ITEM 1. BUSINESS
1.1 BACKGROUND
The address of our principal executive office is Kintyre House, 209 Govan Road, Glasgow G511HJ, Scotland, United Kingdom. Our telephone number is +44 141 370 0321. The Company's web-site is http://www.hciviocare.com.
Our common stock is quoted on the OTC Markets Inc. owned and operated Inter-dealer Quotation System ("OTCQB") under the symbol "VICA".
We were incorporated in the State of Nevada on March 26, 2007 as a company intending to sell medical devices in the northern regions of China. Our intent was to seek strategic relationships with medical device manufacturers both in China and North America with the aim to be their sales and distribution agent in northern China. We also intended to assist Chinese medical device manufacturers on the development of the North American market. The Company did not find suitable relationships with which to progress its business until it undertook a change in management in September 2013. With the change in management, the Company determined that it would initially concentrate on the development and marketing of medical devices in Europe, more particularly initially in Scotland, where management had identified several opportunities for entry into the markets for prosthetics and orthotics. We are currently engaged in healthcare innovation in the fields of prosthetics and orthotics (P&O), and we intend to be engaged in the operation of P&O total rehabilitation clinics. We have two wholly-owned Scottish subsidiaries: HCi Viocare Technologies Limited and HCi Viocare Clinics UK Limited.
On December 27, 2013, pursuant to approval of the Board of Directors and the majority stock holder on November 28, 2013 and November 29, 2013 respectively, the Company filed a Certificate of Amendment to the Articles of Incorporation of the Company for the purpose of clearly providing the directors of the Company with the authority to issue both common and preferred stock without approval by the stockholders and to grant the authority of the directors of the Company to issue such shares of common and/or preferred stock in one or more series, with such voting power, designation, preferences and rights or qualifications, limitations or restrictions as they may determine by resolution of the Board of Directors.
On January 13, 2014, the Company filed a Certificate of Designation with the Secretary of State of the State of Nevada. The Certificate of Designation sets forth the rights, preferences and privileges of a class of the Company's preferred stock. Such class shall be designated as the "Series A Preferred Stock" and the number of shares constituting such series shall be 5,000,000 shares. The holders of Series A Preferred Stock will be entitled to a preference over all of the shares of the Company's common stock. The holders of common stock and the holders of Series A preferred stock vote together as a single class with the holders of the Series A preferred stock having 50 votes per share of Series A preferred stock and the holders of common stock having 1 vote per share of common stock. Holders of Series A Preferred Stock are entitled to notice of any stockholders' meeting. No shares of Series A preferred stock have been issued as of the filing date of this report.
On January 15, 2014, we formed our wholly-owned subsidiary, HCi Viocare Technologies Limited ("Viocare Technologies"), a corporation incorporated pursuant to the laws of Scotland, under registration number SC467480. Viocare Technologies undertakes research, development and commercialization of state of the art, new, innovative medical devices, methods and products in the fields of prosthetics, orthotics, rehabilitation, bioengineering, mobility, diabetes, diabetic foot, tissue mechanics, ultrasonics, medical signal processing and analysis, medical technology, orthopedics and robotic surgery. Viocare Technologies also plans to expand its research and development reach, to create a stable pipeline of new products and upgrades in the fields of prosthetics, orthotics, and diabetes.
On February 12, 2014 we acquired intellectual property rights ("IPR") over an innovative medical technology entitled 'SocketFit' from our former Board Member Dr. Christos Kapatos, as well as over any additional technologies under development or that may be developed in the future. Consideration for the acquisition of the exclusive, perpetual, revocable, transferable, royalty free worldwide ownership of the IPR, and know how to develop and exploit the IPR was the issuance of 175,000 shares of the common stock of the Company to Kapatos. SocketFit is a system that will help overcome technical and resource hurdles endemic to the prosthetic sector. The system has been designed with the aim of offering optimally fitted prosthetic sockets that will reduce the number of prostheses made for, resulting in a reduced number of visits by the patient to the prosthetic, and also assisting in the rehabilitation of amputees.
On March 21, 2014, the Company's name changed from China Northern Medical Device, Inc. to HCi Viocare in regard to actions taken on November 28, 2013, when the Board of Directors of the Company approved, and recommended to the majority stockholder that they approve the name change. On November 29, 2013, the majority stockholder approved the name change by written consent in lieu of a meeting, in accordance with Nevada State Law. FINRA approved the name change with an effective date of March 21, 2014. Our trading symbol is "VICA". We filed an amendment to our Articles of Incorporation with the Secretary of State of Nevada changing our name to HCi Viocare to be effective on March 21, 2014.
On April 17, 2014, the Company, through our Scottish subsidiary, HCi Viocare Technologies Limited, entered into an acquisition agreement with Dr. Christos Kapatos, a former director of both the Company and HCi Viocare Technologies ("Kapatos"), to acquire all rights and interest in and to the background IPR for a developing technology now known as "Flexisense". Kapatos has conceived and been working on a Smart Insole System which is believed to be a state-of-the-art, pressure and shear force sensing insole with an incorporated real-time global display application and a fully featured support web-space that suggests to the user and his podiatrist/physiotherapist when inappropriate or dangerous conditions are developing on the feet. The product is being designed to help mitigate diabetic foot complications, such as ulceration, infection and amputation.
The competing insoles that were commercially available at this time can only monitor vertical pressure on the foot and not shear and have a significantly higher cost and are intended for use in clinical or research environments.
As consideration for the acquisition:
·
HCi Viocare Technologies shall cause the parent Company to issue to Kapatos a total of 175,000 shares of the common stock of the Company on execution of the agreement and 175,000 shares of the common stock of the Company for each and every new version of the technology (new version to mean any update or improvement to the initial commercial product to be developed from the technology, after the commercial development of the first Market Ready Insole from the technology acquired, should the new version be developed to commercial market ready stage);
·
a cash bonus in the amount of $10,000,000USD should the technology be sold at any stage of development for an amount equal or greater than five hundred million ($500,000,000) cash or the equivalent thereof by way of any other consideration.
On May 8, 2015, the Company through its wholly owned subsidiary company HCi Viocare Technologies Limited entered into an agreement with Dr. Christos Kapatos, to amend the acquisition agreement ("Amendment of Acquisition Agreement") dated April 17, 2014. Under the Amendment of Acquisition Agreement, the parties agreed, among certain other terms and conditions, to the issuance of 350,000 restricted shares of the common stock of the Company as additional consideration for all other applications of the Smart Insole technology. Furthermore, under the terms of the Amendment of Acquisition Agreement no cash bonus shall be provided to Kapatos.
In 2014 the Company acquired our first operational Prosthetics and Orthotics clinic (the "Clinic") in Glasgow, Scotland. 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.
On September 25, 2015, the official opening of the Company's new Research and Development (R&D) center together with its redesigned Prosthetics and Orthotics (P&O) clinic in the UK took place in Glasgow, Scotland.
On April 11, 2016 the Company announced the branding of its unique smart insole technology as "FlexisenseTM".
On September 23, 2016 the Company entered into a licensing agreement with respect to certain applications of its Flexisense™ Technology with Carilex Medical Inc. a leading medical mattresses manufacturer. Under the terms of the agreement the Company will receive a Technology Access Fee, as well as certain staggered success fee payments as each commercialized product under the scope of the agreement is completed. In addition, there are product-based royalty fees payable to the Company on a sliding scale based on production levels for all commercial products sold into the marketplace.
On December 20, 2016, the Company appointed Mr. Brian Maguire as Director of its subsidiary HCi Viocare Clinics UK Ltd.
On October 9, 2017, the Company appointed Dr. Ioannis Doupis, to the Advisory Board of the Company originally formed on April 15, 2014. The advisory board appointment is for a term of one year. On October 3, 2018 the Company's Board of Directors determined to terminate the Company's advisory board.
On December 12, 2017, the Company approved the issuance of 925,000 common shares to Dr. Christos Kapatos, CTO and Director of the Company, as consideration for the transfer of certain complementary technological developments and work in progress in the form of a stock award which vested as of the date of grant.
On January 31, 2018 the Company announced that it will commence development of its own proprietary Blockchain based system for handling sensitive client records in its flagship Prosthetics and Orthotics clinic in Scotland. Furthermore, the team plans to develop a proprietary Blockchain based system for handling and storing the data produced from the medical applications of its FlexisenseTM technology.
On February 15, 2018, the Company entered into a Term Sheet with Mr. Georgios Thrapsaniotis and Mrs. Stella Thrapsanioti, his spouse ("Stella"), pursuant to which Mr. and Mrs. Thrapsaniotis will purchase certain securities of the Company at a fixed price of US$0.60 per share. Upon execution of the Term Sheet, one or multiple Private Placement Subscription Agreements are agreed to be entered into during the immediately following 10 days for total proceeds of USD $360,000 in respect of the issuance of a total of 600,000 shares of the restricted common stock of the Company. As at the date of the Term Sheet, Mr. and Mrs. Thrapsaniotis collectively owned 902,495 restricted shares of the Company's common stock.
The Term Sheet also provides that Mr. Thrapsaniotis, or his designee, shall be entitled to hold the position of Treasurer of the Company, provided that Mr. and Mrs. Thrapsaniotis hold in excess of 5% of the Company's issued and outstanding common stock collectively, until the conclusion of a full profitable year irrespective of the number of shareholdings held individually or collectively by them at the relevant time. Furthermore, it is agreed by and between the shareholders of the Company who hold as of the date of the Term Sheet in excess of 5% of the Company's common stock, and concurrently hold a position on the Company's Board, or act in the capacity of any officer of the Company or its subsidiaries, that he/she shall not be entitled to receive any repayment against pre-existing debt owed by the Company, as of February 15, 2018, as it is recorded in the Company's financial records, except as otherwise agreed in writing.
Effective February 15, 2018, Mr. Sotirios Leontaritis resigned from his position as the Treasurer of the Company. Concurrently, the Board of Directors appointed Mr. Georgios Thrapsaniotis ("Thrapsaniotis") as a member of the Board of Directors of the Company. Mr. Thrapsaniotis was also appointed Treasurer in accordance with the provisions of a Term Sheet more fully described above.
On February 16, 2018, Thrapsaniotis subscribed for a total of 600,000 shares of the Company's restricted common stock at US$0.60 per share for total cash proceeds of $360,000. Concurrently, Thrapsaniotis and Stella became affiliates of the Company, holding jointly a total of 1,502,495 shares of the Company's common stock or 11.99% percent of the total issued and outstanding share capital.
On March 27, 2018, the Company entered into a one-year advisory agreement with Mr. Ravi Vaidyanathan (the "Advisor"). Under the terms and conditions of the Agreement, the Advisor is appointed to the Company's Scientific Advisory Board and shall serve in the position of Biomechatronics and Human Augmentation Advisor. On October 3, 2018 the Company's Board of Directors determined to terminate the Company's advisory board.
On March 22, 2018 and March 30, 2018 respectively, Sotirios Leontaritis, the President, Chief Executive Officer and a Director of the Company, entered into a Share Purchase Agreement (the "SPA") and an amendment thereto (the "Addendum"), (collectively herein referred to herein as the "Agreement") with Maschari Ltd. ("Maschari"), a Company incorporated in Cyprus, pursuant to which Mr. Leontaritis sold 6,135,528 of his restricted common shares to Maschari. Mr. Leontaritis received in exchange a Promissory Note dated March 30, 2018, to reflect the terms of the Agreement, in the principal amount of US$7,362,633 or US$1.20 per share, which note shall come due on March 29, 2021. The parties agreed that in the event Maschari defaults on the obligation to pay the Purchase Price according to the terms of the Agreement and the Promissory Note, Maschari will surrender the shares and shall return ownership of said shares to Mr. Leontaritis. Further, under the terms of the Agreement, the common shares are to be registered in the name of Maschari, however, until such time as the Promissory Note is paid in full, or the parties agree by written addendum thereto to the release of shares on a pro-rata basis in such amounts as may equal installment payments received, the shares shall remain encumbered. Further, in the event of any reverse split, forward split, cancellation or class conversion, as may occur in the normal course, which impacts the Company's common shares, it is agreed by the parties that such replacement shares, regardless of class and number, will continue to remain in escrow and may not be sold until paid in full and/or the parties have agreed to their release on a pro-rata basis for consideration received.
The shares sold by Mr. Leontaritis represent approximately 49.1% of the Company's total outstanding shares of common stock. Mr. Leontaritis continued to hold 1,000,000 shares of the Company's common stock representing approximately 8% of the issued and outstanding shares as of the date of the aforementioned transaction.
On May 23, 2018 the Company approved an amendment to the term of the scientific advisory agreement with Dr. Christos Kapatos, board member CTO and member of the Scientific Advisory Board, originally entered into on April 15, 2014 in order to extend the term to April 15, 2019.
On May 24, 2018 the Company incorporated a wholly owned subsidiary for purposes of completing a merger and name change from HCi Viocare to Rafina Innovations, Inc. Concurrently the Company's Board of Directors approved a reverse share split on the basis 20 for 1. The name change and reverse share split became effective on July 9, 2018. Unless otherwise noted, impacted share amounts and per share information included in the financial statements and notes thereto have been retroactively adjusted for the reverse share split as if such share split occurred on the first day of the first period presented.
Effective October 3, 2018, Dr Christos Kapatos resigned from his position as Director of the Company.
Effective October 3, 2018, Mr. Sotirios Leontaritis resigned from his position as the President, Director and Chief Financial Officer of the Company.
Effective October 3, 2018, Mr. Nikolaos Kardaras resigned from his position as the Secretary and Director of the Company. Mr. Kardaras will continue to consult for the Company as an independent contractor in his capacity as in-house legal counsel.
Concurrent with the aforementioned resignations, the Board of Directors appointed Mr. Constantinos Zertalis as a member of the Board of Directors and the President of the Company and Miss Paraskevi Pylarinou as a member of the Board of Directors, Secretary and CFO of the Company. Mr. Zertalis is a controlling shareholder of the Company holding 6,227,030 shares of the Company's common stock directly and indirectly via his controlled entity, Maschari, representing approximately 43.21%of the issued and outstanding shares.
On October 19, 2018 the Company's Board of Directors approved the grant of a total of 1,500,000 stock awards to the members of its Board of Directors, which awards vested on the date of grant. Further the Board approved the grant of 1,500,000 directors' stock options at $0.70 per share each year for five years, which options vest annually on the original date of grant.
On November 17, 2018, the Company's management terminated a consulting contract with Mr. Sergios Katsaros which took effect as of December 22, 2018. Mr. Katsaros ceased to be an officer of the Company concurrent with the effective date of termination of his contract.
On November 21, 2018 the Dr. Christos Kapatos resigned his position as Chief Technology Officer and as a consultant due to the Company's breach of Sections 3.1 and 3.2 of that certain Consulting Agreement originally entered into April 16, 2014 (as amended from time to time, including, without limitation, Addendum 1, Addendum 2 and Addendum 3). The Company declined to cure the noticed breach(es) in the ten (10) day period as allotted from notice date and subsequently accepted the resignation of Dr. Kapatos effective November 21, 2018. Further, on December 4, 2018 the Company notified Dr. Kapatos of the termination of that certain Acquisition agreement between Dr. Kapatos and HCi Viocare, dated April 16, 2014, as amended May 8, 2015.
Until such time as a new Chief Technology Officer is appointed Dr. Hari Elangovan, an employee of the Company since 2014, will be assuming a leadership role in the ongoing development of the Company's technology.
In February 2019 the Company announced it has commenced development on a prototype for sleep apnoea through a biPAP machine that management believes can positively impact those with sleep apnoea, a respiratory failure which occurs during sleep. Additionally, in February 2019, the Company announced it has developed a product prototype to assist patients with Deep Vein Thrombosis called the Flexi Cuff. Deep Vein Thrombosis ("DVT") occurs when blood clots form inside veins deep inside the body. Rafina's cuff prototype has several advantages. Its inflation/deflation functionality is smooth and increases blood flow as required. Noise levels are extremely low while the cuff is operating, and the cuff has a long battery life due to an innovative pump design (circa 12 hours). The product is lightweight making it very portable and it can be charged using a simple USB cable.
On March 14, 2019, Mr. Sotirios Leontaritis resigned as director of each of the Company's wholly owned subsidiaries, HCi Viocare Technologies and HCi Viocare Clinics. Concurrently Miss Paraskevi Pylarinou was appointed to fill the vacancies on the boards. Ms. Pylarinou is the sole director of HCi Viocare Technologies and one of two directors of HCi Viocare Clinics, Mr. Brian Maguire being the other.
Additional information on the Company's activities, technologies and management team can be found at the Company's website: http://www.hciviocare.com
Other than as set out herein, we have not been involved in any bankruptcy, receivership or similar proceedings, nor have we been a party to any material reclassification, merger, consolidation or purchase or sale of a significant amount of assets not in the ordinary course of our business.
Our Current Business - Research & Development and commercialization of technology for healthcare innovation including various athletic applications, and the operation of Prosthetics and Orthotics clinics.
The Company intends to exploit the growing need for high quality care and prevention in the growing population of the obese, diabetic, amputated and/or movement impaired through development of:
-
Chain of Clinics: Prosthetic, Orthotic and (diabetic foot) rehabilitation centers in poorly served markets, such as Mediterranean Europe & the Middle East. Differentiation through British standards in clinical practice, qualifications and training.
-
Technologies: Suite of patented solutions to help prevent, monitor & alleviate complications across different patient and athletic populations. Collaboration with and licensing to established industry participants globally to facilitate rapid development, distribution and scale.
We commenced revenue generating operations in fiscal 2014 and are primarily engaged in the research and development, commercialization and marketing of innovative medical technologies including wearable devices and on body applications that have use in insoles, in shoes, in cushions, seats, mattresses, saddles and any other wearable devices such as smart apparel and sports equipment. Further we are in development for more far reaching applications including use in automotive tires and other targeted industries where sensor technology may have valuable application. Further we continue to operate and expand our brand of prosthetics and orthotics ("P&O") and diabetic foot total rehabilitation clinics. During fiscal 2016 our flagship prosthetics clinic in Glasgow Scotland completed its first full year of operations after relocation to a larger state of the art facility which allowed for a substantive increase in our year over year revenues. Presently our revenue stream is derived primarily from the Company's flagship P&O clinic located in Glasgow, Scotland, and with some initial commercial income from prospective licensing partners for the Technologies businesses.
The Company's technologies and R&D portfolio presently consists of:
•
Filing of 3 patents in the UK: pressure sensor system; pressure & shear; pressure & positioning (Dec 2014) (all of which patents were abandoned upon the filing of a new International (PCT) patent application in December 2015 which covers over 140 countries around the world, and includes further advances made to the sensor systems, and a wider range of applications in products that touch people's everyday lives;
•
2 further patents drafted and pending filing, with a further 4 patent applications currently in draft form;
•
In excess of 4 prototypes: pressure & shear insole; smart cushion, smart mattress, biPAP machine and cuff for deep vein thrombosis, with several of these prototypes in the commercialization stage;
•
1 proof of concept device: robotic surgical assistive device;
•
High level diagrams or complex documentation and software for other innovations in the portfolio.
•
Various customized prototypes in testing and development with commercial partners.
1.2 OUR TECHNOLOGIES
Research and Development
Research and development costs were $278,708 and $1,290,345 for the year ended December 31, 2018 and 2017, respectively.
A.
The Sensor Technology
As part of our ongoing development efforts stemming from R&D related to our base technologies acquired in fiscal 2014 from Dr. Christos Kapatos, notably the Smart Insole technology, HCi Viocare has developed a sensor system that can be incorporated into any thin, flexible, bendable material and is capable of measuring direct force applied vertically and shear forces applied horizontally. Each sensor can connect with other sensors, creating a network, in order to monitor an entire area.
Due to the nature of the technology used, which is currently being kept confidential, the sensor is unaffected by bending, temperature, humidity and excess pressure, load, making it suable for medical applications, wearable devices and on-body applications. The sensor system has been designed to be used in insoles, in shoes, in cushions, seats, mattresses, saddles and any other wearable devices such as smart apparel and sports equipment. A key feature of the sensor system is its low cost, with the components for each one sensing point measuring pressure and shear forces at a cost of US$1.10, which is an order of magnitude lower than conventional pressure-only sensing solutions such as capacitance, resistance or strain gauges.
The sensor system has been integrated into a prototype of an insole which is an autonomous, non-invasive, stand-alone unit, with its own rechargeable power supply, microcontroller and wireless communication unit. The insole can connect with smartphones, tablet pcs and pcs, through a mobile application, in order to transmit the data collected to the end user. End users could be a diabetic patient, to monitor pressure and shear forces for the prevention of diabetic foot ulcers, athletes interested in the impact on their knees of their running style or wanting to monitor the totality of their golf swing, or clinicians such as physiotherapists, orthotists and prosthetists needing to evaluate a person's gait.
The Company believes that there are applications for its force sensing technology in many fields within healthcare and sports, as well as more industrial fields due to its relative low cost vs conventional pressure sensing, its ability to measure shear forces in addition to pressure, its bendability and its reliability in a wide range of environments.
During fiscal 2016 the Company branded its unique area of sensor based technologies, "FlexisenseTM". Please visit http://flexisense.hciviocare.com.
Flexisense is a thin, flexible, bendable, sensor drone micro-electro-mechanical system capable of measuring direct force applied vertically on both its sides, shear force applied on its surface and 3D position and velocity of the object attached to it. The sensor is an autonomous, non-invasive, stand-alone unit, with its own rechargeable power supply, micro-controller and wireless communication unit. The drone can wirelessly connect with other drones, creating a network, in order to monitor an entire area. It can also connect with smartphones, tablet and computers, through an application which has also been developed, in order to transmit the data collected to the end user.
