UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2023

 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________ to ___________

 

Commission file number: 000-54208

 

BioCorRx Inc.

(Exact name of registrant as specified in its charter)

 

Nevada

 

90-0967447

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

 

 

 

2390 East Orangewood AvenueSuite 500

AnaheimCA

 

92806

(Address of principal executive offices)

 

(Zip Code)

 

(714462-4880

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange

on which registered

N/A

 

N/A

 

N/A

 

Indicate by check 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 ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒     No ☐

 

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

 

Large accelerated filer

Accelerated filer

Non-accelerated Filer

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

 

As of November 13, 2023, there were 8,599,076 shares of registrant’s common stock outstanding.

 

 

 

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

ITEM 1.

Financial Statements (Unaudited)

 

3

 

 

Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022

 

3

 

 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022

 

4

 

 

Condensed Consolidated Statement of Deficit for the three and nine months ended September 30, 2023

 

5

 

 

Condensed Consolidated Statement of Deficit for the three and nine months ended September 30, 2022

 

6

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022

 

7

 

 

Notes to Consolidated Financial Statements

 

8

 

ITEM 2.

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

 

33

 

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

 

45

 

ITEM 4.

Controls and Procedures

 

45

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

ITEM 1.

Legal Proceedings

 

46

 

ITEM 1A.

Risk Factors

 

46

 

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

46

 

ITEM 3.

Defaults Upon Senior Securities

 

46

 

ITEM 4.

Mine Safety Disclosures

 

46

 

ITEM 5.

Other Information

 

46

 

ITEM 6.

Exhibits

 

47

 

 

 

 

 

 

SIGNATURES

 

48

 

  

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

 

Unless expressly indicated or the context requires otherwise, the terms “BioCorRx,” “Company,” “we,” “us,” and “our” in this document refer to BioCorRx Inc., a Nevada corporation, and, where appropriate, its wholly owned subsidiaries.

 

 
2

Table of Contents

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

BIOCORRX INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

(unaudited)

 

 

 

 

ASSETS

 

Current assets:

 

 

 

 

 

 

Cash

 

$156,409

 

 

$68,615

 

Accounts receivable

 

 

12,215

 

 

 

35,378

 

Grant receivable

 

 

4,991

 

 

 

130,152

 

Prepaid expenses

 

 

72,172

 

 

 

82,765

 

Total current assets

 

 

245,787

 

 

 

316,910

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

57,363

 

 

 

76,572

 

 

 

 

 

 

 

 

 

 

Right to use assets

 

 

177,454

 

 

 

270,406

 

 

 

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

 

 

 

Patents, net

 

 

9,322

 

 

 

10,206

 

Software development costs

 

 

-

 

 

 

47,980

 

Deposits, long term

 

 

44,520

 

 

 

44,520

 

Total other assets

 

 

53,842

 

 

 

102,706

 

 

 

 

 

 

 

 

 

 

Total assets

 

$534,446

 

 

$766,594

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND DEFICIT

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses, including related party payables of $1,491,414 and $1,077,088, respectively

 

$4,443,567

 

 

$3,907,954

 

Deferred revenue, short term

 

 

7,092

 

 

 

33,256

 

Lease liability, short term

 

 

146,187

 

 

 

134,343

 

Notes payable, net of debt discount of $113,242 and $23,878, respectively

 

 

408,238

 

 

 

297,602

 

Notes payable, related parties, net of debt discount of $106,801 and $49,473, respectively

 

 

941,581

 

 

 

990,637

 

Total current liabilities

 

 

5,946,665

 

 

 

5,363,792

 

 

 

 

 

 

 

 

 

 

Long term liabilities:

 

 

 

 

 

 

 

 

Economic Injury Disaster loan, long term

 

 

72,817

 

 

 

73,850

 

Royalty obligation, net of discount of $5,021,128 and $5,376,790, related parties

 

 

3,700,972

 

 

 

3,345,310

 

Lease liability, long term

 

 

70,350

 

 

 

181,328

 

Deferred revenue, long term

 

 

4,045

 

 

 

4,045

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

9,794,849

 

 

 

8,968,325

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deficit:

 

 

 

 

 

 

 

 

Preferred stock, no par value, 600,000 authorized

 

 

 

 

 

 

 

 

Series A convertible preferred stock, no par value; 80,000 designated; 80,000 shares issued and outstanding as of September 30, 2023 and December 31, 2022

 

 

16,000

 

 

 

16,000

 

Series B convertible preferred stock, no par value; 160,000 designated; 160,000 shares issued and outstanding as of September 30, 2023 and December 31, 2022

 

 

5,616

 

 

 

5,616

 

Common stock, $0.001 par value; 750,000,000 shares authorized, 8,591,797 and 7,718,636 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

 

 

8,592

 

 

 

7,719

 

Common stock subscribed

 

 

100,000

 

 

 

100,000

 

Additional paid in capital

 

 

67,872,232

 

 

 

66,130,296

 

Accumulated deficit

 

 

(77,134,478 )

 

 

(74,336,105 )

Total deficit attributable to BioCorRx Inc.

 

 

(9,132,038 )

 

 

(8,076,474 )

Non-controlling interest

 

 

(128,365 )

 

 

(125,257 )

Total deficit

 

 

(9,260,403 )

 

 

(8,201,731 )

 

 

 

 

 

 

 

 

 

Total liabilities and deficit

 

$534,446

 

 

$766,594

 

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

 
3

Table of Contents

 

BIOCORRX INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues, net

 

$10,145

 

 

$94,441

 

 

$70,222

 

 

$130,961

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of implants and other costs

 

 

3,881

 

 

 

2,343

 

 

 

22,933

 

 

 

6,603

 

Research and development

 

 

286,962

 

 

 

342,553

 

 

 

762,768

 

 

 

923,354

 

Selling, general and administrative

 

 

674,456

 

 

 

771,810

 

 

 

2,181,532

 

 

 

2,692,574

 

Impairment of intellectual property

 

 

-

 

 

 

-

 

 

 

47,980

 

 

 

-

 

Depreciation and amortization

 

 

6,714

 

 

 

6,863

 

 

 

20,093

 

 

 

20,588

 

Total operating expenses

 

 

972,013

 

 

 

1,123,569

 

 

 

3,035,306

 

 

 

3,643,119

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(961,868 )

 

 

(1,029,128 )

 

 

(2,965,084 )

 

 

(3,512,158 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expenses):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense - related parties

 

 

(169,582 )

 

 

(239,487 )

 

 

(501,787 )

 

 

(765,105 )

Interest expense, net

 

 

(36,883 )

 

 

(13,624 )

 

 

(90,412 )

 

 

(127,226 )

Loss on settlement of debt

 

 

-

 

 

 

(198,939 )

 

 

(34,338 )

 

 

(198,939 )

Grant income

 

 

300,985

 

 

 

390,857

 

 

 

790,140

 

 

 

1,250,231

 

Other miscellaneous income

 

 

-

 

 

 

139,315

 

 

 

-

 

 

 

139,381

 

Total other income

 

 

94,520

 

 

 

78,122

 

 

 

163,603

 

 

 

298,342

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before provision for income taxes

 

 

(867,348 )

 

 

(951,006 )

 

 

(2,801,481 )

 

 

(3,213,816 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income taxes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

(867,348 )

 

 

(951,006 )

 

 

(2,801,481 )

 

 

(3,213,816 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-controlling interest

 

 

1,068

 

 

 

1,888

 

 

 

3,108

 

 

 

4,195

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to BioCorRx Inc.

