay to the vendors in cash the amount of one hundred thousand GBP (£100,000) (USD$168,121) on execution of the agreement.
 
Further, on June 10, 2014, HCi VioCare Clinics entered into a Taxation Undertaking with the vendors pursuant to the Share Purchase Agreement. Concurrently, on June 10, 2014, the Company made the required payment under the agreement to the vendors, thus completing the acquisition of the Clinic.

Allocation of the net assets acquired is presented below:

As of June 9, 2014
 
Book Value
   
Adjustment
   
Fair Market Value
   
Book Value
   
Adjustment
   
Fair Market Value
 
      £       £       £      $      $     $  
Net assets acquired
                                         
Cash and cash equivalent
    1,742       -       1,742       2,929       -     2,929  
Computer, equipment, net
    435       -       435       731       -     731  
Accounts receivable
    10,471       -       10,471       17,603       -     17,603  
Inventory
    4,044       -       4,044       6,799       -     6,799  
Prepaid expenses
    341       -       341       574       -     574  
Accounts payable and accrued liabilities
    (3,117 )     -       (3,117 )     (5,240 )     -     (5,240 )
Accounts payable – related parties
    (13,324 )     -       (13,324 )     (22,401 )     -     (22,401 )
Corporate tax
    (3,000 )     -       (3,000 )     (5,044 )     -     (5,044 )
Deferred tax
    (130 )     -       (130 )     (219 )     -     (219 )
Total:
    (2,538 )     -       (2,538 )     (4,268 )     -     (4,268 )
                                               
Total consideration
                                             
Satisfied by GBP 100,000 in cash
    100,000               100,000       168,121             168,121  
                                               
Goodwill
    102,538               102,538       172,389             172,389  

The Company will perform its annual goodwill impairment test in the fourth quarter, and will determine if there is indication of impairment.
 
 
F-10

 

HCi VioCare
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 -    PREPAID EXPENSES
 
Prepaid expenses consist of the following:
 
   
September 30, 2014
(unaudited)
   
December 31, 2013
 
                 
Office lease
 
 $
12,735
   
-
 
Legal fees
   
3,500
     
-
 
Travel advances
   
3,468
     
 -
 
      Total prepaid expense
 
$
19,703
   
$
-
 

Note 7 -    ACCOUNTS PAYABLE AND ACCRUED EXPENSES
 
Accounts payable and accrued expenses consist of the following:
 
   
September 30, 2014
(unaudited)
   
December 31, 2013
 
                 
Accounts payable
 
$
134,004
   
$
941
 
Accrued professional fees
   
-
     
8,000
 
      Total accounts payable and accrued expenses
 
$
134,004
   
$
8,941
 

Note 8 -   PROPERTY AND EQUIPMENT

   
Leasehold Improvement—office in Greece
   
Office Furniture
   
Computer
& Equipment
 
Cost
                 
At 1 January, 2014
 
$
-
   
$
-
   
$
-
 
Additions - purchase
   
34,148
     
7,151
     
5,610
 
Additions – business combination
   
-
     
-
     
731
 
Foreign exchange
   
(2,616
)
   
(522
)
   
(449
)
At September 30, 2014
 
$
31,532
   
$
6,629
   
$
5,892
 
                         
Amortization
                       
At 1 January, 2014
 
$
-
   
$
     
$
-
 
Charge for the period
   
1,684
     
770
     
647
 
At September 30, 2014
 
$
1,684
   
$
770
   
$
647
 
                         
Carrying Amounts
                       
At January 1, 2014
 
$
-
   
$
-
   
$
-
 
At September 30, 2014
 
$
29,848
   
$
5,859
   
$
5,245
 

Leasehold improvements are amortized over the term of the lease; a three-year period.

Furniture is amortized over three to five years and Computer and Equipment is amortized over three years.

 
F-11

 

HCi VioCare
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Note 9 -   PATENTED TECHNOLOGY

(1)  
Socket-Fit

On February 12, 2014, the Company, through our wholly owned Scottish subsidiary, HCi VioCare Technologies Limited (“Viocare”), entered into an acquisition agreement with Dr. Christos Kapatos, a director of both the Company and Viocare (“Kapatos”), to acquire all rights and interest in and to a patented technology known as “Socket-Fit”.
 
Consideration for the acquisition by Viocare of the exclusive, perpetual, revocable, transferable, royalty free worldwide ownership of the Intellectual Property Rights (“IPR”) and know how to develop and exploit the IPR was the issuance of 500,000 shares of the common stock of the Company to Kapatos valued at fair market value at issuance of $625,000 or $1.25 per share.  The Company recorded the $625,000 as research and development expenses due to the fact that Mr. Kapatos is a related party to the Company.

(2)  
Smart Insole

On April 16, 2014, through our wholly owned Scottish subsidiary, HCi VioCare Technologies Limited, the Company, entered into a second  acquisition agreement with Dr. Christos Kapatos to acquire all rights and interest in and to the background IPR for a developing technology known as “Smart Insole”.  

As consideration for the acquisition:

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

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

The issuance of 500,000 shares of the common stock of the Company to Kapatos was valued at fair market value on issuance totaling $1,125,000 or $2.25 per share.  The Company recorded the $1,125,000 as research and development expenses due to the fact that Mr. Kapatos is a related party to the Company.

Note 10 -   OFFICE LEASE

Office in Greece

On February 3, 2014 the Company leased office space in Paleo Faliro, Greece on a three year lease, commencing on March 1, 2014 and ending on February 28, 2017. The monthly rental fee is $1,972(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 (ESYE), plus two (2) percentage points (+2%).

Under the term of the lease agreement, the Company paid a total of $25,308 (EUR18, 540) including $4,126 (EUR 3,000) for deposit and $21,630 (EUR 15,540) for ten months rental fee upon executing the agreement.

 
F-12

 

HCi VioCare
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10 -   OFFICE LEASE (continued)

Office in UK

On February 19, 2014 the Company leased office space in Glasgow, United Kingdom on a three month renewable term, commencing on February 20, 2014 and initially ending on May 31, 2014. The per month rental fee is $914 (GBP 549) plus applicable taxes and can be renewed at any time prior to each three month lease term ending date. During the period the per month rental fee increased to $1,584 (GBP 930) plus applicable taxes when the Company elected to lease a larger office space within the same facility.