Flexisense is unaffected by bending, temperature, humidity and excess pressure, load and shear, and completely insulated, making it suitable for medical applications, wearable devices and on-body applications. The drone can be made in a plethora of shapes and sizes, to fit any application/situation. The drone has been designed to be used in insoles, in shoes, in cushions, seats, mattresses, saddles and any other wearable devices such as smart apparel and sports equipment.
Flexisense has application in every operation that a "fusion" force/pressure, shear and 3D position and velocity sensor is required. However, it was designed and developed specifically as a non-invasive medical sensor to be used in wearable devices, smart garments, training apparatus and for medical applications such as on-body, non-invasive, real time force, pressure, shear and 3D position and velocity measurements. For example, such a sensor can be invaluable for use in the monitoring of a person's gait providing data about the pressures applied on the foot, the interaction between shoe and foot and the forces applied in the system and the angles of the joints and posture position.
The Company concentrated its R&D efforts during early fiscal 2016 on the expansion of the commercial development of Flexisense and the second half of 2016 on seeking licensing partners for Flexisense and mattress application of the technologies, with conversations taking place with various industry partners. During fiscal 2016, the Company entered into an agreement with Carilex Medical Inc. a leading medical mattresses manufacturer. Under the terms of the agreement the Company received a technology access fee, and will receive certain staggered success fee payments as each commercialized product under the scope of the agreement is completed. In addition, there are product based royalty fees payable to the Company on a sliding scale based on production levels for all commercial products sold into the marketplace.
In addition, we have entered into several cooperative agreements with industry partners across several other areas of application for our technologies and we have customized prototypes under review with various commercial partners proposed for commercialization in fiscal 2018.
Flexisense Application: Diabetic Insole
The Company has developed a prototype for a smart insole measuring pressure and shear forces that can communicate wirelessly to smartphones and could be worn by diabetic patients to alert them to risky behavior and provide them and their clinicians with information to help prevent the diabetic foot ulcers that can ultimately result in amputation.
Many complications can be associated with diabetes. Diabetes disrupts the vascular system, affecting many areas of the body such as the eyes, kidneys, legs, and feet. People with diabetes are more prone to infection. They can also develop neuropathy (damaged nerves) or peripheral vascular disease (blocked arteries) of the legs. This can cause diminished feeling in the feet leading to unnoticed cuts, scratches, and tissue breakdown. This may result in ulceration and infection. Infection and foot ulceration, alone or in combination, often lead to amputation.
In terms of market size of the opportunity: foot complaints are the leading cause of hospitalization of people with diabetes and is estimated that 30% of all diabetics will develop a serious foot complaint at some time (http://www.who.int/topics/diabetes_mellitus/en/). By region, the North America diabetic foot ulcer therapeutics market dominated the global diabetic foot ulcer therapeutics market in revenue terms in 2016 and the trend is projected to continue throughout the forecast period. Revenue from the North America market is anticipated to increase at a CAGR of 10.8% over 2016-2024 to reach a market valuation of more than US$ 3,100 Million by 2024. (https://www.persistencemarketresearch.com/mediarelease/diabetic-foot-ulcer-therapeutics-market.asp)
It is widely understood that pressure and shear forces on the feet cause ulcerations and due to diabetic patients having neuropathy (resulting in loss of sensation in the feet), feet are not offloaded or taken care of appropriately.
It is very important for diabetics to take the necessary precautions to prevent all foot related injuries. Due to the consequences of neuropathy, daily observation of the feet is critical. Theoretically, if diabetes is well controlled and monitored it should be possible to avoid these foot problems. However, whilst clinical advice to diabetics is to 'mind their feet' and monitor them daily, they are not provided with a usable tool to measure the stresses and strains on their feet where there is some loss of sensation. This is what the insole intends to address.
The resulting product(s) will be a Class 1 medical device, depending on claims and disclaimers. While default alert settings would be provided, based on existing academic and clinical research, users would be encouraged to get their physician to set parameters.
The Company is not alone in recognizing the importance of measuring pressure on the feet of diabetics. Orpyx in Canada has launched a consumer product priced at $2,400, which requires an additional on-shoe component and a dedicated watch vs. HCi Viocare's fully integrated insole which could be marketed at <$500. A few other start-up companies (FeetMe, Sensoria) and research groups are working on diabetic foot monitoring insoles, but all only measure pressure, ignoring shear forces which can greatly impact ulceration, and use conversional pressure sensing (capacitive or resistive technology) which the Company feels may not be as reliable in the hot and humid environment of a shoe. Because HCi Viocare's technology measures all three forces (pressure and 2 horizontal shear forces) we are able to model with reasonable accuracy the calorific expenditure of the wearer, thereby potentially contributing to the diabetic patient's glucose management.
The Company is presently seeking licensing partners in respect of the diabetic insole application. The license partner could be any company marketing products to diabetics (e.g. blood glucose monitors and lancets) or wearable technologies company wanting to extend its healthcare reach (iHealth, Samsung) or foot specialist already catering to diabetic foot market (eg Dr. Scholl).
Figure: Flexisense application to smart insole
Flexisense Application: Medical gait analysis insoles
Orthotists, podiatrists, physiotherapists and prosthetists all require a good understanding of a patient's gait in order to diagnose biomechanical issues, provide appropriate rehabilitation and ensure appropriate alignment of the body when using orthoses (such as braces) or prosthetic limbs. Equally, researchers in these fields and biomedical engineering more generally are interested in the forces involved in gait and their impact on the body.
Academic and commercial researchers may have force plates at their disposal: metal plates built into the floor, which can capture the forces of a person walking or running over them. However, there are prohibitively priced (>$40,000) for most clinicians. There are therefore different systems on the market addressing clinicians and researchers:
·
optical gait analysis: whilst these can show movement very well, they do not yield any information on forces
·
pressure mats: these measure pressure but have a small surface meaning that one can only capture a snapshot of the gait
·
pressure sensing insoles: which can measure pressure more realistically over a larger distance
Presently we are aware of 3 devices that compete directly with the insole intended for clinical use only, each priced at in excess of $4,000: from Algeos (www.algeos.co.uk) which attaches sensors directly to the foot; and insoles from Tekscan (www.tekscan.com) , from Novel, (www.novel.de) and Moticon (www.moticon.de).
Management believes its medical insole would be unique in its ability to measure shear forces, and to operate for longer periods of time reliability and accurately due to limitations of the competing technologies (eg in humidity, when bent). Moreover, unlike the HCi Viocare prototype, existing insoles are not stand-alone, requiring ancillary componentry to communicate with the data capture unit and therefore making their use restricted to in-clinic. A cheaper, stand-alone insole could be given to patients to take away and record gait over time and over different surfaces.
The medical insole can also be expanded to become a combined 3D motion capture and gait analysis system for use by physiotherapists, orthotists, athletes and possibly in film and gaming.
Flexisense Application: Athletic insoles
Sports and fitness wearable devices have been in the market for more than 30 years. However, in the last 3 years the application of micro-electronics, wireless technology and the explosion of smartphones and mobile applications has revolutionized the market, with many established, as well as new, companies offering products applications for a wide range of sports.
Wearable wireless devices in the Sports, Fitness and Wellness market measure sports performance, daily activity, sleep patterns, and other related physical parameters. Another key factor that distinguishes this market is its consumer focus and that, unlike devices in the other healthcare markets, these devices usually do not require regulatory approval as a medical device.
The consumer market for wearable devices is exploding, and people appear to have an insatiable appetite for data to analyze their fitness and athletic performance. Nearly 50 million sports performance monitors were sold in 2014 and Worldwide revenue is forecast to reach $2.3 billion in 2017. http://cdn2.hubspot.net/hub/396065/file-2568104498-pdf/Blog_Resources/IHS-Wearable-Technology.pdf?t=1427903372862
Companies like Adidas-Salomon Ag, Nike Inc., Garmin, New Balance and Suunto invest millions of dollars every year for the development of wearable devices and material, and the market is booming as demand is ever increasing. The focus for most of these companies seems to be in the running shoes, apparel and equipment sector, as this sector is the fastest growing sports and fitness sector world-wide with billions of dollars of revenue every year. Under Armour has just launched its first smart shoe, monitoring only cadence.
The Company's sensor technology can be used in an insole or built into shoes to provide information to the wearer. It is the only pressure sensing technology that can work accurately in a warm and moist environment and with significant bending, like that experienced during running.
In keeping with the attractiveness of the market, there are a number of relatively new companies intending to launch insoles to give information to runners, together with coaching 'Apps'. Some of these measure only contact or movement (e.g., www.ambiorun.com) and others do measure pressure, usually not fully wireless/stand-alone (Medhab www.medhab.com; Arion www.ato-gear.com). Another competitor is Sensoria which markets a smart textile sock that measures pressure and pace. It also has a 'running coach' App. It requires an anklet to be worn, to house the battery and communication modules, and the socks require washing, potentially reducing their life span.
Note that the resistive or capacitive technologies used by competition struggle with bending and hot/humid environments and are therefore considered to be less reliable. Also, due to the cost associated with pressure sensing, competitors usually only have a small number of sensing points, limiting the value of the information. The Company's more cost-effective sensing technology would permit a much greater number of points.
A further important differentiator from the competition is that the Company's sensor technology measures forces in three directions, giving not just plantar pressure information but also making the system capable of using industry accepted biomechanical modeling capabilities to project the impact on the knee of the wearer's running style. And the knee is an area of great focus for runners, who frequently experience injuries.
The athletic insoles could be coupled with other devices to give wearable performance information across a number of sports, including the high value tennis and golf markets. Golfers, for example would be able to link their swing (from an on-club sensor) to their weight displacement to optimize their performance. Currently on-racket or on-club sensors exist but fail to address this critical weight placement / foot force element for the athletes.
The Company is presently seeking licensing partners in respect of the athletic insole applications, with a number of discussions with market leaders in their fields ongoing and additional commercial prototypes under review.
Smart Mattress
Ulceration and skin (soft tissue) breakage is very common to people with tetraplegia or paraplegia and to most patients with limited movability that spend time in a bed, or in a wheelchair. It is caused by low continued pressure over time and/or high (peak) pressure points. The most commonly used method in a clinical environment, to avoid ulceration in such patients, is for a nurse to "turn" them, in better words; to change the position in which they lay in bed, frequently. This practice is supported by specialist therapeutic support surfaces (mattresses and overlays) to attempt to reduce pressure points. The more modern surfaces are powered air mattresses. There are different types of powered air mattresses, which can alternate pressure in their air cells on a pre-defined timetable.
In terms of market opportunity, hospitals are under tremendous pressure to address decubitus, particularly in the US where payers are moving away from covering "never events". Pressure ulcers affect a million patients in the USA alone each year and it costs the US healthcare system alone an est. $12 billion in direct treatment costs, not counting associated costs such as medical malpractice lawsuits;
Existing market solutions:
•
Adoption of pressure relieving overlays is increasing; these are generally not 'active' and merely made of a suitable material to reduce pressure, resulting in a lower cost; Whilst there is no direct clinical evidence for their effectiveness, there is a widespread belief and acceptance that they can reduce pressure ulcers;
•
Winncare's Axensor system is an example of an inflatable mattress with sections which goes through a standard cycle of in-/deflation to relieve pressure; these are increasingly common for high risk patients and are supplied by all leading therapeutic support surface manufacturers.
•
Israeli start-up Wellsense has the first pressure sensing mattress cover and their clinical evidence shows that the monitoring of pressure alone is already effective; however, it has low adoption because it is not breathable (which could aggravate ulcer formation) and it is costs >$3,000.
With the Company's sensor technology incorporated into mattresses and overlays, for which a prototype exists, technology licensees could develop a range of products with the following: lower production costs, sensors not affecting the properties of the mattresses, ability to measure shear in addition to pressure (shear forces being a recognized key contributor to ulceration).
Furthermore, with the sensor integrated into an inflatable mattress itself, we have developed a smart mattress that can respond intelligently to the pressure and shear data and inflate and deflate the mattress compartments automatically to reduce the risk of ulceration for patients, in between nursing interventions. This dynamic smart mattress adapts to the specific need of every patient and provides relief and adjustment only where and when is needed, maximizing the effectiveness of the treatment. This would be classed as a Class 1 medical device, and the license partner would need to pursue such registration prior to launch.
As noted above the Company has entered into an agreement with Carilex Medical Inc. a leading medical mattresses manufacturer where under the Company receives technology access fees and additional fees for each commercialized product under the scope of the agreement when completed. Further there are product-based royalty fees payable to the Company on a sliding scale based on production levels for all commercial products sold into the marketplace. The Company and Carilex are currently working on the timing for the first prototypes to be commercialized.
Wheelchairs and medical chairs
The same technology as the Mattress can be used to provide pressure and shear monitoring integrated into wheelchair cushions and medical day-chairs to help prevent ulceration. This may be licensed to the same license partner as the mattress solutions.
Automotive
By incorporating the HCi Viocare sensor technology into automotive seating, professional drivers could be monitored automatically for posture, projected blood circulation, pressure and shear. Posture is important as back pain is a leading cause of absenteeism in the workplace, but in a driving environment, positioning can be an indicator of fatigue, a leading cause of accidents. Adoption of such technology could be driven by health and safety considerations and/or the insurance industry.
The Company is seeking partners in the automotive industry to discuss the potential of incorporating the technology into their vehicles.
B.
SocketFit
The Company will build on the work done by Dr. Kapatos in developing a scanning device to determine the optimal shape of an amputee's socket, capturing the internal geometry and the biomechanical properties of the tissues in the residual limb. This SocketFit technology was acquired in 2014. The intention is to partner with a leading scanning provider or manufacturer in the P&O market, through a development and license agreement, to produce a socket system for use by prosthetists worldwide.
Market opportunity
The number of amputees world-wide is estimated to be 20 million, and for most amputees finding a well-fitted prosthesis is far from easy. Traditional methods of design, manufacture and fitting of a prosthetic socket are typically carried out by "artisan" techniques but unfortunately often result in ill-fitting devices that make wearing a prosthesis almost intolerable for a large number of amputees.
A prosthetic socket is a custom-made "cone" that connects the rest of the prosthesis (foot, shank and knee) to an amputee's residual limb. Sockets generally need to be replaced every other year, though more frequently in the initial stages after amputation when the residual limb can still change shape significantly. While many significant technological advances have been made with the design and manufacture of prosthetic components, such as electronic knee assemblies and feet, socket design has not kept up. Over the past 20 years a great deal of research has been undertaken to automate the process of socket design and manufacturing, but it has been met with limited success. Most sockets continue to be created with hand-sculpted plaster molds made by the Prosthetist or a technician hours or days after examining the amputee. The result is that, typically, one in four sockets are discarded because of their poor fit.
Many prosthetists, (if not all), are frustrated by the lack of an objective method that would ensure an optimum fit of the socket. This 'need' for assistance instigated the advent of industrial sector technologies to be taken up in the field, even though these systems, in reality, lack the necessary 'ingredient' to allow the optimum socket to be produced. They merely attempt to replicate current practices in a digital manner (CAD-CAM systems), without taking into account the biomechanical or anatomical characteristics of the residual limb.
The key element of the project is work done by our former CTO, Dr. Christos Kapatos to improve the nature of the data used in socket modeling software. Finite element analysis (FEA) has been used widely in a variety of applications, including prosthetics. But its prosthetics applications have suffered from the fact that only external boundary data and limited information on the nature of the internal tissue was provided. The results were not promising. By including far more data on the nature of the internal anatomy as well as, for the first time ever (to our knowledge) data on the bio-mechanical properties of the tissue to the FEA, a system can be created that enables Prosthetists to build a socket that evenly distributes weight, provides enhanced comfort, and raises the bar across the industry on socket creation.
SocketFit is a digital system for assessing an amputee's residual limb and for the production of truly functional and comfortable prosthetic sockets. It takes account of the external and internal geometry of the amputee's stump, the biomechanical properties of each individual soft tissue layer i.e. skin, fat, muscle and bone, and the boundary and loading conditions of a complete prosthesis to generate a virtual 3D model of the residual limb. It is then possible to produce an accurate, functional and comfortable prosthetic socket.
By minimizing the time and cost of socket production and by reducing the number of faulty sockets (it has been reported that a quarter of all prostheses are currently rejected due to poor fit), there will be a reduction in costs incurred by health services and insurance companies worldwide as well as great benefits to the amputee.
The technology
The intended Socket-Fit device consists of three modules:
1.
The Ring - a device to scan the residual limb and export data, which uses ultrasound technology.
The external geometry of the medium under examination, is acquired by the position data from the stepper instruments and the use of the rotary position sensors; as the ring moves vertically, spinning at the same time, the spring-supported arms comes in contact with the entire residual limb, mapping every detail and transmitting it to a PC.
The internal geometry is acquired with the use of the on-board ultrasound transducers. Information on the mechanical properties of the tissues has also been captured.
2.
Data Tools - software to analyze and collate the data into intelligible information.
All the data are sent to the control box for onward transmission to the PC. Software generates a 3D image of the stump's external and internal geometry.
3.
Socket Modeling - FEA simulation
FEA and optimization software generate the optimum design for the socket in order to obtain the best pressure distribution, and therefore the most comfortable prosthesis for the amputee.
The process to getting to an optimized socket shape is shown in figure 2 and a schematic of the system in figure 3.
Figure 2: Process map of system
Figure 3: Schematic of the system
The greatest value provided by the acquired SocketFit technology rests in the algorithms that transform the data captured by the ultrasound transducers on the Ring to sanitized, usable data about the biomechanical properties of the tissues scanned. Specifically, the algorithms use data derived from the scans to generate stress-strain curves for the tissue layers within the limb.
This data is then used by the FEA software to simulate pressures onto the residual limb, similar to those experienced when walking, for different shapes of sockets, until the ultimate shape is found - meaning, the shape that provides uniform pressure where needed and avoids known pain areas (eg bone) to create a socket designed to have superior comfort in use.
Current Status of SocketFit
We plan to first find a commercialization partner, to help fund and/or conduct the required research and development and to launch the product within two years of commencement of the proposed research and development. This is to minimize risk but also because the technology could be designed to (retro-)fit into the partners' existing product suite, minimizing effort. While the Company focuses attention on its immediately marketable Sensor Technology and its varying applications, any additional development work for SocketFit is currently on hold.
C.
Other technology opportunities
Blood flow visualization:
The Company has developed a proof of concept device that permits the visualization of peripheral blood flow. This could be incorporated into a smart 'mat' for the diagnosis and progression monitoring of diabetic foot conditions. Diabetic patients can suffer from reduced peripheral blood flow in their feet. This contributes to neuropathy but also prevents the healing of diabetic foot ulcers, which can lead to amputation. Such a mat could shift the monitoring of diabetic foot care to primary care, away from podiatry specialists, but also provide essential health information to podiatrists which they would otherwise not have. With a relatively low manufacturing cost, patients could even monitor their own condition at home. It is hoped the product would be prescribed/reimbursed.
Blood Flow and Oxygenation Monitoring System
Soft tissue ulceration caused by pressure (over time) is an unwanted complication of illness (such as diabetes), injury, severe physical disability (tetraplegia) or increasing frailty. Ulceration is a serious, life-threatening injury that breaks down the skin and underlying tissue. It is caused when an area of skin is placed under pressure, over time, which causes a restriction in blood flow leading to "tissue starvation" and full thickness tissue loss, breakage and exposure of bone, tendon and/or muscle.
Skin cancer, also known as melanoma, is a type of cancer that begins in the skin and can spread to other organs in the body, leading to fatality. Melanoma occurs when some cells in the skin begin to develop abnormally. The cause of this abnormality is not fully understood yet, however it is thought that exposure to ultraviolet (UV) light from natural or artificial sources may be partly responsible.
Blood oxygen delivery and blood carbon dioxide flow is the common factor which links these two conditions.
We are currently investigating and designing a method for use in measuring continuous blood flow and oxygenation of peripheral soft tissues based on Bolometric Imaging. A bolometric array camera (a thermal camera) and light (LEDs or Lasers) of one spectrum only; infrared. In this process we will artificially and locally increase the temperature of blood for a few milliseconds, repeating the procedure every few milliseconds, "marking" blood as it moves and thus making its flow imaging and monitoring possible by use of the thermal camera and dedicated image processing software. This method can be further enhanced by combining a bolometric array camera with a CCD camera.
Sleep apnea device (BiPAP)
In February 2019 the Company announced it has commenced development on a prototype for sleep apnea through a biPAP machine that management believes can positively impact those with sleep apnea, a respiratory failure which occurs during sleep. Research shows that 1 in 6 people suffer from respiratory failure that requires a biPAP machine. [1] Further, solutions currently in the marketplace include equipment that tends to be large in size. Following investigation into the marketspace and needs of the consumer, our research and development team believe we can produce biPAP equipment that can be small in size, travel friendly and also energy efficient. Management expects the prototype to be ready between three to six months, and approximately the same size as a mobile phone. We believe our vision of this essential product will be attractive to the current market due to its small size, without sacrificing functionality, making it extremely convenient for users.