 

$(866,280 )

 

$(949,118 )

 

$(2,798,373 )

 

$(3,209,621 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share, basic and diluted

 

$(0.10 )

 

$(0.13 )

 

$(0.34 )

 

$(0.46 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding, basic and diluted

 

 

8,537,320

 

 

 

7,161,039

 

 

 

8,250,725

 

 

 

7,040,469

 

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

 
4

Table of Contents

 

BIOCORRX INC.

CONDENSED CONSOLIDATED STATEMENT OF DEFICIT

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023

 

 

 

Series A

 

 

Series B

 

 

 

 

 

 

 

 

Common

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible

 

 

Convertible

 

 

 

 

 

 

 

 

Stock

 

 

Common

 

 

Additional

 

 

 

 

 

Non-

 

 

 

 

 

 

Preferred stock

 

 

Preferred stock

 

 

Common stock

 

 

Subscription

 

 

stock

 

 

Paid in

 

 

Accumulated

 

 

Controlling

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Receivable

 

 

Subscribed

 

 

Capital

 

 

Deficit

 

 

Interest

 

 

Total

 

Balance, December 31, 2022

 

 

80,000

 

 

$16,000

 

 

 

160,000

 

 

$5,616

 

 

 

7,718,636

 

 

$7,719

 

 

$-

 

 

$100,000

 

 

$66,130,296

 

 

$(74,336,105 )

 

$(125,257 )

 

$(8,201,731 )

Common stock issued for services rendered

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

36,660

 

 

 

37

 

 

 

-

 

 

 

-

 

 

 

63,107

 

 

 

-

 

 

 

-

 

 

 

63,144

 

Common stock issued in connection with issuance of promissory notes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,285

 

 

 

4

 

 

 

-

 

 

 

-

 

 

 

5,996

 

 

 

-

 

 

 

-

 

 

 

6,000

 

Common stock issued in connection with subscription agreement

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

342,592

 

 

 

343

 

 

 

(300,000 )

 

 

-

 

 

 

599,657

 

 

 

-

 

 

 

-

 

 

 

300,000

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

16,074

 

 

 

-

 

 

 

-

 

 

 

16,074

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

(1,009,652 )

 

 

(934 )

 

 

(1,010,586 )

Balance, March 31, 2023 (unaudited)

 

 

80,000

 

 

$16,000

 

 

 

160,000

 

 

$5,616

 

 

 

8,102,173

 

 

$8,103

 

 

$(300,000 )

 

$100,000

 

 

$66,815,130

 

 

$(75,345,757 )

 

$(126,191 )

 

$(8,827,099 )

Common stock issued for services rendered

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

35,301

 

 

 

35

 

 

 

-

 

 

 

-

 

 

 

62,256

 

 

 

-

 

 

 

-

 

 

 

62,291

 

Common stock issued in connection with conversion of promissory notes and accounts payable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

207,606

 

 

 

208

 

 

 

-

 

 

 

-

 

 

 

361,684

 

 

 

-

 

 

 

-

 

 

 

361,892

 

Common stock issued in connection with subscription agreement

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

174,409

 

 

 

174

 

 

 

300,000

 

 

 

-

 

 

 

299,826

 

 

 

-

 

 

 

-

 

 

 

600,000

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

15,953

 

 

 

-

 

 

 

-

 

 

 

15,953

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(922,441 )

 

 

(1,106 )

 

 

(923,547 )

Balance, June 30, 2023 (unaudited)

 

 

80,000

 

 

$16,000

 

 

 

160,000

 

 

$5,616

 

 

 

8,519,489

 

 

$8,520

 

 

$-

 

 

$100,000

 

 

$67,554,849

 

 

$(76,268,198 )

 

$(127,297 )

 

$(8,710,510 )

Common stock issued for services rendered

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

36,308

 

 

 

36

 

 

 

-

 

 

 

-

 

 

 

65,089

 

 

 

-

 

 

 

-

 

 

 

65,125

 

Common stock issued in connection with issuance of promissory notes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

36,000

 

 

 

36

 

 

 

-

 

 

 

-

 

 

 

59,544

 

 

 

-

 

 

 

-

 

 

 

59,580

 

Warrants issued in connection with issuance of promissory notes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

176,545

 

 

 

-

 

 

 

-

 

 

 

176,545

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

16,205

 

 

 

-

 

 

 

-

 

 

 

16,205

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(866,280 )

 

 

(1,068 )

 

 

(867,348 )

Balance, September 30, 2023 (unaudited)

 

 

80,000

 

 

$16,000

 

 

 

160,000

 

 

$5,616

 

 

 

8,591,797

 

 

$8,592

 

 

$100,000

 

 

$-

 

 

$67,872,232

 

 

$(77,134,478 )

 

$(128,365 )

 

$(9,260,403 )

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

 
5

Table of Contents

 

BIOCORRX INC .

CONDENSED CONSOLIDATED STATEMENT OF DEFICIT

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022

 

 

 

Series A

 

 

Series B

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible

 

 

Convertible

 

 

 

 

 

 

 

 

Common

 

 

Additional

 

 

 

 

 

Non-

 

 

 

 

 

 

Preferred stock

 

 

Preferred stock

 

 

Common stock

 

 

stock

 

 

Paid in

 

 

Accumulated

 

 

Controlling

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Subscribed

 

 

Capital

 

 

Deficit

 

 

Interest

 

 

Total

 

Balance, December 31, 2021

 

 

80,000

 

 

$16,000

 

 

 

160,000

 

 

$5,616

 

 

 

6,698,968

 

 

$6,699

 

 

$100,000

 

 

$62,994,739

 

 

$(69,966,692 )

 

$(117,838 )

 

$(6,961,476 )

Common stock issued for services rendered

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

25,423

 

 

 

25

 

 

 

-

 

 

 

100,005

 

 

 

-

 

 

 

-

 

 

 

100,030

 

Common stock issued in connection with subscription agreement

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

229,886

 

 

 

230

 

 

 

-

 

 

 

999,770

 

 

 

-

 

 

 

-

 

 

 

1,000,000

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

52,882

 

 

 

-

 

 

 

-

 

 

 

52,882

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(944,440 )

 

 

(551 )

 

 

(944,991 )

Balance, March 31, 2022 (unaudited)

 

 

80,000

 

 

$16,000

 

 

 

160,000

 

 

$5,616

 

 

 

6,954,277

 

 

$6,954

 

 

$100,000

 

 

$64,147,396

 

 

$(70,911,132 )

 

$(118,389 )

 

$(6,753,555 )

Common stock issued for services rendered

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

17,389

 

 

 

17

 

 

 

-

 

 

 

42,508

 

 

 

-

 

 

 

-

 

 

 

42,525

 

Common stock issued in connection with subscription agreement

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

110,619

 

 

 

111

 

 

 

-

 

 

 

249,889

 

 

 

-

 

 

 

-

 

 

 

250,000

 

Warrants issued in connection with loan default

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

86,821

 

 

 

-

 

 

 

-

 

 

 

86,821

 

Warrants issued in connection with loan default – related party

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

214,975

 

 

 

-

 

 

 

-

 

 

 

214,975

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

15,495

 

 

 

-

 

 

 

-

 

 

 

15,495

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,316,063 )

 

 

(1,756 )

 

 

(1,317,819 )

Balance, June 30, 2022 (unaudited)

 

 

80,000

 

 

$16,000

 

 

 

160,000

 

 

$5,616

 

 

 

7,082,285

 

 

$7,082

 

 

$100,000

 

 

$64,757,084

 

 

$(72,227,195 )

 

$(120,145 )

 

$(7,461,558 )

Common stock issued for services rendered

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

23,054

 

 

 

23

 

 

 

-

 

 

 

49,227

 

 

 

-

 

 

 

-

 

 

 

49,250

 

Common stock issued in connection with conversion of promissory notes and accounts payable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

485,220

 

 

 

485

 

 

 

-

 

 

 

1,062,147

 

