UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended June 30, 2015

 

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from _________ to _________

 

Commission file number: 333-153381

 

BioCorRx, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada

26-1972677

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

601 North Parkcenter Drive, Suite 103

Santa Ana, California 92705

(Address of principal executive offices) (zip code)

 

(714) 462-4880

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

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

 

Large accelerated filer 

¨

Accelerated filer 

¨

Non-accelerated filer 

¨

Smaller reporting company 

x

(Do not check if a smaller reporting company) 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

As of August 12, 2015, there were 156,734,501 shares of registrant’s common stock outstanding.

 

 

 

BIOCORRX, INC.

 

INDEX

 

PART I.FINANCIAL INFORMATION

ITEM 1. 

Financial Statements 

3

Condensed consolidated balance sheets as of June 30, 2015 (unaudited) and December 31, 2014 

3

Condensed consolidated statements of operations for the three and six months ended June 30, 2015 and 2014 (unaudited) 

4

Condensed consolidated statement of stockholders' (deficit) equity for the six months ended June 30, 2015 (unaudited) 

5

Condensed consolidated statements of cash flows for the six months ended June 30, 2015 and 2014 (unaudited) 

6

Notes to condensed consolidated financial statements (unaudited) 

7

ITEM 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations 

22

ITEM 3. 

Quantitative and Qualitative Disclosures about Market Risk 

27

ITEM 4. 

Controls and Procedures 

28

PART II.OTHER INFORMATION

ITEM 1. 

Legal Proceedings 

29

ITEM 1A. 

Risk Factors 

29

ITEM 2. 

Unregistered Sales of Equity Securities and Use of Proceeds 

29

ITEM 3. 

Defaults Upon Senior Securities 

29

ITEM 4. 

Mine Safety Disclosures 

29

ITEM 5. 

Other Information 

29

ITEM 6. 

Exhibits 

30

SIGNATURES 

31

 

 
2
 

 

PART I FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS 

 

BIOCORRX INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

June 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

 

 

(unaudited)

 

 

 

 

ASSETS

 

Current assets: 

 

 

 

 

 

 

Cash 

 

$ 127,852

 

 

$ 53,120

 

Accounts receivable, net 

 

 

129,539

 

 

 

78,500

 

Prepaid expenses 

 

 

148,154

 

 

 

81,745

 

Total current assets 

 

 

405,545

 

 

 

213,365

 

 

 

 

 

 

 

 

 

 

Property and equipment, net 

 

 

5,082

 

 

 

6,194

 

 

 

 

 

 

 

 

 

 

Other assets: 

 

 

 

 

 

 

 

 

Prepaid expenses, long term  

 

 

106,057

 

 

 

95,054

 

Intellectual property, net 

 

 

1,132,000

 

 

 

-

 

Licensing agreement, net 

 

 

-

 

 

 

3,705,870

 

Deposits, long term 

 

 

62,738

 

 

 

62,738

 

Total other assets 

 

 

1,300,795

 

 

 

3,863,662

 

 

 

 

 

 

 

 

 

 

Total assets 

 

$ 1,711,422

 

 

$ 4,083,221

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

 

Current liabilities: 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses, including related party payables of $453,466 and $403,357, respectively 

 

$ 979,495

 

 

$ 776,253

 

Deferred revenue, short term 

 

 

504,439

 

 

 

729,860

 

Settlements payable, short term 

 

 

345,625

 

 

 

220,000

 

Advances from lenders 

 

 

400,000

 

 

 

-

 

Notes payable, short term portion 

 

 

1,218,660

 

 

 

74,823

 

Notes payable, net of debt discount, related party 

 

 

241,988

 

 

 

137,065

 

Total current liabilities 

 

 

3,690,207

 

 

 

1,938,001

 

 

 

 

 

 

 

 

 

 

Long term debt: 

 

 

 

 

 

 

 

 

Deferred revenue, long term 

 

 

180,684

 

 

 

1,187,166

 

Convertible notes payable, net of debt discount 

 

 

13,280

 

 

 

-

 

Notes payable, long term portion 

 

 

300,000

 

 

 

449,256

 

Notes payable, net of debt discount, related party 

 

 

-

 

 

 

103,795

 

Settlements payable, long term 

 

 

609,375

 

 

 

-

 

Warrant liability 

 

 

39,488

 

 

 

98,702

 

Derivative liability 

 

 

116,366

 

 

 

-

 

Total long term debt 

 

 

1,259,193

 

 

 

1,838,919

 

 

 

 

 

 

 

 

 

 

Total liabilities 

 

 

4,949,400

 

 

 

3,776,920

 

 

 

 

 

 

 

 

 

 

Stockholders' (deficit) equity: 

 

 

 

 

 

 

 

 

Preferred stock, no par value; 80,000 designated; 80,000 shares issued and outstanding as of June 30, 2015 and December 31, 2014 

 

 

16,000

 

 

 

16,000

 

Common stock, $0.001 par value; 200,000,000 shares authorized, 152,734,501 and 146,134,501 shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively 

 

 

152,735

 

 

 

146,135

 

Common stock subscribed 

 

 

100,000

 

 

 

100,000

 

Additional paid in capital 

 

 

9,032,074

 

 

 

8,609,059

 

Accumulated deficit 

 

 

(12,538,787 )

 

 

(8,564,893 )

Total stockholders' (deficit) equity  

 

 

(3,237,978 )

 

 

306,301

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' (deficit) equity 

 

$ 1,711,422

 

 

$ 4,083,221

 

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

 
3
 

 

BIOCORRX INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
 

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenues, net 

 

$ 457,780

 

 

$ 238,008

 

 

$ 733,245

 

 

$ 368,837

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of implants and other costs 

 

 

108,750

 

 

 

47,262

 

 

 

120,250

 

 

 

74,962

 

Selling, general and administrative 

 

 

465,325

 

 

 

604,604

 

 

 

703,393

 

 

 

1,065,459

 

Termination of licensing agreement 

 

 

3,639,694

 

 

 

-

 

 

 

3,639,694

 

 

 

-

 

Loss on settlement of sub-licenses 

 

 

118,027

 

 

 

-

 

 

 

118,027

 

 

 

-

 

Depreciation and amortization 

 

 

33,723

 

 

 

33,947

 

 

 

67,289

 

 

 

67,947

 

Total operating expenses 

 

 

4,365,519

 

 

 

685,813

 

 

 

4,648,653

 

 

 

1,208,368

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss from operations 

 

 

(3,907,739 )

 

 

(447,805 )

 

 

(3,915,408 )

 

 

(839,531 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expenses): 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net 

 

 

(62,805 )

 

 

(128,845 )

 

 

(162,654 )

 

 

(202,022 )

Gain on change in fair value of derivative liability 

 

 

199,824

 

 

 

916,232

 

 

 

104,168

 

 

 

304,950

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income before income taxes 

 

 

(3,770,720 )

 

 

339,582

 

 

 

(3,973,894 )

 

 

(736,603 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income taxes 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income 

 

$ (3,770,720 )

 

$ 339,582

 

 

$ (3,973,894 )

 

$ (736,603 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income per common share, basic 

 

$ (0.02 )

 

$ 0.00

 

 

$ (0.03 )

 

$ (0.01 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income per common share, diluted 

 

$ (0.02 )

 

$ 0.00

 

 

$ (0.03 )

 

$ (0.01 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding, basic  

 

 

151,757,578

 

 

 

137,223,842

 

 

 

150,453,147

 

 

 

133,043,009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding, diluted 

 

 

151,757,578

 

 

 

141,999,123

 

 

 

150,453,147

 

 

 

133,043,009

 

 

  See the accompanying notes to the unaudited condensed consolidated financial statements

 

 
4
 

 

BIOCORRX INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY
SIX MONTHS ENDED JUNE 30, 2015
(unaudited)
 

   

 

 

 

Preferred stock

 

 

 

Common stock

 

 

 

Common stock

 

 

 

Additional Paid in

 

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Subscribed

 

 

Capital

 

 

Deficit

 

 

Total

 

Balance, January 1, 2015 

 

 

80,000

 

 

$ 16,000

 

 

 

146,134,501

 

 

$ 146,135

 

 

$ 100,000

 

 

$ 8,609,059

 

 

$ (8,564,893 )

 

$ 306,301

 

Common stock issued for services rendered 

 

 

-

 

 

 

-

 

 

 

6,600,000

 

 

 