[1] Source: World Health Organization Statistics 2011
Flexi Cuff for DVT
In February 2019, the Company announced it has developed a product prototype to assist patients with Deep Vein Thrombosis. Deep Vein Thrombosis ("DVT") occurs when blood clots form inside veins deep inside the body. Rafina's cuff prototype has several advantages. Its inflation/deflation functionality is smooth and increases blood flow as required. Noise levels are extremely low while the cuff is operating, and the cuff has a long battery life due to an innovative pump design (circa 12 hours). The product is lightweight making it very portable and it can be charged using a simple USB cable. The global compression therapy market was a $3 billion market in 2016 and it is projected by year 2021 to become a $3.7 billion market. [2]
[2] Source: https://www.businesswire.com/news/home/20170126005363/en/Compression-Therapy-Market---Top-Drivers-Forecasts
Robotic surgical assist
•
Working (miniature) prototype of robotic device to assist in orthopedic surgery, reducing number of staff in OR; uses proprietary sensor technology also used in Digital Health products
Adaptive socket
•
The 'Holy Grail' of prosthetic sockets, this technology would utilize our proprietary pressure and shear sensors to signal a smart material inside the socket to adapt its shape to the wearer's gait and daily fluctuations in the size and shape of the stump.
Photo acoustic imaging
•
The team is exploring a theory that would remove the barriers currently preventing the human adoption of photo acoustic imaging, producing a relatively low-cost non-contact, non-invasive methodology. This would be a substantial project but with the potential to transform medical imaging.
HCi Viocare Technologies - UltraMyoGragram (UMG)
A small, very low cost Ultramyogram sensor (UMG) that can (uniquely) provide proportional muscle contraction monitoring, as well as type of contraction and joint angle recognition, remaining unaffected by sweat, vibration and external noise has been designed. The sensor will have excellent signal to noise ratio, will not require complicated signal processing algorithms and it will have high repeatability and linearity.
The UMG sensor is specifically designed to provide proportional control on prosthetic, orthotic and exoskeleton (both civilian and combat) applications and devices, and can operate in harsh environments (humid, hot and e-noisy) with ease.
A comparison with existing myographic sensors is presented in the following table, clearly showing the advantages of the envisioned UMG technology over all other currently existing myographic technologies.
HCi Viocare Technologies - In-tyre Data and Power Transmission System
A new, high speed, wireless data transmission system for in-tyre use has been designed. The system utilizes the widely used RF protocols, with a signal boosting circuit, and takes advantage of the tyre's features to amplify and boost the signal. This technology removes the need for sensor wires getting in and out of the wheel and tyre, wires that are a source of frequent failures, and provides wireless capabilities to most in-tyre sensors and electrical equipment.
At the same time, following similar principles with the data transmission system described above, a wireless energy harvesting system for use within a tyre has been designed. The system is a hybrid energies generator that converts the values of energies abundant inside a tyre to electricity, continues powering up all electronic equipment in the tyre, while the vehicle is in motion.
Passive Robotic Leg Support System for Orthopedic Surgery
Regardless of the current advances in orthopedic medical technology, currently no single device dedicated to the basic function of holding and stabilizing a limb during surgery exists.
A passive robotic system for limb stabilization has been designed to address the above issue. The system is a type of active force amplification robotic platform. It has a number of actuators and a rotary plate which can rotate clockwise and/or anti- anticlockwise. The platform safely and accurately supports and holds the leg of the patient under surgery. Moreover, it has a simple control mechanism attached to the platform, opposite to the area where the leg is attached, containing force transducers for monitoring the direction of force exerted and for controlling the movement of the device when the surgeon needs to safely readjust the position of the leg.
The surgeon uses the simple control mechanism to reposition the limb and the robotic table follows the movement of the surgeon and self-locks itself in position, immediately after the surgeon removes his hand from the control. When the device locks, it consumes zero energy to maintain position.
The device will be attached to a surgical table/bed and used as a stand-alone unit. The device could also be used for training and education purposes to track and record the position of a limb and to simulate operation procedures.
Micro valve-less, motorless miniature pump
A micro valve-less, motor-less, pump the size of a fingernail, has been designed. Combining a number of micro pumps in parallel or in series, or both, micro-pump arrays can be created, not larger than a few centimeters, that can provide substantial airflow and pressure to inflate and/or deflate a medical mattress in minutes, or even a car tyre. It could also be used in micro BiPAP and cPAP devices or any system/device that requires active air in-flow or out-flow.
The technology is low cost, low power, low noise and can be easily combined with existing power-harnessing systems. Its life expectancy is ten-fold of this of traditional pumps and the micro pump has no moving parts.
Blockchain based system for client records
The Company has commenced development of its own proprietary Blockchain based system for handling sensitive client records in its flagship Prosthetics and Orthotics clinic in Scotland. Furthermore, the team plans to develop a proprietary Blockchain based system for handling and storing the data produced from the medical applications of its FlexisenseTM technology.
D.
Intellectual property
We have acquired exclusive ownership of the innovative medical device 'SocketFit'. Dr. Kapatos, our former CTO, in conjunction with another development company had prior filed a patent application which has been abandoned. Significant development of the technology has been undertaken since the filing of the abandoned patent and, after corresponding with our patent agents, it was deemed in the best interests of the Company not to revive the old patent, but to apply for new - multiple patents on the technology, and use the old patent as background technology, as new innovations have sprung out of the initial patent and additional fields of application have been identified.
We have acquired all rights and interest in and to the background IPR for a developing technology now known as "Flexisense". Dr. Kapatos, our former CTO, conceived and been working on various applications of Flexisense including a Smart Insole System which is believed to be a state-of-the-art, pressure and shear pressure 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. Our current acting CTO, Dr. Hari Elangovan is continuing the work in progress. 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 Company has also identified various other applications. Presently we have filed three patents in the UK in respect of this IPR:
British Patent Application No. 1421952.1, HCI VIOCARE TECHNOLOGIES LTD. (abandoned December 2015)
- The first patent based on development of the "Insole" IP relates to the Company's pressure sensing system technology, which supports the development of very low cost, flexible and scalable pressure sensing devices in a range of sectors including wearable devices, Prosthetics & Orthotics, medical devices (e.g. for the diabetic foot), and automotive health and safety.
British Patent Application No. 1421950.5, HCI VIOCARE TECHNOLOGIES LTD. (abandoned December 2015)
- The second patent, also based on additional development of the "Insole" IP relates to the Company's ground-breaking shear sensing system technology, which is supports the development of low cost, flexible and scalable sensor systems in a range of sectors including wearable devices, medical devices (e.g. diabetic foot), Prosthetics & Orthotics and automotive health and safety
British Patent Application No. 1421953.9, HCI VIOCARE TECHNOLOGIES LTD. (abandoned December 2015)
- The third patent application also follows additional in-house development of the "Insole" intellectual property (IP) and relates to pioneering low-cost, portable motion capture and gait analysis technology, which has applications in a range of sectors, including athletic wearable devices, physiotherapy, orthotics and potentially also gaming and film.
International Patent Application No. PCT/GB2015/053785, HCI VIOCARE TECHNOLOGIES LTD.
On December 10, 2015 the Company through its subsidiary HCi Viocare Technologies Ltd. filed an international application according to the Patent Cooperation Treaty (PCT) which received a PCT application number PCT/GB2015/053785. The filed international patent covers over 140 countries around the world. The new patent builds on the company's three UK patent applications filed in December 2014 (as set out above), with further advances made to the sensor systems, and a wider range of applications in products that touch people's everyday lives.
The Company has drafted and performed preliminary patent searches on two new innovations during fiscal 2016 and 2017, with intent to progress into full patent applications in the current fiscal year.
E.
Regulatory Requirements
The Company's business model of licensing technology to commercialization partners means that it is the partner, who will be the manufacturer of the eventual products and therefore subjected to the regulations of manufacturing and marketing devices. However, as the Company will support its licensing partner in the development of the final products it has ensured that in understands the eventual requirements, and has identified suitable consultants to provide support, where required.
The products are expected to be marketed worldwide, with an initial commercialization in Europe and the USA, depending on the partner. Their regulatory systems are highlighted below, together with the anticipated implications for the products that may result from our technologies.
Europe
Products that will be marketed in Europe will be required to comply with the EU Directives regarding medical devices, which apply to all EU member states. The basic relevant EU Directive which applies to our case is Directive 93/42/EEC (as amended by 2007/47/EC) regulating medical devices, as well as Directive 98/68/EEC that requires the manufacturers to place CE marking on their products to demonstrate compliance with the above regulations.
The Directive on medical devices also lays down rules in Annex IX for the classification of devices based essentially on the potential risks involved, with class III devices having the highest potential risk and class I device the lowest.
With reference to the stated Rules to determine a product's classification, the anticipated classification of the products that could arise from the Company's technology are listed below. It is important to note that classification is determined only at the stage of a final product and with reference to its features and the claims made by the manufacturer. Hence, there classifications are dependent on the decisions of the license partner and may be subject to change:
·
Diabetic and Medical Insoles: Class I
·
SocketFit: Class IIa - because of the use of ultrasound, which applies energy to the body. This is the usual classification for imaging devices.
·
Photoacoustic imaging: Class IIa - because energy is applied to the body
·
Blood Flow visualization: Class IIs - because energy is applied to the body
·
BiPAP: Class IIb - as it is relied upon for breathing
The Notified Body of the country in which the products are marketed will need to notified by the manufacturer, and their specific processes for registration and audit will need to be adhered to.
USA Regulations
Medical devices are subject to the general controls of the Federal Food Drug & Cosmetic (FD&C) Act which are contained in the final procedural regulations in Title 21 Code of Federal Regulations Part 800-1200 (21 CFR Parts 800 - 1299). These controls are the baseline requirements that apply to all medical devices necessary for marketing, proper labeling and monitoring its performance once the device is on the market.
Much like in Europe, the license partner will be required to determine how FDA may classify our devices - which one of the three classes the device may fall into. Unless exempt, FDA will classify our devices. Classification identifies the level of regulatory control that is necessary to assure the safety and effectiveness of a medical device. Most importantly, the classification of the device will identify, unless exempt, the marketing process (either premarket notification [510(k)] or premarket approval (PMA)) the manufacturer must complete in order to obtain FDA clearance/approval for marketing.
The Company will need to review the development of data and/or information necessary to submit a marketing application, and to obtain FDA clearance to market. For some [510(k)] submissions and most PMA applications, clinical performance data is required to obtain clearance to market. In these cases, conduct of the trial must be done in accord with FDA's Investigational Device Exemption (IDE) regulation, in addition to marketing clearance.
1.3 OUR CLINICS
A.
Market and Industry
It is estimated that the global health market is growing by 6-8% per annum, which suggests it will double in the next 10 years. The global Orthopedic Prosthetics market seems to be following the same pattern, as it is growing rapidly, and is projected to exceed US$ 4.5 billion by 2017, according to the 2011 Global Data's report "Orthotics and Prosthetics - Global Pipeline Analysis, Competitive Landscape and Market Forecasts to 2017".
Demand for orthopedic prosthetics products is driven by a multitude of factors, including:
·
growing elderly population: The percentage of people aged 65 and older will increase at a rate three times that of younger generations. Subsequently, the frequency of vascular diseases and diabetes - diseases that often lead to amputation - will increase considerably;
·
causes of amputation: the most common causes of amputation are prosperity diseases related to diseases, such as diabetes and vascular diseases. Accidents account for only 26% of all amputations in developed countries. Indicatively, it is estimated that the number of people with diabetes worldwide (382 million as of November 2013) is expected to reach 592 million by 2035. As a result of the general increase in diabetes and vascular diseases, the number of amputations in the western world is also likely to continue to increase;
·
rising incidence of degenerative joint diseases, such as osteoporosis and arthritis, and increasing numbers of sports injuries;
·
social demands: the growing desire of more and more disabled individuals - especially young people - to become independent, lead active lifestyles, and go about their daily routines without outside help;
·
renewal: the lifetime of traditional prosthetic devices used by previous generations is three to five years. Also prosthetic sockets require replacement after three to six months;
·
market niche: reorganization of healthcare services has led to increased pressure to lower costs within the health sector, which in turn increases the demand for the efficiency of the solutions chosen; and
·
the growing demand for orthopedic prosthetics products is also driving the development of innovative medical devices forward. Advancements in biological science and stem cells technology, as well as rapid technological advances in medical science and development of durable and improved materials and implants have led to large number of people requiring physical rehabilitation, thus contributing to the market's growth.
Overall, the market is set to grow significantly as the incidence of amputation increases. The number of amputees living in developing countries is estimated by the World Health Organization to have reached 300 million with up to 95% lacking access to prosthetic devices, thereby creating an increasing consumer base in need for affordable and reliable orthopedic prosthetics products and services that will improve the amputees' long-term health and well-being.
Current solutions are inadequate, however, as state-of-the-art solutions from the US and Europe are cost-prohibitive, while low-cost devices run the risk of poor quality and/or unreliable performance. Especially in low-income areas and in developing countries, where the P&O industry is highly fragmented and poorly organized, with significant disparities in terms of clinical infrastructure, provision of medical rehabilitation and assistive devices, demographics (such as gender and/or socioeconomic inequalities), and funding.
B.
Clinics:
On January 15, 2014, we formed our other wholly-owned Scottish subsidiary, HCi Viocare Clinics UK Limited with registration number SC467486 ("Viocare Clinics"), with the intent to create the first state-of-the-art chain of Prosthetic and Orthotic (P&O) and diabetic foot clinics with global reach, while capitalizing on the aforementioned internally developed technologies. Viocare Clinics will establish and/or acquire movement rehabilitation clinics, limb fitting centers and diabetic foot centers, in the UK, Europe and the Middle East, initially. These centers will offer standardized and specialized rehabilitation and consultation services for the physically impaired, as well as for their families, friends, their workplaces and companies that employ or work with them. Some of the sections that will be covered by the centers are:
·
Prosthetic rehabilitation;
·
Orthotic rehabilitation;
·
Diabetic foot;
·
Foot congenital disorder and musculoskeletal defects;
·
Movement assisting devices;
·
Gait analysis;
·
Pediatric movement analysis and consultation;
·
Living and working spaces design and consultation for people with disabilities;
·
Walking training and body strengthening following amputation, stroke or accident;
·
Phantomlimb syndrome consultation;
·
Workshops and educational and training programs; and
·
Expert opinion mediation with insurance companies and organizations.
The primary customers are the physically impaired:
·
Amputees;
·
People with spasticity;
·
People with walking difficulties;
·
People with genetic abnormalities;
·
People with deformities;
·
People with musculoskeletal pain;
·
People with diabetes;
·
People with flat foot problems or just pain caused by long working hours or hard labor; and
·
Companies or organizations that employ or work with people with disabilities.
However, the market is not limited to these people; our customers will be families with children with disabilities and businesses that employ disabled persons.
Viocare Clinics operates in accordance with the standard mandated by the British Association of Prosthetist Orthotists and the International Society of Prosthetics and Orthotics.
Glasgow Clinic
·
The private practice of William Spence, WD Spence Prosthetics Ltd was acquired in June 2014, a profitable venture that was established in 2006, operating part-time with borrowed premises;
·
New premises of 5,300 square ft were secured in Spring 2015, to increase the capacity of the clinic, provide an on-site workshop to improve turnaround times and also to house our R&D staff, thereby facilitating the exchange of ideas;
·
The clinic was refurbished and reopened in September 2015 and is currently being actively marketed, with patient lead coming via:
-
Personal injury solicitors (road traffic and workplace accidents)
-
Word of mouth or internet searches
-
Social media marketing
-
Print advertisement
·
Due to the high-quality care of the National Health Service, the market for private P&O provision is small, however, the clinic is the only private P&O clinic in the whole of Scotland;
·
It attracts patients from England also, where the market leader is Dorset Orthopedics (owned by Otto Bock) with a number of full-service and satellite clinics. However, provision in the North continues to be very limited.
The Glasgow clinic has been operating successfully since 2016 in its fully renovated facility. The Clinic expects to undertake a more aggressive marketing program in the second half of fiscal 2019 to continue to support our growth initiatives.
Competition
Hanger (www.hanger.com) dominates the prosthetic and orthotic clinic market in the USA, with over 1,300 clinicians across over 740 clinics. However, in the rest of the world, provision of P&O services is extremely fragmented. Otto Bock, the market leading manufacturer of prosthetic components and vertically integrated to also provide clinical services at their headquarters and through clinics that have been acquired over time, focusing on Northern, Western Europe. Ossur, the Icelandic company which has roughly 20% of the P&O componentry market, has also expanded into clinic in Northern Europe.
The Company's focus is on areas that are under-served both in terms of capacity and in the quality of service. Competition varies location by location ranging from the very fragmented to the very concentrated.
The Viocare clinics will seek to differentiate through high quality care, staff trained to British and International standards, modern systems and processes and a wide range of products from low- to high end. They will also provide a more holistic suite of services, to include physiotherapy, mental health and lifestyle rehabilitation. Also, our scientific team will lead the technological diversification of the clinics, thereby setting them apart from the competition. We will capitalize on our Scientific Board's vast network of connections to attract customers from neighboring nations and will seek cooperation with global Medical Tourism operators.
C.
Trademarks
National Trademark (Greece)
On March 18, 2015 the Company entered into a Trademark Assignment and Conveyance Agreement ("Trademark Assignment") with its CEO, President and Director, Mr. Sotirios Leontaritis in respect of the national trademark "viocare" No. 223133 registered for protection in classes 10, 12 and 44 in Greece.
The aforementioned trademark was granted to Mr. Leontaritis on October 11, 2013 and is valid for a period of 10 years from the date of grant. On June 5, 2015, the Trademark Assignment was filed with the Greek Trademarks office for processing. The assignment of the trademark became effective August 4, 2015. Mr. Leontaritis received no compensation for the Trademark Assignment.
National Trademark (USA)
On April 8, 2016, the Company filed two applications with the US Trademark Office which received the filing nos. 86969716 and 86969718 for the registration of trademark FLEXI SENSE and FLEXISENSE, respectively, in classes 9, 10, 12 and 25. The registration of said trademarks is pending due to the Office Actions filed on July 26, 2016 against the registration of both the above trademarks in class 9. The Company was in correspondence with the Office Examiner and arguments were underway. At the end the Company will not use class 9 in the United States.
Further to the above, the Company received an opposition letter from the company "Grupo Flexi de Leon S.A." against the registration of Company's trademarks FLEXI SENSE and FLEXISENSE in class 25 as well as the registration or any use of mark "FLEXI" by the Company. The Company was in correspondence with Grupo Flexi de Leon S.A. for an amicable settlement. The Company does not expect to use class 25 in the United States.
CTM
On May 13, 2014 the Company filed an application with the Office for Harmonization in the Internal Market (OHIM) which received the filing no. 012870754 for the registration of the individual figurative trademark "viocare" for protection in classes 10,12 and 44 within the European Union. The CTM is valid until its expiration/renewal on 13.05.2024.
D.
Regulations for P&O Clinics
The operation of our clinics will be subject to, and must comply with, the respective country's government regulations. Given that we presently only have one operating clinic, located in Glasgow, Scotland, UK, we are currently most interested in the respective applicable regulations in that jurisdiction. As we determine to establish clinics in other jurisdictions we will be required to understand and be compliant with the laws in those respective jurisdictions in which we intend to operate.
Scotland
1.
The Health and Social Work Professions Order 2001, made under section 60 of the Health Act 1999, established the UK Health & Care Professions Council (HCPC) that regulates, among others, prosthetists/orthotists in the UK:
-
according to the interpretation set out in Schedule 3, "relevant professions means arts therapists; chiropodists; clinical scientists; dietitians; medical laboratory technicians; occupational therapists; orthoptists; paramedics; physiotherapists; prosthetists and orthotists; radiographers; and speech and language therapists";
-
according to article 3, par. 1, the Council is responsible for setting out "the standards of education, training, conduct and performance for members of the relevant professions and to ensure the maintenance of those standards";
-
according to article 5, "the Council shall establish and maintain a register of members of the relevant professions";
-
the HCPC sets out for all registrants standards of conduct, performance and ethics, and standards for CPD, as well as standards of proficiency for prosthetists/orthotists specifically
2.
The Health and Care Professions Council (Constitution) Order 2009 which sets out the composition of the Council (as amended by the Health and Care Professions Council (Constitution) Order 2014);
3.
The Regulation of Care (Scotland) Act of 2001 established the Scottish Commission for the Regulation of Care ('the Care Commission'), and set out the care services that it will regulate, i.e. all adult, child and independent healthcare services in Scotland, one of which independent healthcare services is 'independent clinics'. As of April 1, 2011, the work of the Care Commission passed to a new body, the Care Inspectorate. Regulation of independent healthcare, including regulation of independent clinics, has passed to Healthcare Improvement Scotland. Healthcare Improvement Scotland is currently responsible for regulating independent hospitals, voluntary hospices, and private psychiatric hospitals. Regulation of independent clinics, independent medical agencies and independent ambulance services has not yet commenced. The Scottish Government consulted on the future arrangements for regulation of independent healthcare services, including the definition and scope of the services that should be regulated last year and are currently considering the way forward.
1.4 EMPLOYEES
The Company presently has a total of 4 employees and various consultants working in its UK Clinic. Certain of our executive officers are compensated under consulting agreements. We also retain financial, legal and management consultants as required to meet our financial reporting and SEC reporting compliance requirements on an annual basis. Details of certain of these consulting agreements with respect to our officers, directors and key advisors are provided below.
We presently do not have pension, health, annuity, insurance, stock options, profit sharing or similar benefit plans; however, we may adopt such plans in the future. From time to time the Company grants stock awards or options to purchase shares to its officers, directors, employees and consultants.