Under the term of the lease agreement, the Company paid $3,020 (GBP 1,860) as a deposit.

Prepaid expense relating to the office leases consist of the following:

Location
 
Greece
   
United Kingdom
 
As of January 1, 2014
 
$
-
   
$
-
 
Addition – deposit
   
4,126
     
3,020
 
Addition – 10 month rental
   
21,630
     
-
 
Expensed rental fee during the period
   
(14,745
)
   
-
 
Foreign exchange
   
(1,296
)
   
-
 
As of September 30, 2014
 
$
9,715
   
$
3,020
 

Note 11 -   CONVERTIBLE NOTES

(1)  
Convertible notes due on June 10, 2016:

On June 10, 2014, the Company entered into a loan agreement with Mr. Leontaritis, the President of the Company, pursuant to which the Company received $136,237 (EUR €100,000) as advances from a related party (the “Note”). The Note earns simple interest accruing at one percent (1%) per annum and is due and payable within two years from the date of the agreement (“Maturity Date”). At any such date as Mr. Leontaritis may desire on or after the Maturity Date of the Note, any unpaid indebtedness shall be convertible into common shares of the Company at a price of $0.03 per share.

The beneficial conversion feature resulting from the discounted conversion price compared to market price was valued on the date of grant to be $136,237 on the Note. This value was recorded as a discount on debt and offset to additional paid in capital. Amortization of the discount for the nine months ended September 30, 2014 was $21,192, which amount has been recorded as interest expense.

Interest expenses:

 
For the three month period
 
For the nine month period
 
 
September 30,
 
September 30,
 
 
2014
 
2013
 
2014
 
2013
 
Amortization of debt discount
$ 17,408     $ -   $ 21,192     $ -  
Interest at contractual rate
  346       -     422       -  
Totals
$ 17,754     $ -   $ 21,614     $ -  
 

 
F-13

 

HCi VioCare
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11 -   CONVERTIBLE NOTES (continued)

(2)  
Convertible notes due on July 25, 2019:

On July 25, 2014, the Company entered into a loan agreement with Mr. Leontaritis, the President of the Company, pursuant to which the Company received $403,956 (EUR €300,000) as advances from a related party (the “Note”). The Note earns simple interest accruing at five percent (5%) per annum and is due and payable within five years from the date of the agreement (“Maturity Date”). At any such date as Mr. Leontaritis may desire on or after the Maturity Date of the Note, any unpaid indebtedness shall be convertible into common shares of the Company at a price of $0.03 per share.

The beneficial conversion feature resulting from the discounted conversion price compared to market price was valued on the date of grant to be $403,956 on the Note. This value was recorded as a discount on debt and offset to additional paid in capital. Amortization of the discount for the nine months ended September 30, 2014 was $15,036, which amount has been recorded as interest expense.

Interest expenses:

 
For the three month period
 
For the nine month period
 
 
September 30,
 
September 30,
 
 
2014
 
2013
 
2014
 
2013
 
Amortization of debt discount
$ 15,036     $ -   $ 15,036     $ -  
Interest at contractual rate
  1,524       -     1,524       -  
Totals
$ 16,560     $ -   $ 16,560     $ -  

The following table summarizes the balance of the convertible notes on the balance sheets as of September 30, 2014 and December 31, 2013:

   
September 30, 2014
   
December 31, 2013
 
Gross principal amount
 
$
540,193
   
$
-
 
Foreign exchange
   
(32,836
)
   
-
 
     
507,357
         
Unamortized discount
   
(503,965
)
   
-
 
Total
 
$
3,392
   
$
-
 

Note 12 -   COMMITMENTS

(1)  
Consulting Agreement with Kapatos

On April 16, 2014, the Company entered into a Consulting Agreement with Kapatos whereby he will provide his services as Chief Technical Officer for the Company and the Company’s wholly-owned subsidiaries.  The contract has a term of one year, renewable for such further term as may be mutually agreed between the parties. Compensation shall be forty thousand Euros (€40,000) (USD$50,746) 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 two hundred thousand (200,000) shares of the Company’s common stock for each research project completed with a valuation less than twenty million dollars ($20,000,000 USD), five hundred thousand (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).

 
F-14

 
 
HCi VioCare
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12 -   COMMITMENTS (continued)

(2)  
Advisors

On April 15, 2014, the Company established a scientific advisory board whereby the Company intends to appoint certain advisors that can contribute to the Company’s overall business strategy and future direction. On April 16, 2014 the Company entered into Consulting Agreements with the members of its Scientific Advisory Board as follows:

  -
Professor Stephan Solomonidis (“Solomonidis”) will provide services as Head of Research for the Company and the Company’s wholly owned subsidiaries. The contract has a term of one year, renewable for such further term as may be mutually agreed between the parties. Compensation shall be twenty thousand pounds (£20,000 GBP) (USD$32,482) per year payable in equal monthly installments beginning on May 1, 2014. In the case that a research and development project is initiated and completed during the term of the agreement, Solomonidis’ fee will be readjusted to the amount of forty thousand pounds (£40,000 GBP) (USD$64,964) per annum, and he shall receive two hundred thousand (200,000) shares of the Company’s common stock for each research project completed with a valuation less than twenty million dollars ($20,000,000 USD), five hundred thousand (500,000) shares of the Company’s common stock for each research project completed with a valuation equal or greater than twenty million dollars ($20,000,000 USD).

  -
Professor Martha Lucia Zequera (“Zequera”) will provide services as Director of Diabetic Foot Related Products and Services for the Company and the Company’s wholly owned subsidiaries.  The contract has a term of one year, renewable for such further term as may be mutually agreed between the parties. Compensation shall be twenty thousand dollars ($20,000 USD) per year payable in equal monthly installments beginning on May 1, 2014. In the case that a research and development project is initiated and completed during the term of the agreement, Zequera’s fee will be readjusted to the amount of forty thousand dollars ($40,000 USD) per annum, and she shall receive two hundred thousand (200,000) shares of the Company’s common stock for each research project completed with a valuation less than twenty million dollars ($20,000,000 USD), five hundred thousand (500,000) shares of the Company’s common stock for each research project completed with a valuation equal or greater than twenty million dollars ($20,000,000 USD).

