10-Q out !!! Not bad
Quarterly Report (10-q)
Source: Edgar (US Regulatory)
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, 2016
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: 000-54208
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.)
2390 East Orangewood Avenue, Suite 575
Anaheim, California 92806
(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 17, 2016, there were 166,094,501 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, 2016 (unaudited) and December 31, 2015
3
Condensed consolidated statements of operations for the three and six months ended June 30, 2016 and 2015 (unaudited)
4
Condensed consolidated statement of stockholders' deficit for the six months ended June 30, 2016 (unaudited)
5
Condensed consolidated statements of cash flows for the six months ended June 30, 2016 and 2015 (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
29
ITEM 4.
Controls and Procedures
29
PART II. OTHER INFORMATION
ITEM 1.
Legal Proceedings
30
ITEM 1A.
Risk Factors
30
ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds
30
ITEM 3.
Defaults Upon Senior Securities
30
ITEM 4.
Mine Safety Disclosures
30
ITEM 5.
Other Information
30
ITEM 6.
Exhibits
30
SIGNATURES
31
2
Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOCORRX INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30,
December 31,
2016
2015
(unaudited)
ASSETS
Current assets:
Cash
$ 1,174,817
$ 220,060
Accounts receivable, net
9,500
2,750
Other accounts receivable
25,000
25,000
Prepaid expenses
24,467
64,253
Total current assets
1,233,784
312,063
Property and equipment, net
16,656
3,900
Other assets:
Restricted cash
250,000
-
Prepaid expenses, long term
3,553
8,573
Intellectual property, net
55,648
1,075,400
Deposits, long term
22,968
5,334
Total other assets
332,169
1,089,307
Total assets
$ 1,582,609
$ 1,405,270
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses, including related party payables of $301,017 and $731,666, respectively
$ 815,846
$ 1,256,956
Deferred revenue, short term
432,836
635,613
Settlement payable
250,000
-
Convertible notes payable, short term, net of debt discount
-
21,134
Notes payable, net of debt discount, short term portion
518,660
1,461,256
Notes payable, net of debt discount, related party
216,614
269,635
Derivative liability
-
110,753
Total current liabilities
2,233,956
3,755,347
Long term debt:
Deferred revenue, long term
831,625
844,673
Convertible notes payable, long term, net of debt discount
314,749
5,530
Warrant liability
20,706
22,746
Derivative liability
2,699,418
59,778
Total long term debt
3,866,498
932,727
Total liabilities
6,100,454
4,688,074
Commitments and contingencies (Note 16)
Stockholders' deficit:
Preferred stock, no par value; 80,000 designated; 80,000 shares issued and outstanding as of June 30, 2016 and December 31, 2015
16,000
16,000
Common stock, $0.001 par value; 200,000,000 shares authorized, 165,394,501 and 164,144,501 shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively
165,395
164,145
Common stock subscribed
100,000
100,000
Additional paid in capital
10,033,991
9,667,934
Accumulated deficit
(14,833,231 )
(13,230,883 )
Total stockholders' deficit
(4,517,845 )
(3,282,804 )
Total liabilities and stockholders' deficit
$ 1,582,609
$ 1,405,270
See the accompanying notes to the unaudited condensed consolidated financial statements
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BIOCORRX INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended
June 30,
Six months ended
June 30,
2016
2015
2016
2015
Revenues, net
$ 187,912
$ 457,780
$ 418,325
$ 733,245
Operating expenses:
Cost of implants and other costs
46,185
108,750
86,638
120,250
Selling, general and administrative
553,224
465,325
944,463
703,393
Termination of licensing agreement
-
3,639,694
132,804
3,639,694
Loss on settlement of sub-licenses
-
118,027
-
118,027
Depreciation and amortization
795
33,723
1,368
67,289
Total operating expenses
600,204
4,365,519
1,165,273
4,648,653
Loss from operations
(412,292 )
(3,907,739 )
(746,948 )
(3,915,408 )
Other income (expenses):
Interest expense, net
(223,127 )
(62,805 )
(388,359 )
(162,654 )
(Loss) gain on change in fair value of derivative liability
(438,344 )
199,824
(467,041 )
104,168
Total other income (expenses)
(661,471 )
137,019
(855,400 )
(58,486 )
Loss before income taxes
(1,073,763 )
(3,770,720 )
(1,602,348 )
(3,973,894 )
Income taxes
-
-
-
-
Net loss
$ (1,073,763 )
$ (3,770,720 )
$ (1,602,348 )
$ (3,973,894 )
Net loss per common share, basic and diluted
$ (0.01 )
$ (0.02 )
$ (0.01 )
$ (0.03 )
Weighted average number of common shares outstanding, basic and diluted
165,394,501
151,757,578
165,166,479
150,453,147
See the accompanying notes to the unaudited condensed consolidated financial statements
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BIOCORRX INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
SIX MONTHS ENDED JUNE 30, 2016
Common
Additional
Preferred stock
Common stock
stock
Paid in
Accumulated
Shares
Amount
Shares
Amount
Subscribed
Capital
Deficit
Total
Balance, December 31, 2015
80,000
$ 16,000
164,144,501
$ 164,145
$ 100,000
$ 9,667,934
$ (13,230,883 )
$ (3,282,804 )
Common stock issued for services rendered
-
-
1,250,000
1,250
-
23,750
-
25,000
Reclassify fair value of debt derivative at payoff of note payable
-
-
-
-
-
262,271
-
262,271
Change in fair value of modifications of options
-
-
-
-
-
53,858
-
53,858
Fair value of vested options
-
-
-
-
-
26,178
-
26,178
Net loss
-
-
-
-
-
-
(1,602,348 )
(1,602,348 )
Balance, June 30, 2016 (unaudited)
80,000
$ 16,000
165,394,501
$ 165,395
$ 100,000
$ 10,033,991
$ (14,833,231 )
$ (4,517,845 )
See the accompanying notes to the unaudited condensed consolidated financial statements
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BIOCORRX INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30,
2016
2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
$ (1,602,348 )
$ (3,973,894 )
Adjustments to reconcile net loss to cash flows used in operating activities:
Depreciation and amortization
1,368
67,289
Bad debt expense
8,750
37,622
Loss on settlement of sub-license
-
118,027
Termination of licensing agreement
132,804
3,639,694
Non-cash interest
21,722
86,320
Amortization of debt discount
286,627
14,408