1.5 AVAILABLE INFORMATION
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports that we file with the Securities and Exchange Commission, or SEC, are available at the SEC's public reference room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding reporting companies.
ITEM 1A.
ITEM 1A. RISK FACTORS
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
As a "smaller reporting company", we are not required to provide the information required by this Item.
ITEM 2.
ITEM 2. PROPERTIES
The Company operates from our current corporate office in Glasgow is Kintyre House, 209 Govan Road, Glasgow Scotland G51 1HJ United Kingdom. Our telephone number is +44 141 370 0321. Certain of our officers and directors operate from their personal office locations, the use of which is provided to the Company free of charge in Athens and Cyprus.
Lease in UK
On March 2, 2015, the Company entered into a five-year lease agreement for a modern, stand-alone 5,300 square foot facility in Glasgow, Scotland with an entry date of March 1, 2015. The building hosts the Company's first Viocare center, a full-service Prosthetic and Orthotic ("P&O") practice with a superior standard of personalized care. The renovations to the clinic were completed in June, and the facility was opened on August 1, 2015 with an official ribbon cutting on 25 September 2015. Under the term of the lease agreement, the Company paid a total of $26,066 (GBP £20,000) as security deposits which amount is included on the Company's balance sheet in prepaid expenses.
As of December 31, 2018, the approximate future aggregate minimum lease payments in respect of our current obligations were as follows:
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Viocare, Inc. a New Jersey corporation (the «Plaintiff») filed a complaint on October 24, 2016 in the United States District Court, District of Nevada objecting to the use of the name «viocare» by Rafina Innovations Inc. , of Nevada (the «Defendant»). The Company and Viocare Inc. have agreed to terms of settlement effective October 19, 2017. Under the terms of the settlement, among other concessions the Company has agreed to the following:
- To remove "Viocare" from its registered name in the State of Nevada, its website and all usage in the United States of America and Canada, including any registered trademarks;
- To remove "Viocare" from the subsidiary UK registered company "HCI VIOCARE TECHNOLOGIES LIMITED", its website, if any, and all usage in the United States of America and Canada, including any registered trademarks;
- It is allowed to the Company to use the trademark "VIOCARE" only on its activities in health care services field excluding the territory of U.S.A. and Canada.
- No objection to the Plaintiff's use of its mark in Europe provided Plaintiff does not use for P&O clinics, or goods and services related diabetic foot care; and,
- The Company undertook to terminate the website at http://www.hciviocare.com and assign Company's URL(s) to Plaintiff.
The Company has completed a name change in the State of Nevada effective July 9, 2018, in order to comply with this settlement and will alter the name of its UK subsidiary company HCI VIOCARE TECHNOLOGIES LIMITED to RAFINA TECHNOLOGIES LIMITED at the earliest practicable date.
We know of no other material, active or pending legal proceedings against our Company, nor of any proceedings that a governmental authority is contemplating against us.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters
Market Information
Our common stock is quoted on the OTC Markets Inc. owned and operated Inter-dealer Quotation System ("OTCQB") under the symbol "VICA". Information provided below represents the two years ended December 31, 2018:
*figures include impact of 20 for 1 reverse split impacted July 2018.
The above information was taken from information on the OTC Markets website at www.otcmarkets.com. The quotations provided may reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
Our common shares are issued in registered form. Our registrar and transfer agent is Action Stock Transfer Corporation, 2469 E. Fort Union Blvd, Suite 214, Salt Lake City, UT 84121. Telephone: 801-274-1088
Holders
As of May 15, 2019, we had outstanding 15,719,681 shares of common stock which were held by 81 record holders of the Company's common stock (which number does not include the number of stockholders whose shares are held by a brokerage house or clearing agency, but does include such brokerage houses or clearing agencies as one record holder.
Dividends
We have never declared or paid dividends on our common stock. We intend to retain earnings, if any, to support the development of our business and therefore do not anticipate paying cash dividends for the foreseeable future. Payment of future dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including current financial condition, operating results and current and anticipated cash needs.
Repurchase of Equity Securities
None
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
Recent Sales of Unregistered Securities
During the three months ended December 31, 2018 and the subsequent period to the date of the filing of this annual report, the Company issued the following shares:
On October 19, 2018 the Company's Board of Directors approved the grant of a total of 1,500,000 stock awards which vested on the date of grant, and a total of 7,500,000 directors' stock options for exercise at $0.70 per share which options vest as to 1,500,000 shares on grant date, and 1,500,000 shares each year thereafter for a total of four additional years. The Company recognized stock-based compensation expense allocated to consulting fees of $2,517,509 during year ended December 31, 2018 in respect of the aforementioned awards and options which amount was comprised of $1,057,500 in respect of 1,500,000 stock awards and $1,460,009 in respect of the 1,500,000 stock options vested in the current fiscal year.
The shares of Common Stock referenced above were issued in reliance upon the exemption from securities registration afforded by the provisions of Regulation S of the Securities Act of 1933, as amended, ("Securities Act"), as promulgated by the U.S. Securities and Exchange Commission under the Securities Act. Our reliance upon the exemption under Rule 903 of Regulation S of the Securities Act was based on the fact that the sales of the securities were completed in an "offshore transaction", as defined in Rule 902(h) of Regulation S. We did not engage in any directed selling efforts, as defined in Regulation S, in the United States in connection with the sale of the securities. The investor was not a US person, as defined in Regulation S, and was not acquiring the securities for the account or benefit of a US person.
Securities Authorized for Issuance Under Equity Compensation Plans
The Company does not currently have any equity compensation plans and thus no securities have been issued.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
As a "smaller reporting company", we are not required to provide the information required by this Item.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read in conjunction with our audited financial statements and the related notes that appear elsewhere in this Annual Report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in such forward looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this Annual Report.
Our financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles.
The Company has only recently commenced generated revenues from planned principal operations and continues to develop its intellectual property to expand its revenue base through joint ventures and commercialization arrangements with third parties.
Results of Operations for the Year ended December 31, 2018 Compared to the Year ended December 31, 2017
Revenue, Cost of Revenue, and Gross Profit - We generated $412,682 in revenues from operations and $144,368 in cost of goods sold for the year ended December 31, 2018, compared to $355,736 in revenue and $130,172 in costs of goods sold for the year ended December 31, 2017. The slight increase in revenues is due primarily to increased advertising for our Glasgow P&O Clinic in fiscal 2018, where we had more patients for large prosthetic services. The above results included revenues from our technology division of $13,461 and $7,543 respectively in fiscal 2018 and 2017.
Operating Expenses - Operating expenses increased substantially period over period, up from $3,108,044 in 2017 to $4,504,703 in 2018, an increase of approximately 45%. The substantial increase in consulting fees, most of which were settled by the issuance of restricted shares of common stock based on market value as at the issuance date, totaling only $1,068,357 in fiscal 2017 as compared to $3,626,469 in fiscal 2018 is the largest contributor to our increase to operating expenses. Professional fees decreased substantially period over period from $284,716 in fiscal 2018 as compared to $124,033 in the current fiscal year, as the Company did not incur fees related to professional investor relations services in the current fiscal year and each of legal and accounting fees were also reduced period over period. Travel and entertainment expenditures increased year over year from $59,629 in fiscal 2017 as compared to $99,040 in fiscal 2018 as management traveled more frequently for meetings with potential licensing partners. Research and development expenses were substantially decreased period over period from $1,290,345 in fiscal 2017 to $278,708 in fiscal 2018. The decline was directly the result of certain share-based compensation of 925,000 shares valued at $925,000 on the date of issue in fiscal 2017 with no similar result in fiscal 2018. Office expenses increased in the current fiscal year and rent declined year over year as we closed our Athens based office during fiscal 2018.
Loss from Operations - The Company recorded an operating loss of $4,236,389 in the current fiscal year ended December 31, 2018 as compared to an operating loss of $2,882,480 in the prior comparative fiscal year end. The increase to our operating loss is due entirely to the increased consulting fees as a result of share-based compensation issued during the current fiscal year.
Other expenses - During year ended December 31, 2018 total other expenses, include a loss on settlement of debt of $1,608,203 in the current fiscal year as compared to only $17,707 in fiscal 2017, interest expenses due to a related party of $6,143 in fiscal 2017 with no similar result in fiscal 2018, and a loss on foreign exchange of $1,649 and $1,096, respectively in fiscal 2018 and 2017. The increase to losses from other expenses is predominantly related to the increased loss on the settlement of certain debt in the current fiscal year.
Net Loss - As a result of the substantial increase in operating expenses during the year ended December 31, 2018 the Company recorded a net loss of $5,849,832 in the year ended December 31, 2018 compared to a net loss of $2,987,426 in the year ended December 31, 2017.
CAPITAL RESOURCES AND LIQUIDITY
At December 31, 2018, we had $18,827 cash on hand and liabilities of $792,885 including $618,913 in accounts payable and accrued expenses (including amounts due to related parties), $14,881 in advances from related parties, $79,091 in notes payable, third parties and an accrual of $80,000 in respect to estimated late filing penalties imposed by the IRS. Presently we rely on private placements from qualified investors, officers and directors, and funding from our officers and directors to fund our general operating expenses. The Company has secured loans and advances from the Company's Executive Officers of $216,196 and $168,899 in 2018 and 2017 and has closed private placements in the amount of $664,911 and $1,064,310 years ended December 31, 2018 and 2017. Further we have received loans from third parties of $34,268 and $123,300, respectively in 2018 and 2017 to further address operational shortfalls. These amounts contribute to our ongoing operating expenses and obligations until such time as the Company can conclude a larger equity-based financing, anticipated during fiscal 2019.
The Company expects it will need to raise up to $5,000,000 to fund its proposed operations for the next twelve months. It intends to fund operations by a combination of related party loans and equity placements. The Company continues to seek partners for our various technologies and market ready products in order to commence meaningful revenue flow from our technology division.
There can be no assurance that continued funding will be available on satisfactory terms.
GOING CONCERN
The Company incurred net losses of $5,849,832 and $2,987,426 for the years ended December 31, 2018 and 2017, respectively and has a retained deficit of $40,586,465. In addition, the Company had a working capital deficiency of $562,508 and a stockholders' deficit of $494,225 at December 31, 2018. These factors raise substantial doubt about the Company's ability to continue as a going concern.
There can be no assurance that sufficient funds required during the next year or thereafter will be generated from operations or that funds will be available from external sources such as debt or equity financings or other potential sources. The lack of additional capital resulting from the inability to generate cash flow from operations or to raise capital from external sources would force the Company to substantially curtail or cease operations and would, therefore, have a material adverse effect on its business. Furthermore, there can be no assurance that any such required funds, if available, will be available on attractive terms or that they will not have a significant dilutive effect on the Company's existing stockholders.
The accompanying financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
Need for Additional Financing
Costs associated with being a public company are much higher than those of a private company. There are present legal and accounting expenses, reporting requirements to the SEC, and 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 maintaining a public company, may make the economic viability of our Company very doubtful. In addition, the Company has projected it will need to raise up to $5,000,000 to meet its planned business objectives for 2019, including continuation of its ongoing technology licensing and development efforts and there can be no assurance those funds will be available if, and when needed.
In the past we have relied on advances from our president to cover our operating costs, as well as equity private placements from qualified investors. There can be no assurance that the Company will be successful in finding joint venture partners or commercial partners to market and develop its technologies, or that funds for the development of the Company's additional in-house technology development will be available if and when needed, or that funding will be available for marketing our products, if and when required. We were unable to open our planned clinic in Athens during fiscal 2016 as a result of a shortfall of available funds. There can be no assurance that the Company will be able to obtain funding as needed in order to meet our objectives on our proposed timeline, or at all.
Off- Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.
Contractual Obligations
As a "smaller reporting company", we are not required to provide this information.
Critical Accounting Policies
The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments which are based on historical experience and on various other factors that are believed to be reasonable under the circumstances. The results of their evaluation form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions and circumstances. Certain of our significant accounting policies are discussed below. Our accounting policies in their entirety are more fully discussed in the Notes to our Financial Statements. Refer to Note 4 of the Audited Consolidated Financial Statements included herein.
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.
Foreign Currencies
Items included in the consolidated financial statements of each of the Company and its subsidiaries are measured using the currency of the primary economic environment in which the entity operates (the 'functional currency'). The Company's reporting currency is the U.S. dollar. The functional currency of subsidiaries based in the UK is pound sterling and the functional currency of the Company's subsidiary based in the Greece is the Euro. All transactions initiated in Pounds and Euro are translated into U.S. dollars in accordance with Accounting Standards Codification ("ASC") 830-30, "Translation of Financial Statements," as follows:
i)
assets and liabilities are translated at the closing rate at the date of the balance sheet, or
1USD=0.8471 EUR, 1USD=0.74959 GBP (December 31, 2018), and;
1USD=0.8347 EUR, 1USD=0.74108 GBP (December 31, 2017);
ii)
income and expenses are translated at average exchange rates for twelve months ended December 31, or
1USD=0.8374 EUR, 1USD=0.7404 GBP (December 31, 2018), and;
1USD=0.8873EUR, 1USD=0.7768GBP (December 31, 2017);
iii)
all resulting exchange differences are recognized as other comprehensive income, a separate component of equity.
Adjustments arising from such translations are included in accumulated other comprehensive income (loss) in stockholders' equity.
Revenue Recognition
Effective January 1, 2018, the Company adopted ASC 606 - Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. The standard became effective for the Company beginning January 1, 2018 and permits two methods of adoption: the full retrospective method, which requires the standard to be applied to each prior period presented, or the modified retrospective method, which requires the cumulative effect of adoption to be recognized as an adjustment to opening retained earnings in the period of adoption. The Company adopted the standard using the modified retrospective method. There was no effect for any adjustments to retained earnings upon adoption of the standard on January 1, 2018.
Inventory
Inventories, which consist principally of raw materials and parts, are stated at the lower of cost or market. Cost is determined using the first-in, first-out method and are adjusted to actual cost quarterly based on a physical count. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Work-in-process inventory consists of materials, labor and a predetermined fixed rate of overhead which is valued based on established standards for the stage of completion of each custom order. We do not carry finished goods on hand. Material, labor and overhead costs are determined at the individual clinic level. Presently we only maintain very limited parts and raw materials inventory.
Warranty
We do not record warranty liabilities at the time of sale for the estimated costs that may be incurred under the terms of the applicable limited warranty as all component parts are covered by our respective industry suppliers.
Stock-based compensation
For stock-based compensation the Company follows the guidance codified in the Compensation - Stock Compensation Topic of FASB ASC ("ASC 718"). The Company determines the value of stock issued at the date of grant. It also determines at the date of grant, the value of stock at fair market value or the value of services rendered (based on contract or otherwise) whichever is more readily determinable.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a "smaller reporting company", we are not required to provide the information required by this Item.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTSAND SUPPLEMENTARY DATA
RAFINA INNNOVATIONS INC.
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To: The Board of Directors and Stockholders of
Rafina Innovations Inc.
(formerly HCi Viocare)
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Rafina Innovations Inc. (the "Company") as of December 31, 2018 and 2017, and the related statements of operations, stockholders' equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2018 and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph Regarding Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered losses from operations and has a working capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans regarding these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/Pinnacle Accountancy Group of Utah
We have served as the Company's auditor since 2015
Farmington, Utah
May 16, 2019
Rafina Innovations Inc.
(Formerly HCi Viocare)
CONSOLIDATED BALANCE SHEETS
See Notes to Consolidated Financial Statements
Rafina Innovations Inc.
(Formerly HCi Viocare)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
See Notes to Consolidated Financial Statements
Rafina Innovations Inc.
(Formerly HCi Viocare)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
See Notes to Consolidated Financial Statements
Rafina Innovations Inc.
(Formerly HCi Viocare)
CONSOLIDATED STATEMENTS OF CASH FLOWS
See Notes to Consolidated Financial Statements
Rafina Innovations Inc.
(Formerly HCi Viocare)
Notes to Audited Consolidated Financial Statements
For the Fiscal Year Ended December 31, 2018
Note 1 - ORGANIZATION AND BUSINESS BACKGROUND
Rafina Innovations Inc. (formerly: HCi Viocare) ("VICA" or the "Company") was incorporated on March 26, 2007 under the laws of the State of Nevada. The Company has selected December 31 as its fiscal year end.
While the Company has generated revenues from a segment of its planned principal operations, we are not yet able to meet operational overheads and are not yet profitable. We are considered an emerging growth enterprise. The Company was originally formed to sell medical devices with an emphasis on portable medical devices designed for home treatments with the initial focus in the northern regions of China. The Company's intent was to seek strategic relationships with medical device manufacturers both in China and North America with the aim to be their sales and distribution agent in Northern China and to assist Chinese medical device manufacturers on the development of the North American market.
On September 10, 2013, the controlling shareholder of the Company sold his controlling interest in the shares of the Company and there was a change in the Board of Directors of the Company, effecting a change in control of the Company. The business of the Company remains in the field of medical devices and other opportunities related to their uses. We are currently engaged in the technology development and licensing of bioengineering innovations for the health, sports and wellness sectors, and operate a prosthetic and orthotic (P&O) total rehabilitation clinic in Glasgow, Scotland.
On January 15, 2014, the Company incorporated two wholly-owned subsidiaries in Scotland, U.K., HCi Viocare Technologies Limited and HCi Viocare Clinics UK Limited. The Company intends to operate in Scotland under these two subsidiaries, one of which will undertake the development and marketing of technologies and the other which is a P&O clinic, which will serve as the center of reference and training for the Company's further clinics.
On February 12, 2014, through our wholly owned subsidiary, HCi Viocare Technologies Limited, the Company acquired an interest in a patented technology known as "Socket-Fit". SocketFit is a system that will help overcome technical and resource hurdles endemic to the prosthetic sector. The system has been designed with the aim of offering optimally fitted prosthetic sockets that will reduce the number of prostheses made for patients, resulting in a reduced number of visits by the patient to the prosthetic, and also assisting in the rehabilitation of amputees. Socket-Fit is a digital system for assessing an amputee's residual limb and for the production of truly functional and comfortable prosthetic sockets. The technology takes account of the external and internal geometry of the amputee's stump, the biomechanical properties of each individual soft tissue layer and the boundary and loading conditions of a complete prosthesis to generate a virtual 3D model of the residual limb making it possible to produce an accurate, functional and comfortable prosthetic socket. By minimizing the time and cost of socket production and reducing the number of faulty sockets there will be a reduction in costs incurred by health services and insurance companies worldwide as well as benefits to the amputee. The Company intends to undertake and fund, through its U.K. subsidiary, a project to improve the nature of the data used in socket modeling software with a view to creating a system that will enable prosthetists to build a socket that evenly distributes weight, provides enhanced comfort, and can be marketed and used across the industry for improved socket creation.
On February 19, 2014, the Company filed a Certificate of Amendment with the Secretary of State of Nevada to change the name of the Company to HCi Viocare effective March 21, 2014. Effective March 21, 2014, in accordance with approval from FINRA, we changed our name from China Northern Medical Device, Inc. to HCi Viocare. Concurrently we commenced trading on the Over-the-Counter Bulletin Board under the symbol "VICA".
Rafina Innovations Inc.
(Formerly HCi Viocare)
Notes to Audited Consolidated Financial Statements
For the Fiscal Year Ended December 31, 2018
Note 1 - ORGANIZATION AND BUSINESS BACKGROUND (continued)
On April 16, 2014, through our wholly owned subsidiary HCi Viocare Technologies Limited, we acquired all rights and interest in and to the background Intellectual Property Rights ("IPR") for a developing technology known as "Smart Insole". The Smart Insole system is believed to be a state-of-the-art, pressure and shear (friction)-sensing insole that can wirelessly communicate with connected devices. The insole has a number of applications, including the mitigation of diabetic foot complications, such as ulceration, infection and amputation, in clinical gait analysis and in sports, as a wearable device to help athletes optimize their performance and prevent injury. The sensing system is very low cost, compared to traditional pressure sensing technologies, in our opinion making such applications affordable to the consumer for the first time.
On June 9, 2014, the Company, through our wholly owned subsidiary, HCi Viocare Clinics, acquired W D Spence Prosthetics Limited (the "Clinic"). The Clinic is located in Glasgow, Scotland, and is a fully operational prosthetics and orthotics clinic. The acquisition of the Clinic is the first step to the Company's and HCi Viocare Clinics' intention to develop the first chain of prosthetics and orthotics (P&O) and diabetic foot rehabilitation clinics in the European market, covering Southern Europe, the Middle East and North Africa.
On March 31, 2015, the Company's wholly owned subsidiary HCi Viocare Clinics and its subsidiary W D Spence Prosthetics Limited completed a merger with the resulting combined entity having the name HCi Viocare Clinics UK Limited.
On July 8, 2015, the Company incorporated HCi Viocare Clinics (Hellas) S A in order to carry out operations for the planning and development of a P&O clinic in Athens, Greece. On August 2, 2017 the Company commenced the dissolution and liquidation of this corporation. As at the date of this report, the dissolution has not yet been concluded.
On May 24, 2018 the Company incorporated a wholly owned subsidiary for purposes of completing a merger and name change from HCi Viocare to Rafina Innovations, Inc. Concurrently the Company's Board of Directors approved a reverse share split on the basis 20 for 1. The name change and reverse share split became effective on July 9, 2018. Unless otherwise noted, impacted share amounts and per share information included in the financial statements and notes thereto have been retroactively adjusted for the reverse share split as if such share split occurred on the first day of the first period presented. Certain amounts in the notes to the financial statements may be slightly differently than previously reported due to rounding of fractional shares as a result of the reverse share split.