  -
Professor William Sandham (“Sandham”) will provide services as Director of Diabetes Technology Research for the Company and the Company’s wholly owned subsidiaries.  The contract has a term of one year, renewable for such further term as may be mutually agreed between the parties. Compensation shall be Twenty Thousand pounds (£20,000 GBP) (USD$32,482) per year payable in equal monthly installments beginning on May 1, 2014.  In the case that a research and development project is initiated and completed during the term of the agreement, Sandham’s fee will be readjusted to the amount of forty thousand pounds (£40,000 GBP) (USD$64,964) per annum, and he shall receive two hundred thousand (200,000) shares of the Company’s common stock for each research project completed with a valuation less than twenty million dollars ($20,000,000 USD), five hundred thousand (500,000) shares of the Company’s common stock for each research project completed with a valuation equal or greater than twenty million dollars ($20,000,000 USD).

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

 
 
F-15

 

HCi VioCare
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12 -   COMMITMENTS (continued)

(3)  
Employment Agreement with William Donald Spence

On June 9, 2014, HCi VioCare Clinics entered into an agreement with Mr. William Donald Spence (the “Employment Agreement”) whereby he will provide his services as Director of Clinical Operations of HCi VioCare Clinics and its wholly-owned subsidiary clinics. The contract has a term of one year, starting on June 10, 2014, and ending on June 9, 2015, renewable for such further term as may be mutually agreed between the parties. Compensation shall be sixty thousand GBP (£60,000) (USD$97,445) per year payable monthly in arrears on the last Friday of every month by credit transfer. HCi VioCare Clinics shall also pay any fees in connection with the membership of Mr. Spence to any professional, regulatory or other such body of which Mr. Spence’s membership is required to carry out his role with HCi VioCare Clinics, as well as all insurance payments.

Note 13 -   RELATED PARTY TRANSACTIONS

The following table provides details of the Company’s related party transactions during the three and nine month period ended September 30, 2014:

Services provided from related parties:
   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2014
   
2013
   
2014
   
2013
 
Consulting fees from CEO and President (i)
 
$
15,000
   
$
-
   
$
45,000
   
$
-
 
Consulting fees from a Director (ii)
   
13,290
     
-
     
36,140
     
-
 
Professional fees from CFO (iii)
   
-
             
5,484
         
Professional fees from Director (iv)
   
3,974
     
-
     
12,200
     
-
 
Research and development from Director (v)
   
25,146
     
-
     
33,500
     
-
 
   
$
57,410
   
$
-
   
$
132,324
   
$
-
 

(i)
On September 10, 2013 Mr. Leontaritis was appointed President. On January 15, 2014, the Board of Directors of the Company approved the execution of a consulting agreement between the Company and Sotirios Leontaritis (“Leontaritis”), whereby Leontaritis shall provide services to the Company as the Company’s President and Chief Executive Officer in regards to the Company’s management and operations for the period from January 1, 2014 to December 31, 2017.   Under the terms of the agreement, the Company agreed to pay to Leontaritis US$60,000 per annum payable in monthly payments of US$5,000 a month for the term of the contract.
 
(ii)
On September 30, 2013, the Board of Directors of the Company appointed Dr. Christos Kapatos as a director of the Company.
 
(iii)
On November 27, 2013, the Board of Directors of the Company appointed Mr. Grigorios Tsourtos as Chief Financial Officer of the Company. On June 9, 2014, Mr. Grigorios Tsourtos resigned as Chief Financial Officer of the Company.
 
(iv)
On September 10, 2013, the Board of Directors of the Company elected Nicolaos Kardaras as Secretary and a director of the Company.
 
(v)
On June 9, 2014, HCi VioCare Clinics entered into an employment agreement with Mr. William Donald Spence whereby he will provide his services as Director of Clinical Operations of HCi VioCare Clinics and its wholly-owned subsidiary clinics.


 
F-16

 

HCi VioCare
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13 -   RELATED PARTY TRANSACTIONS (continued)

Accounts payable and accrued liabilities from related parties:

   
Balance,
December 31, 2013
($)
   
Balance,
June 9, 2014
(business combination)
($)
   
Services provided during the period
($)
   
Reimbursement on Company’s expenses
($)
   
Payments
($)
   
Foreign exchange
($)
   
Balance,
September 30, 2014
($)
 
Consulting fees from CEO and President (i)
   
29,590
   
-
     
45,000
     
95,640
     
-
   
-
     
170,230
 
Consulting fees from a Director (ii)
   
-
   
-
     
36,140
     
-
     
36,140
   
-
     
-
 
Professional fees from CFO (iii)
   
1,369
   
-
     
5,484
     
-
     
6,851
     
(2
)
   
-
 
Professional fees from Director (iv)
   
-
   
-
     
12,200
     
-
     
10,932
     
     
1,268
 
Research and development from Director (v)
   
-
     
22,401
     
33,500
     
-
     
55,901
             
-
 
     
30,959
     
22,401
     
132,324
     
95,640
     
109,824
     
(2
)
   
171,498
 

Advances from related parties:

   
Balance,
December 31, 2013
($)
   
Addition
($)
   
Converted to Convertible notes
($)
   
Balance,
September 30, 2014
($)
 
CEO and President (i)
   
32,252
     
584,588
     
(540,193
)
   
76,647
 

Loan Agreement from related parties (ref Note 11 – Convertible Notes)

   
Balance,
December 31, 2013
($)
   
Addition
($)
   
Foreign Exchange on the Note
($)
   
Balance,
September 30, 2014
($)
 
CEO and President (i)
   
-
     
540,193
     
(32,836
)
   
507,357
 
 
Note 14 -   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 100,000,000 shares of common stock with a par value of $0.0001.  No shares of preferred stock have been issued.  Upon formation of the Company, 3,000,000 shares of common stock were issued for $40,000.
 