 

 

-

 

 

 

-

 

 

 

1,062,632

 

Common stock issued in connection with issuance of promissory notes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

33,000

 

 

 

33

 

 

 

-

 

 

 

76,857

 

 

 

-

 

 

 

-

 

 

 

76,890

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

23,326

 

 

 

-

 

 

 

-

 

 

 

23,326

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(949,118 )

 

 

(1,888 )

 

 

(951,006 )

Balance, September 30, 2022 (unaudited)

 

 

80,000

 

 

$16,000

 

 

 

160,000

 

 

$5,616

 

 

 

7,623,559

 

 

$7,623

 

 

$100,000

 

 

$65,968,641

 

 

$(73,176,313 )

 

$(122,033 )

 

$(7,200,466 )

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

 
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BIOCORRX INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

Nine Months ended

 

 

 

September 30,

 

 

 

2023

 

 

2022

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$(2,801,481 )

 

$(3,213,816 )

Adjustments to reconcile net loss to cash flows used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

20,093

 

 

 

20,588

 

Amortization of discount on royalty obligation

 

 

355,662

 

 

 

355,662

 

Amortization of debt discount

 

 

61,094

 

 

 

76,890

 

Impairment of intellectual property

 

 

47,980

 

 

 

-

 

Amortization of right-of-use asset

 

 

92,952

 

 

 

84,848

 

Loss on settlement of debt

 

 

34,338

 

 

 

198,939

 

Stock based compensation

 

 

238,792

 

 

 

283,508

 

Gain on forgiveness of debt

 

 

-

 

 

 

(133,424 )

Warrants issued in connection with loan default

 

 

-

 

 

 

301,796

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

23,163

 

 

 

(65,192 )

Grant receivable

 

 

125,161

 

 

 

(42,996 )

Prepaid expenses

 

 

10,593

 

 

 

(18,831 )

Accounts payable and accrued expenses

 

 

597,505

 

 

 

674,304

 

Lease liability

 

 

(99,134 )

 

 

(88,309 )

Deferred revenue

 

 

(26,164 )

 

 

(26,164 )

Net cash used in operating activities

 

 

(1,319,446 )

 

 

(1,592,197 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from common stock subscription and royalty agreement

 

 

900,000

 

 

 

1,250,000

 

Payment to Economic Injury Disaster loan

 

 

(1,033 )

 

 

(112 )

Payment of notes payable – related party

 

 

(35,000 )

 

 

-

 

Proceeds from notes payable

 

 

200,000

 

 

 

-

 

Proceeds from notes payable – related party

 

 

343,273

 

 

 

320,000

 

Net cash provided by financing activities

 

 

1,407,240

 

 

 

1,569,888

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and restricted cash

 

 

87,794

 

 

 

(22,309 )

Cash and restricted cash, beginning of the period

 

 

68,615

 

 

 

85,838

 

 

 

 

 

 

 

 

 

 

Cash and restricted cash, end of period

 

$156,409

 

 

$63,529

 

 

 

 

 

 

 

 

 

 

Cash and restricted cash consist of the following, end of period:

 

 

 

 

 

 

 

 

Cash

 

$156,409

 

 

$39,100

 

Restricted cash 

 

 

-

 

 

 

24,429

 

Total

 

$156,409

 

 

$63,529

 

 

 

 

 

 

 

 

 

 

Cash and restricted cash consist of the following, beginning of the period:

 

 

 

 

 

 

 

 

Cash

 

$68,615

 

 

$85,838

 

Restricted cash 

 

 

-

 

 

 

-

 

Total

 

$68,615

 

 

$85,838

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$-

 

 

$-

 

Taxes paid

 

$-

 

 

$-

 

Common stock issued in connection with conversion of promissory notes and accounts payable

 

$361,892

 

 

$1,062,632

 

Warrants issued in connection with issuance of promissory notes

 

$176,545

 

 

$-

 

Common stock issued in connection with issuance of promissory notes

 

$65,580

 

 

$76,890

 

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 
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BIOCORRX INC .

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

(UNAUDITED)

 

NOTE 1 - BUSINESS

 

BioCorRx Inc., through its subsidiaries, develops and provides innovative treatment programs for substance abuse and related disorders. The BioCorRx ® Recovery Program is a non-addictive, medication-assisted treatment (MAT) program for substance abuse that includes peer recovery support. The UnCraveRx™ Weight Loss Management Program is a medically assisted weight management program that is combined with a virtual platform application. The full program officially launched October 1, 2019. The Company’s majority owned subsidiary BioCorRx Pharmaceuticals Inc. is also engaged in the research and development of sustained release naltrexone products for the treatment of addiction and other possible disorders. Specifically, the Company is developing an injectable (BICX101) and implantable naltrexone with the goal of future regulatory approval with the Food and Drug Administration. On May 7, 2021, the U.S. Food and Drug Administration (FDA) cleared the Company’s Investigational New Drug Application (IND) for its implantable naltrexone (BICX104) candidate. On October 31, 2020, the Company entered into a written management services agreement with Joseph DeSanto MD, Inc. (“Medical Corporation”) under which the Company provides management and other administrative services to the Medical Corporation. These services include billing, collection of accounts receivable, accounting, management and human resource functions. Pursuant to the management services agreement, a management fee equal to 65% of the Medical Corporation’s gross collected monthly revenue. Through this arrangement, the Company is directing the activities that most significantly impact the financial results of the respective Medical Corporation; however, all clinical treatment decisions are made solely by licensed healthcare professionals. The Company has determined that it is the primary beneficiary, and, therefore, has consolidated the Medical Corporation as variable interest entity (“VIE”). The medical corporation: (i) had not yet generated any revenues and (ii) had no significant assets or liabilities since inception through September 30, 2023.

 

On July 28, 2016, BioCorRx Inc. formed BioCorRx Pharmaceuticals, Inc., a Nevada Corporation, for the purpose of developing certain business lines. In connection with the formation, the sub issued 24.2% ownership to officers of BioCorRx Inc. with the Company retaining 75.8%. In 2018, BioCorRx Pharmaceuticals, Inc. began operating activities (Note 17).

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

 

Interim Financial Statements

 

The following (a) condensed consolidated balance sheet as of December 31, 2022, 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 nine months ended September 30, 2023 are not necessarily indicative of results that may be expected for the year ending December 31, 2023. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 31, 2023.

 

Basis of presentation

 

The consolidated financial statements include the accounts of: (i) BioCorRx Inc. and its wholly owned subsidiary, Fresh Start Private, Inc., (ii) its majority owned subsidiary, BioCorRx Pharmaceuticals, Inc., and (iii) and the Medical Corporation (“VIE”) (collectively, “the Company”) under which the Company provides management and other administrative services pursuant to the management services agreement in which the Company is the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation. 

 

 
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Revenue Recognition

 

The Company recognizes revenue in accordance with Financial Accounting Standards Board “FASB” Accounting Standards Codification “ASC” 606. A five-step analysis a must be met as outlined in Topic 606: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as) performance obligations are satisfied. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. 

 

The Company has elected the following practical expedients in applying ASC 606:

 

 

·

Unsatisfied Performance Obligations - all performance obligations relate to contracts with a duration of less than one year. The Company has elected to apply the optional exemption provided in ASC 606 and therefore, is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.

 

 

 

 

·

Contract Costs - all incremental customer contract acquisition costs are expensed as they are incurred as the amortization period of the asset that the Company otherwise would have recognized is one year or less in duration.

 

 

 

 

·

Significant Financing Component - the Company does not adjust the promised amount of consideration for the effects of a significant financing component as the Company expects, at contract inception, that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

 

 

 

 

·

Sales Tax Exclusion from the Transaction Price - the Company excludes from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from the customer.