Note 2 - GOING CONCERN
The Company incurred net losses of $5,849,832 and $2,987,426 for the years ended December 31, 2018 and 2017, respectively and has a retained deficit of $40,586,465. In addition, the Company had a working capital deficiency of $562,508 and a stockholders' deficit of $494,225 at December 31, 2018. These factors raise substantial doubt about the Company's ability to continue as a going concern.
There can be no assurance that sufficient funds required during the next year or thereafter will be generated from operations or that funds will be available from external sources such as debt or equity financings or other potential sources. The lack of additional capital resulting from the inability to generate cash flow from operations or to raise capital from external sources would force the Company to substantially curtail or cease operations and would, therefore, have a material adverse effect on its business. Furthermore, there can be no assurance that any such required funds, if available, will be available on attractive terms or that they will not have a significant dilutive effect on the Company's existing stockholders.
Rafina Innovations Inc.
(Formerly HCi Viocare)
Notes to Audited Consolidated Financial Statements
For the Fiscal Year Ended December 31, 2018
Note 2 - GOING CONCERN (continued)
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.
While the Company generates income and has obtained proceeds from loans and private placements of equity securities from third parties, the Company has relied heavily for its financing needs on our officers and directors since inception.
Note 3 - CONTROL BY PRINCIPAL STOCKHOLDER/OFFICER
Up until March 2018 our former Chief Executive Officer owned beneficially and, in the aggregate, the majority of the voting power of the Company. On March 22, 2018 and March 30, 2018 respectively, Sotirios Leontaritis, the former President, Chief Executive Officer and a Director of the Company, entered into a Share Purchase Agreement (the "SPA") and an amendment thereto (the "Addendum"), (collectively herein referred to herein as the "Agreement") with Maschari Ltd. ("Maschari"), a Company incorporated in Cyprus, and controlled by our current Chief Executive Officer and a director, Mr. Constantinos Zertalis, pursuant to which Mr. Leontaritis sold 6,135,529 of his restricted common shares to Maschari. The shares sold by Mr. Leontaritis represented approximately 42.6% of the Company's total outstanding shares of common stock. Mr. Leontaritis continues to hold 1,775,707 shares of the Company's common stock representing approximately 11.3% of the issued and outstanding shares. As a result of the aforementioned transaction, Maschari, and our current CEO has the ability to control the approval of most corporate actions, including increasing the authorized capital stock and the dissolution, merger or sale of the Company's assets, as may be presented at Shareholder meetings from time to time. At December 31, 2018, Maschari and our CEO, collectively controlled approximately 43% of our issued and outstanding shares.
Note 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principals of Consolidation
The consolidated financial statements include the accounts of Rafina Innovations Inc. and its wholly-owned subsidiaries, HCi Viocare Technologies Limited, HCi Viocare Clinics UK Limited and HCi Viocare Clinics (Hellas) S.A. On August 2, 2017 the Company commenced the dissolution and liquidation of HCi Viocare Clinics (Hellas) S.A. All significant intercompany balances and transactions have been eliminated.
Basis of Presentation
The accompanying consolidated audited 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.
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.
Rafina Innovations Inc.
(Formerly HCi Viocare)
Notes to Audited Consolidated Financial Statements
For the Fiscal Year Ended December 31, 2018
Note 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign Currencies
Items included in the consolidated financial statements of each of the Company and its subsidiaries are measured using the currency of the primary economic environment in which the entity operates (the 'functional currency'). The Company's reporting currency is the U.S. dollar. The functional currency of subsidiaries based in the UK is pound sterling and the functional currency of the Company's subsidiary based in the Greece is the Euro. All transactions initiated in Pounds and Euro are translated into U.S. dollars in accordance with Accounting Standards Codification ("ASC") 830-30, "Translation of Financial Statements," as follows:
i)
assets and liabilities are translated at the closing rate at the date of the balance sheet, or
1USD=0.8471 EUR, 1USD=0.74959 GBP (December 31, 2018), and;
1USD=0.8347 EUR, 1USD=0.74108 GBP (December 31, 2017);
ii)
income and expenses are translated at average exchange rates for twelve months ended December 31, or
1USD=0.8374 EUR, 1USD=0.7404 GBP (December 31, 2018), and;
1USD=0.8873EUR, 1USD=0.7768GBP (December 31, 2017);
iii)
all resulting exchange differences are recognized as other comprehensive income, a separate component of equity.
Adjustments arising from such translations are included in accumulated other comprehensive income (loss) in stockholders' equity.
Revenue Recognition
Effective January 1, 2018, the Company adopted ASC 606 - Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. The standard became effective for the Company beginning January 1, 2018 and permits two methods of adoption: the full retrospective method, which requires the standard to be applied to each prior period presented, or the modified retrospective method, which requires the cumulative effect of adoption to be recognized as an adjustment to opening retained earnings in the period of adoption. The Company adopted the standard using the modified retrospective method. There was no effect for any adjustments to retained earnings upon adoption of the standard on January 1, 2018.
Rafina Innovations Inc.
(Formerly HCi Viocare)
Notes to Audited Consolidated Financial Statements
For the Fiscal Year Ended December 31, 2018
Note 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventory
Inventories, which consist principally of raw materials and parts, are stated at the lower of cost or market. Cost is determined using the first-in, first-out method and are adjusted to actual cost quarterly based on a physical count. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Work-in-process inventory consists of materials, labor and a predetermined fixed rate of overhead which is valued based on established standards for the stage of completion of each custom order. We do not carry finished goods on hand. Material, labor and overhead costs are determined at the individual clinic level. Presently we only maintain very limited parts and raw materials inventory.
Warranty
We do not record warranty liabilities at the time of sale for the estimated costs that may be incurred under the terms of the applicable limited warranty as all component parts are covered by our respective industry suppliers.
Advertising Costs
The Company expenses advertising costs as incurred or the first time the advertising takes place, whichever is earlier, in accordance with ASC 720-35. Advertising costs were immaterial for the years ended December 31, 2018 and 2017, respectively.
Research and Development Costs
The Company charges research and development costs to expense when incurred in accordance with FASB ASC 730, "Research and Development". Research and development costs were $278,708 and $1,290,345 for the year ended December 31, 2018 and 2017, respectively. During 2018, HCi Viocare Technologies Limited, the Company's subsidiary, received $52,766 (GBP 39,066) from the UK government as a research and development tax credit in respect of its ongoing research activities.
Related parties
For the purposes of these financial statements, parties are considered to be related if one party has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Company and the party are subject to common control or common significant influence. Related parties may be individuals or other entities.
Stock-based compensation
For stock-based compensation, the Company follows the guidance codified in the Compensation - Stock Compensation Topic of FASB ASC ("ASC 718"). The Company determines the value of stock issued at the date of grant. It also determines at the date of grant, the value of stock at fair market value or the value of services rendered (based on contract or otherwise) whichever is more readily determinable.
Comprehensive Income
FASB ASC 220, "Comprehensive Income", establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income, as defined, includes all changes in equity during a period, exclusive of shareholder transactions. Accordingly, comprehensive income (loss) may include certain changes in shareholders' equity (deficit) that are excluded from net income (loss).
Rafina Innovations Inc.
(Formerly HCi Viocare)
Notes to Audited Consolidated Financial Statements
For the Fiscal Year Ended December 31, 2018
Note 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes
The Company accounts for income taxes in accordance with FASB ASC 740, "Income Taxes", which requires the asset and liability approach for financial accounting and reporting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance related to deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company has a retained deficit from operations. Because there is no certainty that we will realize taxable income in the future, the Company did not record any deferred tax benefit as a result of these losses and recorded a valuation allowance offsetting the entire potential tax benefit.
Income tax years for 2014 through 2016 have been remitted timely and remain open to examination by the taxing authorities. The tax return for fiscal 2017 has not yet been filed. The Company has been assessed late filing penalties of $10,000 per year, as well as accrued interest thereon, for each of the late filed returns for the periods from inception to December 31, 2012. Prior to a change in control at the close of fiscal 2013, prior management had not timely filed its annual tax returns. We have estimated and accrued penalties of $80,000 as taxes payable in our financial statements. The Company has retained a tax professional to assist in reaching a settlement with the IRS.
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.
Basic and Diluted Loss per Share
The Company reports earnings per share in accordance with FASB ASC 260, "Earnings Per Share." FASB ASC 260 requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company had potentially dilutive securities outstanding (convertible debt and liabilities) for the period ended December 31, 2018 and 2017, respectively, however, since the Company reflected a net loss in the year ended December 31, 2018 and 2017, the effect of considering any common stock equivalents, if outstanding, would have been anti-dilutive. A separate computation of diluted earnings (loss) per share is not presented.
Rafina Innovations Inc.
(Formerly HCi Viocare)
Notes to Audited Consolidated Financial Statements
For the Fiscal Year Ended December 31, 2018
Note 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Basic and Diluted Loss per Share (continued)
Fair Value of Measurements
Accounting principles generally accepted in the United States define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Additionally, the inputs used to measure fair value are prioritized based on a three-level hierarchy. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: Input other than quoted market prices that are observable, either directly or indirectly, and reasonably available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the Company.
Level 3: Unobservable inputs. Unobservable inputs reflect the assumptions that the Company develops based on available information about what market participants would use in valuing the asset or liability.
An asset or liability's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Availability of observable inputs can vary and is affected by a variety of factors. The Company uses judgment in determining fair value of assets and liabilities and Level 3 assets and liabilities involve greater judgment than Level 1 and Level 2 assets or liabilities.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The amendments in this Update increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 will be effective for the Company beginning on October 1, 2019. Early adoption is permitted. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases to clarify the implementation guidance and ASU No. 2018-11, Leases (Topic 842) Targeted Improvements. This updated guidance provides an optional transition method, which allows for the initial application of the new accounting standard at the adoption date and the recognition of a cumulative-effect adjustment to the opening balance of retained earnings as of the beginning of the period of adoption. We have begun to identify our significant lease contracts and are in the process of evaluating the effect of the new guidance on our consolidated financial statements and related disclosures.
There were various accounting standards and interpretations issued recently, none of which are expected to have a material effect on the Company's operations, financial position or cash flows.
Rafina Innovations Inc.
(Formerly HCi Viocare)
Notes to Audited Consolidated Financial Statements
For the Fiscal Year Ended December 31, 2018
Note 5 - PREPAID EXPENSES
Prepaid expenses consist of the following:
Note 6 - OTHER RECEIVABLES
From time to time the Company makes short term loans to third parties in order to facilitate its business operations. The loans bear interest ranging from 1.5% to 4% per annum and generally have terms of between 60 to 180 days. In general, the Company forgives accrued interest on principal when these short-term loans are repaid on time.
Note 7 - PROPERTY AND EQUIPMENT
Property and improvements consisted of the following as of December 31, 2018 and 2017:
Rafina Innovations Inc.
(Formerly HCi Viocare)
Notes to Audited Consolidated Financial Statements
For the Fiscal Year Ended December 31, 2018
Note 7 - PROPERTY AND EQUIPMENT (continued)
Leasehold improvements are amortized over the term of the lease: three to ten years.
Furniture is depreciated over three to five years and computer and equipment is depreciated over three years.
Vehicles are depreciated over five years.
Machine equipment and lab equipment are depreciated over 4 years.
Depreciation expense amounted to $81,760 and $96,403 for the fiscal years ended December 31, 2018 and 2017, respectively.
Note 8 - 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 was $1,900 (EUR € 1,554) including applicable taxes in the first year. Thereafter, for every further lease year and for the whole duration of the lease agreement, as well as in case of compulsory statutory extension or extension by tacit agreement, the monthly rent shall be annually adjusted by a percentage equal to the Consumer Price Index of the adjustment month with respect to the respective month of the year before (simple annual rate of change), as this is calculated by the Hellenic Statistical Authority (ELSTAT), plus two (2) percentage points (+2%).
Under the term of the lease agreement, the Company paid a total of $25,010 (EUR €18,540) including $4,047 (EUR €3,000) for a deposit and $20,963 (EUR €15,540) for ten months' rental fee upon executing the agreement. As of December 31, 2018, $3,434 (EUR €3,000) is shown as deposits in the prepaid account. The lease has been renewed effective June 13, 2017 for a term of 3 years terminating on February 28, 2020 at a rate of $1,822 (EUR€1,592) plus a fee of 3.6%.
On September 3, 2018, the Company's lease in Paleo Faliro was terminated by the Lessor. The Company and the Lessor are currently negotiating a settlement of the remaining lease obligation.
Clinic in Greece
On December 29, 2014, the Company leased office space at Peania Region of Attica in Greece on a ten-year lease, commencing on January 1, 2015 and ending on October 5, 2024. The monthly rental fee is $6,996 (EUR €6,233) plus applicable taxes and the monthly operating cost estimate is $1,120 (EUR €997).
Under the term of the lease agreement, the Company paid a total of $13,991 (EUR €12,465) as deposits in the prepaid account.
Rafina Innovations Inc.
(Formerly HCi Viocare)
Notes to Audited Consolidated Financial Statements
For the Fiscal Year Ended December 31, 2018
Note 8 - OFFICE LEASE (continued)
On October 9, 2015, the terms of the lease were amended to include the following provisions:
-
Effective September 1, 2015, the monthly rental fee shall be reduced to $3,500 (EUR €3,116) for a period of 12 months ending August 31, 2016.
-
In the event that the Lessee commences leasehold improvements prior to August 31, 2016, it shall inform the Lessor respectively and pay retroactively the remaining balance of the total amount of monthly rental in full from the period commencing September 1, 2015, as if they have not been reduced;
-
In the event that the Company does not proceed with leasehold improvements in the 12-month period, the lease agreement will terminate and the Lessor with retain the deposit.
-
The Lessor until such time as the leasehold improvements commence, may at any time and without indemnity terminate the lease agreement with a 30-day prior written notice to the Lessee.
As of December 31, 2016, the Company and the Lessor concluded the Termination of Lease Agreement dated August 1, 2016, and the Lessor waived all maintenance charges and utility charges for fiscal 2016. The following table is the summary of balance owing to Lessor as at December 31, 2018 and December 31, 2017:
Lease in UK
On March 2, 2015, the Company entered into a lease agreement for a modern, stand-alone 5,300 square foot facility in Glasgow, Scotland with an entry date of March 1, 2015. The building hosts the Company's first Viocare center, a full-service Prosthetic and Orthotic ("P&O") practice with a superior standard of personalized care. The renovations to the clinic were completed in June, and the facility was opened on August 1, 2015 with an official ribbon cutting on 25 September 2015. During the first year from the date of entry, the lease fees are USD$26,066 (GBP £20,000) per annum (exclusive of VAT). On the second anniversary of the date of entry, the lease will increase to USD$52,132 (GBP £40,000) per annum (exclusive of VAT). In the third anniversary of the date of entry, the lease will be USD$52,132 (GBP £40,000) per annum (exclusive of VAT). In the fourth anniversary of the date of entry, the lease will decrease to USD$39,100 (GBP £30,000) per annum (exclusive of VAT). In the fifth anniversary of the date of entry, the lease will be USD$52,132 (GBP £40,000) per annum (exclusive of VAT).
Under the term of the lease agreement, the Company paid a total of $26,066 (GBP £20,000) as security deposits which amount is included on the Company's balance sheet in prepaid expenses.
Rafina Innovations Inc.
(Formerly HCi Viocare)
Notes to Audited Consolidated Financial Statements
For the Fiscal Year Ended December 31, 2018
Note 8 - OFFICE LEASE (continued)
As of December 31, 2018, the approximate future aggregate minimum lease payments in respect of our current obligations were as follows:
Note 9 - LOANS
On January 5, 2017, HCi Viocare Clinics Hellas S.A., the Company's subsidiary, entered into a loan agreement with a third party to borrow a total of EUR 40,000 (US$45,784) with an annual interest rate of 5%, payable within one year from the date of the agreement. As at December 31, 2018 and December 31, 2017 a total of $50,323 and $50,276, respectively, including accrued interest to date, remained due and payable in respect of this loan. Interest expenses of $2,361 and $2,215 were accrued in the years ended December 31, 2018 and 2017, respectively. The loan was not repaid in January 2018 and is currently in default.
On July 27, 2018, HCi Viocare Clinics UK Limited, the Company's subsidiary, entered into a loan agreement with a third party to borrow a total of EUR 30,000 (US$33,307) with an annual interest rate of 6%, payable within six months from the date of the agreement. As at December 31, 2018 and December 31, 2017 a total of $34,174 and $0, respectively, including accrued interest to date, remained due and payable in respect of this loan. Interest expenses of $1,232 were accrued in the year ended December 31, 2018. The loan was not repaid in January 2019 and is currently in default.
Note 10 - COMMITMENTS
(1)
Consulting Agreement with Dr. Christos Kapatos
On April 16, 2014, the Company entered into a Consulting Agreement with Christos Kapatos whereby he will provide his services as Chief Technical Officer for the Company and the Company's wholly-owned subsidiaries. The contract has a term of one year, renewable for such further term as may be mutually agreed between the parties. In the case that a research and development project is initiated and completed during the term of the agreement, Kapatos shall receive seventy thousand (70,000) shares of the Company's common stock for each research project completed with a valuation less than twenty million dollars ($20,000,000 USD), one hundred and seventy-five thousand (175,000) shares of the Company's common stock for each research project completed with a valuation equal or greater than twenty million US dollars ($20,000,000 USD). Details of compensation under the terms of the consulting agreement are included in Note 11(ii).
On November 21, 2018, Dr. Christos Kapatos resigned his position as Chief Technology Officer and as a consultant due to the Company's breach of Sections 3.1 and 3.2 of that certain Consulting Agreement originally entered into April 16, 2014 (as amended from time to time, including, without limitation, Addendum 1, Addendum 2 and Addendum 3, collectively, the "Consulting Agreement"). The Company declined to cure the noticed breach(es) in the ten (10) day period as allotted from notice date and subsequently accepted the resignation of Dr. Kapatos effective November 21, 2018. Further, on December 4, 2018 the Company notified Dr. Kapatos of the termination of that certain Acquisition agreement between Dr. Kapatos and HCI VIOCARE TECHNOLOGIES LIMITED, the Company's wholly owned subsidiary, dated April 16, 2014, as amended May 8, 2015 (collectively the "Acquisition Agreement").
Rafina Innovations Inc.
(Formerly HCi Viocare)
Notes to Audited Consolidated Financial Statements
For the Fiscal Year Ended December 31, 2018
Note 10 - COMMITMENTS (continued)
(2)
Consulting Agreement with JAMB
Effective July 10, 2017, the Company entered into a business consulting agreement (the "Consulting Agreement") with JAMB Group LLC. ("Consultant") for services to commence July 15, 2017 and to continue for a period of twelve (12) months thereafter. Under the terms of the Agreement, the Consultant shall provide consulting services to the Company for the development and expansion of its business, including the introduction to specific Targets for the purposes of financing transactions or other business relationship. The Consultant is entitled to compensation for the provision of services in the form of 25,000 shares of the common stock which were issued upon execution of the Consulting Agreement, as well as certain other fees and consideration.
25,000 shares have been valued at $79,950, the fair market value of $3.198 per share, on issue date, which amount has been expensed as consulting expenses in the year ended December 31, 2017. The contract expired without renewal in the year ended December 31, 2018.
(3)
Consulting Agreement with Mr. Stefanos Batzakis
On September 1, 2017, the Company entered into a one-year consulting agreement (the "Agreement") with Mr Stefanos Batzakis. As per terms of said Agreement Batzakis will provide services to the Company as IT Solutions Manager, for a term of one (1) year and receive compensation in the form of stock, namely twenty-five thousand (25,000) common shares, which were issued upon signing of this Agreement.
25,000 shares have been valued at $40,000, the fair market value of $1.60 per share on issue date, which amount has been expensed as consulting expenses in the year ended December 31, 2017. The contract expired without renewal in the year ended December 31, 2018.
(4)
Consulting Agreement with Dr. Ioannis Doupis
On October 9, 2017, the Company appointed Dr. Ioannis Doupis, to the Advisory Board of the Company originally formed on April 15, 2014 and Concurrently entered into an advisory board agreement. Compensation shall be the grant of a total of 25,000 shares of the Company's common stock valued at the fair market price on the date of grant of $1.40 per share. The advisory board appointment is for a term of one year.
25,000 shares have been valued at $35,000, the fair market value of $1.40 per share on issue date, which amount has been expensed as consulting expenses in the year ended December 31, 2017. On October 3, 2018 the Company's Board of Directors determined to terminate the Company's advisory board.
(5)
Consulting Agreement with Ms. Paraskevi Pilarinou
On December 12, 2017, the Company entered into a consulting agreement (the "Agreement") with Ms. Paraskevi Pilarinou (the "Consultant"). Under the terms and conditions of the Agreement the Consultant shall be employed in the position of Financial Controller of the Company. The Agreement has a three-year term starting on January 2, 2018 and ending on January 1, 2021 and the Consultant shall be remunerated with a monthly fee of EUR2,000 (IUSD$2,290) and was issued 100,000 shares of the Company's common stock. The 100,000 shares were issued as compensation as of the date of the agreement and were valued at $1 per share or $100,000, the fair market value on the date of issuance in the year ended December 31, 2017.
Rafina Innovations Inc.