6,600

 

 

 

-

 

 

 

190,165

 

 

 

-

 

 

 

196,765

 

Common stock issuable in settlement of sub-licensing agreement 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

88,000

 

 

 

-

 

 

 

88,000

 

Common stock issuable in payment for intellectual property 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

132,000

 

 

 

-

 

 

 

132,000

 

Stock based compensation 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

11,594

 

 

 

-

 

 

 

11,594

 

Fair value of vested options 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,256

 

 

 

-

 

 

 

1,256

 

Net loss 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,973,894 )

 

 

(3,973,894 )

Balance, June 30, 2015 

 

 

80,000

 

 

$ 16,000

 

 

 

152,734,501

 

 

$ 152,735

 

 

$ 100,000

 

 

$ 9,032,074

 

 

$ (12,538,787 )

 

$ (3,237,978 )

 

  See the accompanying notes to the unaudited condensed consolidated financial statements

 

 
5
 

 

BIOCORRX INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 

 

 

Six months ended June 30,

 

 

 

2015

 

 

2014

 

CASH FLOWS FROM OPERATING ACTIVITIES: 

 

 

 

 

 

 

Net (loss)  

 

$ (3,973,894 )

 

$ (736,603 )

Adjustments to reconcile net (loss) to cash flows (used in) provided by operating activities: 

 

 

 

 

 

 

 

 

Depreciation and amortization 

 

 

67,289

 

 

 

67,947

 

Bad debt expense 

 

 

37,622

 

 

 

-

 

Loss on settlement of sub-licenses 

 

 

118,027

 

 

 

-

 

Termination of licensing agreement 

 

 

3,639,694

 

 

 

-

 

Non-cash interest 

 

 

86,320

 

 

 

-

 

Amortization of debt discount 

 

 

14,408

 

 

 

124,076

 

Stock based compensation 

 

 

137,518

 

 

 

138,194

 

Change in fair value of derivative liabilities 

 

 

(104,168 )

 

 

(304,950 )

Changes in operating assets and liabilities: 

 

 

 

 

 

 

 

 

Accounts receivable 

 

 

(88,661 )

 

 

(4,534 )

Prepaid expenses and other current assets 

 

 

(3,930 )

 

 

7,431

 

Accounts payable and accrued expenses 

 

 

201,856

 

 

 

(76,420 )

Settlement payable 

 

 

(165,000 )

 

 

275,000

 

Deferred revenue 

 

 

(361,930 )

 

 

897,210

 

Net cash (used in) provided by operating activities 

 

 

(394,849 )

 

 

387,351

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES: 

 

 

 

 

 

 

 

 

Payment of acquisition deposit 

 

 

-

 

 

 

(32,404 )

Purchase of equipment 

 

 

-

 

 

 

(486 )

Net cash used in investing activities 

 

 

-

 

 

 

(32,890 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES: 

 

 

 

 

 

 

 

 

Proceeds from notes payable  

 

 

-

 

 

 

76,750

 

Proceeds from convertible notes payable 

 

 

75,000

 

 

 

-

 

Proceeds from advances 

 

 

400,000

 

 

 

-

 

Repayments of notes payable 

 

 

(5,419 )

 

 

(35,000 )

Repayments of advances from lenders 

 

 

-

 

 

 

(95,599 )

Net repayments of notes payable, related party 

 

 

-

 

 

 

(88,236 )

Net cash provided by (used in) financing activities 

 

 

469,581

 

 

 

(142,085 )

 

 

 

 

 

 

 

 

 

Net increase in cash 

 

 

74,732

 

 

 

212,376

 

Cash, beginning of the period 

 

 

53,120

 

 

 

108,566

 

 

 

 

 

 

 

 

 

 

Cash, end of period 

 

$ 127,852

 

 

$ 320,942

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information: 

 

 

 

 

 

 

 

 

Interest paid 

 

$ 2,418

 

 

$ 77,369

 

Taxes paid 

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Non-cash financing activities: 

 

 

 

 

 

 

 

 

Note payable issued in settlement of sub-licensing fees  

 

$ 900,000

 

 

$ -

 

Note payable and common stock issuable to acquire intellectual property 

 

$ 1,132,000

 

 

$ -

 

Common stock issued for exercise of options paid by amounts due to the option holders of the Company 

 

$ -

 

 

$ 127,500

 

Fair value of warrants issued for licensing fees 

 

$ -

 

 

$ 24,558

 

Common stock issued for licensing fees 

 

$ -

 

 

$ 89,500

 

Convertible notes payable and accrued interest exchanged for licensing rights 

 

$ -

 

 

$ 609,368

 

 

  See the accompanying notes to the unaudited condensed consolidated financial statements

 

 
6
 

 

BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

(unaudited)

 

NOTE 1 - BUSINESS

 

BioCorRx Inc., through its wholly owned subsidiary Fresh Start Private, Inc., distributes and licenses the Start Fresh Program for alcoholism and opioid addiction treatment that empowers patients to succeed in their overall recovery. We offer a unique treatment philosophy that combines medical intervention and a counseling/coaching program that is administered by specialized life coaches and/or counselors. 

 

On January 7, 2014, the Company changed its name from Fresh Start Private Management, Inc. to BioCorRx Inc. In addition, effective February 20, 2014, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from CEYY to BICX. 

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

 

Interim Financial Statements

 

The following (a) condensed consolidated balance sheet as of December 31, 2014, which has been derived from audited financial statements, and (b) the unaudited condensed consolidated interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2015 are not necessarily indicative of results that may be expected for the year ending December 31, 2015. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2014 included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 31, 2015. 

 

Basis of Presentation:

 

The condensed consolidated financial statements include the accounts of BioCorRx, Inc. and its wholly owned subsidiary, Fresh Start Private, Inc. (hereafter referred to as the “Company” or “BioCorRx”). All significant intercompany balances and transactions have been eliminated in consolidation. 

 

Revenue Recognition

 

The Company generates revenue from services and product sales. Revenue is recognized in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition (“ASC 605-10”) which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the services delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related revenue are recorded. The Company defers any revenue for which the services has not been performed or is subject to refund until such time that the Company and the customer jointly determine that the services has been performed or no refund will be required. 

 

The Company licenses technology to customers under licensing agreements that allow those customers to utilize the technology in services they provide to their customers. The timing and amount of revenue recognized from license agreements depends upon a variety of factors, including the specific terms of each agreement. Such agreements are reviewed for multiple elements. Multiple elements can include amounts related to initial non-refundable license fees for the use of the Company’s patented and additional royalties on covered services. 

 

 
7
 

 

BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

(unaudited)

 

Revenue is only recognized after all of the following criteria are met: (1) written agreements have been executed; (2) delivery of technology or intellectual property rights has occurred; (3) fees are fixed or determinable; and (4) collectability of fees is reasonably assured. 

 

Under these license agreements, the Company receives an initial non-refundable license fee and in some cases, additional running royalties. Generally, the Company defers recognition of non-refundable upfront fees if it has continuing performance obligations without which the technology, right, product or service conveyed in conjunction with the non-refundable fee has no utility to the licensee that is separate and independent of its performance under the other elements of the arrangement. License fees collected from Licensees but not yet recognized as income are recorded as deferred revenue and amortized as income earned over the expected economic life of the related contract. 

 

Use of Estimates

 

The preparation of the condensed consolidated 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 could differ from those estimates. Significant estimates include assumptions used in the fair value of stock-based compensation, derivative and warrant liabilities, the fair value of other equity and debt instruments and allowance for doubtful accounts. 

 

Accounts Receivable

 

Accounts receivable are recorded at original invoice amount less an allowance for uncollectible accounts that management believes will be adequate to absorb estimated losses on existing balances. Management estimates the allowance based on collectability of accounts receivable and prior bad debt experience. Accounts receivable balances are written off upon management’s determination that such accounts are uncollectible. Recoveries of accounts receivable previously written off are recorded when received. Management believes that credit risks on accounts receivable will not be material to the financial position of the Company or results of operations. The allowance for doubtful accounts was $147,122 and $109,500 as of June 30, 2015 and December 31, 2014, respectively. 

 

Fair Value of Financial Instruments

 

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2014 and 2013. The respective carrying value of certain financial instruments approximated their fair values. These financial instruments include cash, stock based compensation and notes payable. The fair value of the Company’s convertible securities is based on management estimates and reasonably approximates their book value. 