 

 

 

 

·

Shipping and Handling Activities - the Company elected to account for shipping and handling activities as a fulfillment cost rather than as a separate performance obligation.

 

The Company’s net sales are disaggregated by product category. The sales/access fees consist of product sales, which is recognized upon the transfer of promised goods to customers. The project support income is generated from administrative support to Biotechnology research customers, which is recognized upon the transfer of promised services to customers. The distribution rights income consists of the income recognized from the amortization of distribution agreements entered into for its products. The membership/program fees are generated from the Company’s UnCraveRx™ Weight Loss Management Program, which is recognized upon the transfer of promised goods to customers.

 

The following table presents the Company’s net sales by product category for the three and nine months ended September 30, 2023 and 2022:

 

 

 

Three Months Ended

September 30,

 

 

 

2023

 

 

2022

 

Sales/access fees

 

$390

 

 

$2,250

 

Project support income

 

 

-

 

 

 

79,263

 

Distribution rights income

 

 

8,817

 

 

 

11,129

 

Membership/program fees

 

 

938

 

 

 

1,799

 

Net sales

 

$10,145

 

 

$94,441

 

 

 
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Table of Contents

 

 

 

Nine Months Ended

September 30,

 

 

 

2023

 

 

2022

 

Sales/access fees

 

$10,645

 

 

$12,810

 

Project support income

 

 

25,817

 

 

 

79,263

 

Distribution rights income

 

 

26,164

 

 

 

28,476

 

Membership/program fees

 

 

7,596

 

 

 

10,412

 

Net sales

 

$70,222

 

 

$130,961

 

 

Deferred revenue

 

The Company licenses proprietary products and protocols to customers under licensing agreements that allow those customers to access the products and protocols in services they provide to their customers during the term of the license agreement. 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 performance obligations. Performance obligations can include amounts related to initial non-refundable license fees for the use of the Company’s products and protocols and additional royalties on covered services.

 

The Company granted license and sub-license agreements for various regions or States in the United States allowing the licensee to market, distributes 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 and deferred; the Company nets those uncollected fees with the deferred revenue for balance sheet presentation.

 

The Company amortizes license fees over the shorter of the economic life of the related contract life or contract terms for each licensee.

 

On October 1, 2019, the Company launched the UnCraveRx™ Weight Loss Management Program. Customers are charged a membership fee and are requested to pay for three training programs at inception. The payments are recorded as deferred revenue until earned.

 

The following table presents the changes in deferred revenue, reflected as current and long term liabilities on the Company’s unaudited condensed consolidated balance sheet:

 

Balance as of December 31, 2022

 

 

 

Short term

 

$33,256

 

Long term

 

 

4,045

 

Total as of December 31, 2022

 

$37,301

 

Net sales recognized

 

 

(26,164 )

Balance as of September 30, 2023

 

 

11,137

 

Less short term

 

 

7,092

 

Long term

 

$4,045

 

 

Deferred Revenue-Grant

 

The Company recognizes grant revenues in the period during which the related research and development costs are incurred. The timing and amount of revenue recognized from reimbursement for research and development costs depends upon the specific terms for the contracted work. Such costs are reviewed for multiple performance obligations which can include amounts related to contracted work performed or as milestones have been achieved.

 

 
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Table of Contents

 

 

Use of Estimates

 

The preparation of the 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 other equity and debt instruments.

 

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 against the allowance 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 $0 as of September 30, 2023 and December 31, 2022.

 

Fair Value of Financial Instruments

 

The Company calculates the fair value of its assets and liabilities which qualify as financial instruments and includes this additional information in the notes to the consolidated financial statements when the fair value is different than the carrying value of these financial instruments. The estimated fair value of cash, accounts receivable, grant receivable, accounts payable and accrued expenses, and notes payable approximate their carrying amounts due to the relatively short maturity of these instruments. The carrying value of lease liability and royalty obligation also approximates fair value since these instruments bear market rates of interest. None of these instruments are held for trading purposes.

 

See Note 13 and 14 for stock based compensation and other equity instruments.

 

Segment Information

 

Accounting Standards Codification subtopic Segment Reporting 280-10 (“ASC 280-10”) establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. ASC 280-10 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. The information disclosed herein materially represents all of the financial information related to the Company’s principal operating segment.

 

Long-Lived Assets

 

The Company follows 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.

 

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 the assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. No impairments were recognized for the three and nine months ended September 30, 2023 and 2022.

 

 
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Intangible Assets

 

Intangible assets with finite lives are amortized over their estimated useful lives. Intangible assets with indefinite lives are not amortized, but are tested for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. $0 impairment was recognized for the three and nine months ended September 30, 2023 and 2022.

 

Software Development Costs

 

The Company has adopted the provision of ASC 985-20-25, Costs of Software to Be Sold, Leased or Marketed, whereby costs incurred to establish the technological feasibility of a computer software product to be sold, leased or marketed are research and development costs. Research costs are expensed as incurred; costs of producing product masters incurred subsequent to establishing technological feasibility are capitalized; and costs incurred when the product is available for general release to the customers are expensed as incurred. Upgrades and enhancements are capitalized if they result in added functionality which enables the software to perform tasks it was previously incapable of performing.

 

On July 1, 2021, the Company began development of a proprietary cloud based app that will be marketed and commercialized, for which $47,980 of costs have been capitalized. During the nine months ended September 30, 2023, the Company wrote off the $47,980 as impairment loss.

 

Property and Equipment

 

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the asset’s estimated useful life of 5 to 15 years. Expenditures for maintenance and repairs are expensed as incurred. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition is reflected in earnings.

 

Leases

 

The Company determines if an arrangement is a lease at inception. Operating lease right-of-use assets (“ROU assets”) and short-term and long-term lease liabilities are included on the face of the consolidated balance sheets.

 

ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date over the respective lease term in determining the present value of lease payments. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component. For lease agreements with terms less than 12 months, the Company has elected the short-term lease measurement and recognition exemption, and it recognizes such lease payments on a straight-line basis over the lease term.

 

Net (loss) Per Share

 

The Company accounts for net 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 loss per share is computed by dividing net 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. The effect of common stock equivalents is anti-dilutive with respect to losses and therefore basic and dilutive is the same.

 

 
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Table of Contents

 

 

Diluted net loss per share is calculated by including any potentially dilutive share issuances in the denominator. The following securities are excluded from the calculation of weighted average diluted shares at September 30, 2023 and 2022, respectively, because their inclusion would have been anti-dilutive. 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2023

 

 

2022

 

Shares underlying options outstanding

 

 

891,443

 

 

 

858,101

 

Shares underlying warrants outstanding

 

 

1,150,856

 

 

 

333,855

 

Convertible preferred stock outstanding

 

 

240,000

 

 

 

240,000

 

 

 

 

2,282,299

 

 

 

1,431,956

 

 

Advertising

 

The Company follows the policy of charging the costs of advertising to expense as incurred. The Company charged to operations $25,846 and $106,073 as advertising costs for the three months ended September 30, 2023 and 2022, respectively. The Company charged to operations $88,633 and $295,119 as advertising costs for the nine months ended September 30, 2023 and 2022, respectively.