(Formerly HCi Viocare)
Notes to Audited Consolidated Financial Statements
For the Fiscal Year Ended December 31, 2018
Note 10 - COMMITMENTS (continued)
(6)
Consulting Agreement with Charalampos Sgardelis
On January 2, 2017, the Company entered into a one-year consulting agreement (the "Agreement") with Mr. Charalampos Sgardelis ("Sgardelis"). Under the terms of the Agreement, Sgardelis provides services to the Company as Business Development Manager, for a term of one (1) year and receives compensation of Two Thousand Euros (2,000 €) (USD$2,290) per month.
On February 26, 2018 the Company approved a three (3) year extension to the Agreement (the "Addendum") between the Company and Sgardelis. Under the terms and conditions of the Addendum, Sgardelis is entitled to receive compensation of Three Thousand Euros (3,000 €) (USD$3,434) per month and shall be awarded 250,000 common shares upon execution of the Addendum. The shares were valued at fair market value on the date of issuance or $0.98 per share for total consideration of $245,000. On November 17, 2018, the Company terminated the consulting agreement with Mr. Sgardelis.
(7)
Advisory Agreement with Ravi Vaidyanathan
On March 27, 2018, the Company entered into a one-year advisory agreement (the "Agreement") with Mr. Ravi Vaidyanathan (the "Advisor"). Under the terms and conditions of the Agreement, the Advisor is appointed to the Company's Scientific Advisory Board and is entitled to remuneration for the provision of services in the form of 25,000 shares of the common stock to be issued upon signing of the Agreement. Further, the Advisor shall be granted additional 12,500 shares of the common stock to be issued after a time-period of six (6) months from the signing of the Agreement. The Advisor shall serve on the Scientific Advisory Board in the position of Biomechatronics and Human Augmentation Advisor. The Company or the Advisor may terminate the agreement upon 30 days written notice. The issued shares were valued at fair market value on the date of issuance or $1.10 per share for total consideration of $27,500. On October 3, 2018 the Company's Board of Directors determined to terminate the Company's advisory board and no further shares will be issued to Mr. Vaidyanathan under the terms of this Agreement.
(8)
Addendum to Service Agreement with Nikolaos Gemelos
On January 16, 2018, the Company entered into a one-year service agreement (the "Agreement") with Mr. Nikolaos Gemelos ("Gemelos"). Under the terms of the Agreement, Gemelos provides services to the Company as Consultant, for a term of one (1) year and he is entitled to a success fee of 5% of the amount actually invested in the Company by introduced accredited investors, and 5% of the amount invested in the form of restricted shares of the common stock of the Company. On May 3, 2018, the Company entered into an amendment to the aforementioned Agreement. Under the terms and conditions of this Addendum, Gemelos shall be awarded 5,000 restricted common shares upon execution of the Addendum. The shares were valued at fair market value on the date of issuance or $1.34 per share for total consideration of $6,700.
(9)
Service Agreement with Georgios Dritsoulas
On June 7, 2018, the Company entered into a six-month service agreement with Mr. Georgios Dritsoulas. As per terms of said Agreement, Mr. Dritsoulas will provide services to the Company as Consultant for the development and expansion of the Company's business for a term of six (6) months. Mr. Dritsoulas received compensation of 2,500 restricted common shares as compensation for the services provided. The issued shares were valued at fair market value on the date of issuance or $2 per share for total consideration of $5,000.
Rafina Innovations Inc.
(Formerly HCi Viocare)
Notes to Audited Consolidated Financial Statements
For the Fiscal Year Ended December 31, 2018
Note 11 - RELATED PARTY TRANSACTIONS
The following table provides details of the Company's related party transactions during the years ended December 31, 2018 and 2017:
(a)
Services provided from related parties:
(i)
On September 10, 2013 Mr. Leontaritis was appointed President. On January 15, 2014, the Board of Directors of the Company approved the execution of a consulting agreement between the Company and Sotirios Leontaritis ("Leontaritis"), whereby Leontaritis shall provide services to the Company as the Company's President and Chief Executive Officer in regard to the Company's management and operations for the period from January 1, 2014 to December 31, 2016. Under the terms of the agreement, the Company agreed to pay to Leontaritis US$60,000 per annum payable in monthly payments of US$5,000 a month for the term of the contract. On January 1, 2017, the Company approved a three-year extension to the consulting agreement. Mr. Leontaritis will continue to serve for a term of three years, effective as of January 1, 2017, and ending on December 31, 2019; the Company shall pay to Leontaritis US$120,000 per annum payable in monthly payments of US$10,000 a month for the term of the contract. In January 2018, the Company agreed to revise the currency of Mr. Leontaritis salary, and his compensation changed from US$10,000 per month to EUR10,000 (USD$11,650) per month. Further, Mr. Leontaritis is entitled to acquire at his discretion 150,000 shares of the common stock at a price of $6 per share for a term of five (5) years. The Company recognized stock-based compensation expense allocated to consulting fees of $367,629 and $245,086 during the years ended December 31, 2018 and 2017. On October 3, 2018 Mr. Leontaritis resigned all positions with the Company and his contract was terminated. Further concurrent with his resignation, and with an effective date of September 30, 2018, Mr. Leontaritis and the Company entered into an agreement whereunder Mr. Leontaritis settled certain amounts payable to the Company totaling $134,402. The Company recorded a loss on debt settlement of $514 in respect to the transaction.
Rafina Innovations Inc.
(Formerly HCi Viocare)
Notes to Audited Consolidated Financial Statements
For the Fiscal Year Ended December 31, 2018
Note 11 - RELATED PARTY TRANSACTIONS (continued)
(ii)
On September 30, 2013, the Board of Directors of the Company appointed Dr. Christos Kapatos as a director of the Company. On April 16, 2014, the Company entered into a consulting contract with Dr. Kapatos where under his compensation shall be USD$46,430 (€40,000) per year payable in equal monthly installments beginning on May 1, 2014. On May 1, 2015, the Company approved a one-year extension of the consulting agreement, and on August 2, 2016 the Company approved a further one-year extension so that the agreement will expire April 16, 2017. During fiscal 2017 and fiscal 2016 Dr. Kapatos invoiced the Company Euros €40,000 for services rendered in each fiscal year respectively.
On December 12, 2017, the Company approved the issuance of 925,000 common shares to Dr. Christos Kapatos, CTO and Director of the Company, as consideration for the transfer of certain complementary technological developments and work in progress, in the form of a stock award which vested as of the date of grant. The 925,000 shares have been valued at $925,000, or $1.00 per share, the fair market value on grant date, which amount has been expensed as research and development expenses. Concurrently, the Company approved a six-year extension to the consulting agreement with Dr. Kapatos. The revision to the Agreement ("Addendum No. 3") has a term of six years, being effective as of April 16, 2017, and ending on April 15, 2023, renewable for such further term as may be mutually agreed between the parties. As per Addendum No. 3 Mr. Kapatos shall receive annual compensation of EUR50,000 (US$58,250) and shall be entitled to a 100% bonus of the total annual compensation for every profitable year of the Company. Dr Kapatos shall also be entitled to acquire at his discretion 1,250,000 shares of the common stock at a price of US$1.00 for a term of six years.
On May 23, 2018 the Company approved an amendment to the term of the scientific advisory agreement with Dr. Christos Kapatos, board member CTO and member of the Scientific Advisory Board, originally entered into on April 15, 2014 in order to extend the term to April 15, 2019.
The Company recognized stock-based compensation expense allocated to consulting fees of $135,900 and $15,100 during the years ended December 31, 2018.
Effective October 3, 2018, Dr Christos Kapatos resigned from his position as Director of the Company.
On November 21, 2018, Dr. Christos Kapatos resigned his position as Chief Technology Officer and as a consultant due to the Company's breach of Sections 3.1 and 3.2 of that certain Consulting Agreement originally entered into April 16, 2014 (as amended from time to time, including, without limitation, Addendum 1, Addendum 2 and Addendum 3, collectively, the "Consulting Agreement"). The Company declined to cure the noticed breach(es) in the ten (10) day period as allotted from notice date and subsequently accepted the resignation of Dr. Kapatos effective November 21, 2018. Further, on December 4, 2018 the Company notified Dr. Kapatos of the termination of that certain Acquisition agreement between Dr. Kapatos and HCI VIOCARE TECHNOLOGIES LIMITED, the Company's wholly owned subsidiary, dated April 16, 2014, as amended May 8, 2015 (collectively the "Acquisition Agreement").
(iii)
On September 10, 2013, the Board of Directors of the Company elected Nikolaos Kardaras as Secretary and a director of the Company. During each of fiscal 2017 and fiscal 2016, Mr. Kardaras invoiced the Company EUR12,000 for services rendered in his capacity as a director which amount totaled US$13,500 and $13,300 respectively. During 2018, Mr. Kardaras invoiced the Company EUR9,000 (USD$10,747)
On March 3, 2017, the Company approved the issuance of 50,000 common shares for the services provided by Mr. Nikolaos Kardaras in the form of a stock award which vested as of the date of grant. 50,000 shares have been valued at $172,000, the fair market value of $3.44 per share on issue date, which amount has been expensed as stock-based compensation. On October 3, 2018 Mr. Kardaras resigned as secretary and director of the Company. He remains the Company's in house legal advisor.
Rafina Innovations Inc.
(Formerly HCi Viocare)
Notes to Audited Consolidated Financial Statements
For the Fiscal Year Ended December 31, 2018
Note 11 - RELATED PARTY TRANSACTIONS (continued)
(a)
Services provided from related parties (cont'd)
(iv)
On September 1, 2015, the Board of Directors of the Company approved a consulting agreement with Sergios Katsaros and appointed Mr. Katsaros Vice President. Under the terms of the consulting agreement, Mr. Katsaros will work directly with the Company's President and CEO in order to create and implement the Company's strategic plan and assist in securing additional financing to meet the needs of the Company's business plan and corporate objectives. The initial term of the contract is six months and Mr. Katsaros will receive compensation of USD$2,330 (€2,000) per month. On March 1, 2016, the Company approved a one-year extension to the consulting agreement and the Company approved the grant of a stock award of 15,000 common shares as compensation for the services provided by Vice President, Sergios Katsaros. The award vests in three equal instalments of 5,000 shares as of the date of grant, the six-month anniversary of the date of grant and the 12-month anniversary of date of grant. During fiscal 2016 a total of $169,000 in respect of 10,000 vested shares was recorded as stock-based compensation. On March 1, 2017, the final installment of 5,000 shares were issued in accordance with the terms of the award valued at $17,200, the fair market value on grant date, which amount has been expensed as stock-based compensation in 2017.
On March 17, 2017, the Company approved the issuance of a further 50,000 common shares for the services provided by Mr. Katsaros, in the form of a stock award which vested as of the date of grant. 50,000 shares have been valued at $170,000, the fair market value of $3.40 per share on grant date, which amount has been expensed as stock-based compensation.
On December 12, 2017 the Company approved a three-year extension to the consulting agreement between the Company and Mr. Katsaros effective as of January 2, 2018. The revision to the Agreement has a term of three years, being effective as of January 2, 2018, and ending on January 1, 2021, renewable for such further term as may be mutually agreed between the parties. Mr. Katsaros shall be remunerated with a monthly stipend of EUR3,500 (US$4,006), and shall be entitled to a 100% bonus of the total annual compensation for every profitable year of the Company. Mr. Katsaros shall also be entitled to acquire at his discretion 500,000 shares of the common stock at a price of US$1.00 for a term of five years commencing January 2, 2018.
The Company recognized stock-based compensation expense allocated to consulting fees of $50,400 during year ended December 31, 2018.
On November 17, 2018, the Company's management terminated a consulting contract with Mr. Sergios Katsaros which took effect as of December 22, 2018.
(v)
On October 3, 2018, the Board of Directors of the Company appointed Miss Paraskevi Pylarinou ("Pylarinou") as a member of the Board of Directors, Secretary and CFO of the Company. During the year ended December 31, 2018 Miss. Pylarinou invoiced the Company EUR24,000 (USD$28,311).
(vi)
On October 3, 2018 the Board of Directors appointed Mr. Constantinos Zertalis as a member of the Board of Directors and the President of the Company. On October 19, 2018 the Company's Board of Directors appointed Mr. Constantinos Zertalis, CEO, President and Director as Chairman of the Board of Directors.
During the year ended December 31, 2018, Mr. Zertalis advanced EUR13,000 (USD$14,880) to the Company.
On October 19, 2018 the Company's Board of Directors approved the grant of a total of 1,500,000 stock awards which vested on the date of grant, and a total of 7,500,000 directors' stock options for exercise at $0.70 per share which options vest as to 1,500,000 shares on grant date, and 1,500,000 shares each year thereafter for a total of four additional years. The Company recognized stock-based compensation expense allocated to consulting fees of $2,558,718 during year ended December 31, 2018 in respect of the aforementioned awards and options.
Rafina Innovations Inc.
(Formerly HCi Viocare)
Notes to Audited Consolidated Financial Statements
For the Fiscal Year Ended December 31, 2018
Note 11 - RELATED PARTY TRANSACTIONS (continued)
(b)
Accounts payable and accrued liabilities from related parties:
(c)
Advances / other receivable from related parties:
(d)
Convertible Debt, related parties:
On February 15, 2018, the Company and certain shareholders holding in excess of 5% of the Company's common stock and concurrently holding a position on the Company's Board, or acting in the capacity of any officer of the Company or its subsidiaries, agreed that repayment against pre-existing debt payable by the Company on the agreement date shall be suspended until such time as the Company concludes a full profitable year of operations. Further the parties agreed that any such pre-existing debt or portion thereof shall be convertible at any time into restricted shares of the Company's common stock at a price equal or greater to $0.60 per share. On the date of the agreement the fair market value of the Company's common stock as traded on OTCMarkets was $0.806 per share. The Company accounted for this transaction by applying ASC 470-20-35. As the convertible debt has no stated redemption date, the Company will recognize the discount as interest expense on the earliest conversion date.
The Company has reclassified all debts payable as of February 15, 2018 to our CEO and CTO from advances and accounts payable, related party, to convertible debt, related party.
On each of May 31, 2018 and on June 26, 2018, the Company entered into Debt Settlement and Subscription Agreements with the President of the Company, Mr. Sotirios Leontaritis to settle total debt in the amount of $679,371 in respect to certain unpaid salary, advances for operational shortfalls and certain unsettled expense reimbursements into 942,374 shares of the Company's common stock at fair market value on the date(s) of issuance. The Company valued the aforementioned issuances at the closing price of the Company's stock as traded on the OTCMarkets on the date of issue. The difference in price resulted in the Company recording loss on debt settlement in the amount of $1,321,971 in respect of the transaction.
On June 26, 2018, the Company entered into a Debt Settlement and Subscription Agreement with a Director of the Company, Dr. Christos Kapatos to settle total debt in the amount of US$131,870 in respect to certain unpaid salary, advances for operational shortfalls and certain unsettled expense reimbursements into 219,784 shares of the Company's common stock at a price of US$0.60 per share. The Company valued those issuances at the closing price of the Company's stock as traded on the OTCMarkets on the date of issue. The difference in price resulted in the Company recording loss on debt settlement in the amount of $285,718 in respect to the transaction.
Rafina Innovations Inc.
(Formerly HCi Viocare)
Notes to Audited Consolidated Financial Statements
For the Fiscal Year Ended December 31, 2018
Note 12 - CAPITAL STOCK
The Articles of Incorporation authorize the Company to issue 5,000,000 shares of preferred stock with a par value of $0.0001, and 35,000,000 shares of common stock with a par value of $0.0001. No shares of preferred stock have been issued, however, the Company has granted 25,000 fully vested stock options for the purchase of 25,000 shares of Series A Preferred Stock of the Company at a price of $0.04 per share for a period of five (5) years from the date of vesting. (ref: Note 13 below)
On May 24, 2018, the Company's Board of Directors approved a reverse share split on the basis 20 for 1. The reverse share split became effective on July 9, 2018. Unless otherwise noted, impacted share amounts and per share information included in the financial statements and notes thereto have been retroactively adjusted for the reverse share split as if such share split occurred on the first day of the first period presented. Certain amounts in the notes to the financial statements may be slightly differently than previously reported due to rounding of fractional shares as a result of the reverse share split.
Share issuances during the year ended December 31, 2018
During the year ended December 31, 2018, 855,717 shares of common stock were issued in respect of various private placements for total cash proceeds of $664,911.
During the year ended December 31, 2018, the Company issued 1,782,500 shares to employees, board members and consultants valued at $1,341,700, for services rendered in the form of stock awards and share based compensation. The Company valued these issuances based on the closing price of the Company's stock as reflected on the OTC Markets on the respective dates of issuance.
During the year ended December 31, 2018, the Company issued 942,374 shares valued at fair market value on the date(s) of issuance for a total of $2,001,342 to Mr. Leontaritis to settle debt in the amount of $679,371. The Company valued those issuances at the closing price of the Company's stock as traded on the OTCMarket on the date of issue. The difference in price resulted in the Company recording a loss on debt settlement in the amount of $1,321,971. On October 3, 2018 Mr. Leontaritis resigned all positions with the Company and his contract was terminated. Further concurrent with his resignation, and with an effective date of September 30, 2018, Mr. Leontaritis and the Company entered into an agreement whereunder Mr. Leontaritis settled certain amounts payable to the Company totaling $134,402. The Company recorded a loss on debt settlement of $514 in respect to the transaction.
During the year ended December 31, 2018, the Company issued 219,784 shares valued at fair market value on the date of issuance of $417,588 to Dr. Christos Kapatos to settle debt in the amount of $131,870. The Company valued those issuances at the closing price of the Company's stock as traded on the OTC Market on the date of issue. The difference in price resulted in the Company recording loss on debt settlement in the amount of $285,718.
Share issuances during the year ended December 31, 2017
During the year ended December 31, 2017, the Company issued 1,220,000 shares to employees, board members and consultants valued at $1,587,600, for services rendered. The Company valued these issuances based on the closing price of the Company's stock as reflected on the OTCMarkets on the respective dates of issuance.
During the year ended December 31, 2017, 50,000 shares of common stock valued at $104,500 were issued in respect to a debt settlement agreement dated August 28, 2017.
During the year ended December 31, 2017, 1,008,542 shares of common stock were issued in respect to various private placements for total cash proceeds of $1,064,310.
Rafina Innovations Inc.
(Formerly HCi Viocare)
Notes to Audited Consolidated Financial Statements
For the Fiscal Year Ended December 31, 2018
Note 12 - CAPITAL STOCK (continued)
Designation of Series A Preferred Stock
On January 13, 2014, the Company filed a Certificate of Designation with the Secretary of State of the State of Nevada. The Certificate of Designation sets forth the rights, preferences and privileges of a class of the Company's preferred stock. Such class shall be designated as the "Series A Preferred Stock" and the number of shares constituting such series shall be 5,000,000 shares. The holders of Series A Preferred Stock will be entitled to a preference over all of the shares of the Company's common stock. Holders of Series A Preferred Stock shall have 50 votes per share of Series A Preferred Stock held by them and shall be entitled to notice of any stockholders' meeting and to vote as a single class upon any matter submitted to the stockholders for a vote. Each share of Series A Preferred Stock is convertible into 20 shares of our common stock at any time at the holder's option. Shares of Series A Preferred Stock shall not be entitled to any dividends. The preferred stock shall be entitled to a preference over all of the shares of common stock of the Company with respect to the distribution of assets in the event of the liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, or any other distribution of the assets of the Company among its shareholders for the purpose of winding up its affairs.
Note 13 - STOCK OPTIONS AND AWARDS
A total of 25,000 stock options granted during April and June of fiscal 2014 entitling each holder the right to purchase a total of 5,000 shares of Series A Preferred Stock of the Company at a price of $0.04 per share for a period of five (5) years remain unexercised and outstanding as at December 31, 2018. The Series A Preferred shares are convertible on the basis of 20 shares of common stock for each one share held and have voting rights of 50 votes per share of Series A Preferred stock held at any meetings of the stockholders.
On January 1, 2017, the Company approved a three-year extension to the consulting agreement. Mr. Leontaritis will continue to serve for a term of three years, effective as of January 1, 2017, and ending on December 31, 2019. Further, Mr. Leontaritis is entitled to acquire, at his discretion, 150,000 shares of the common stock at a price of $6 per share for a term of five (5) years.
On December 12, 2017, Dr. Christos Kapatos, director, was issued a stock option as part of an extension to his employment contract under which, at his discretion, he may acquire 1,250,000 shares of the common stock at a price of US$1.00 for a term of six years. The options expired subsequent to year end unexercised.
Mr. Katsaros shall also be entitled to acquire, at his discretion, 500,000 shares of the common stock at a price of US$1.00 for a term of five years commencing January 2, 2018.
On October 3, 2018 each of Mr. Leontaritis and Dr. Kapatos resigned all positions with the Board of Directors. Subsequently, on November 21, 2018, Dr Kapatos resigned as an officer and terminated his consulting contract. In addition, the consulting contract with Mr. Katsaros was terminated on November 17, 2018 with an effective date of December 22, 2018. As a result, any unexercised stock options are expected to expire within 90 days of the respective contract terminations.
On October 19, 2018, the Company's Board of Directors approved the grant of 1,500,000 directors' stock options at $0.70 per share each year for five years, which options vest annually on the original date of grant.
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 periods.
Rafina Innovations Inc.
(Formerly HCi Viocare)
Notes to Audited Consolidated Financial Statements
For the Fiscal Year Ended December 31, 2018
Note 13 - STOCK OPTIONS (continued)
The Company recognized stock-based compensation expense allocated to consulting fees of $2,013,939 and $505,273 during the year ended December 31, 2018 and 2017, respectively. The unrecognized amount of $3,693,806 will be expensed in future periods.