 

See Footnote 10 and 12 for derivative liabilities and Footnote 14 and 15 for stock based compensation and other equity instruments. 

 

Long-Lived Assets

 

The Company follows FASB ASC 360-10-15-3, “Impairment or Disposal of Long-lived Assets,” which established a “primary asset” approach to determine the cash flow estimation period for a group of assets and liabilities that represents the unit of accounting for a long-lived asset to be held and used. Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. 

 

 
8
 

 

BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

(unaudited)

 

Net Income (loss) Per Share

 

The Company accounts for net income (loss) per share in accordance with Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”), which requires presentation of basic and diluted earnings per share (“EPS”) on the face of the statement of operations for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS. 

 

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during each period. It excludes the dilutive effects of any potentially issuable common shares. 

 

Diluted net loss share is calculated by including any potentially dilutive share issuances in the denominator. As of June 30, 2015 and 2014, potentially dilutive shares issuances were comprised of convertible notes payable, warrants and vested stock options.  

 

The following potentially dilutive securities have been excluded from the computations of weighted average shares outstanding for the three and six months ended June 30, 2015 and for the six months ended June 30, 2014, as they would be anti-dilutive: 

 

 

 

June 30,

 

 

 

2015

 

 

2014

 

Shares underlying options outstanding 

 

 

15,350,000

 

 

 

3,400,000

 

Shares underlying warrants outstanding 

 

 

2,630,000

 

 

 

2,630,000

 

Shares underlying convertible notes outstanding 

 

 

1,833,333

 

 

 

4,775,281

 

 

 

 

19,813,333

 

 

 

10,805,281

 

 

For the three months ended June 30, 2014, fully diluted income per share includes 4,775,281 shares issuable upon conversion of convertible debt. 

 

Advertising

 

The Company follows the policy of charging the costs of advertising to expense as incurred. The Company charged to operations $9,019 and $52,377 as advertising costs for the three and six months ended June 30, 2015 and $29,977 and $168,947 for the three and six months ended June 30, 2014, respectively. 

 

Derivative Instrument Liability

 

The Company accounts for derivative instruments in accordance with ASC 815, which establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other financial instruments or contracts and requires recognition of all derivatives on the balance sheet at fair value, regardless of hedging relationship designation. Accounting for changes in fair value of the derivative instruments depends on whether the derivatives qualify as hedge relationships and the types of relationships designated are based on the exposures hedged. At June 30, 2015 and December 31, 2014, the Company did not have any derivative instruments that were designated as hedges. 

 

 
9
 

 

BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

(unaudited)

 

Stock Based Compensation

 

Share-based compensation issued to employees is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period. The Company measures the fair value of the share-based compensation issued to non-employees using the stock price observed in the arms-length private placement transaction nearest the measurement date (for stock transactions) or the fair value of the award (for non-stock transactions), which were considered to be more reliably determinable measures of fair value than the value of the services being rendered. The measurement date is the earlier of (1) the date at which commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty’s performance is complete. 

 

As of June 30, 2015, there were 15,000,000 employee and 350,000 non-employee stock options were outstanding with 15,000,000 and 350,000 options vested and exercisable, respectively. As of June 30, 2014, 3,000,000 employee stock options were outstanding with 3,000,000 shares vested and exercisable and 400,000 non-employee stock options were outstanding with 312,000 shares vested and exercisable, respectively.

 

Income Taxes

 

Income tax provisions or benefits for interim periods are computed based on the Company’s estimated annual effective tax rate. Based on the Company's historical losses and its expectation of continuation of losses for the foreseeable future, the Company has determined that it is not more likely than not that deferred tax assets will be realized and, accordingly, has provided a full valuation allowance. As the Company anticipates or anticipated that its net deferred tax assets at December 31, 2015 and 2014 would be fully offset by a valuation allowance, there is no federal or state income tax benefit for the three and six months ended June 30, 2015 and 2014 related to losses incurred during such periods. 

 

Recent Accounting Pronouncements

 

In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) Number 2015-3 entitled “Simplifying the Presentation of Debt Issuance Costs.” The new guidance specifies that debt issuance costs under the new standard are to be netted against the carrying value of the financial liability. Under current guidance, debt issuance costs are recognized as a deferred charge and reported as a separate asset on the balance sheet. The new guidance aligns the treatment of debt issuance costs and debt discounts in that both reduce the carrying value of the liability. It is important to note that neither the recognition nor measurement of debt issuance costs is changed as a result of the ASU. Amortization of debt issuance costs is to be recorded as interest expense on the income statement. 

 

The effective date of the new guidance is for fiscal years beginning after December 15, 2015, for public business entities and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been issued previously. The Company does not believe the effect of the adoption of this standard to have a material impact on the Companys consolidated financial statements.

 

There are other various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's financial position, results of operations or cash flows.

 

 
10
 

 

BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

(unaudited)

 

NOTE 3 - GOING CONCERN MATTERS

 

The Company’s condensed consolidated financial statements are prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred significant recurring losses which have resulted in an accumulated deficit of $12,538,787 and working capital deficiency of $3,284,662 at June 30, 2015 and loss from operations of $3,973,894 for the six months ended June 30, 2015 which raises substantial doubt about the Company’s ability to continue as a going concern. 

 

Continuation as a going concern is dependent upon obtaining additional capital and upon the Company’s attaining profitable operations. The Company will require a substantial amount of additional funds to build a sales and marketing organization, and to fund additional losses which the Company expects to incur over the next few years. The Company recognizes that, if it is unable to raise additional capital, it may find it necessary to substantially reduce or cease operations. The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty. 

 

NOTE 4 - PROPERTY AND EQUIPMENT

 

The Company’s property and equipment at June 30, 2015 and December 31, 2014: 

 

 

 

June 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Office equipment 

 

$ 15,137

 

 

$ 15,137

 

Computer equipment 

 

 

2,574

 

 

 

2,574

 

Leasehold improvements 

 

 

20,014

 

 

 

20,014

 

 

 

 

37,725

 

 

 

37,725

 

Less accumulated depreciation 

 

 

(32,643 )

 

 

(31,531 )

 

 

$ 5,082

 

 

$ 6,194

 

 

Depreciation expense charged to operations amounted to $634 and $1,112, respectively, for the three and six months ended June 30, 2015; and $859 and $1,771, respectively, for the three and six months ended June 30, 2014.

 

NOTE 5 - INTELLECTUAL PROPERTY/ LICENSING RIGHTS

 

On October 28, 2010, prior to the recapitalization of the Company, the Company acquired an exclusive product license, which included the right to use a specific Naltrexone Implant and any procedures related to the licensed product. The Company paid a onetime license fee of 7.5% of the total common shares outstanding on the date of the agreement, or 5,672,250 common shares at the market value of $0.70 per share as of the date of the agreement. Total value of the license is recorded as $3,970,575. Additionally, the Company will pay $600 for each prescription request of the licensed product. The agreement will remain in force for so long as the Company continues to use the Licensed Product. 

 

During the year ended December 31, 2013, the Company determined that its licensing rights had a definite life based on various economic factors. The Company estimated a useful life of 30 years. Amortization for the three and six months ended June 30, 2015 was $33,088 and $66,176, respectively; and $33,088 and $66,176 for the three and six months ended June 30, 2014, respectively. 

 

On June 30, 2015, the Company acquired the complete rights, title and interest in the Naltrexone Implant Formulation used specifically in the Start Fresh Program for an aggregate purchase price of $1,132,000 comprised of an obligation to pay $1,000,000 over 14 months and 3,000,000 of the Company’s common stock at the market value of $0.044 per share as of the date of the agreement. The Company estimated a useful life of 10 years. 

 

 
11
 

 

BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

(unaudited)

 

In connection with the acquisition of the Naltrexone Implant formula, the Company wrote off the remaining unamortized balance of the licensing rights of $3,639,694 as a charge to the current period operations. 

 

The Company follows Accounting Standards Codification subtopic 360-10, Property, Plant and Equipment (“ASC 360-10”). ASC 360-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 360-10 also requires assets to be disposed of is reported at the lower of the carrying amount or the fair value less costs to sell. 

 

At December 31, 2014, the Company’s management performed an evaluation of its intangible assets (licensing rights) for purposes of determining the implied fair value of the assets at December 31, 2014. The test indicated that the recorded book value of its licensing rights did not exceed its fair value for the year ended December 31, 2014 as determined by discounted future cash flows. Considerable management judgment is necessary to estimate the fair value. Accordingly, actual results could vary significantly from management’s estimates. 