 

Grant Income

 

On January 17, 2019, the Company received a Notice of Award from the United States Department of Health and Human Services for a grant from the National Institutes of Health (“NIH”) in support of BICX102 from the National Institute on Drug Abuse. The grant provides for (i) $2,842,430 in funding during the first year and (ii) $2,831,838 during the second year subject to the terms and conditions specified in the grant, including satisfactory progress of project and the availability of funds. On August 27, 2021, the Company received a Notice of Award from the United States Department of Health and Human Services for a grant from National Institute on Drug Abuse. The grant provides for $3,453,367 in funding during the third year subject to the terms and conditions specified in the grant, including satisfactory progress of project and the availability of funds. On March 31, 2022, the Company received a Notice of Award from the United States Department of Health and Human Services for a grant from National Institute on Drug Abuse. The grant provides for $99,431 in additional funding during the third year subject to the terms and conditions specified in the grant, including satisfactory progress of project and the availability of funds. Grant payments received prior to the Company’s performance of work required by the terms of the research grant are recorded as deferred income and recognized as grant income once work is performed and qualifying costs are incurred. Grant receivables were $4,991 and $122,652 as of September 30, 2023 and December 31, 2022, respectively. Deferred revenues related to the grant were $0 as of September 30, 2023 and December 31, 2022. $300,985 and $390,857 were recorded as grant income for the three months ended September 30, 2023 and 2022, respectively. $790,140 and $1,250,231 were recorded as grant income for the nine months ended September 30, 2023 and 2022, respectively. The F&A indirect costs were $0 and $253,208 as of September 30, 2023 and December 31, 2022, respectively. The grant provides for $516,218 in funding for F&A indirect costs. The remaining facilities and administrative indirect cost over allocation is $9,671 as of September 30, 2023. The Company will credit the F&A indirect cost rate.

 

Research and development costs

 

The Company accounts for research and development costs in accordance with the Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and developments costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. The Company incurred research and development expenses of $286,962 and $342,553 for the three months ended September 30, 2023 and 2022, respectively. The Company incurred research and development expenses of $762,768 and $923,354 for the nine months ended September 30, 2023 and 2022, respectively.

 

 
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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 at the grant date using the stock price observed in the trading market (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.

 

Income Taxes

 

Deferred income tax assets and liabilities are determined based on the estimated future tax effects of net operating loss and credit carry forwards and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured at the current enacted tax rates. The Company records an estimated valuation allowance on its deferred income tax assets if it is more likely than not that these deferred income tax assets will not be realized.

 

The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. As of September 30, 2023 and December 31, 2022, the Company has not recorded any unrecognized tax benefits.

 

Variable Interest Entity

 

The Company evaluates all interests in the VIE for consolidation. When the Company’s interests are determined to be variable interests, an assessment is made on whether the Company is deemed to be the primary beneficiary of the VIE. The primary beneficiary of a VIE is required to consolidate the VIE. Accounting Standards Codification (“ASC”) 810, Consolidation, defines the primary beneficiary as the party that has both (i) the power to direct the activities of the VIE that most significantly impact its economic performance, and (ii) the obligation to absorb losses and the right to receive benefits from the VIE which could be potentially significant. Variable interests are considered in making this determination. Where both of these factors are present, the Company is deemed to be the primary beneficiary and the Company consolidates the VIE.

 

Non-Controlling Interest

 

A non-controlling interest should be allocated its share of net income or loss, and its respective share of each component of other comprehensive income, in accordance with ASC 810-10-45-20. Due to a management fee equal to 65% of the Medical Corporation’s gross collected monthly revenue, 65% of the Medical Corporation’s earnings was allocated to the Company, and 35% to the non-controlling interest. Due to the Company’s retaining 75.8% ownership of BioCorRx Pharmaceuticals, Inc., 75.8% of BioCorRx Pharmaceuticals, Inc.’s earnings was allocated to the Company, and 24.2% to the non-controlling interest. See accounting policy “Variable Interest Entity” for further information.

 

Royalty Obligations, net

 

The Company accounted for royalty obligations as debt in accordance with ASC 470-10-25 and derived a debt discount, which is amortized using the straight line method over the expected life of the arrangement, which is 15 years. The Company has no obligation to repay the then outstanding balance if during the expected life of 15 years the treatment is discontinued. In order to record the discount of the liability, the Company fair valued the royalty and the difference between fair value of the royalty obligation and the gross projected future payments was $7,171,200 and was recorded as non-cash interest expense over the life of the liability and offset to additional paid in capital at inception.

 

 
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Recent Accounting Pronouncements

 

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if converted method for all convertible instruments. ASU 2020-06 is effective January 1, 2022 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company adopted ASU 2020-06 on January 1, 2022. The adoption of ASU 2020-06 did not have an impact on the Company’s financial statements. Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach on expected losses to estimate credit losses on certain financial instruments, including trade receivables and available-for-sale debt securities. The new guidance was originally due to become effective for the Company beginning in the first quarter of 2020, however the FASB in November 2019 issued ASU 2019-10 which moved the effective date for smaller reporting companies to the first quarter of 2023. The Company adopted ASU 2016-13 on January 1, 2023. The adoption of ASU 2016-13 did not have an impact on the Company’s 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.

 

NOTE 3 - GOING CONCERN AND MANAGEMENT’S LIQUIDITY PLANS

 

As of September 30, 2023, the Company had cash of $156,409 and working capital deficit of $5,700,878. During the nine months ended September 30, 2023, the Company used net cash in operating activities of $1,319,446. The Company has not yet generated any significant revenues and has incurred net losses since inception. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for the next twelve-month period since the date of the financial statements were issued.

 

The Company’s primary source of operating funds since inception has been from proceeds from private placements of convertible and other debt and the sale of common stock. The Company intends to raise additional capital through private placements of debt and equity securities, but there can be no assurance that these funds will be available on terms acceptable to the Company, or will be sufficient to enable the Company to fully complete its development activities or sustain operations. If the Company is unable to raise sufficient additional funds, it will have to develop and implement a plan to further extend payables, reduce overhead, or scale back its current business plan until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful.

 

In December 2019, a novel strain of coronavirus (“COVID-19”) surfaced. The spread of COVID-19 around the world in the first quarter of 2020 has caused significant volatility in U.S. and international markets. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies and, as such, the Company is unable to determine if it will have a material impact to its operations.

 

During the nine months ended September 30, 2023, the Company entered into three subscription agreements pursuant to which the Company issued an aggregate of 517,001 shares of common stock for gross proceeds of $900,000.

 

 
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During the nine months ended September 30, 2023, the Company issued one note payable to a third party for a principal of $50,000 with a stated interest rate of 12.5% per annum. Under the terms of the note the Company shall pay quarterly interest payments of $1,563. If the Company fails to make any payment due under the terms of the promissory note, the stated interest rate of the note shall be increased to 20%. As additional consideration for the loan the Company issued 4,285 shares of common stock valued at $6,000, which was recognized as debt discount.

 

During the nine months ended September 30, 2023, the Company received $50,000 advances from Louis C Lucido, a member of the Company’s Board of Directors. The balance outstanding as of September 30, 2023 was $50,000 which amount is payable on demand. There is no interest rate attached to these advances.

 

During the nine months ended September 30, 2023, the Company received $143,273 advances from Lourdes Felix, the Company’s Chief Executive Officer and Chief Financial Officer (“CEO” and “CFO”, respectively). The balance outstanding as of September 30, 2023 was $108,273.

 

On April 3, 2023, the Company entered into an Exchange Agreement (the “Louis 2023 Exchange Agreement”) with Mr. Lucido, pursuant to which Mr. Lucido agreed to exchange of the promissory note then outstanding of $300,000 and the accrued interest on the promissory note of $13,892 into the Company’s 183,606 shares of common stock at $1.71 per share, resulting in the recognition of $34,338 of loss on settlement of debt.

 

On June 1, 2023, the Company entered into an Exchange Agreement (the “Consultant Exchange Agreement”) with one consultant, pursuant to which the consultant agreed to exchange of the unpaid service fees of $48,000 into the Company’s 24,000 shares of common stock at $2.00 per share.