The Company completed a public offering on March 14, 2008.  The Company issued 550,000 shares of common stock to 40 PRC citizen shareholders for $110,000.  The common stock issued and outstanding immediately after the offering was 3,550,000.

 
F-17

 

HCi VioCare
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 14 -   CAPITAL STOCK  (continued)

On December 31, 2012, the Company entered into debt conversion agreement with Mr. Wu, formerly the Company's sole officer and director, pursuant to which $200,000 of debt owed to Mr. Wu by the Company was contributed to additional paid-in capital of the Company.

On September 9, 2013, the Board of Directors approved the further contribution by Mr. Wu of outstanding loans to the Company in the amount of $22,460, which amount has been allocated to additional paid-in capital of the Company.

On December 6, 2013, 46,350 shares of common stock were cancelled and returned to treasury without consideration.
 
On December 27, 2013, pursuant to approval of the board of directors and the majority stockholder on November 28, 2013 and November 29, 2013 respectively, the Company filed a Certificate of Amendment to the Articles of Incorporation of the Company for the purpose of  clearly providing  the directors of the Company with the authority to issue both common and preferred stock without approval by the stockholders and to grant the authority of the directors of the Company to  issue such shares of common and/or preferred stock in one or more series, with such voting power, designation, preferences and rights or qualifications, limitations or restriction as they may determine by resolution of the Board of Directors.

On January 22, 2014, the Company issued  1,000,000 shares, valued at $1,250,000, to the Company’s President, Mr. Leontaritis as compensation for consultancy services provided in 2013.

On February 13, 2014, the Company issued 500,000 shares of common stock, valued at $625,000, the required share consideration under an acquisition agreement with Kapatos,completing the acquisition of the IPR - Socket-Fit.

On April 17, 2014, the Company issued 500,000 shares of common stock, valued at $1,125,000, the required share consideration under an acquisition agreement with Kapatos,completing the acquisition of the IPR – Smart Insole.

As at September 30, 2014 the Company has a total of 5,503,650 shares issued and outstanding.

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.

Note 15 -   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. 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.


 
F-18

 

HCi VioCare
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 -   STOCK OPTIONS (continued)

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 Series A Preferred shares when vested will be convertible on the basis of 20 shares of common stock for each one share held and have voting rights of 50 votes per share of Series A Preferred stock held at any meetings of the stockholders.

The following table summarizes information concerning stock options outstanding as of September 30, 2014:

 
September 30, 2014
December 31, 2013
   
Series A Preferred stock
 
Weighted Average Exercise Price
$
 
Series A Preferred stock
 
Weighted Average Exercise Price
$
Outstanding at beginning of the year
   
-
 
-
   
-
 
-
   Granted
   
25,000
 
0.04
   
-
 
-
   Exercised
   
-
 
-
   
-
 
-
   Expired or cancelled
   
-
 
-
   
-
 
-
Outstanding at the period
   
25,000
 
0.04
   
-
 
-

   
Stock Options
   
Weighted Average
Grant Date
Fair Value
 
             
Unvested, at December 31, 2013
   
-
     
-
 
Granted
   
25,000
   
$
0.04
 
Vested
   
-
     
-
 
Forfeited
   
-
         
Unvested, end of September 30, 2014
   
25,000
   
0.04
 

The Company recognized stock-based compensation expense allocated to research and development of $411,158 during the nine month period ended September 30, 2014.

Unrecognized compensation expense related to stock options as of September 30, 2014 was $527,905 and is expected to be recognized in future periods.

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-19

 
HCi VioCare
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 -   STOCK OPTIONS (continued)
 
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 made during the fiscal year ended December 31, 2014:
 
   
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 %

 
a)
Expected life: The expected term of options granted is determined using the “shortcut” method allowed by SAB No.107. Under this approach, the expected term is presumed to be immediately after the vesting date at the end of the contractual term of one (1) year.
     
 
b)
Risk-free interest rate: The rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected life of the options.
     
 
c)
Volatility: The expected volatility of the Company’s common stock is calculated by using the historical daily volatility of the Company’s stock price calculated over a period of time representative of the expected life of the options.
     
 
d)
Dividend yield: The dividend yield rate is not considered in the model, as the Company has not established a dividend policy for the stock.
 
Note 16 -   SUBSEQUENT EVENTS

On November 7, 2014, the Company’s subsidiary, W.D. Spence Prosthetics Limited entered into a service agreement with Mrs. Heleen Francoise Kist (the “Agreement”) whereby she will provide her services as Chief Operating Officer (“COO”) of the Company. The contract has a term of one year, being effective as of October 1, 2014, and ending on September 30, 2015, renewable for such further term as may be mutually agreed between the parties. Compensation shall be thirty thousand GBP (£30,000) (USD$48,723) per year payable monthly in arrears on the last Friday of every month by credit transfer. 

On November 7, 2014, the Board of Directors of HCi VioCare (the “Company”) appointed Heleen Kist as a Chief Operating Officer of the Company.
 
The Company has evaluated its subsequent events from the balance sheet date through the date of issuance and determined that there are no additional events to disclose.


 
F-20

 

 
The following discussion and analysis of the results of operations and financial condition of HCi VioCare for the period ended September 30, 2014 shall be read in conjunction with the financial statements and notes. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results of the timing of events could differ materially from those projected in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Special Note Regarding Forward-Looking Statements and Business sections in our Form 10-K as filed with the Securities and Exchange Commission on April 15, 2014. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.
 
BUSINESS OVERVIEW
 
We were incorporated on March 26, 2007 under the laws of Nevada. Our activities have been limited to developing our business plan.  The Company was 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 healthcare innovation by the technology development and marketing of prosthetics and orthotics (P&O) and diabetes related products, and we intend to be engaged in the operation of prosthetics and orthotics ("P&O") total rehabilitation clinics.

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.