 

Estimated future amortization expense as of June 30, 2015 is as follows: 

 

Six months ended December 31, 2015 

 

$ 56,600

 

2016 

 

 

113,200

 

2017 

 

 

113,200

 

2018 

 

 

113,200

 

2019 and thereafter 

 

 

735,800

 

Total 

 

$ 1,132,000

 

 

NOTE 6 - DEFERRED REVENUE

 

In 2013 and 2014, the company has granted license and sub-license agreements (“Agreements”) for various regions or States in the United States allowing the licensee to market, distribute and sell solely in the defined license territory, as defined, the products provided by the Company. The agreements are granted for a defined period or perpetual and are effective as long as annual milestones are achieved. 

 

Terms for payments for licensee agreements vary from full cash payment to defined terms. In cases where license or sub-license fees are uncollected or deferred; the Company nets those uncollected fees with the deferred revenue for balance sheet presentation. 

 

On June 30, 2015, the Company entered into a separation agreement with a licensee and has agreed to reimburse prepaid license fees. The Company has agreed to issuance of 2,000,000 of the Company’s common stock and a term note payable through September 16, 2019. The Company recorded a loss of sublicensing fees of $118,027 to current period operations. Under the confidentiality clause of the separation agreement the parties are prohibited from disclosing settlement amounts.  

 

The Company amortizes license fees over the shorter of the economic life of the related contract life or contract terms for each licensee. The remaining unamortized aggregate balance of deferred revenue as of June 30, 2015 and December 31, 2014 was $685,123 and $1,917,026, respectively. 

 

 
12
 

 

BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

(unaudited)

 

NOTE 7 - ADVANCE FROM LENDERS

 

During the six months ended June 30, 2015, the Company received an aggregate of $400,000 of net proceeds in connection with the expected issuance of a promissory note. As of June 30, 2015, the note has yet to be executed and finalized or refunded. During the three and six months ended June 30, 2015, the Company accrued $6,805 and $7,858 estimated interest due upon note finalization. 

 

NOTE 8 - SETTLEMENTS PAYABLE

 

On June 13, 2013, Fresh Start Private Florida, LLC (“FSPF”) filed a complaint against the Company alleging breach of a License Agreement whereby FSPF was to receive, implant, use, sell and otherwise commercialize the Naltrexone implant product and the Fresh Start Alcohol Rehabilitation Program throughout the state of Florida. The complaint alleged that the Company made certain misrepresentations and failed to provide certain operational documentation pursuant to the License Agreement. (Fresh Start Private Florida, LLC v. Fresh Start Private Management, Inc., Case No. 13-CA 1850, Circuit Court of the Twentieth Judicial Circuit in and for Collier County, Florida).  

 

On June 3, 2014, the Company entered into a settlement agreement to pay the plaintiff in increments through October 31, 2015 in exchange for dismissal of all pending litigation and termination of all prior and current agreements. Under the confidentiality clause of the settlement agreement the parties are prohibited from disclosing settlement amounts. The remaining unpaid balance as of June 30, 2015 was $55,000. 

 

As described in Note 6 above, the Company entered into a separation agreement with a licensee and agreed to reimburse prepaid license fees. The Company has issued a term note payable through September 16, 2019.  

 

As of June 30, 2015 and December 31, 2014, the outstanding liabilities related to settlement agreements were $955,000 and $220,000, respectively.  

 

NOTE 9 - NOTES PAYABLE

 

On July 7, 2014, the Company issued unsecured promissory notes in aggregate of $545,218 in settlement of previously issued convertible debentures dated April 3, 2013 and related accrued interest. The promissory notes include monthly payments of principal and interest, at 12% per annum, of $10,658 beginning August 15, 2014 through July 15, 2016 with the remaining unpaid balance due on or before July 15, 2016. The balance as of June 30, 2015 was $518,660. The notes are currently in default. 

 

As described in Note 5, the Company acquired the complete rights, title and interest for the Naltrexone Implant formula for an aggregate purchase price of $1,132,000 comprised, in part, of an obligation to pay $1,000,000. The obligation is payable over approximately 14 months. The remaining unpaid balance as of June 30, 2015 was $1,000,000.  

 

NOTE 10 - CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITIES

 

On February 3, 2015, the Company sold to JMJ Financial a $250,000 Convertible Promissory Note. The JMJ note provides up to an aggregate of $225,000 in gross proceeds after taking into consideration an Original Issue Discount (“OID”) of $25,000. The maturity date is two years from the effective date of each payment paid under the promissory note. 

 

The Company, at its sole discretion, has an option to repay all consideration received pursuant to the JMJ note within 120 days of the effective date, there will be zero percent interest charged under the JMJ Note. Otherwise, there will be a one-time interest charge of 12% for all consideration received by the Company pursuant to the JMJ Note. 

 

 
13
 

 

BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

(unaudited)

 

The Notes earn an interest rate of 12% per annum after four months of each advance and are convertible six months after the issuance date of the each advance at a conversion price equal to 60% discount to the lowest trading price of the common stock for the 25 trading days immediately prior the conversion date. 

 

In the event of default, the Purchaser has the right to require the Company to repay in cash all or a portion of the Note at a price equal to 125% of the aggregate principal amount of the Note plus all accrued but unpaid interest. 

 

As of June 30, 2015, the Company has been funded by the purchaser as aggregate of, in the principal amount of $82,500, consisting of the aggregate principal sum of $75,000 advanced by the holder and $7,500 in OID.  

 

The Company has identified the embedded derivatives related to the above described notes. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date. 

 

At the funding dates of the JMJ note tranches, the Company determined the aggregate fair value of $161,320 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 158.01% to 172.85%, (3) weighted average risk-free interest rate of 0.52% to 0.56%, (4) expected life of 2.00 years, and (5) estimated fair value of the Company’s common stock from $0.089 to $0.093 per share. 

 

The determined fair value of the debt derivatives of $161,320 was charged as a debt discount up to the net proceeds of the note with the remainder of $86,320 charged to current period operations as non-cash interest expense. 

 

At June 30, 2015, the Company marked to market the fair value of the debt derivatives and determined a fair value of $116,366. The Company recorded a gain from change in fair value of debt derivatives of $117,658 and $44,954 for the three and six months ended June 30, 2015. The fair value of the embedded derivatives was determined using Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 164.63%, (3) weighted average risk-free interest rate of 0.64%, (4) expected life of 1.60 to 1.83 years, and (5) estimated fair value of the Company’s common stock of $0.044 per share. 

 

The charge of the amortization of debt discounts and costs for the three and six months ended June 30, 2015 was $9,217 and $13,280, respectively, which was accounted for as interest expense. 

 

NOTE 11 - NOTES PAYABLE-RELATED PARTY

 

As of June 30, 2015 and December 31, 2014, the Company received advances from Jorge Andrade, director, Scott Carley, and Neil Muller, President as loans from related parties. The loans are payable on demand and without interest. 

 

On January 22, 2013, the Company issued a unsecured promissory note payable for $200,000 due January 1, 2018, with a stated interest rate of 12% per annum beginning three months from issuance; payable monthly. Principal payments are due starting February 1, 2015 at $6,650 per month. The lender has an option to convert the note to licensing rights for the State of Oregon. The Company currently is in default of the required interest payments initially due starting April 22, 2013. During the year ended December 31, 2014, the Company has paid $36,390 principal and accrued interest towards the promissory note. 

 

In connection with the issuance of the above described promissory note, the Company issued 950,000 (as amended) of its common stock on March 31, 2014. 

 

The Company recorded a debt discount of $11,250 based on the fair value of the Company’s common stock at the issuance date of the promissory note. The discount is amortized ratably over the term on the notes. The note holder subsequently became an officer of the Company. The balance outstanding as of June 30, 2015 is $163,610 with unamortized debt discount of $4,256. 

 

 
14
 

 

BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

(unaudited)

   

NOTE 12 - WARRANT LIABILITY

 

The Company issued warrants in conjunction with the issuance of certain convertible debentures. These warrants contain certain reset provisions. Therefore, in accordance with ASC 815-40, the Company reclassified the fair value of the warrant from equity to a liability at the date of issuance. Subsequent to the initial issuance date, the Company is required to adjust to fair value the warrant as an adjustment to current period operations. 