 

On August 29, 2023, the Company issued an unsecured promissory note payable to Louis C Lucido for $150,000 with principal and interest due August 29, 2024, with a stated interest rate of 8% per annum. The promissory note, together with all accrued interest, shall be converted into common shares at a conversion price of $2.00 per share on or before August 29, 2024. In connection with the issuance of the promissory note, the Company issued the warrant that entitles Mr. Lucido to purchase 150,000 common shares. The warrant shall have a term of three years with an exercise price of $2.00 and shall be equitably adjusted to offset the effect of any stock splits and similar events. The Company allocated the proceeds based on the relative fair value of the debt and the warrants, resulting in the recognition of $87,724 of debt discount on such promissory note. As additional consideration for the debt, the Company issued 18,000 shares of common stock valued at $29,340, which was also recognized as debt discount.

 

On September 6, 2023, the Company issued an unsecured promissory note payable to one third party for $150,000 with principal and interest due September 6, 2024, with a stated interest rate of 8% per annum. The third party has the option to select the repayment in cash or in stock of the Company at $2.00 per share. If the Company fails to make any payment due under the terms of the promissory note, the interest rate shall increase to 15% per annum. In connection with the issuance of the promissory note, the Company issued the warrant that entitles the third party to purchase 150,000 common shares. The warrant shall have a term of three years with an exercise price of $2.00 and shall be equitably adjusted to offset the effect of any stock splits and similar events. The Company allocated the proceeds based on the relative fair value of the debt and the warrants, resulting in the recognition of $88,820 of debt discount on such promissory note. As additional consideration for the debt, the Company issued 18,000 shares of common stock valued at $30,240, which was also recognized as debt discount.

 

Accordingly, the accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the financial statements do not necessarily purport to represent realizable or settlement values. The consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.

 

 
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NOTE 4 - PREPAID EXPENSES

 

The Company’s prepaid expenses consisted of the following at September 30, 2023 and December 31, 2022:

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Prepaid insurance

 

$28,480

 

 

$4,284

 

Prepaid subscription services

 

 

31,869

 

 

 

49,901

 

Prepaid research and development

 

 

-

 

 

 

7,480

 

Other prepaid expenses

 

 

11,823

 

 

 

21,100

 

 

 

$72,172

 

 

$82,765

 

 

NOTE 5 - PROPERTY AND EQUIPMENT

 

The Company’s property and equipment consisted of the following at September 30, 2023 and December 31, 2022:

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Office equipment

 

$45,519

 

 

$45,519

 

Computer equipment

 

 

5,544

 

 

 

5,544

 

Manufacturing equipment

 

 

101,200

 

 

 

101,200

 

Leasehold improvement

 

 

42,288

 

 

 

42,288

 

 

 

 

194,551

 

 

 

194,551

 

Less accumulated depreciation

 

 

(137,188 )

 

 

(117,979 )

 

 

$57,363

 

 

$76,572

 

 

Depreciation expense charged to operations amounted to $6,419 and $6,568, respectively, for the three months ended September 30, 2023 and 2022. Depreciation expense charged to operations amounted to $19,209 and $19,704, respectively, for the nine months ended September 30, 2023 and 2022.

 

NOTE 6 - LEASE

 

Operating leases

 

Prior to 2020, the Company entered into several lease amendments with landlord whereby the Company agreed to lease office space in Anaheim, California. The current term expires on January 31, 2025. The current lease has escalating payments from $9,905 per month to $11,018 per month. The Company recorded an aggregate value of right to use assets and lease liability of $500,333.

 

On June 16, 2020, the Company entered into a lease agreement, whereby the Company agreed to lease office space in Costa Mesa, California for a term of 5 years. Due to COVID-19, the Company was not able to move in or take possession until 30 days after shelter in place has been lifted in Orange County, CA. The Company will owe monthly rental payments ranging from $2,286 to $2,584 over the term of the lease. On September 20, 2020, the Company took possession of the office space and recorded right to use assets and lease liability of $120,346

 

Lease liability is summarized below:

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Total lease liability

 

$216,537

 

 

$315,671

 

Less: short term portion

 

 

146,187

 

 

 

134,343

 

Long term portion

 

$70,350

 

 

$181,328

 

 

 
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Maturity analysis under these lease agreements are as follows:

 

 

 

Total

 

2023

 

$39,308

 

2024

 

 

159,420

 

2025

 

 

31,690

 

Subtotal

 

 

230,418

 

Less: Present value discount

 

 

(13,881 )

Lease liability

 

$216,537

 

 

Lease expense for the three and nine months ended September 30, 2023 and 2022 was comprised of the following:

 

 

 

Three Months Ended

 

 

 

September 30,

 

 

 

2023

 

 

2022

 

Operating lease expense

 

$34,522

 

 

$36,192

 

 

 

$34,522

 

 

$36,192

 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2023

 

 

2022

 

Operating lease expense

 

$107,326

 

 

$108,576

 

 

 

$107,326

 

 

$108,576

 

 

During the nine months ended September 30, 2023 and 2022, the Company paid $113,508 and $112,036 lease expense in cash, respectively.

 

Weighted-average remaining lease term and discount rate for operating leases are as follows:

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Weighted-average remaining lease term

 

 

1.4

 

 

 

2.1

 

 

NOTE 7 - INTELLECTUAL PROPERTY/ LICENSING RIGHTS

 

On October 12, 2018 the Company’s majority owned subsidiary, BioCorRx Pharmaceuticals Inc. acquired six patent families for sustained delivery platforms for the local delivery of biologic and small molecule drugs for an aggregate purchase price of $15,200. Amortization is computed on straight-line method based on estimated useful lives of 13 years. During the three months ended September 30, 2023 and 2022, the Company recorded amortization expense of $295 and $294, respectively. During the nine months ended September 30, 2023 and 2022, the Company recorded amortization expense of $884 and $884, respectively. As of September 30, 2023, the accumulated amortization of these patents was $5,878

 

The future amortization of the patents are as follows:

 

Year

 

Amount

 

2023

 

 

285

 

2024

 

 

1,169

 

2025

 

 

1,169

 

2026

 

 

1,169

 

2027 and after

 

 

5,530

 

 

 

$9,322

 

 

 
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NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consisted of the following as of September 30, 2023 and December 31, 2022:

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Accounts payable

 

$2,389,884

 

 

$2,013,250

 

Interest payable on notes payable

 

 

1,246,085

 

 

 

1,206,753

 

Interest payable on notes payable, related parties

 

 

439,402

 

 

 

332,567

 

Deferred insurance

 

 

13,650

 

 

 

-

 

Accrual of loss on contingency

 

 

322,000

 

 

 

322,000

 

Interest payable on EIDL loan

 

 

5,711

 

 

 

5,860

 

Accrued expenses

 

 

26,835

 

 

 

27,524

 

 

 

$4,443,567

 

 

$3,907,954

 

 

NOTE 9 - NOTES PAYABLE

 

As of September 30, 2023 and December 31, 2022, the Company had an advance from a third party. The advance bears no interest and is due on demand. The balance outstanding as of September 30, 2023 and December 31, 2022 is $21,480.

 

On September 9, 2021, the Company issued an unsecured promissory note payable to one third party for $200,000 with principal and interest due June 8, 2022, with a stated interest rate of 25% per annum. The balance outstanding as of September 30, 2023 and December 31, 2022 is $200,000. The interest expense during the three months ended September 30, 2023 and 2022 were $12,602. The interest expense during the nine months ended September 30, 2023 and 2022 were $37,397. If the Company fails to make any payment due under the terms of the promissory note, the Company shall issue a warrant to the third party to which the number of common shares that the third party has the right to purchase equals 48,309 common shares. The warrant shall have a term of 3 years with an exercise price of $4.14 and shall be equitably adjusted to offset the effect of any stock splits and similar events. On June 8, 2022, the Company issued the warrant that entitles the third party to purchase 48,309 common shares due to the loan default. The fair value of the warrant on June 8, 2022 was $86,821, which the Company recognized as interest expense.