On January 15, 2014, the Board of Directors of the Company approved the execution of a consulting agreement between the Company and Sotirios Leontaritis (“Leontaritis”), whereby Leontaritis shall provide services to the Company as the Company’s President and Chief Executive Officer in regards to the Company’s management and operations for the period from January 1, 2014 to December 31, 2017.   Under the terms of the agreement, the Company agreed to pay to Leontaritis US$60,000 per annum payable in monthly payments of US$5,000 a month for the term of the contract.  Further, under the terms of the contract, Leontaritis will receive cash compensation of US$5,000 and a stock award of 1,000,000 shares of common stock of the Company in consideration of his services as an officer and director for the period from September 10, 2013 to December 31, 2013.   On January 22, 2014, the Company issued the 1,000,000 shares to Leontaritis pursuant to the agreement.

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.   HCi VioCare Technologies intends to research, develop and commercialize state of the art, new, innovative medical devices, methods and products in the fields of prosthetics, orthotics, rehabilitation, bioengineering, mobility, diabetes, diabetic foot, tissue mechanics, ultrasonics, medical signal processing and analysis, medical technology, orthopedics and robotic surgery. HCi VioCare Technologies also plans to expand its research and development reach, to create a stable pipeline of new products and upgrades in the fields of prosthetics, orthotics, and diabetes. HCi VioCare Technologies is intended to be staffed by a world class scientific team, and its current research and development (“R&D”) takes place in Scotland, UK.   Our second subsidiary, HCi VioCare Clinics, is intended to acquire or establish operating clinics related to the field of prosthetics and orthotics.
 
 
6

 
On February 12, 2014, the Company, through our newly incorporated Scottish subsidiary, HCi VioCare Technologies Limited, entered into an acquisition agreement with Christos Kapatos, a director of both the Company and HCi VioCare Technologies (“Kapatos”), to acquire all rights and interest in and to 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 through the acquisition of the background intellectual property rights (“IPR”) to undertake and fund, through its U.K. subsidiary, a project as defined in the Acquisition Agreement 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.
 
Consideration for the acquisition by HCi VioCare Technologies of the exclusive, perpetual, revocable, transferable, royalty free worldwide ownership of the IPR and knowhow to develop and exploit the IPR was the issuance of 500,000 shares of the common stock of the Company to Kapatos, which shares were issued on February 13, 2014.

HCi VioCare Technologies intends to fund any further development on the aforementioned innovative technology, as well as to complete the development of five additional technologies in P&O and wearable devices which it is currently in negotiation to acquire from Dr. Kapatos. More specifically, it intends to launch three products which it hopes to acquire from Dr. Kapatos prior to the first quarter of 2015 (Light-IS, W-Mode, and H-Cast).   These products require less research and development to get to market.   Remaining products that it hopes to acquire it will launch in 2015 and 2016 (SocketFit, A-Cone, D-Ring). SocketFit which will take a minimum of two years to get to market from the commencement of the research and development of the product.

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, the Company, through our Scottish subsidiary, HCi VioCare Technologies Limited, entered into an acquisition agreement with Dr. Christos Kapatos, a director of both the Company and HCi VioCare Technologies (“Kapatos”), to acquire all rights and interest in and to the background IPR for a developing technology known as “Smart Insole”.  Kapatos has conceived and been working on a Smart Insole System which is believed to be a state-of-the-art, pressure and shear (friction)-sensing insole with an incorporated real-time global display application and a fully featured support web-space that tells the user and his podiatrist/physiotherapist when inappropriate or dangerous conditions are developing on the feet. The product is being designed to mitigate diabetic foot complications, such as ulceration, infection and amputation, as well as improve the total health of a person with diabetes, by incorporating the readings from the insole system to a specialized web-space that will help the user monitor not just the health of his feet but also his diabetes by looking after his diet and exercise.

The competing insoles that are currently commercially available at this time can only monitor vertical pressure on the foot and not shear (friction). Also, none of these devices produce real-time data that can be of assistance to the user.  The web-space “total diabetes care” concept is also unique.
 
 
7

 
As consideration for the acquisition:

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

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

Further, 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 €40,000 (USD$55,013) 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 200,000 shares of the Company’s common stock for each research project completed with a valuation less than $20,000,000, 500,000 shares of the Company’s common stock for each research project completed with a valuation equal or greater than $20,000,000.
 
Mr. Kapatos abstained from voting on the acquisition of the IPR and the Consulting Agreement. Kapatos is an officer of the Company and is also an officer and director of HCi VioCare Technologies.

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

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

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

-
Professor Stephan Solomonidis (“Solomonidis”) will provide services as Head of Research for the Company and the Company’s wholly owned subsidiaries. The contract has a term of one year, renewable for such further term as may be mutually agreed between the parties. Compensation shall be £20,000 GBP (USD$32,482) per year payable in equal monthly installments beginning on May 1, 2014. In the case that a research and development project is initiated and completed during the term of the agreement, Solomonidis’ fee will be readjusted to the amount of £40,000 GBP (USD$64,964) per annum, and he shall receive 200,000 shares of the Company’s common stock for each research project completed with a valuation less than $20,000,000, 500,000 shares of the Company’s common stock for each research project completed with a valuation equal or greater than $20,000,000.

-
Professor Martha Lucia Zequera (“Zequera”) will provide services as Director of Diabetic Foot Related Products and Services for the Company and the Company’s wholly owned subsidiaries. The contract has a term of one year, renewable for such further term as may be mutually agreed between the parties. Compensation shall be $20,000 USD per year payable in equal monthly installments beginning on May 1, 2014. In the case that a research and development project is initiated and completed during the term of the agreement, Zequera’s fee will be readjusted to the amount of $40,000 USD per annum, and she shall receive 200,000 shares of the Company’s common stock for each research project completed with a valuation less than $20,000,000, 500,000 shares of the Company’s common stock for each research project completed with a valuation equal or greater than $20,000,000.

 
8

 
-
Professor William Sandham (“Sandham”) will provide services as Director of Diabetes Technology Research for the Company and the Company’s wholly owned subsidiaries. The contract has a term of one year, renewable for such further term as may be mutually agreed between the parties. Compensation shall be £20,000 GBP (USD$32,482) per year payable in equal monthly installments beginning on May 1, 2014. In the case that a research and development project is initiated and completed during the term of the agreement, Sandham’s fee will be readjusted to the amount of £40,000 GBP (USD$64,964) per annum, and he shall receive 200,000 shares of the Company’s common stock for each research project completed with a valuation less than $20,000,000, 500,000 shares of the Company’s common stock for each research project completed with a valuation equal or greater than $20,000,000.
 