 

At June 30, 2015, the fair value of the 1,155,000 warrants containing certain reset provisions were determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 151.36%, (3) weighted average risk-free interest rate of 1.01%, (4) expected life of 2.77 years, and (5) estimated fair value of the Company’s common stock of $0.044 per share. 

 

The Company recorded a gain from change in fair value of warrant liability of debt derivatives of $81,866 and $59,214 for the three and six months ended June 30, 2015, respectively. 

 

At June 30, 2015, the warrant liability valued at $39,488, the Company believes an event under the contract that would create an obligation to settle in cash or other current assets is remote and has classified the obligation as a long term liability. 

 

NOTE 13 - INVESTMENT AGREEMENT

 

On June 25, 2015, the Company, entered into a common stock purchase agreement (the “Investment Agreement”) with Northbridge Funding, Inc., a Delaware corporation (the “Investor”). The Investment Agreement provides that, upon the terms and subject to the conditions set forth therein, the Investor is committed to purchase up to $10,000,000 (the “Total Commitment”) worth of the Company’s common stock, $0.001 par value (the “Shares”). 

 

From time to time over the term of the Investment Agreement, commencing on the trading day immediately following the date on which an initial registration statement is declared effective by the Securities and Exchange Commission (the “Commission”), the Company may provide the Investor with a draw down notice to purchase a specified dollar amount of Shares, with each draw down subject to certain limitations. 

 

The applicable purchase price is defined as a price equal to 80% of the three lowest closing prices traded twelve consecutive trading days prior to the drawdown notice inclusive to the drawdown notice date.  

 

In connection with the Investment Agreement, the Company is obligated to issue 200,000 shares of its common stock as a commitment fee. 

 

NOTE 14 - STOCKHOLDERS’ EQUITY

 

Preferred stock

 

The Company is authorized to issue 80,000 shares of preferred stock with no par value. As of June 30, 2015 and December 31, 2014, the Company had 80,000 shares of preferred stock issued and outstanding. 

 

 
15
 

 

BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

(unaudited)

 

Common stock

 

The Company is authorized to issue 200,000,000 shares of common stock with par value $.001 per share. As of June 30, 2015 and December 31, 2014, the Company had 152,734,501 shares and 146,134,501 shares of common stock issued and outstanding. 

 

In January 2015, the Company issued 3,000,000 shares of its common stock for services rendered and accrued in 2014. The common shares were valued at $300,000 based on the underlying market value of the common stock at the date of service provided. 

 

In March 2015, the Company issued an aggregate of 425,000 shares of its common stock for services rendered valued at $36,885 based on the underlying market value of the common stock at the date of issuance. 

 

In April 2015, the Company issued an aggregate of 3,175,000 shares of its common stock for future services valued at $159,800 based on the underlying market value of the common stock at the date of issuance. 

 

On June 30, 2015, the Company entered into a separation agreement and agreed to issue 2,000,000 of the Company’s common stock which was valued at $88,000 which has not been not issued as of the balance sheet date.  

 

The Company issued shares of common stock for future services. The Company amortizes the fair value of the shares issued as stock based compensation during the requisite service period to operations. During the three and six months ended June 30, 2015, the Company recorded $94,067 and $124,668 the three and six months ended June 30, 2014, respectively, as stock based compensation. The unamortized balance of $248,896 and $175,414 as of June 30, 2015 and December 31, 2014, respectively, is classified as part of prepaid expenses in the accompanying balance sheet. 

 

NOTE 15 - STOCK OPTIONS AND WARRANTS

 

Employee Options

 

The following table summarizes the changes in employee options outstanding and the related prices for the shares of the Company’s common stock issued to non-employees of the Company under the 2014 Stock Option Plan:  

 

Options Outstanding

Options Exercisable

Exercise
Prices

Number
Outstanding

Weighted
Average
Remaining
Contractual
Life (Years)

Weighted
Average
Exercise
Price

Number
Exercisable

Weighted
Average
Exercise
Price

0.10

15,000,000

4.38

0.10

15,000,000

0.10

 

Transactions involving stock options issued to employees are summarized as follows:  

 

 

 

Number

of Shares

 

 

Weighted
Average
Exercise
Price Per
Share

 

Outstanding at December 31, 2013 

 

 

9,000,000

 

 

$ 0.015

 

Granted 

 

 

15,000,000

 

 

 

0.100

 

Exercised 

 

 

(9,000,000 )

 

 

0.015

 

Expired 

 

 

-

 

 

 

-

 

Outstanding at December 31, 2014 

 

 

15,000,000

 

 

$ 0.100

 

Granted 

 

 

-

 

 

 

 

 

Exercised 

 

 

-

 

 

 

 

 

Expired 

 

 

-

 

 

 

-

 

Outstanding at June 30, 2015 

 

 

15,000,000

 

 

$ 0.100

 

 

The intrinsic value of the vested employee stock options as of June 30, 2015 was $-0- based on the Company’s stock price of $0.044 per share at June 30, 2015. 

 

 
16
 

 

BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

(unaudited)

   

Non-employee options

 

The following table summarizes the changes in non-employee options outstanding and the related prices for the shares of the Company’s common stock issued to non-employees of the Company under the 2013 Stock Option Plan:  

 

 Options Outstanding 

Options Exercisable

Exercise
Prices

Number

Outstanding

Weighted
Average
Remaining
Contractual
Life (Years)

Weighted
Average
Exercise
Price

Number
Exercisable

Weighted
Average
Exercise
Price

0.10 

200,000 

3.27 

0.10 

200,000 

0.10 

0.20 

150,000 

3.69 

0.20 

150,000 

0.20 

350,000 

3.45 

0.14 

350,000 

 

Transactions involving stock options issued to non-employees are summarized as follows: 

 

 

 

Number

of Shares

 

 

Weighted

Average
Exercise
Price Per
Share

 

Outstanding at December 31, 2013 

 

 

2,750,000

 

 

$ 0.015

 

Granted 

 

 

150,000

 

 

 

0.200

 

Exercised 

 

 

(2,550,000 )

 

 

0.017

 

Expired 

 

 

-

 

 

 

-

 

Outstanding at December 31, 2014 

 

 

350,000

 

 

 

0.0140

 

Granted 

 

 

-

 

 

 

-

 

Exercised 

 

 

-

 

 

 

-

 

Expired 

 

 

-

 

 

 

-

 

Outstanding at June 30, 2015 

 

 

350,000

 

 

$ 0.14

 

 

The assumptions used in the valuation of stock options vesting during the six months ended June 30, 2015 and 2014 were as follows: 

 

2015

2014

Risk-free interest rate 

0.89 

1.62% to 1.73 

Expected term of option 

3.95 years 

4.27 to 4.70 years 

Expected stock price volatility 

164.63 

205.83% to 226.04 

Expected dividend yield 

0.0 

0.0 

 

The risk-free interest rate is based on the yield of Daily U.S. Treasury Yield Curve Rates with terms equal to the expected term of the options as of the grant date. 

 

The intrinsic value of the vested non- employee stock options as of June 30, 2015 was $-0- based on the Company’s stock price of $0.044 per share at June 30, 2015. 

 

 
17
 

 

BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

(unaudited)

 

Warrants:

 

The following table summarizes the changes in warrants outstanding and the related prices for the shares of the Company’s common stock: 

 

Warrants Outstanding

Warrants Exercisable

Exercise
Prices

Number
Outstanding

Weighted
Average
Remaining
Contractual
Life (Years)

Weighted
Average
Exercise
Price

Number
Exercisable

Weighted
Average
Remaining
Contractual
Life (Years)

0.25 

1,475,000 

3.44 

0.25 

1,475,000 

3.94 

1.00 

1,155,000 

3.01 

1.00 

1,155,000 

3.51 

$  

0.58 

2,630,000 

3.25 

0.58 

2,630,000 

3.75 

 

Transactions involving warrants are summarized as follows: 

 

 

 

Number

of Shares

 

 

Weighted
Average
Exercise
Price Per
Share

 

Outstanding at December 31, 2013 

 

 

2,430,000

 

 

$ 1.00

 

Issued 

 

 

1,475,000

 

 

 

0.25

 

Exercised 

 

 

-

 

 

 

-

 

Expired 

 

 

(1,275,000 )

 

 

(1.00 )

Outstanding at December 31, 2014 

 

 

2,630,000

 

 

$ 0.58

 

Issued 

 

 

-

 

 

 

-

 

Exercised 

 

 

-

 

 

 

-

 

Canceled 

 

 

-

 

 

 

-

 

Outstanding at June 30, 2015 

 

 

2,630,000

 

 

$ 0.58

 

 

NOTE 16 - RELATED PARTY TRANSACTIONS

 

The Company has an arrangement with Premier Aftercare Recovery Service, (“PARS”). PARS is a Company controlled by Neil Muller, a shareholder of the Company, that provides consulting services to the Company. There is no formal agreement between the parties and the amount of remuneration is $14,583 per month. During the three and six months ended June 30, 2015, the Company incurred $43,750 and $70,833, respectively, and during three and six months ended June 30, 2014, the Company incurred $25,000 and $37,500, respectively, as consulting fees and expense reimbursements. As of June 30, 2015 and December 31, 2014, there was an unpaid balance of $77,378 and $60,675, respectively. 