 

On October 6, 2022, the Company issued an unsecured promissory note payable to a third party for $100,000 with principal and interest due October 6, 2023, with a stated interest rate of 12.5% per annum. Under the terms of the note the Company shall pay quarterly interest payments of $3,125. The balance outstanding as of September 30, 2023 and December 31, 2022 was $100,000. The interest expense during the three months ended September 30, 2023 was $3,150.  The interest expense during the nine months ended September 30, 2023 was $9,349. The Company made an interest payment of $9,375 during the nine months ended September 30, 2023. If the Company fails to make any payment due under the terms of the promissory note, the stated interest rate of the note shall be increased to 25%. As additional consideration for the loan the Company issued 16,500 shares of common stock and valued at $31,350, which was recognized as debt discount. During the three months ended September 30, 2023, the Company amortized $7,902 of debt discount as interest expense. During the nine months ended September 30, 2023, the Company amortized $23,448 of debt discount as interest expense.

 

On January 25, 2023, the Company issued an unsecured promissory note payable to a third party for $50,000 with principal and interest due January 25, 2024, with a stated interest rate of 12.5% per annum. Under the terms of the note the Company shall pay quarterly interest payments of $1,563. The balance outstanding as of September 30, 2023 was $50,000. The interest expense during the three months ended September 30, 2023 was $1,576.  The interest expense during the nine months ended September 30, 2023 was $4,264. The Company made an interest payment of $3,125 during the nine months ended September 30, 2023. If the Company fails to make any payment due under the terms of the promissory note, the stated interest rate of the note shall be increased to 20%. As additional consideration for the loan the Company issued 4,285 shares of common stock and valued at $6,000, which was recognized as debt discount. During the three months ended September 30, 2023, the Company amortized $1,513 of debt discount as interest expense. During the nine months ended September 30, 2023, the Company amortized $4,093 of debt discount as interest expense.

 

 
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On September 6, 2023, the Company issued an unsecured promissory note payable to one third party for $150,000 with principal and interest due September 6, 2024, with a stated interest rate of 8% per annum. The third party has the option to select the repayment in cash or in stock of the Company at $2.00 per share. The balance outstanding as of September 30, 2023 was $150,000. The interest expense during the three months ended September 30, 2023 was $822.  The interest expense during the nine months ended September 30, 2023 was $822. If the Company fails to make any payment due under the terms of the promissory note, the interest rate shall increase to 15% per annum. In connection with the issuance of the promissory note, the Company issued the warrant that entitles the third party to purchase 150,000 common shares. The warrant shall have a term of three years with an exercise price of $2.00 and shall be equitably adjusted to offset the effect of any stock splits and similar events. The Company allocated the proceeds based on the relative fair value of the debt and the warrants, resulting in the recognition of $88,820 of debt discount on such promissory note. As additional consideration for the debt, the Company issued 18,000 shares of common stock valued at $30,240, which was also recognized as debt discount. During the three months ended September 30, 2023, the Company amortized $8,155 of debt discount as interest expense. During the nine months ended September 30, 2023, the Company amortized $8,155 of debt discount as interest expense.

 

The interest expense during the three months ended September 30, 2023 and 2022 were $36,883 and $13,624, respectively. The interest expense during the nine months ended September 30, 2023 and 2022 were $90,412 and $127,226, respectively. As of September 30, 2023 and December 31, 2022, the accumulated interest on notes payable was $1,246,085 and $1,206,753, respectively, and was included in accounts payable and accrued expenses on the balance sheet.

 

The outstanding notes payables as of September 30, 2023 and December 31, 2022 were summarized as below:

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Advances from a third party

 

$21,480

 

 

$21,480

 

Promissory note payable dated September 9, 2021

 

 

200,000

 

 

 

200,000

 

Promissory note payable dated October 6, 2022, net of debt discount of $430 and $23,878, respectively

 

 

99,570

 

 

 

76,122

 

Promissory note payable dated January 25, 2023, net of debt discount of $1,907 and $0, respectively

 

 

48,093

 

 

 

-

 

Promissory note payable dated September 6, 2023, net of debt discount of $110,905 and $0, respectively

 

 

39,095

 

 

 

-

 

 

 

$408,238

 

 

$297,602

 

 

NOTE 10 - NOTES PAYABLE-RELATED PARTIES

 

As of September 30, 2023 and December 31, 2022, the Company had advances from Kent Emry (Chairman of the Company). The balance outstanding as of September 30, 2023 and December 31, 2022 was $1,500.

 

On January 22, 2013, the Company issued an unsecured promissory note payable to Kent Emry (Chairman of the Board) 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 were 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 principal and interest. The balance outstanding as of September 30, 2023 and December 31, 2022 was $163,610.

 

On September 9, 2021, the Company issued an unsecured promissory note payable to Kent Emry for $500,000 with principal and interest due June 8, 2022, with a stated interest rate of 25% per annum. The balance outstanding as of September 30, 2023 and December 31, 2022 is $500,000. The interest expense during the three months ended September 30, 2023 and 2022 were $31,507. The interest expense during the nine months ended September 30, 2023 and 2022 were $93,493. If the Company fails to make any payment due under the terms of the promissory note, the Company shall issue a warrant to Kent Emry to which the number of common shares that Kent Emry has the right to purchase equals 119,617 common shares. The warrant shall have a term of three years with an exercise price of $4.14 and shall be equitably adjusted to offset the effect of any stock splits and similar events. On June 8, 2022, the Company issued the warrant that entitles Kent Emry to purchase 119,617 common shares due to the loan default. The fair value of the warrant on June 8, 2022 was $214,975, which the Company recognized as interest expense - related party.

 

 
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On September 20, 2022, the Company received $20,000 advances from Louis C Lucido, a member of the Company’s Board of Directors. The balance outstanding as of September 30, 2023 and December 31, 2022 was $20,000.

 

On November 1, 2022, the Company issued an unsecured promissory note payable to Louis C Lucido for $300,000 with principal and interest due November 1, 2023, with a stated interest rate of 5% per annum. Under the terms of the note the Company shall pay quarterly interest payments of $3,750. On April 3, 2023, the Company entered into the Louis 2023 Exchange Agreement, pursuant to which Mr. Lucido agreed to exchange of the promissory note then outstanding of $300,000 and the accrued interest on the promissory note of $13,892 into the Company’s 183,606 shares of common stock at $1.71 per share, resulting in the recognition of $34,338 of loss on settlement of debt. The balance outstanding as of September 30, 2023 and December 31, 2022 was $0 and $300,000. As the Company failed to make a payment due under the terms of the promissory note, the stated interest rate of the note was increased to 20% on February 1, 2023. The interest expense during the three months ended September 30, 2023 was $0. The interest expense during the nine months ended September 30, 2023 was $11,386. As additional consideration for the loan the Company issued 33,000 shares of common stock and valued at $59,400, which was recognized as debt discount. During the three months ended September 30, 2023, the Company amortized $0 of debt discount as interest expense. During the nine months ended September 30, 2023, the Company amortized $15,135 of debt discount as interest expense. The remaining debt discount was written off as a loss on settlement of debt during the nine months ended September 30, 2023.

 

On December 8, 2022, the Company received $55,000 advances from Mr. Lucido. The balance outstanding as of September 30, 2023 and December 31, 2022 was $55,000.

 

On March 16, 2023, the Company received $50,000 advances from Mr. Lucido. The balance outstanding as of September 30, 2023 and December 31, 2022 was $50,000.

 

During the nine months ended September 30, 2023, the Company received $143,273 advances from Lourdes Felix. The balance outstanding as of September 30, 2023 was $108,273.