On June 9, 2014, the Company, through our Scottish subsidiary, HCi VioCare Clinics, entered into a Share Purchase Agreement with Mr. William Donald Spence, Miss Catriona Ann Spence, and Mrs. Eilidh Isabel Malcolm (together the “vendors”), to acquire 100% of the issued capital of W D Spence Prosthetics Limited (the “Clinic”). The Clinic is incorporated in Scotland under company number SC307652, having its registered office at 8 Tomcroy Terrace, Pitlochry, Perthshire, PH16 5JA, UK. The Clinic is a private company limited by shares, with no registered charges, and the total issued share capital amounts to 1,000 ordinary shares par value of £1 each. The vendors to the Share Purchase Agreement are the beneficial owners and registered holders of all (100%) the shares of the Clinic, with Mr. William Donald Spence holding 520 ordinary shares, and Miss Catriona Ann Spence and Mrs. Eilidh Isabel Malcolm each holding 240 ordinary shares. Mr. Spence is also the director of the Clinic, and Miss Malcolm is the secretary. The Clinic has no employees or subsidiaries, and is not a subsidiary of another company.
 
The Clinic is located in Glasgow, Scotland, and is a fully operational prosthetics clinic. The acquisition of the Clinic is the first step to the Company’s and HCi VioCare Clinics’ intention to develop the first chain of P&O and diabetes clinics in the European market, covering Southern Europe, the Middle East and North Africa.
 
As consideration for the acquisition, HCi VioCare Clinics shall pay to the vendors in cash the amount of GBP£100,000 (USD$168,121) on execution of the agreement.
 
Futher, on June 10, 2014, HCi VioCare Clinics entered into a Taxation Undertaking with the vendors pursuant to the Share Purchase Agreement.
 
Concurrently, on June 10, 2014, the Company made the required payment under the agreement to the vendors, thus completing the acquisition of the Clinic.
 
Also on June 9, 2014, HCi VioCare Clinics entered into an agreement with Mr. William Donald Spence  whereby he will provide his services as Director of Clinical Operations of HCi VioCare Clinics and its wholly-owned subsidiary clinics. The contract has a term of one year, starting on June 10, 2014, and ending on June 9, 2015, renewable for such further term as may be mutually agreed between the parties. Compensation shall be GBP £60,000 (USD$97,445) per year payable monthly in arrears on the last Friday of every month by credit transfer. HCi VioCare Clinics shall also pay any fees in connection with the membership of Mr. Spence to any professional, regulatory or other such body of which Mr. Spence’s membership is required to carry out his role with HCi VioCare Clinics, as well as all insurance payments.
 
Further, on June 9, 2014, the Company appointed Mr. William Spence to the Advisory Board of the Company and entered into an advisory board agreement. Compensation shall be the grant of a total of 5,000 stock options entitling Mr. William Spence the right to purchase a total of 5,000 shares of Series A Preferred Stock of the Company at a price of $0.04 per share for a period of five years from the date of vesting. The advisory board appointment is for a term of one year and the options granted under the agreement will vest on completion of the term of the appointment. The Series A Preferred shares when vested will be convertible on the basis of 20 shares of common stock for each one share held and have voting rights of 50 votes per share of Series A Preferred stock held at any meetings of the stockholders.
 
 
9

 

On July 25, 2014, the Company entered into another Loan Agreement with the Company’s CEO, President and Director, Sotirios Leontaritis, (the “Lender”), whereby the Lender, in order to provide general working capital and to allow the Company to effectuate its business plan, agreed to provide the Company a loan facility of 300,000.00 Euros with an annual interest of 5%, and the Company agreed to repay the Facility within 5 years from the date of the loan agreement. If for any reason the Company fails to repay the loan facility on the due date, the Lender has the right to convert it into shares of the common stock of the Company at Three Cents in the lawful currency of the United States (USD $0.03) per share.

On November 7, 2014, the Company’s subsidiary, W.D. Spence Prosthetics Limited entered into a service agreement with Mrs. Heleen Francoise Kist (the “Agreement”) whereby she will provide her services as Chief Operating Officer (“COO”) of the Company. The contract has a term of one year, being effective as of October 1, 2014, and ending on September 30, 2015, renewable for such further term as may be mutually agreed between the parties. Compensation shall be thirty thousand GBP (£30,000) (USD$48,723) per year payable monthly in arrears on the last Friday of every month by credit transfer.
 
Additional information on the Company’s technologies and management team can be found at the Company’s website: http://www.viocare.eu/

RESULTS OF OPERATIONS
 
For the three months ended September 30, 2014 and 2013
 
We have incurred losses since inception. We generated $17,562 in revenues from operations and $16,390 in cost of goods sold for the three months ended September 30, 2014 and $nil in revenue and costs of goods sold from the same period ended September 30, 2013.  Operating expenses for the three months ended September 30, 2014 and 2013 were $ 482,368 and $5,265 respectively, consisting of depreciation, office rent, office expenses, travel and entertainment expense, consultancy fees, professional fees and amounts expended on research and development.  The substantial increase in operations is primarily the result of the Company’s commencement of operations in the healthcare innovation sector through technology development and marketing of prosthetics and orthotics (P&O) and diabetes related products, and preparations for the operation of P&O total rehabilitation clinics.  As a result during the current three month period ended September 30, 2014 the Company incurred research and development expenses of $354,397, consultancy fees of $35,342, travel and entertainment expenses of $21,238 and depreciation expenses of $2,724, with no similar significant expenses during the prior comparative three month period ended September 30, 2013.
 
Additionally, during the current period professional fees increased from $1,405 (2013) to $37,198, office rent increased from $800 (2013) to $15,768 and associated office expenses increased from $2,179 (2013) to $15,701.  The Company reported a net loss for the three months ended September 30, 2014 of $486,215 as compared to net losses of $5,265 in the same period in 2013, including losses from interest expenses due to related party of $34,314 (2013 - $Nil) and gain on foreign currency transaction of $29,295 (2013 - $Nil).