The following table summarizes information concerning stock options outstanding as of December 31, 2018, and December 31, 2017:
Series A Preferred Stock:
The aforementioned options have an average remaining life of 0.32 years.
Common stock:
The aforementioned exercisable options have an average remaining life of 4.75 years. There are 6,000,000 unvested options at the end of fiscal 2018.
Rafina Innovations Inc.
(Formerly HCi Viocare)
Notes to Audited Consolidated Financial Statements
For the Fiscal Year Ended December 31, 2018
Note 13 - STOCK OPTIONS (continued)
Valuation Assumptions
The Company accounts for share-based payments pursuant to ASC 718, "Stock Compensation" and, accordingly, the Company records compensation expense for share-based awards based upon an assessment of the grant date fair value for stock options using the Black-Scholes option pricing model. The fair value of stock options under the Black-Scholes model requires management to make assumptions regarding projected employee stock option exercise behaviors, risk-free interest rates, volatility of the Company's stock price and expected dividends.
Stock compensation expense for stock options is recognized over the vesting period of the award.
The following table presents the range of the weighted average fair value of options granted and the related assumptions used in the Black-Scholes model for stock option grants:
Series A Preferred Stock:
Common stock:
The Company utilizes the Black-Scholes option pricing model to determine the fair value of each option award. Expected volatilities are based on the historical volatility of the Company's common stock over a period consistent with that of the expected term of the options. The expected term of the options are estimated based on factors such as vesting periods, contractual expiration dates and historical exercise behavior. The risk-free rates for periods within the contractual life of the options are based on the yields of U.S. Treasury instruments with terms comparable to the estimated option terms. The dividend yield rate is not considered in the model, as the Company has not established a dividend policy for the stock.
Rafina Innovations Inc.
(Formerly HCi Viocare)
Notes to Audited Consolidated Financial Statements
For the Fiscal Year Ended December 31, 2018
Note 14 - SEGMENT REPORTING
The Company's operations are classified into two reportable segments that provide different products or services. Separate management of each segment is required because each business unit is subject to different marketing, operations, and growth and technology development strategies.
The Clinics segment derives its revenue from provision of services at our P&O Clinic located in Glasgow, Scotland. The Technology segment derives its income from the licensing of its proprietary technologies and ultimately recurring royalty income as well as technology access fees. Presently we are only deriving income from our UK-based operations. We expect this to be the case until such time as we are able to expand our chain of P&O Clinics.
There are no inter-segment sales however, the Company's two primary operating segments do share costs on certain operational overhead including facility rent and staff salaries.
Twelve months ended December 31, 2018:
Twelve months ended December 31, 2017:
Note 15- PROVISION FOR INCOME TAXES
The Company's operations in Greece have no tax free income threshold and are subject to taxation at a rate of 29% applied to all net income earned after $1 Euro. Further, after its first year of profitable operations, the Company is required to remit estimated income taxes prorated monthly based on the prior year's calculated income taxes payable.
The Company's operations in the United Kingdom are subject to Corporation Tax at a single taxation rate of 20% calculated on net income. The Company's operations are subject to certain relief from taxation with respect to R&D credit claims and may be subject to "Patent Box" relief which provides for a lower rate of income tax payable on all licensing income generated from the corporate owned patents. There are numerous criteria required to be met to qualify for such relief.
Rafina Innovations Inc.
(Formerly HCi Viocare)
Notes to Audited Consolidated Financial Statements
For the Fiscal Year Ended December 31, 2018
Note 15- PROVISION FOR INCOME TAXES (continued)
The Company has experienced losses since inception. As a result, it has incurred no U.S. Federal income tax. The Internal Revenue Code allows net operating losses (NOL's) to be carried forward and applied against future profits for a period of twenty years with respect to losses incurred prior to January 1, 2018. Thereafter, the NOL's have no expiration date. The Greece Tax Code permits such carryforwards for a period of five years. The United Kingdom Tax Code permits such carryforwards indefinitely. The total of these NOL's at December 31, 2018 was $2,912,500 in the U.S., $1,489,400 in Greece and $304,380 the U.K and at December 31, 2017 was $2,888,000 in the U.S., $1,343,400 in Greece and $307,080 in the U.K.
On December 22, 2017, the 2017 Tax Cuts and Jobs Act (the Tax Act) was enacted into law including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective January 1, 2018, among others. We are required to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax, remeasuring our U.S. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities. While the Company has revenue we have no foreign earnings and therefore, we do not anticipate the impact of a transition tax. We have remeasured our U.S. deferred tax assets at a statutory income tax rate of 21% during fiscal 2017. Since the Tax Act was passed late in the fourth quarter of 2017, and ongoing guidance and accounting interpretation are expected over the next 12 months, we consider the accounting of any transition tax, deferred tax re-measurements, and other items to be incomplete due to the forthcoming guidance and our ongoing analysis of final year-end data and tax positions. We expect to complete our analysis within the measurement period in accordance with SAB 118, and no later than fiscal year end December 31, 2018.
The provision for income taxes in US consists of the following:
The provision for income taxes in Greece consists of the following:
The provision for income taxes in UK consists of the following:
The cumulative tax effect at the expected rates in the U.S., in Greece and in the U.K. for significant items comprising our net deferred tax amounts reported in US Dollars as of December 31, 2018, and December 31, 2017 are as follows:
Rafina Innovations Inc.
(Formerly HCi Viocare)
Notes to Audited Consolidated Financial Statements
For the Fiscal Year Ended December 31, 2018
Note 15 - SUBSEQUENT EVENTS
On March 14, 2019, Mr. Sotirios Leontaritis resigned as director of each of the Company's wholly owned subsidiaries, HCi Viocare Technologies and HCi Viocare Clinics. Concurrently Miss Paraskevi Pylarinou was appointed to fill the vacancies on the boards.
The Company has evaluated subsequent events from the balance sheet date through the date that the financial statements were issued and determined that there are no additional subsequent events to disclose.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, under supervision and with the participation of the Company's Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures, as defined under Exchange Act Rule 13a-15(e). Based upon this evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of December 31, 2018, because of the material weakness in our internal control over financial reporting ("ICFR") described below, our disclosure controls and procedures were not effective.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that required information to be disclosed in our reports filed or submitted under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that required information to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined under Exchange Act Rules 13a-15(f) and 14d-14(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
All internal control systems, no matter how well designed, have inherent limitations and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can only provide reasonable assurance with respect to financial reporting reliability and financial statement preparation and presentation. In addition, projections of any evaluation of effectiveness to future periods are subject to risk that controls become inadequate because of changes in conditions and that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2018. In making the assessment, management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework 2013. Based on its assessment, management concluded that, as of December 31, 2018, our internal control over financial reporting was not effective and that material weaknesses in ICFR existed as more fully described below.
As defined by Auditing Standard No. 5, "An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statements" established by the Public Company Accounting Oversight Board ("PCAOB"), a material weakness is a deficiency or combination of deficiencies that results in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected. In connection with the assessment described above, management identified the following control deficiencies that represent material weaknesses as of December 31, 2018:
1)
Lack of an independent audit committee or audit committee financial expert, and one independent director. We have one member of the board that is an independent director, and we do not have an audit committee. These factors may be counter to corporate governance practices as defined by the various stock exchanges and may lead to less supervision over management;
2)
Insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements;
Management's Remediation Initiatives
As of December 31, 2018, management assessed the effectiveness of our internal control over financial reporting. Based on that evaluation, it was concluded that during the period covered by this report, the internal controls and procedures were not effective due to deficiencies that existed in the design or operation of our internal controls over financial reporting. However, management believes these weaknesses did not have an effect on our financial results. During the course of our evaluation, we did not discover any fraud involving management or any other personnel who play a significant role in our disclosure controls and procedures or internal controls over financial reporting.
Due to a lack of financial and personnel resources, we are not able to, and do not intend to, immediately take any action to remediate these material weaknesses. We will not be able to do so until, if ever, we acquire sufficient financing and staff to do so. We will implement further controls as circumstances, cash flow, and working capital permits. Notwithstanding the assessment that our ICFR was not effective and that there were material weaknesses as identified in this report, we believe that our financial statements contained in our Annual Report on Form 10-K for the period ended December 31, 2018, fairly presents our financial position, results of operations, and cash flows for the periods covered, as identified, in all material respects.
Management believes that the material weaknesses set forth above were the result of the scale of our operations and intrinsic to our small size. Management also believes that these weaknesses did not have an effect on our financial results.
This Annual Report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.
Changes in Internal Control over Financial Reporting
During the period covered by this report, there were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
Item 9B. Other Information
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Executive Officer and Directors
The following individuals serve as the directors and executive officers of our Company as of the date of this annual report.
Our Board of Directors consists of only one class. All of the directors will serve until the next annual meeting of stockholders; until their successors are elected and qualified; or until their earlier death, retirement, resignation or removal. There are no family relationships among directors and executive officers. There are no arrangements or understandings between any director or executive officer and any other person(s) pursuant to which a director or executive officer was selected. Our executive officers are elected by our Board of Directors and hold office until their death, resignation or removal from office.
Our Board of Directors believes that the Board and our executive officer possesses a range of talent, skill, and experience sufficient to provide sound and prudent guidance with respect to our operations and interests. The information below with respect to our sole director and officer includes the individual's experience, qualifications, attributes, and skills that led our Board of Directors to the conclusion that he or she should serve as a director and/or executive officer.
We know of no pending proceedings to which any director, member of senior management, or affiliate is either a party adverse to us, or our subsidiaries, or has a material interest adverse to us or our subsidiaries.
None of our executive officers or directors have been involved in any bankruptcy proceedings within the last five years, been convicted in or has pending any criminal proceedings, been subject to any order, judgment or decree enjoining, barring, suspending or otherwise limiting involvement in any type of business, securities or banking activity or been found to have violated any federal or state securities or commodities law.
Business Experience
The following is a brief account of the education and business experience during at least the past five years of each director, executive officer and key employee of our company, indicating the person's principal occupation during that period, and the name and principal business of the organization in which such occupation and employment were carried out.
Constantinos Zertalis, CEO, President, Director and Chairman of the Board
Mr Zertalis received a BBA in Management and Finance from the Bernard Baruch College (CUNY) of New York in 2003 and an Executive Master's in public Affairs and Administration in International Economic Policy and Advance Management from Columbia University of New York in 2005. Since 2013 Mr. Zertalis has served as Europe Retail Director of Ria Money Transfer - Euronet Worldwide in Madrid, Spain, responsible for the strategic operation planning process and since 2008 has served as Chief Executive Officer of Zertalis Group in Nicosia, Cyprus. He also served as Operations Manager of Hellenic Tzilalis Ltd in Nicosia, Cyprus and since 2001 and for four years he served as Assistant Chief Operating Officer in the Department for General Assembly and Conference Management of United Nations Headquarters in New York, U.S.A. The Company believes that Mr. Zertalis will be a valuable addition to the team as we continue to develop our business strategy, strengthen our position in the global market and increase corporate visibility.
Mr. Zertalis is not an officer or director of any other reporting issuers.
Miss Paraskevi Pylarinou, CFO, Secretary and Director
Miss Pylarinou received a bachelor's degree in Public Policy and Strategic Planning from the Panteion University of Athens, Greece in 2010 and a Master in Business Administration of Piraeus University, Section of Executive Management and Business Administration (EMBA) of Piraeus, Greece, in 2017. Miss Pylarinou has work experience in the financial sector of corporations, including Attico Medical Center S.A. in Athens, Greece and Dalmar Group of Companies - DAREX S.A. During 2016, Miss Pylarinou served as Financial Analyst of of the Company, and since 2017 she serves as Financial Controller and Reporting Analyst of the Company. The Company believes that Miss Pylarinou will be a valuable addition to the team.
Miss. Pylarinou is not an officer or director of any other reporting issuers.
Georgios Thrapsaniotis, Treasurer and Director
Georgios Thrapsaniotis is an experienced civil engineer and holds a degree from the University of Thessaloniki, School of Civil Engineering. He currently works as an independent contractor in the field of construction in both the private and public sectors, focused on technical design and construction of national and international projects, such as construction of Perama Town Hall and contributes to water supply and sanitation system projects in the municipalities of Aspropyrgos, Megara and Fyli. He has been self-employed in excess of 40 years. The Company believes that Thrapsaniotis will be a valuable asset in implementing the Company's current business plan. Thrapsaniotis is not an officer or director of any other reporting issuers.
He is not an officer and director of any other reporting issuers.
Yiannis Levantis, Director
Mr. Levantis received a BEng, Honors in Mechanical Engineering from the University of Manchester Institute of Science and Technology (UMIST) in 1997, an MSc in Computational and Experimental Stress Analysis from UMIST in 1998 and an MSc in Financial Management and Control from Aston Business School in 1999. Mr. Levantis has worked for various large international conglomerates including Unilever, Johnson & Johnson, GlaxoSmithKline and Rolls Royce Plc. and has extensive experience in definition and execution of strategy and roadmaps to support business strategy and drive operational efficiencies. Over the most recent years Mr. Levantis has been employed as the Global IT director (Rolls Royce PLC - Aerospace, Defence & Power Systems July 2011 to present and GlaxoSmithKline, Pharmaceutical January 2008 to June 2011) undertaking such rolls as global SAP-ERP design and delivery, delivering IT strategy and IT enabled business transformation programs supporting various business functions including supply chain purchasing, finance, quality and HR and operating with annual budgets in excess of £20 million as well as other key management and financial planning solutions.
Mr. Levantis is not an officer or director of any other reporting issuers.
Code of Ethics
The Company has adopted a Code of Ethics applicable to its Chief Executive Officer and Chief Financial Officer. This Code of Ethics was filed as an exhibit to the Form 10-K for the year ending December 31, 2008 filed on April 6, 2009.
We will provide a copy of the Code of Ethics to any person without charge, upon request. Requests can be sent to our company at the address on the cover of this annual report.
Nominating Committee
There have been no material changes to the procedures by which security holders may recommend nominees to the Company's board of directors.
Audit Committee
At this time, the Company is not required to have an audit committee. Further, since we have only one independent member on the Board it is not feasible at this time to have an audit committee. The Board of Directors performs the same functions as an audit committee. The Board of Directors in performing its functions as an audit committee has determined that it does not have an audit committee financial expert.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers, and stockholders holding more than 10% of our outstanding common stock, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in beneficial ownership of our common stock. Executive officers, directors and greater-than-10% stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based solely on our review of forms 3, 4 and 5 and amendments thereto furnished to the Company during its most recent fiscal year, the Company believes each of the Company's directors, officers and/or person beneficially owning greater than 10% of the Company's equity securities have failed to timely file reports required by Section 16(a) of the Exchange Act during the most recent fiscal year. The Company is working with officers, directors and 10% holders to immediately rectify the late filings.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The particulars of the compensation paid to the following persons:
(a)
our principal executive officer;
(b)
each of our two most highly compensated executive officers who were serving as executive officers at the end of the years ended December 31, 2018 and 2017; and
(c)
up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as our executive officer at the end of the years ended December 31, 2018 and 2017,who we will collectively refer to as the named executive officers of our company, are set out in the following summary compensation table, except that no disclosure is provided for any named executive officer, other than our principal executive officers, whose total compensation did not exceed $100,000 for the respective fiscal year.
(1)
Mr. Zertalis was appointed CEO, Director and President on October 3, 2018. During the current fiscal year Mr. Zertalis received a stock award of 600,000 shares valued at $423,000 which vested immediately upon issuance and 2,500,000 five -year stock options for exercise at $0.70 per share which vest as to 500,000 options on grant date, October 19, 2018, and then a further 500,000 options each year thereafter on the anniversary of the original grant date. An amount of $486,670 was recorded as stock-based compensation in relation to the initial 500,000 vested options.
(2)
Miss Pilarinou was appointed CFO, Director and Secretary on October 3, 2018. During the current fiscal year Miss Pilarinou received a stock award of 200,000 shares valued at $141,000 which vested immediately upon issuance and 1,500,000 five -year stock options for exercise at $0.70 per share which vest as to 300,000 options on grant date, October 19, 2018, and then a further 300,000 options each year thereafter on the anniversary of the original grant date. An amount of $292,000 was recorded as stock-based compensation in relation to the initial 300,000 vested options.
(3)
Mr. Sotirios Leontaritis is the former Chief Executive Officer, President, Treasurer, and Director. He resigned as Treasurer on February 15, 2018 and all other positions on October 3, 2018. Mr. Leontaritis was granted an option to purchase shares of common stock at $6 per share for a term of five (5) years during fiscal 2017. The Company recognized stock-based compensation expense allocated to consulting fees of $367,629 and $245,086 respectively during the years ended December 31, 2018 and 2017. The unexercised options expired 90 days after Mr. Leontaritis resigned his positions with the Company.
(4)
Dr. Christos Kapatos is a former director and Chief Technology Officer. He resigned as a director on October 3, 2018 and as CTO on November 21, 2018. During fiscal 2018 and 2017 Mr. Kapatos charged fees of 54,104 and $45,080, respectively, Dr. Kapatos, was issued a stock option as part of an extension to his employment contract in fiscal 2017, whereunder, at his discretion, he may to acquire 1,250,000 shares of the common stock at a price of $1.00 for a term of six years. The Company recognized stock-based compensation expense allocated to consulting fees of $15,100 during the year ended December 31, 2017 and $135,900 in fiscal 2018. In addition, during fiscal 2017, he received a stock award of 925,000 shares valued at market price of $1.00 on the date of issue for total additional compensation of $925,000. The unexercised options expired 90 days after Mr. Kapatos resigned his positions with the Company.
Outstanding Equity Awards at Fiscal Year-End
None.
Option Grants and Exercises
A total of 25,000 stock options granted during April and June of fiscal 2014 entitling each holder the right to purchase a total of 5,000 shares of Series A Preferred Stock of the Company at a price of $0.04 per share for a period of five (5) years remain unexercised and outstanding as at December 31, 2018. The Series A Preferred shares are convertible on the basis of 20 shares of common stock for each one share held and have voting rights of 50 votes per share of Series A Preferred stock held at any meetings of the stockholders.
On January 1, 2017, the Company approved a three-year extension to the consulting agreement. Mr. Leontaritis will continue to serve for a term of three years, effective as of January 1, 2017, and ending on December 31, 2019. Further, Mr. Leontaritis is entitled to acquire at his discretion 150,000 shares of the common stock at a price of $6 per share for a term of five (5) years.
On December 12, 2017, Dr. Christos Kapatos, director, was issued a stock option as part of an extension to his employment contract under which, at his discretion, he may acquire 1,250,000 shares of the common stock at a price of US$1.00 for a term of six years. The options expired subsequent to year end unexercised.
Mr. Katsaros shall also be entitled to acquire at his discretion 500,000 shares of the common stock at a price of US$1.00 for a term of five years commencing January 2, 2018.
On October 3, 2018 each of Mr. Leontaritis and Dr. Kapatos resigned all positions with the Board of Directors. Subsequently, on November 21, 2018, Dr Kapatos resigned as an officer and terminated his consulting contract. In addition, the consulting contract with Mr. Katsaros was terminated on November 17, 2018 with an effective date of December 22, 2018. As a result, any unexercised stock options expired within 90 days of the respective contract terminations and have been reflected as expired as at December 31, 2018.
On October 19, 2018 the Company's Board of Directors approved the grant of 1,500,000 directors' stock options at $0.70 per share each year for five years, which options vest annually on the original date of grant.
Series A Preferred Stock:
The aforementioned options have an average remaining life of 0.32 years.
Common stock:
The aforementioned exercisable options have an average remaining life of 4.75 years. There are 6,000,000 unvested options at the end of fiscal 2018.
Employment Agreements, Officers and Directors
Refer to Section 1.4 Employees above.
Compensation of Directors
During the most recent fiscal years ended 2018 and 2017, only Mr. Nikolaos Kardaras has received compensation for his services as a director of the Company. Mr. Kardaras received $14,165 and $13,524, respectively, in the fiscal years ended December 31, 2018 and 2017. On October 3, 2018, Mr. Kardaras resigned as secretary and director of the Company.
The Company has made no arrangements for the cash remuneration of its directors, except that they will be entitled to receive reimbursement for actual, demonstrable out-of-pocket expenses, including travel expenses, if any, made on the Company's behalf.
Compensation Committee
We do not currently have a compensation committee. The Chief Executive Officer's executive compensation has been approved by our Board of Directors. All of our other compensation contracts have been negotiated by our Chief Executive Officer and approved by our Board of Directors.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Security Ownership of Certain Beneficial Owners
Based on 15,719,681 shares of common stock issued and outstanding as of December 31, 2018, the beneficial owners holding more than 5% of the outstanding common stock, taking into account beneficial ownership of common stock if all outstanding options, warrants, rights and conversion privileges (to which the applicable 5% stockholders have the right to exercise in the next 60 days) are exercised and additional shares of common stock are issued, are disclosed below:
Title of Class
Name and address of Beneficial Owner
Amount and Nature
of Beneficial Ownership
Percentage of Class (1)
Common Stock
Georgios Thrapsaniotis, Director and Treasurer
2,269,162 shares (2)
(1,644,162 shares held direct and 625,000 held by his spouse, Stella Thrapsanioti)
14.08%
Common Stock
Constantinos Zertalis, CEO, President and Director
7,327,030(3)
(6,135,529 held by 100% controlled entity, Maschari Ltd., and balance held directly)
45.17%
Common Stock
Sotirios Leontaritis
1,775,707 shares held directly
11.30%
Common Stock
Christos Kapatos
1,844,784 shares held directly
11.74%
(1) Beneficial ownership is determined in accordance with SEC rules and includes voting or investment power with respect to securities. All shares of common stock subject to options or warrants exercisable within 60 days of December 31, 2018 are deemed to be outstanding and beneficially owned by the persons holding those options or warrants for the purpose of computing the number of shares beneficially owned and the percentage ownership of that person. They are not, however, deemed to be outstanding beneficially owned for the purpose of computing the percentage ownership of any other person. Subject to the paragraph above, the percentage ownership of outstanding shares is based on 15,719,681 shares of common stock outstanding as of December 31, 2018.