 

The Company has an arrangement with Felix Financial Enterprises (“FFE”). FFE is a Company controlled by Lourdes Felix, an officer of the Company, that provides consulting services to the Company. There is no formal agreement between the parties and the amount of remuneration is $14,583 per month. During the three and six months ended June 30, 2015, the Company incurred $43,750 and $70,833, respectively, and during the three and six months ended June 30, 2014, the Company incurred $25,000 and $37,500, respectively, as consulting fees. As of June 30, 2015 and December 31, 2014, there was an unpaid balance of $116,963 and $100,260, respectively.

 

 
18
 

 

BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

(unaudited)

 

The Company has an arrangement with Brady Granier, an officer of the Company. There is no formal agreement between the parties and the amount of remuneration is $14,583 per month. For the three and six months ended June 30, 2015 the Company incurred $43,750 and $70,833 , respectively and during the three and six months ended June 30, 2014, the Company incurred $18,750 and $37,500, respectively, as consulting fees. As of June 30, 2015 and December 31, 2014, there was an unpaid balance of $61,899 and $45,196, respectively. 

 

The Company has an arrangement with Kent Emry, a shareholder and prior officer of the Company. There is no formal agreement between the parties and the amount of remuneration is $6,250 per month. For the three and six months ended June 30, 2015 the Company incurred $-0- , and during the three and six months ended June 30, 2014, the Company incurred $18,750 and $37,500, respectively, as consulting fees. As of June 30, 2015 and December 31, 2014, there was an unpaid balance of $28,125 and $28,125, respectively. 

 

The above related parties are compensated as independent contractors and are subject to the Internal Revenue Service regulations and applicable state law guidelines regarding independent contractor classification. These regulations and guidelines are subject to judicial and agency interpretation, and it could be determined that the independent contractor classification is inapplicable. 

 

NOTE 17 - CONCENTRATIONS

 

Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents and trade receivables. The Company places its cash and temporary cash investments with high credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit. 

 

The Company’s revenues earned from sale of products and services for the three months ended June 30, 2015 included 22%, 23% and 11% (aggregate of 56%) from three customers of the Company’s total revenues. 

 

The Company’s revenues earned from sale of products and services for the six months ended June 30, 2015 included 16%, 27%, 10% and 13% (aggregate of 66%) from four customers of the Company’s total revenues. 

 

The Company’s revenues earned from sale of products and services for the three months ended June 30, 2014 included 13%, 52% and 26% (aggregate of 91%) from three customers of the Company’s total revenues. 

 

 
19
 

 

BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

(unaudited)

 

The Company’s revenues earned from sale of products and services for the six months ended June 30, 2014 included 10%, 42% and 40% (aggregate of 92%) from three customers of the Company’s total revenues. 

 

One customer accounted for 53% of the Company’s total accounts receivable at June 30, 2015 and three customers accounted for 65%, 16% and 10% of the Company’s total accounts receivable at December 31, 2014. 

 

The Company relies on Trinity Rx as its sole supplier of its Naltrexone implant. 

 

NOTE 18 - FAIR VALUE MEASUREMENTS 

 

ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value: 

 

Level 1 Quoted prices in active markets for identical assets or liabilities. 

 

Level 2 Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. 

 

 Level 3 Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities. 

 

Items recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements consisted of the following items as of June 30, 2015:  

 

Level 1

Level 2

Level 3

Total

Debt derivative liability 

116,366 

116,366 

Warrant liability 

39,488 

39,488 

Total 

155,854 

155,854 

 

Items recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements consisted of the following items as of December 31, 2014: 

 

Level 1

Level 2

Level 3

Total

Warrant liability 

98,702 

98,702 

Total 

98,702 

98,702 

 

 
20
 

 

BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

(unaudited)

 

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities from December 31, 2013 through June 30, 2015: 

 

 

 

Debt Derivative Liability

 

 

Warrant

Liability

 

Balance, December 31, 2013 

 

$ 1,019,103

 

 

 

287,731

 

Transfers in (out): 

 

 

 

 

 

 

 

 

Fair value of debt derivative at note extinguishment transferred to equity 

 

 

(800,987 )

 

 

 

 

Fair value of warrant liability at date of cancellation transferred to equity 

 

 

 

 

 

 

(129,551 )

Mark-to-market at December 31, 2014: 

 

 

 

 

 

 

 

 

Embedded derivative 

 

 

(218,116 )

 

 

(59,478 )

Balance, December 31, 2014 

 

 

-

 

 

 

98,702

 

Transfers in (out): 

 

 

 

 

 

 

 

 

 Initial fair value of debt derivative at note issuance 

 

 

161,320

 

 

 

 

 

Mark-to-market at June 30, 2015: 

 

 

 

 

 

 

 

 

Embedded derivative 

 

 

(44,954 )

 

 

(59,214 )

Balance, June 30, 2015 

 

$ 116,366

 

 

$ 39,488

 

 

NOTE 19 - SUBSEQUENT EVENTS

 

Subsequent common stock issuances: 

 

In July 2015, the Company issued 2,000,000 shares of its common stock as part of license termination agreement (see Notes 6 and 8). 

 

In July 2015, the Company issued 200,000 shares of its common stock as a commitment fee in connection with investment agreement with Northbridge Funding, Inc. (see Note 13). 

 

In July 2015, the Company issued 1,800,000 shares of its common stock for advisory services agreement commencing July 1, 2015. 

 

 
21
 

 

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This Management's Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements that reflect Management's current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as “may” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of its management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.

 

Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. Important factors currently known to us could cause actual results to differ materially from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that its assumptions are based upon reasonable data derived from and known about our business and operations and the business and operations of the Company. No assurances are made that actual results of operations or the results of our future activities will not differ materially from its assumptions. Factors that could cause differences include, but are not limited to, expected market demand for the Company’s services, fluctuations in pricing for materials, and competition.

 

Business Overview

 

We are an addiction rehabilitation service company and developer of the Start Fresh Program headquartered in Santa Ana, California. We were established in January 2010 and currently operating in Santa Ana, California. The Company’s current treatment program is called the Start Fresh Program. On January 7, 2014 we changed our name to BioCorRx Inc. to take advantage of unique branding of our Start Fresh Program and to look to acquire other addiction programs and healthcare related products and services. We operate within the Specialty Hospitals, Expert Psychiatric industry, specifically within the industry subsets of Addiction Rehabilitation Hospital

 

The Start Fresh Program is an addiction treatment program comprised of two parts: (1) an implant, administered by a licensed physician, of a proprietary compounded formulation of the drug, Naltrexone (implanted under the skin) (the “Implant”) which can reduce alcohol and opioid cravings over a period of time which typically is several months and longer than other means of administration of Naltrexone such as oral and injectable forms; and (2) uniquely and specifically structured, intensive one on one substance abuse addiction life coaching/counseling program developed by BioCorRx, Inc. (the “Counseling Program”). 

 

BioCorRx, Inc. has been granted an exclusive license to the proprietary implant by its developer. The license allows BioCorRx to license to physicians and medical groups experienced in treating alcoholism and opioid addiction dependency the right to order the proprietary implant from the compounding pharmacies that have been licensed and trained to make the implant by its developer. It also allows BioCorRx to sub-license the implant access to territories in the U.S. and abroad. 

 

BioCorRx is not a licensed health care provider and does not provide health care services to patients. BioCorRx does not operate substance abuse clinics. BioCorRx makes the Start Fresh Program available to health care providers to utilize when the health care provider determines it is medically appropriate and indicated for his or her patients. Any physician or licensed alcohol addiction treatment provider is solely responsible for treatment options prescribed or recommended to his or her patients. At all times, such providers retain complete and exclusive authority, responsibility, supervision and control over their medical practice, their patients, the treatment that their patients receive and any decision to prescribe the implant to any of the provider’s patients. BioCorRx does not condition its license to health care providers accessing the implant on their making available the Counseling Program to the providers’ patients although BioCorRx certainly encourages that providers do so. 