For the nine months ended September 30, 2014 and 2013
 
We generated $17,562 in revenues from operations and $16,390 in cost of goods sold for the nine months ended September 30, 2014 and $nil in revenue from operations and costs of goods sold for the same period ended September 30, 2013.  Operating expenses for the nine months ended September 30, 2014 and 2013 were $2,643,859 and $ 20,253 respectively, consisting of depreciation, office rent, office expenses, travel and entertainment expense, consultancy fees, professional fees and amounts expended on research and development.  The substantial increase in operations is primarily the result of the Company’s commencement of operations in the healthcare innovation sector through technology development and marketing of P&O and diabetes related products, and preparations for the operation of P&O total rehabilitation clinics.  As a result during the current nine month period ended September 30, 2014 the Company incurred research and development expenses of $2,319,993, including costs incurred related to the acquisition of several innovative technologies, consultancy fees of $109,572 and depreciation expenses of $3,101, with no similar expenses during the prior comparative nine month period ended September 30, 2013.

Additionally, during the current nine month period professional fees increased from $7,005 (2013) to $75,316, office rent increased from $3,200 (2013) to $34,978, associated office expenses increased from $9,167 (2013) to $50,676, and travel and entertainment expenses increased from $881 (2013) to $50,223.

The Company reported a net loss for the nine months ended September 30, 2014 of $2,653,260 as compared to net losses of $20,253 in the same period in 2013, including current period losses from other income and expenses of $38,174  (2013 - $Nil) and gain on foreign currency transaction of $27,601 (2013 - $ Nil).

 
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CAPITAL RESOURCES AND LIQUIDITY
 
At September 30, 2014 we had $127,400 cash on hand and liabilities of $305,502 in accounts payable and accrued expenses (including amounts due to related parties) and $76,647 in advances from related parties.  During the nine month period ended September 30, 2014, the Company's president contributed $76,647 as advances to the Company. Presently we rely on our officers and directors to fund our general operating expenses.   The Company has secured an operating loan from the Company’s President of EUR$400,000 (USD$507,357) during the period ended September 30, 2014, which amount should allow us to meet our operating expenses and ongoing obligations until such time as the Company can conclude a larger equity based financing, anticipated for Q4 of 2014.
  
GOING CONCERN
 
The Company incurred net losses of $2,653,260 for the nine months ended September 30, 2014. In addition, the Company had a working capital deficiency $227,335 and stockholders’ deficiency of $17,597 at September 30, 2014, with $4,347,872 in accumulated losses since inception. 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.
 
During the period March 26, 2007 (inception) through September 10, 2013, the Company relied heavily for its financing needs on its former CEO/director, Mr. Wu Jinzhao and subsequently to the date of this report, the Company has continued to be funded by its current President and Director, Sotirios Leontaritis.
 
NEED FOR ADDITIONAL FINANCING
 
Costs associated with being a public company are much higher than those of a private company. HCi VioCare, has chosen public registration before the business has developed a predictable cash flow. There are present registration expenses and future legal and accounting expenses, future reporting requirements to the SEC, future exchange listing requirements, and future investor relation costs that must be borne by a public company but not by a private company. These costs can be a burdensome expense which could adversely affect our financial survival. The ongoing regulatory costs, reporting requirements, and management details, which must be met when registering and maintaining a public company, may make the economic viability of HCi VioCare very doubtful.
 
In the past we have relied on advances from our president to cover our operating costs. There can be no assurance that our president will continue to fund the Company or that any other capital will be available if and when required.   Our need for capital may change dramatically if we acquire an interest in a business opportunity during that period. At present, we have no commitments or agreements with respect to the acquisition of any business venture, however, we are currently looking at a number of business opportunities in the medical field.   There can be no assurance that we will identify a business venture suitable for acquisition in the future. Further, we cannot assure that we will be successful in consummating any acquisition on favorable terms or that we will be able to profitably manage any business venture we acquire. Should we require additional capital, we may seek additional advances from officers, sell common stock or find other forms of debt financing.
 
 
11

 
CRITICAL ACCOUNTING POLICIES
 
Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
 
Our significant accounting policies are summarized in Note 4 of our financial statements for the period ended September 30, 2014.  While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause a material effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.

RECENT ACCOUNTING PRONOUNCEMENTS
 
On June 10, 2014, The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, consolidation, which removes all incremental financial reporting requirements from GAAP for development stage entities, including the removal of Topic 915 from the FASB Accounting Standards Codification. For the first annual period beginning after December 15, 2014, the presentation and disclosure requirements in Topic 915 will no longer be required for the public business entities. The revised consolidation standards are effective one year later, in annual periods beginning after December 15, 2015. Early adoption is permitted. The Company has adopted the amendment.
 
In July 2013, the FASB issued ASU 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carry forward, a Similar Tax Loss, or a Tax Credit Carry forward Exists.” This standard requires that an unrecognized tax benefit or a portion of an unrecognized tax benefit be presented as a reduction to a deferred tax asset for an NOL carry forward, a similar tax loss, or a tax credit carry forward with certain exceptions to this rule. If certain exception condition exists, an entity should present an unrecognized tax benefit in the financial statements as a liability and should not net the unrecognized tax benefit with a deferred tax asset. This standard is effective for fiscal years and interim periods within those years beginning after December 15, 2013. The adoption of the new provisions does not have a material impact on our financial condition or results of operations.

In March 2013, the FASB issued guidance on when foreign currency translation adjustments should be released to net income. When a parent entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity, the parent is required to release any related cumulative translation adjustment into net income. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. The guidance is effective prospectively beginning January 1, 2014. The adoption of this provision does not have a material impact in the financial statements.

In February 2013, the FASB issued guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of the guidance is fixed at the reporting date. Examples include debt arrangements, other contractual obligations and settled litigation. The guidance requires an entity to measure such obligations as the sum of the amount that the reporting entity agreed to pay on the basis of its arrangement among its co-obligors plus additional amounts the reporting entity expects to pay on behalf of its co-obligors. The guidance is effective January 1, 2014 and the adoption of this guidance does not have a material impact in the financial statements.
 