Stock based compensation
101,217
137,518
Change in fair value of option modifications
53,858
-
Change in fair value of derivative liabilities
467,041
(104,168 )
Changes in operating assets and liabilities:
Accounts receivable
(15,500 )
(88,661 )
Prepaid expenses and other current assets
(5,233 )
(3,930 )
Accounts payable and accrued expenses
(245,265 )
201,856
Settlement payable
-
(165,000 )
Deferred revenue
(215,826 )
(361,930 )
Net cash used in operating activities
(1,010,785 )
(394,849 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment
(14,124 )
-
Payment of long term deposit
(17,634 )
-
Payment for intellectual property
(55,648 )
-
Net cash used in investing activities
(87,406 )
-
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable
-
-
Proceeds from convertible notes payable
2,264,448
75,000
Proceeds from advances
-
400,000
Repayments of notes payable
(211,500 )
(5,419 )
Net cash provided by financing activities
2,052,948
469,581
Net increase in cash
954,757
74,732
Cash, beginning of the period
220,060
53,120
Cash, end of period
$ 1,174,817
$ 127,852
Supplemental disclosures of cash flow information:
Interest paid
$ -
$ 2,418
Taxes paid
$ -
$ -
Non-cash financing activities:
Reclassify fair value of debt derivative at payoff of note payable
$ 262,271
$ -
Note payable issued in settlement of sub-licensing fees
$ -
$ 900,000
Note payable and common stock issuable to acquire intellectual property
$ -
$ 1,132,000
See the accompanying notes to the unaudited condensed consolidated financial statements
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BIOCORRX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2016
(unaudited)
NOTE 1 – BUSINESS
BioCorRx Inc., through its wholly owned subsidiary Fresh Start Private, Inc., distributes and licenses the BioCorRx Recovery 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/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, 2015, 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, 2016 are not necessarily indicative of results that may be expected for the year ending December 31, 2016. 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, 2015 included in the Company's Annual Report on Form 10-K, filed with the Securities and Exchange Commission ("SEC") on April 14, 2016.
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 proprietary products and protocols to customers under licensing agreements that allow those customers to utilize the products and protocols 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 products and protocols and additional royalties on covered services.
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BIOCORRX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2016
(unaudited)
Revenue is only recognized after all of the following criteria are met: (1) written agreements have been executed; (2) delivery of products 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 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 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.
Concentrations of Credit Risk
Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents. The Company places its cash and temporary cash investments with credit quality institutions. At times, such amounts may be in excess of the FDIC insurance limit. At June 30, 2016 and 2015, deposits in excess of FDIC limits were $1,174,817 and $-0-, respectively.
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 $53,250 and $44,500 as of June 30, 2016, December 31, 2015, 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 June 30, 2016 and December 31, 2015. 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 9 and 11 for derivative liabilities and Footnote 12 and 13 for stock based compensation and other equity instruments.
Restricted Cash
The Company is required to maintain in its bank accounts at all times no less than 10% of the outstanding principle of its convertible debt issued June 10, 2016. The amount held may be reduced upon noteholder approval. The Cash held must be unrestricted and not subject to any liens. As of June 30, 2016, the Company's restricted cash balance of $250,000 was classified as other assets in the accompanying balance sheet.
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BIOCORRX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2016
(unaudited)
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.
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, 2016 and 2015, potentially dilutive shares issuances were comprised of convertible notes, warrants and stock options.
The following potentially dilutive securities have been excluded from the computations of weighted average shares outstanding as of June 30, 2016 and 2015, as they would be anti-dilutive:
June 30,
2016
2015
Shares underlying options outstanding
47,850,000
15,350,000
Shares underlying warrants outstanding
2,630,000
2,630,000
Shares underlying convertible notes outstanding
50,000,000
1,833,333
100,480,000
19,813,333
Advertising
The Company follows the policy of charging the costs of advertising to expense as incurred. The Company charged to operations $70,222 and $138,744 as advertising costs for the three and six months ended June 30, 2016 and $9,019 and $52,377 for the three and six months ended June 30, 2015, 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, 2016 and December 31, 2015, the Company did not have any derivative instruments that were designated as hedges.
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BIOCORRX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2016
(unaudited)
At June 30, 2016 and December 31, 2015, the Company had outstanding convertible notes and warrants that contained embedded derivatives. These embedded derivatives include certain conversion features and reset provisions. (See Note 9 and Note 11).
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, 2016, there were 47,850,000 stock options outstanding, of which 14,850,000 were vested and exercisable, respectively. As of June 30, 2015, there were 15,350,000 stock options outstanding with 15,350,000 were 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, 2016 and 2015 related to losses incurred during such periods.
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