 

On August 29, 2023, the Company issued an unsecured promissory note payable to Louis C Lucido for $150,000 with principal and interest due August 29, 2024, with a stated interest rate of 8% per annum. The promissory note, together with all accrued interest, shall be converted into common shares at a conversion price of $2.00 per share on or before August 29, 2024. The balance outstanding as of September 30, 2023 was $150,000. The interest expense during the three months ended September 30, 2023 was $1,052.  The interest expense during the nine months ended September 30, 2023 was $1,052. In connection with the issuance of the promissory note, the Company issued the warrant that entitles Mr. Lucido to purchase 150,000 common shares. The warrant shall have a term of three years with an exercise price of $2.00 and shall be equitably adjusted to offset the effect of any stock splits and similar events. The Company allocated the proceeds based on the relative fair value of the debt and the warrants, resulting in the recognition of $87,724 of debt discount on such promissory note. As additional consideration for the debt, the Company issued 18,000 shares of common stock valued at $29,340, which was also recognized as debt discount. During the three months ended September 30, 2023, the Company amortized $10,262 of debt discount as interest expense. During the nine months ended September 30, 2023, the Company amortized $10,262 of debt discount as interest expense.

 

The interest expense – related parties during the three months ended September 30, 2023 and 2022 were $169,582 and $239,487, respectively, which includes the amortization of royalty obligations as interest expense of $121,774 and $121,774, respectively (see Note 12). The interest expense – related parties during the nine months ended September 30, 2023 and 2022 were $501,787 and $765,105, respectively, which includes the amortization of royalty obligations as interest expense of $355,662 and $355,662, respectively (see Note 12). As of September 30, 2023 and December 31, 2022, the accumulated interest on related parties notes payable was $439,402 and $332,567, respectively, and was included in accounts payable and accrued expenses on the balance sheet.

 

 
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The outstanding notes payables to related parties as of September 30, 2023 and December 31, 2022 were summarized as below:

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Advances from Kent Emry

 

$1,500

 

 

$1,500

 

Advances from Louis C Lucido

 

 

125,000

 

 

 

75,000

 

Advances from Lourdes Felix

 

 

108,273

 

 

 

-

 

Promissory notes payables to Kent Emry

 

 

663,610

 

 

 

663,610

 

Promissory note payable to Louis C Lucido, net of debt discount of $106,802 and $49,473, respectively

 

 

43,198

 

 

 

250,527

 

 

 

$941,581

 

 

$990,637

 

 

NOTE 11 - ECONOMIC INJURY DISASTER LOAN

 

On July 17, 2020, the Company executed the standard loan documents required for securing a loan from SBA under its Economic Injury Disaster Loan assistance program in light of the impact of the COVID-19 pandemic on the Company’s business. Pursuant to the loan agreement, the principal amount of the Economic Injury Disaster Loan (“EIDL”) is $74,300, with proceeds to be used for working capital purposes. The EIDL loan is secured by the tangible and intangible personal property of the Company.

 

In accordance with the terms of the note: (i) interest accrues at the rate of 3.75% per annum, (ii) installment payments, including principal and interest, of $363 monthly, will begin thirty (30) months from the date of the promissory note, (iii) the balance of principal and interest will be payable over thirty (30) years from the date of the promissory note and (iv) SBA is granted a continuing security interest in and to any and all tangible and intangible personal property of the Company to secure payment and performance of all debts, liabilities and obligations of Borrower to SBA.

 

On April 28, 2020, the Company received $5,000 from the SBA as an advance on the EIDL, and the advance was forgiven during the prior period.

 

The interest expense during the three months ended September 30, 2023 and 2022 was $702. The interest expense during the nine months ended September 30, 2023 and 2022 was $2,084. As of September 30, 2023 and December 31, 2022, the accumulated interest on EIDL Loan was $5,711 and $5,860, respectively.

 

During the nine months ended September 30, 2023 and 2022, the Company made interest payment of $2,233 and $251, respectively.

 

The future principal payments are as follows:

 

Year

 

Amount

 

2023

 

$-

 

2024

 

 

-

 

2025

 

 

-

 

2026

 

 

16

 

2027

 

 

1,598

 

2028 and after

 

 

71,203

 

 

 

$72,817

 

 

 
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NOTE 12 - ROYALTY OBLIGATIONS, NET

 

In March 2019, the Company entered into two Subscription and Royalty Agreements (the “Subscription and Royalty Agreements”). One was with Louis and Carolyn Lucido CRT LLC, managed by Mr. Lucido, a member of the Company’s Board of Directors and the other one was with the J and R Galligan Revocable Trust, managed by Mr. Galligan, a holder of between 15% and 20% of the Company’s shares of common stock and a member of the Company’s Board of Directors. Pursuant to the Subscription and Royalty Agreements: (i) each party would purchase shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), in the aggregate amount of $3,000,000 at a purchase price of $15.00 per share (the “Purchase Price”), for a total of 200,000 shares of Common Stock; and (ii) the Company shall pay each (a) a total of $37.50 from the gross revenue derived from each of its weight loss treatments sold in the United States starting on the first (1st) day that the first unit of the treatment is sold (the “Initial Sales Date”) and ending on the third (3rd) anniversary of the Initial Sales Date; and (b) a total of $25.00 from the gross revenue derived from each of its weight loss treatments sold in the United States starting on the day following the third (3rd) anniversary of the Initial Sales Date and ending on the fifteenth (15th) anniversary of the Initial Sales Date (the “Royalty”).

  

The Company accounted for this transaction as debt in accordance with ASC 470-10-25 and derived a debt discount, which is amortized using the straight line method over the expected life of the arrangement, which is 15 years. The Company has no obligation to repay the then outstanding balance if during the expected life of 15 years the treatment is discontinued. In order to record the discount of the liability, the Company fair valued the royalty and the difference between fair value of the royalty obligation and the gross projected future payments was $7,171,200 and was recorded as non-cash interest expense over the life of the liability and offset to additional paid in capital at inception.

 

During the three months ended September 30, 2023 and 2022, the Company amortized $121,774 as interest expense. During the nine months ended September 30, 2023 and 2022, the Company amortized $355,662 as interest expense.

 

NOTE 13 - STOCKHOLDERS’ EQUITY/(DEFICIT)

 

Convertible Preferred stock

 

The Company is authorized to issue 600,000 shares of preferred stock with no par value. As of September 30, 2023 and December 31, 2022, the Company had 80,000 shares of Series A preferred stock and 160,000 shares of Series B preferred stock issued and outstanding.

 

As of September 30, 2023 and December 31, 2022, each share of Series A preferred stock is entitled to one thousand (1,000) votes and is convertible into one share of common stock. 30,000 shares of Series A Preferred Stock are owned by management. The Series A Preferred Stock is not entitled to dividends and there are no liquidation rights associated with Series A. Each share of Series A Preferred Stock may be converted, at the option of the holder each share of Series A Preferred Stock may be converted equal to one (1) fully paid and nonassessable share of Common Stock, par value $0.001.

 

As of September 30, 2023 and December 31, 2022, each share of Series B stock is entitled to two thousand (2,000) votes and is convertible into one share of common stock. 120,000 shares of Series B Preferred Stock are owned by management. The Series B Preferred Stock is not entitled to dividends and there are no liquidation rights associated with Series B. Each share of Series B Preferred Stock may be converted, at the option of the holder each share of Series B Preferred Stock may be converted equal to one (1) fully paid and nonassessable share of Common Stock, par value $0.001.

 

Common stock

 

Nine months ended September 30, 2022

 

During the nine months ended September 30, 2022, the Company issued an aggregate of 65,866 shares of its common stock for services rendered valued at $191,805 based on the underlying market value of the common stock at the date of issuance, among which 29,750 shares valued at $