(2) Both the amount of ownership and the percentage of class calculation includes 400,000 stock options which are fully vested as of October 19, 2018 and available for acquisition at the discretion of the holder at $0.70 per share for a period of five years.
(3) Both the amount of ownership and the percentage of class calculation includes 500,000 stock options which are fully vested as of October 19, 2018 and available for acquisition at the discretion of the holder at $0.70 per share for a period of five years.
Security Ownership of Management
The following table shows, as of December 31, 2018, the shares of the Company's common stock beneficially owned by each director (including each nominee), by each of the executive officers and by all directors and executive officers as a group. Information is also provided regarding beneficial ownership of common stock if all outstanding options, warrants, rights and conversion privileges (to which the applicable officers and directors have the right to exercise in the next 60 days) are exercised and additional shares of common stock are issued.
Title of Class
Name of Beneficial Owner
Amount and Nature of Beneficial Ownership
Percentage of Class(1)
Common Stock
Constantinos Zertalis, CEO, President and Director
7,327,030(2)
(6,135,529 held by 100% controlled entity, Maschari Ltd., and balance held directly)
45.17%
Common Stock
Paraskevi Pilarinou, CFO, Secretary and Director
601,072 shares held directly (3)
3.75%
Common Stock
Yiannis Levantis, Director
800,000 shares held directly (4)
4.99%
Common Stock
Georgios Thrapsaniotis, Treasurer and Director
2,269,162 shares (5)
(1,644,162 shares held direct and 625,000 held by his spouse, Stella Thrapsanioti)
14.08%
All Officers and Directors as a Group
10,997,264
67.99%
(1)Beneficial ownership is determined in accordance with SEC rules and includes voting or investment power with respect to securities. All shares of common stock subject to options or warrants exercisable within 60 days of December 31, 2018 are deemed to be outstanding and beneficially owned by the persons holding those options or warrants for the purpose of computing the number of shares beneficially owned and the percentage ownership of that person. They are not, however, deemed to be outstanding beneficially owned for the purpose of computing the percentage ownership of any other person. Subject to the paragraph above, the percentage ownership of outstanding shares is based on 15,719,681 shares of common stock outstanding as of December 31, 2018.
(2) Both the amount of ownership and the percentage of class calculation includes 500,000 stock options which are fully vested as of October 19, 2018 and available for acquisition at the discretion of the holder at $0.70 per share for a period of five years.
(3) Both the amount of ownership and the percentage of class calculation includes 300,000 stock options which are fully vested as of October 19, 2018 and available for acquisition at the discretion of the holder at $0.70 per share for a period of five years.
(4) Both the amount of ownership and the percentage of class calculation includes 300,000 stock options which are fully vested as of October 19, 2018 and available for acquisition at the discretion of the holder at $0.70 per share for a period of five years.
(5) Both the amount of ownership and the percentage of class calculation includes 400,000 stock options which are fully vested as of October 19, 2018 and available for acquisition at the discretion of the holder at $0.70 per share for a period of five years.
Changes in Control
Up until March 2018 our former Chief Executive Officer, Mr. Sotirios Leontaritis owned beneficially and, in the aggregate, the majority of the voting power of the Company. On March 22, 2018 and March 30, 2018 respectively, Sotirios Leontaritis, the former President, Chief Executive Officer and a Director of the Company, entered into a Share Purchase Agreement (the "SPA") and an amendment thereto (the "Addendum"), (collectively herein referred to herein as the "Agreement") with Maschari Ltd. ("Maschari"), a Company incorporated in Cyprus, and controlled by our current Chief Executive Officer and a director, Mr. Constantinos Zertalis, pursuant to which Mr. Leontaritis sold 6,135,529 of his restricted common shares to Maschari. Maschari acquired the shares by way of issuance of a Promissory Note dated March 30, 2018 in the principal amount of US$7,362,633 or US$1.20 per share, which note shall come due on March 29, 2021. The parties agreed that in the event Maschari defaults on the obligation to pay the Purchase Price according to the terms of the Agreement and the Promissory Note, Maschari will surrender the shares and shall return ownership of said shares to Mr. Leontaritis. Further, under the terms of the Agreement, the common shares are to be registered in the name of Maschari, however, until such time as the Promissory Note is paid in full, or the parties agree by written addendum thereto to the release of shares on a pro-rata basis in such amounts as may equal installment payments received, the shares shall remain encumbered. Further, in the event of any reverse split, forward split, cancellation or class conversion, as may occur in the normal course, which impacts the Company's common shares, it is agreed by the parties that such replacement shares, regardless of class and number, will continue to remain in escrow and may not be sold until paid in full and/or the parties have agreed to their release on a pro-rata basis for consideration received.
The shares sold by Mr. Leontaritis represented approximately 42.6% of the Company's total outstanding shares of common stock. Mr. Leontaritis continues to hold 1,775,707 shares of the Company's common stock representing approximately 11.3% of the issued and outstanding shares. As a result of the aforementioned transaction, Maschari, and our current CEO has the ability to control the approval of most corporate actions, including increasing the authorized capital stock and the dissolution, merger or sale of the Company's assets, as may be presented at Shareholder meetings from time to time. At December 31, 2018, Maschari and our CEO, collectively controlled approximately 43% of our issued and outstanding shares.
Securities authorized for issuance under equity compensation plans.
None.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The following table provides details of the Company's related party transactions during the years ended December 31, 2018 and 2017:
(a)
Services provided from related parties:
(i)
On September 10, 2013 Mr. Leontaritis was appointed President. On January 15, 2014, the Board of Directors of the Company approved the execution of a consulting agreement between the Company and Sotirios Leontaritis ("Leontaritis"), whereby Leontaritis shall provide services to the Company as the Company's President and Chief Executive Officer in regard to the Company's management and operations for the period from January 1, 2014 to December 31, 2016. Under the terms of the agreement, the Company agreed to pay to Leontaritis US$60,000 per annum payable in monthly payments of US$5,000 a month for the term of the contract. On January 1, 2017, the Company approved a three-year extension to the consulting agreement. Mr. Leontaritis will continue to serve for a term of three years, effective as of January 1, 2017, and ending on December 31, 2019; the Company shall pay to Leontaritis US$120,000 per annum payable in monthly payments of US$10,000 a month for the term of the contract. In January 2018, the Company agreed to revise the currency of Mr. Leontaritis salary, and his compensation changed from US$10,000 per month to EUR10,000 (USD$11,650) per month. Further, Mr. Leontaritis is entitled to acquire at his discretion 150,000 shares of the common stock at a price of $6 per share for a term of five (5) years. The Company recognized stock-based compensation expense allocated to consulting fees of $367,629 and $245,086 during the years ended December 31, 2018 and 2017. On October 3, 2018 Mr. Leontaritis resigned all positions with the Company and his contract was terminated. Further concurrent with his resignation, and with an effective date of September 30, 2018, Mr. Leontaritis and the Company entered into an agreement whereunder Mr. Leontaritis settled certain amounts payable to the Company totaling $134,402. The Company recorded a loss on debt settlement of $514 in respect to the transaction.
(ii)
On September 30, 2013, the Board of Directors of the Company appointed Dr. Christos Kapatos as a director of the Company. On April 16, 2014, the Company entered into a consulting contract with Dr. Kapatos where under his compensation shall be USD$46,430 (€40,000) per year payable in equal monthly installments beginning on May 1, 2014. On May 1, 2015, the Company approved a one-year extension of the consulting agreement, and on August 2, 2016 the Company approved a further one-year extension so that the agreement will expire April 16, 2017. During fiscal 2017 and fiscal 2016 Dr. Kapatos invoiced the Company Euros €40,000 for services rendered in each fiscal year respectively.
On December 12, 2017, the Company approved the issuance of 925,000 common shares to Dr. Christos Kapatos, CTO and Director of the Company, as consideration for the transfer of certain complementary technological developments and work in progress, in the form of a stock award which vested as of the date of grant. The 925,000 shares have been valued at $925,000, or $1.00 per share, the fair market value on grant date, which amount has been expensed as research and development expenses. Concurrently, the Company approved a six-year extension to the consulting agreement with Dr. Kapatos. The revision to the Agreement ("Addendum No. 3") has a term of six years, being effective as of April 16, 2017, and ending on April 15, 2023, renewable for such further term as may be mutually agreed between the parties. As per Addendum No. 3 Mr. Kapatos shall receive annual compensation of EUR50,000 (US$58,250) and shall be entitled to a 100% bonus of the total annual compensation for every profitable year of the Company. Dr Kapatos shall also be entitled to acquire at his discretion 1,250,000 shares of the common stock at a price of US$1.00 for a term of six years.
On May 23, 2018 the Company approved an amendment to the term of the scientific advisory agreement with Dr. Christos Kapatos, board member CTO and member of the Scientific Advisory Board, originally entered into on April 15, 2014 in order to extend the term to April 15, 2019.
The Company recognized stock-based compensation expense allocated to consulting fees of $135,900 and $15,100 during the years ended December 31, 2018.
Effective October 3, 2018, Dr Christos Kapatos resigned from his position as Director of the Company.
On November 21, 2018 Dr. Christos Kapatos resigned his position as Chief Technology Officer and as a consultant due to the Company's breach of Sections 3.1 and 3.2 of that certain Consulting Agreement originally entered into April 16, 2014 (as amended from time to time, including, without limitation, Addendum 1, Addendum 2 and Addendum 3, collectively, the "Consulting Agreement"). The Company declined to cure the noticed breach(es) in the ten (10) day period as allotted from notice date and subsequently accepted the resignation of Dr. Kapatos effective November 21, 2018. Further, on December 4, 2018 the Company notified Dr. Kapatos of the termination of that certain Acquisition agreement between Dr. Kapatos and HCI VIOCARE TECHNOLOGIES LIMITED, the Company's wholly owned subsidiary, dated April 16, 2014, as amended May 8, 2015 (collectively the "Acquisition Agreement").
(iii)
On September 10, 2013, the Board of Directors of the Company elected Nikolaos Kardaras as Secretary and a director of the Company. During each of fiscal 2017 and fiscal 2016, Mr. Kardaras invoiced the Company EUR12,000 for services rendered in his capacity as a director which amount totaled US$13,500 and $13,300 respectively. During 2018 Mr. Kardaras invoiced the Company EUR9,000 (USD$10,747)
On March 3, 2017, the Company approved the issuance of 50,000 common shares for the services provided by Mr. Nikolaos Kardaras in the form of a stock award which vested as of the date of grant. 50,000 shares have been valued at $172,000, the fair market value of $3.44 per share on issue date, which amount has been expensed as stock-based compensation. On October 3, 2018 Mr. Kardaras resigned as secretary and director of the Company. He remains the Company's in-house legal advisor.
(iv)
On September 1, 2015, the Board of Directors of the Company approved a consulting agreement with Sergios Katsaros and appointed Mr. Katsaros Vice President. Under the terms of the consulting agreement, Mr. Katsaros will work directly with the Company's President and CEO in order to create and implement the Company's strategic plan and assist in securing additional financing to meet the needs of the Company's business plan and corporate objectives. The initial term of the contract is six months and Mr. Katsaros will receive compensation of USD$2,330 (€2,000) per month. On March 1, 2016, the Company approved a one-year extension to the consulting agreement and the Company approved the grant of a stock award of 15,000 common shares as compensation for the services provided by Vice President, Sergios Katsaros. The award vests in three equal instalments of 5,000 shares as of the date of grant, the six-month anniversary of the date of grant and the 12-month anniversary of date of grant. During fiscal 2016 a total of $169,000 in respect of 10,000 vested shares was recorded as stock-based compensation. On March 1, 2017, the final installment of 5,000 shares were issued in accordance with the terms of the award valued at $17,200, the fair market value on grant date, which amount has been expensed as stock-based compensation in 2017.
On March 17, 2017, the Company approved the issuance of a further 50,000 common shares for the services provided by Mr. Katsaros, in the form of a stock award which vested as of the date of grant. 50,000 shares have been valued at $170,000, the fair market value of $3.40 per share on grant date, which amount has been expensed as stock-based compensation.
On December 12, 2017 the Company approved a three-year extension to the consulting agreement between the Company and Mr. Katsaros effective as of January 2, 2018. The revision to the Agreement has a term of three years, being effective as of January 2, 2018, and ending on January 1, 2021, renewable for such further term as may be mutually agreed between the parties. Mr. Katsaros shall be remunerated with a monthly stipend of EUR3,500 (US$4,006), and shall be entitled to a 100% bonus of the total annual compensation for every profitable year of the Company. Mr. Katsaros shall also be entitled to acquire at his discretion 500,000 shares of the common stock at a price of US$1.00 for a term of five years commencing January 2, 2018.
The Company recognized stock-based compensation expense allocated to consulting fees of $50,400 during year ended December 31, 2018.
On November 17, 2018, the Company's management terminated a consulting contract with Mr. Sergios Katsaros which took effect as of December 22, 2018.
(v)
On October 3, 2018, the Board of Directors of the Company appointed Miss Paraskevi Pylarinou ("Pylarinou") as a member of the Board of Directors, Secretary and CFO of the Company. During the year ended December 31, 2018 Miss. Pylarinou invoiced the Company EUR24,000 (USD$28,311).
(vi)
On October 3, 2018 the Board of Directors appointed Mr. Constantinos Zertalis as a member of the Board of Directors and the President of the Company. On October 19, 2018 the Company's Board of Directors appointed Mr. Constantinos Zertalis, CEO, President and Director as Chairman of the Board of Directors.
During the year ended December 31, 2018, Mr. Zertalis advanced EUR13,000 (USD$14,881) to the Company.
On October 19, 2018 the Company's Board of Directors approved the grant of a total of 1,500,000 stock awards which vested on the date of grant, and a total of 7,500,000 directors' stock options for exercise at $0.70 per share which options vest as to 1,500,000 shares on grant date, and 1,500,000 shares each year thereafter for a total of four additional years. The Company recognized stock-based compensation expense allocated to consulting fees of $2,558,718 during year ended December 31, 2018 in respect of the aforementioned awards and options.
(b)
Accounts payable and accrued liabilities from related parties:
(c)
Advances / other receivable from related parties:
(d)
Convertible Debt, related parties:
On February 15, 2018, the Company and certain shareholders holding in excess of 5% of the Company's common stock and concurrently holding a position on the Company's Board, or acting in the capacity of any officer of the Company or its subsidiaries, agreed that repayment against pre-existing debt payable by the Company on the agreement date shall be suspended until such time as the Company concludes a full profitable year of operations. Further the parties agreed that any such pre-existing debt or portion thereof shall be convertible at any time into restricted shares of the Company's common stock at a price equal or greater to $0.60 per share. On the date of the agreement the fair market value of the Company's common stock as traded on OTCMarkets was $0.806 per share. The Company accounted for this transaction by applying ASC 470-20-35. As the convertible debt has no stated redemption date, the Company will recognize the discount as interest expense on the earliest conversion date.
The Company has reclassified all debts payable as of February 15, 2018 to our CEO and CTO from advances and accounts payable, related party, to convertible debt, related party.
On each of May 31, 2018 and on June 26, 2018, the Company entered into Debt Settlement and Subscription Agreements with the President of the Company, Mr. Sotirios Leontaritis to settle total debt in the amount of $679,371 in respect to certain unpaid salary, advances for operational shortfalls and certain unsettled expense reimbursements into 942,374 shares valued at fair market value on the date(s) of issuance for a total of $2,001,342. The difference in price resulted in the Company recording a loss on debt settlement in the amount of $1,321,971.
On June 26, 2018, the Company entered into a Debt Settlement and Subscription Agreement with a Director of the Company, Dr. Christos Kapatos to settle total debt in the amount of US$131,870 in respect to certain unpaid salary, advances for operational shortfalls and certain unsettled expense reimbursements into 219,784 shares of the Company's common stock at a price of US$0.60 per share. The Company valued those issuances at the closing price of the Company's stock as traded on the OTCMarkets on the date of issue. The difference in price resulted in the Company recording loss on debt settlement in the amount of $285,718 in respect to the transaction.
Review, Approval or Ratification of Transactions with Related Persons
We do not currently have any written policies and procedures for the review, approval or ratification of any transactions with related persons.
Promoters and Certain Control Persons
Our Chief Executive Officer owns beneficially and, in the aggregate, the majority of the voting power of the Company, approximately 43%. 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.
Parents
None.
Director Independence
As of the date of this Annual Report, we have one independent director. Mr. Yiannis Levantis.
We have developed the following categorical standards for determining the materiality of relationships that the directors may have with the Company. This information is not available on our Web site because such site is currently under development.
A director shall not be deemed to have a material relationship with the Company that impairs the director's independence as a result of any of the following relationships:
1.
the director is an officer or other person holding a salaried position of an entity (other than a principal, equity partner or member of such entity) that provides professional services to the Company and the amount of all payments from the Company to such entity during the most recently completed fiscal year was less than two percent of such entity's consolidated gross revenues;
2.
the director is the beneficial owner of less than five (5%) per cent of the outstanding equity interests of an entity that does business with the Company;
3.
the director is an executive officer of a civic, charitable or cultural institution that received less than the greater of one million ($1,000,000) dollars or two (2%) per cent of its consolidated gross revenues, as such term is construed by the New York Stock Exchange for purposes of Section 303A.02(b)(v) of the Corporate Governance Standards, from the Company or any of its subsidiaries for each of the last three (3) fiscal years;
4.
the director is an officer of an entity that is indebted to the Company, or to which the Company is indebted, and the total amount of either the Company's or the business entity's indebtedness is less than three (3%) per cent of the total consolidated assets of such entity as of the end of the previous fiscal year; and
5.
the director obtained products or services from the Company on terms generally available to customers of the Company for such products or services. The Board retains the sole right to interpret and apply the foregoing standards in determining the materiality of any relationship.
The Board shall undertake an annual review of the independence of all non-management directors. To enable the Board to evaluate each non-management director, in advance of the meeting at which the review occurs, each non-management director shall provide the Board with full information regarding the director's business and other relationships with the Company, its affiliates and senior management.
Directors must inform the Board whenever there are any material changes in their circumstances or relationships that could affect their independence, including all business relationships between a director and the Company, its affiliates, or members of senior management, whether or not such business relationships would be deemed not to be material under any of the categorical standards set forth above. Following the receipt of such information, the Board shall re-evaluate the director's independence.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The aggregate fees billed for the most recently completed fiscal year ended December 31, 2018 and for the fiscal year ended December 31, 2017 for professional services rendered by the principal accountant, Heaton & Company, PLLC (DBA Pinnacle Accountancy Group of Utah) for the audit of our annual financial statements and review of the financial statements included in our quarterly reports on Form 10-Q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:
Audit Fees
During the fiscal year ended December 31, 2018, we incurred approximately $25,500 in fees to our principal independent accountants for professional services rendered in connection with the audit and reviews of our financial statements for fiscal year ended December 31, 2018.
During the fiscal year ended December 31, 2017, we incurred approximately $24,000 in fees to our principal independent accountants for professional services rendered in connection with the audit and reviews of our financial statements for fiscal year ended December 31, 2017.
Audit-Related Fees
The aggregate fees billed during the fiscal years ended December 31, 2018 and 2017 for assurance and related services by our principal independent accountants that are reasonably related to the performance of the audit or review of our financial statements (and are not reported under Item 9(e)(1) of Schedule 14A was $0 and $0, respectively.
Tax Fees
The aggregate fees billed during the fiscal years ended December 31, 2018 and 2017 for professional services rendered by our principal accountant for tax compliance, tax advice and tax planning was $0 and $0, respectively.
All Other Fees
The aggregate fees billed during the fiscal year ended December 31, 2018 and 2017 for products and services provided by our principal independent accountants (other than the services reported in Items 9(e)(1) through 9(e)(3) of Schedule 14A was $0 and $0, respectively.
Our board of directors pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and approved by the board of directors either before or after the respective services were rendered.
Our board of directors has considered the nature and amount of fees billed by our independent auditors and believes that the provision of services for activities unrelated to the audit is compatible with maintaining our independent auditors' independence.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
*To be filed by amendment
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date:
May 16, 2019
By:
/s/ Constantinos Zertalis
Name:
Constantinos Zertalis
Title:
President, Chief Executive Officer, Chief Financial Officer, and Director (Principal Executive Officer))
Date:
May 16, 2019
By:
/s/ Paraskevi Pylarinou
Name:
Paraskevi Pylarinou
Title:
Director, Secretary and CFO (Principal Financial Officer and Principal Accounting Officer)
Date:
May 16, 2019
By:
/s/ Yiannis Levantis
Name:
Yiannis Levantis
Title:
Director
Date:
May 16, 2019
By:
/s/Georgios Thrapsaniotis
Name:
Georgios Thrapsaniotis
Title:
Director and Treasurer