 

 
22
 

 

BioCorRx has issued several license agreements to several unrelated third parties involving the establishment of alcoholism and opioid addiction rehabilitation and treatment centers and creating certain addiction rehabilitation programs. The Company has substantially expanded its operations since 2013 through the licensing and distribution opportunities of its Start Fresh Program. The locations offering the Start Fresh Program are located in Arizona, Southern California, Nebraska, Oklahoma, Texas, Nevada, Georgia, Illinois and Connecticut. The company’s current focus will continue on wider distribution across the United States, branding of the Start Fresh Program and acquisition of healthcare related products and services. The Company is committed to continuing to provide excellent rehabilitation services to clients nationwide as it expands the distribution of the Start Fresh Program and network of licensed clinics. 

 

Results of Operations

 

The following table summarizes changes in selected operating indicators of the Company, illustrating the relationship of various income and expense items to net sales for the respective periods presented (components may not add or subtract to totals due to rounding): 

 

Three Months ended June 30, 2015 Compared with Three Months ended June 30, 2014

 

Three months ended June 30, 

 

 

 

2015

 

 

2014

 

Net Sales 

 

$ 457,780

 

 

$ 238,008

 

Total Operating Expenses 

 

 

(4,365,519 )

 

 

(685,813 )

Net Interest Expense 

 

 

(62,805 )

 

 

(128,845 )

Gain on change in derivative liability 

 

 

199,824

 

 

 

916,232

 

Net (loss) income 

 

$ (3,770,720 )

 

$ 339,582

 

 

Sales

 

Sales for the three months ended June 30, 2015 were $457,780 compared with $238,008 for the three months ended June 30, 2014, reflecting an increase of 92%. 

 

The increase in sales revenue is directly related to the increase of patients treated at licensed clinics and Start Fresh Program distribution. 

 

Total Operating Expenses

 

Total operating expenses for the three months ended June 30, 2015 and 2014 were $4,365,519 and $685,813 reflecting an increase of $3,679,706. The primary reasons for the increase in 2015 were due i) the termination of our Naltrexone implant licensing agreementand replacing the rights with an acquisition agreement and ii) a loss on settlement of sub-licensing agreements, for charges of $3,639,694 and $118,027, respectively. 

 

In addition, comparing the three months ended June 30, 2014 to June 30, 2015, consulting and investor relations fees increased from $126,091 to $206,272, accounting and legal fees increased from $68,882 to $92,946, advertising decreased from $29,977 to $9,019, and rent increased from $4,321 to $4,451. In addition, we incurred $95,823 as stock based compensation in 2015 compared to $52,907 in 2014. 

 

Gain (loss) on change in Fair Value of Derivative Liability

 

As of June 30, 2015, we had outstanding convertible debt and warrants with variable conversion provisions that had the possibility of exceeding our common shares authorized when considering the number of possible shares that may be issuable to satisfy settlement provision of this note. As such, we are required to determine the fair value of this derivative and mark to market each reporting period. For the three months ended June 30, 2015, we incurred a $199,824 gain on change in fair value of our derivative liabilities compared to $916,232 gain the same period, last year. 

 

 
23
 

 

Interest Expense

 

Interest expense for the three months ended June 30, 2015 and 2014 were $62,805 and $128,845, respectively, the decrease is due reduction in debt discount amortization, a non-cash interest charge. 

 

Net (Loss) Income

 

For the three months ended June 30, 2015, the Company experienced loss of $3,770,720 compared with a net income of $339,582 for the three months ended June 30, 2014.  

 

Six Months ended June 30, 2015 Compared with Six Months ended June 30, 2014

 

Three months ended June 30, 

 

 

 

2015

 

 

2014

 

Net Sales 

 

$ 733,245

 

 

$ 368,837

 

Total Operating Expenses 

 

 

(4,648,653 )

 

 

(1,208,368 )

Net Interest Expense 

 

 

(162,654 )

 

 

(202,022 )

Gain on change in derivative liability 

 

 

104,168

 

 

 

304,950

 

Net loss 

 

$ (3,973,894 )

 

$ (736,603 )

 

Sales

 

Sales for the six months ended June 30, 2015 were $733,245 compared with $368,837 for the six months ended June 30, 2014, reflecting an increase of 99%. 

 

The increase in sales revenue is directly related to increase of patients treated at licensed clinics and Start Fresh Program distribution. 

 

Total Operating Expenses

 

Total operating expenses for the six months ended June 30, 2015 and 2014 were $4,648,653 and $1,208,368 reflecting an increase of $3,440,285. The primary reasons for the increase in 2015 were due to: i) the termination of our Naltrexone implant licensing agreement and replacing the rights with an acquisition agreement and ii) a loss on settlement of sub-licensing agreements, for charges of $3,639,694 and $118,027, respectively. 

 

In addition, comparing the six months ended June 30, 2014 to June 30, 2015, consulting and investor relations fees increased from $298,029 to $326,179, accounting and legal fees decreased from $155,727 to $103,565, advertising decreased from $168,947 to $52,377, and rent increased from $8,642 to $8,902. In addition, we incurred $136,133 as stock based compensation in 2015 compared to $138,194 in 2014. 

 

Gain (loss) on change in Fair Value of Derivative Liability

 

As of June 30, 2015, we had outstanding convertible debt and warrants with variable conversion provisions that had the possibility of exceeding our common shares authorized when considering the number of possible shares that may be issuable to satisfy settlement provision of this note. As such, we are required to determine the fair value of this derivative and mark to market each reporting period. For the six months ended June 30, 2015, we incurred a $104,168 gain on change in fair value of our derivative liabilities compared to $304,950 gain the same period, last year. 

 

Interest Expense

 

Interest expense for the six months ended June 30, 2015 and 2014 were $162,654 and $202,022, respectively, the decrease is due reduction in debt discount amortization, a non-cash interest charge. 

 

 
24
 

 

Net Loss 

 

For the six months ended June 30, 2015, the Company experienced loss of $3,973,894 compared with a net loss of $736,603 for the six months ended June 30, 2014.  

 

Liquidity and Capital Resources

 

As of June 30, 2015, we had cash of approximately $128,000. The following table provides a summary of our net cash flows from operating, investing, and financing activities.  

 

Six months ended June 30, 

 

 

2015

 

 

2014

 

Net cash (used in) provided by operating activities 

 

$ (394,849 )

 

$ 387,351

 

Net cash used in investing activities 

 

 

-

 

 

 

(32,890 )

Net cash provided by (used in) financing activities 

 

 

469,581

 

 

 

(142,085 )

Net increase in cash 

 

 

74,732

 

 

 

212,376

 

Cash, beginning of period 

 

 

53,120

 

 

 

108,566

 

Cash, end of period 

 

$ 127,852

 

 

$ 320,942

 

 

Currently we have no material commitments for capital expenditures as of June 30, 2015. We historically sought and continue to seek financing from private sources to move our business plan forward. In order to satisfy the financial commitments, we had relied upon private party financing that has inherent risks in terms of availability and adequacy of funding. 

 

For the next twelve months, we anticipate that we will need to supplement our revenues with additional capital investment or debt to ensure that we will have adequate cash to provide the minimum operating cash requirements to continue as a going concern. In 2014, the company entered into five separate licensing and distribution agreements whereby the Company received up-front licensing fees which allowed for sufficient cash flow to maintain operations. We believe that continued distribution opportunities will create a steady revenue stream by which sufficient cash flows can be maintained while the Company continues its growth and expansion. 

 

We may require additional capital investments or borrowed funds to meet cash flow projections and carry forward our business objectives. There can be no guarantee or assurance that we can raise adequate capital from outside sources. If we are unable to raise funds when required or on acceptable terms, we have to significantly scale back, or discontinue, our operations. 

 

Net Cash Flow From Operating Activities

 

Net Cash used in operating activities was $394,849 for the six months ended June 30, 2015 compared to $387,351 provided by operating activities the six months ended June 30, 2014. The reduction was primarily due to the reduction in proceeds directly attributable to licensing and distribution agreements. 