 
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OFF BALANCE SHEET ARRANGEMENTS
 
We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 
Not applicable.
 
 
(a) Evaluation of disclosure controls and procedures. Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”), also the Chief Financial Officer (“CFO”) (the Company’s principal executive officer, principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are effective as of September 30, 2014 to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
 
(b) Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting that occurred during the last quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 
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PART II - OTHER INFORMATION
 
 
From time to time, the Company may become involved in litigation relating to claims arising out of its operations in the normal course of business. We are not involved in any pending legal proceeding or litigation and, to the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on the Company.
 
 
Smaller reporting companies are not required to provide the information required by this item.
 
 
There were no unregistered securities to report which were sold or issued by the Company without the registration of these securities under the Securities Act of 1933 in reliance on exemptions from such registration requirements, within the period covered by this report, which have not been previously included in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K.

 
None.
 
 
Not applicable.
 
 
On June 9, 2014, Mr. Grigorios Tsourtos resigned as Chief Financial Officer of the Company.
 
On November 7, 2014, the Board of Directors of HCi VioCare (the “Company”) appointed Heleen Kist as a Chief Operating Officer of the Company.

 
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ITEM 6.  EXHIBITS
 
 Exhibits:
   
3.1.1
Articles of Incorporation
Incorporated by reference to our Registration Statement filed with the SEC on Form SB-2 dated June 29, 2007.
3.1.2
Certificate of Amendment to the Articles of Incorporation
Incorporated by reference to our Definitive 14C filed with the SEC on December 27, 2013
3.1.3
Certificate of Amendment to the Articles of Incorporation
Incorporated by reference to our Definitive 14C filed with the SEC on March 3, 2014
3.2
Bylaws
Incorporated by reference to our Registration Statement filed with the SEC on Form SB-2/A dated October 11, 2007.
4.1
Certificate of Designation
Incorporated by reference to our Definitive 14C filed with the SEC on December 27, 2013
10.1
Marketing Research Agreement
Incorporated by reference to our Registration Statement
10.2
Loan Agreement
Incorporated by reference to our Registration Statement filed with the SEC on Form SB-2/A dated January 28,
2008.
.10.3
 Subscription Agreement
Incorporated by reference to our Registration Statement filed with the SEC on Form SB-2 dated June 29, 2007.
10.4
Contract between the Company and Sotirios Leontaritis dated effective January 1, 2014
Incorporated by reference to our Form 8-K filed with the SEC on January 21, 2014
10.5
Acquisition Agreement between HCi VioCare Technologies Limited and Christos Kapatos dated February 2, 2014
Incorporated by reference to our Form 8-K filed with the SEC on February 14, 2014.
10.6
Acquisition Agreement between HCi VioCare Technologies Limited and Dr. Christos Kapatos dated April 16, 2014
Incorporated by reference to our Form 8-K filed with the SEC on May 6, 2014
10.7
Consulting Agreement between the Company and Dr. Christos Kapatos dated April 16, 2014
Incorporated by reference to our Form 8-K filed with the SEC on May 6, 2014
10.8
Consulting Agreement between the Company and Professor Stephan Solomonidis dated April 16, 2014
Incorporated by reference to our Form 8-K filed with the SEC on May 6, 2014
10.9
Consulting Agreement between the Company and Professor William Sandham dated April 16, 2014
Incorporated by reference to our Form 8-K filed with the SEC on May 6, 2014
10.10
Form of Advisory Board Agreement
Incorporated by reference to our Form 8-K filed with the SEC on May 6, 2014
10.11
Share Purchase Agreement between Mr. William Spence, Miss Catriona Ann Spence, and Mrs Eilidh Isabel Malcolm, and HCi VioCare Clinics UK Limited dated June 9, 2014
Incorporated by reference to our Form 8-K filed with the SEC on June 9, 2014
10.12
Disclosure Letter dated June 10, 2014
Incorporated by reference to our Form 8-K filed with the SEC on June 9, 2014
10.13
Taxation Undertaking  between Mr. William Spence, Miss Catriona Ann Spence, and MrsEilidh Isabel Malcolm, and HCi VioCare Clinics UK Limited, dated June 9, 2014
Incorporated by reference to our Form 8-K filed with the SEC on June 9, 2014
10.14
Agreement between HCi VioCare Clinics UK Limited and William Donald Spence, dated June 9, 2014
Incorporated by reference to our Form 8-K filed with the SEC on June 9, 2014
10.15
Letter from Zhen dated June 19, 2014 regarding change in certified accountant.
Incorporated by reference to our Form 8-K filed with the SEC on June 25, 2014
10.16
Loan Agreement between the Company and Sotirios Leontaritis dated June 10, 2014
Incorporated by reference to our Form 10-Q filed with the SEC on August 19, 2014
10.17
Loan Agreement between the Company and Sotirios Leontaritis dated July 25, 2014
Incorporated by reference to our Form 10-Q filed with the SEC on August 19, 2014
10.18 Agreement between W.D. Spence Prosthetics Limited and Heleen Francoise Kist, dated November 7, 2014 Incorporated by reference to our Form 8-K filed with the SEC on November 12, 2014
14.1
Code of Ethics
Incorporated by reference to the registration statement filed with the SEC on Form 10-K dated April 6, 2009.
31.1
Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
31.2
Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
32.1
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Filed herewith
101.CAL
XBRL Taxonomy Extension Calculation Linkbase **
To be filed by amendment
101.DEF
XBRL Taxonomy Extension Definition Linkbase **
To be filed by amendment
101.INS
XBRL Instance Document **
To be filed by amendment
101.LAB
XBRL Taxonomy Extension Label Linkbase **
To be filed by amendment
101.PRE
XBRL Taxonomy Extension Presentation Linkbase **
To be filed by amendment
101.SCH
XBRL Taxonomy Extension Schema **
To be filed by amendment
**Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

 
15

 


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

   
HCi VioCare
       
Date:
November 19, 2014
By:
/s/ Sotirios Leontaritis
   
Name:
Sotirios Leontaritis
   
Title:
Chief Executive Officer and President (Principal Executive Officer)
       

 

 
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