 

Net Cash Flow From Investing Activities

 

Net cash used in investing activities decreased by $32,890 for the six months ended June 30, 2015 compared to of six months ended June 30, 2014 primarily due to investments in acquisition deposits in 2014. 

 

Net Cash Flow From Financing Activities

 

Net cash provided by financing activities increased by $611,666, from $142,085 used in financing activities for the six months ended June 30, 2014 to $469,581 cash provided by financing activities for the six months ended June 30, 2015. The increase is primarily from $400,000 received from investor advances and $75,000 from issuance of convertible note as compared to net payoffs of previous advances and notes payable in 2014.

 

 
25
 

 

Going Concern

 

The Company’s financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern. This contemplates the realization of assets and the liquidation of liabilities in the normal course of business. As of June 30, 2015 and December 31, 2014, the Company has a working capital deficit of $2,672,996 and $1,724,636, and an accumulated deficit of $12,538,787 and $8,564,893. We will be dependent upon the raising of additional capital through placement of our common stock in order to implement its business plan or by using outside financing. There can be no assurance that the Company will be successful in these situations in order to continue as a going concern. The Company is funding its operations by additional borrowings and some shareholder advances. 

 

Off Balance Sheet Arrangements

 

We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, sales or expenses, results of operations, liquidity or capital expenditures, or capital resources that are material to an investment in our securities. 

 

Critical Accounting Policies

 

Use of Estimates and Assumptions

 

Preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. 

 

Revenue Recognition

 

The Company generates revenue from services. Revenue is recognized in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition (“ASC 605-10”) which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the services delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related revenue are recorded. The Company defers any revenue for which the services has not been performed or is subject to refund until such time that the Company and the customer jointly determine that the services has been performed or no refund will be required. 

 

The Company licenses patented technology to customers under licensing agreements that allow those customers to utilize the technology in services they provide to their customers. The timing and amount of revenue recognized from license agreements depends upon a variety of factors, including the specific terms of each agreement. Such agreements are reviewed for multiple elements. Multiple elements can include amounts related to initial non-refundable license fees for the use of the Company’s patented technology and additional royalties on covered services. Revenue is only recognized after all of the following criteria are met: (1) written agreements have been executed; (2) delivery of technology or intellectual property rights has occurred; (3) fees are fixed or determinable; and (4) collectability of fees is reasonably assured. Under these license agreements, the Company generally receives an initial non-refundable license fee and in some cases, additional running royalties. Revenue from royalties is recognized when earned and when amounts can be reasonably estimated. 

 

Deferred Revenue

 

The Company from time to time collects initial license fees when license agreements are signed and become effective. License fees collected from Licensees but not yet recognized as income are recorded as deferred revenue and amortized as income earned over the economic life of the related contract. 

 

 
26
 

 

Derivative Financial Instruments

 

Accounting Standards Codification subtopic 815-40, Derivatives and Hedging, Contracts in Entity’s own Equity (“ASC 815-40”) became effective for the Company on October 1, 2009. The Company’s convertible debt has variable conversion rates to the exercise price, which prohibit the Company from determining the number of shares needed to settle the conversion of the debt. 

 

Stock-Based Compensation

 

FASB ASC 718 “Compensation Stock Compensation” prescribes accounting and reporting standards for all stock-based payments award to employees, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights, may be classified as either equity or liabilities. The Company determines if a present obligation to settle the share-based payment transaction in cash or other assets exists. A present obligation to settle in cash or other assets exists if: (a) the option to settle by issuing equity instruments lacks commercial substance or (b) the present obligation is implied because of an entity’s past practices or stated policies. If a present obligation exists, the transaction should be recognized as a liability; otherwise, the transaction should be recognized as equity The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of FASB ASC 505-50 “Equity Based Payments to Non-Employees.” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date. 

 

Recent Accounting Pronouncements

 

In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) Number 2015-3 entitled “Simplifying the Presentation of Debt Issuance Costs.” The new guidance specifies that debt issuance costs under the new standard are to be netted against the carrying value of the financial liability. Under current guidance, debt issuance costs are recognized as a deferred charge and reported as a separate asset on the balance sheet. The new guidance aligns the treatment of debt issuance costs and debt discounts in that both reduce the carrying value of the liability. It is important to note that neither the recognition nor measurement of debt issuance costs is changed as a result of the ASU. Amortization of debt issuance costs is to be recorded as interest expense on the income statement. 

 

The effective date of the new guidance is for fiscal years beginning after December 15, 2015, for public business entities and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been issued previously. The Company does not believe the effect of the adoption of this standard to have a material impact on the Companys consolidated financial statements.

 

There are other various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's financial position, results of operations or cash flows.

 

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required under Regulation S-K for “smaller reporting companies.” 

 

 
27
 

 

ITEM 4 CONTROLS AND PROCEDURES

 

(a) Evaluation of disclosure controls and procedures.

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. 

 

Based on management’s evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as a result of the material weaknesses described below, as of June 30, 2015, our disclosure controls and procedures are not designed at a reasonable assurance level and are ineffective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The material weaknesses, which relate to internal control over financial reporting, that were identified are:  

 

(a) 

We did not have sufficient personnel in our accounting and financial reporting functions. As a result we were not able to achieve adequate segregation of duties and were not able to provide for adequate reviewing of the financial statements. This control deficiency, which is pervasive in nature, results in a reasonable possibility that material misstatements of the financial statements will not be prevented or detected on a timely basis. 

 

Management believes that hiring additional knowledgeable personnel with technical accounting expertise will remedy the following material weaknesses: A lack of sufficient personnel in our accounting and financial reporting functions to achieve adequate segregation of duties. 

 

Management believes that the hiring of additional personnel who have the technical expertise and knowledge with the non-routine or technical issues we have encountered in the past will result in both proper recording of these transactions and a much more knowledgeable finance department as a whole. Due to the fact that our accounting staff consists of a Chief Financial Officer, additional personnel will also ensure the proper segregation of duties and provide more checks and balances within the department. Additional personnel will also provide the cross training needed to support us if personnel turnover issues within the department occur. We believe this will eliminate or greatly decrease any control and procedure issues we may encounter in the future. 

 

We will continue to monitor and evaluate the effectiveness of our disclosure controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow. 

 

(b) Changes in internal control over financial reporting.

 

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during the quarter ended June 30, 2015 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 

 

 
28
 

 

Item 1. Legal Proceedings

 

We are currently not a party to any material legal proceedings or claims not previously disclosed on Form 8-K.

 

Item 1A. Risk Factors

 

Not required under Regulation S-K for “smaller reporting companies.” 

 

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

 

 In January 2015, the Company issued 3,000,000 shares of its common stock for services rendered and accrued in 2014. The common shares were valued at $300,000 based on the underlying market value of the common stock at the date of service provided. 

 

In March 2015, the Company issued an aggregate of 425,000 shares of its common stock for services rendered valued at $36,885 based on the underlying market value of the common stock at the date of service provided. 

 

In April 2015, the Company issued an aggregate of 3,175,000 shares of its common stock for future services valued at $159,800 based on the underlying market value of the common stock at the date of issuance. 

 

The above securities were issued to the individuals identified in connection with a transaction made in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act of 1933, as amended (the “Securities Act”) and/or Rule 506 promulgated under the Securities Act. The investors are accredited investors as defined in Rule 501 of Regulation D promulgated under the Securities Act. 

 

Item 3. Defaults Upon Senior Securities

 

None. 

 

Item 4. Mine Safety Disclosures.

 

Not applicable. 

 

Item 5. Other Information.

 

Not Applicable.  

 

 
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Item 6. Exhibits

 

31.01 

Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 

31.02 

Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 

32.01 

Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

101 INS 

XBRL Instance Document

101 SCH 

XBRL Schema Document

101 CAL 

XBRL Calculation Linkbase Document

 

101 LAB 

XBRL Labels Linkbase Document

101 PRE 

XBRL Presentation Linkbase Document

101 DEF 

XBRL Definition Linkbase Document

________________ 

In accordance with SEC Release 33-8238, Exhibit 32.01 is being furnished and not filed.  

 

 
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SIGNATURES

 

Pursuant to the requirements 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.  

 

 

BIOCORRX, INC.

Date: August 12, 2015 

By: 

/s/ Brady Granier

Brady Granier 

Interim Chief Executive Officer, Chief Operating Officer and Director 

   

Date: August 12, 2015 

By: 

/s/ Lourdes Felix

Lourdes Felix 

Chief Financial Officer and Director 

 

 

31