UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x

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

 

For the quarterly period ended September 30, 2017

 

¨

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)

 

(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, 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

x

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 x

 

As of November 14, 2017, there were 243,236,285 shares of registrant’s common stock outstanding.

 

 
 
 

 

TABLE OF CONTENTS

 

PART I.

FINANCIAL INFORMATION

 

ITEM 1.

Financial Statements

3

 

Condensed consolidated balance sheets as of September 30, 2017 (unaudited) and December 31, 2016

 

3

 

Condensed consolidated statements of operations for the three and nine months ended September 30, 2017 and 2016 (unaudited)

 

4

 

Condensed consolidated statement of stockholders’ deficit for the nine months ended September 30, 2017 (unaudited)

 

5

 

Condensed consolidated statements of cash flows for the nine months ended September 30, 2017 and 2016 (unaudited)

 

6

 

Notes to condensed consolidated financial statements (unaudited)

 

7-23

 

ITEM 2.

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

 

24

 

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

 

31

 

ITEM 4.

Controls and Procedures

 

31

 

 

PART II.

OTHER INFORMATION

 

 

ITEM 1.

Legal Proceedings

 

32

 

ITEM 1A.

Risk Factors

 

32

 

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

32

 

ITEM 3.

Defaults Upon Senior Securities

 

32

 

ITEM 4.

Mine Safety Disclosures

 

32

 

ITEM 5.

Other Information

 

32

 

ITEM 6.

Exhibits

 

33

 

 

SIGNATURES

 

34

 

 
2
 
 

 

PART 1 – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

BIOCORRX INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

 

 

(unaudited)

 

 

 

 

ASSETS

Current assets:

 

 

 

 

 

 

Cash

 

$ 283,541

 

 

$ 92,455

 

Accounts receivable, net

 

 

19,375

 

 

 

-

 

Prepaid expenses

 

 

13,324

 

 

 

8,400

 

Total current assets

 

 

316,240

 

 

 

100,855

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

17,579

 

 

 

22,164

 

 

 

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

 

 

 

Restricted cash

 

 

50,000

 

 

 

50,000

 

Intellectual property, net

 

 

258,919

 

 

 

279,729

 

Deposits, long term

 

 

17,634

 

 

 

17,634

 

Total other assets

 

 

326,553

 

 

 

347,363

 

 

 

 

 

 

 

 

 

 

Total assets

 

$ 660,372

 

 

$ 470,382

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses, including related party payables of $84,063 and $195,584, respectively

 

$ 675,839

 

 

$ 937,938

 

Deferred revenue, short term

 

 

250,818

 

 

 

432,836

 

Settlement payable

 

 

30,000

 

 

 

315,000

 

Convertible notes payable, short term, net of debt discount

 

 

-

 

 

 

87,033

 

Notes payable, net of debt discount, short term portion

 

 

-

 

 

 

172,748

 

Notes payable, net of debt discount, related party

 

 

186,381

 

 

 

210,761

 

Derivative liability

 

 

-

 

 

 

294,807

 

Total current liabilities

 

 

1,143,038

 

 

 

2,451,123

 

 

 

 

 

 

 

 

 

 

Long term debt:

 

 

 

 

 

 

 

 

Deferred revenue, long term

 

 

416,582

 

 

 

613,428

 

Convertible notes payable, long term, net of debt discount

 

 

1,641,052

 

 

 

688,783

 

Warrant liability

 

 

85,663

 

 

 

26,903

 

Derivative liability

 

 

-

 

 

 

4,820,473

 

Total long term debt

 

 

2,143,297

 

 

 

6,149,587

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

3,286,335

 

 

 

8,600,710

 

 

 

 

 

 

 

 

 

 

Stockholders' deficit:

 

 

 

 

 

 

 

 

Preferred stock, no par value and $0.001 par value; 600,000 authorized as of September 30, 2017 and December 31, 2016

 

 

 

 

 

 

 

 

Preferred stock, no par value; 80,000 designated; 80,000 shares issued and outstanding as of September 30, 2017 and December 31, 2016

 

 

16,000

 

 

 

16,000

 

Series B Preferred stock, no par value; 160,000 designated; 160,000 shares issued and outstanding as of September 30, 2017 and December 31, 2016

 

 

5,616

 

 

 

5,616

 

Common stock, $0.001 par value; 525,000,000 shares authorized, 243,136,285 and 181,804,501 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively

 

 

243,136

 

 

 

181,805

 

Common stock subscribed

 

 

100,000

 

 

 

100,000

 

Additional paid in capital

 

 

44,277,840

 

 

 

10,701,116

 

Accumulated deficit

 

 

(47,268,555 )

 

 

(19,134,865 )

Total stockholders' deficit

 

 

(2,625,963 )

 

 

(8,130,328 )

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' deficit

 

$ 660,372

 

 

$ 470,382

 

 

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

September 30,

 

 

Nine months ended

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenues, net

 

$ 147,593

 

 

$ 167,598

 

 

$ 492,364

 

 

$ 585,923

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of implants and other costs

 

 

8,008

 

 

 

37,687

 

 

 

198,023

 

 

 

124,325

 

Research and development

 

 

107,460

 

 

 

-

 

 

 

159,030

 

 

 

-

 

Selling, general and administrative

 

 

687,228

 

 

 

626,941

 

 

 

1,972,521

 

 

 

1,571,404

 

Termination of licensing agreement

 

 

-

 

 

 

-

 

 

 

-

 

 

 

132,804

 

Depreciation and amortization

 

 

8,542

 

 

 

20,338

 

 

 

25,396

 

 

 

21,706

 

Total operating expenses

 

 

811,238

 

 

 

684,966

 

 

 

2,354,970

 

 

 

1,850,239

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(663,645 )

 

 

(517,368 )

 

 

(1,862,606 )

 

 

(1,264,316 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expenses):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on settlement of debt

 

 

-

 

 

 

-

 

 

 

285,924

 

 

 

-

 

Interest expense, net

 

 

(463,929 )

 

 

(214,192 )

 

 

(10,684,498 )

 

 

(602,551 )

Gain (loss) on change in fair value of derivative liability

 

 

25,483

 

 

 

(1,877,231 )

 

 

(15,872,510 )

 

 

(2,344,272 )

Total other income (expenses)

 

 

(438,446 )

 

 

(2,091,423 )

 

 

(26,271,084 )

 

 

(2,946,823 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(1,102,091 )

 

 

(2,608,791 )

 

 

(28,133,690 )

 

 

(4,211,139 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income taxes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$ (1,102,091 )

 

$ (2,608,791 )

 

$ (28,133,690 )

 

$ (4,211,139 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share, basic and diluted

 

$ (0.00 )

 

$ (0.02 )

 

$ (0.12 )

 

$ (0.03 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding, basic and diluted

 

 

242,538,459

 

 

 

168,832,544

 

 

 

229,106,534

 

 

 

166,397,421

 

 

See the accompanying notes to the unaudited condensed consolidated financial statements

  

 
4
 
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BIOCORRX INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT

NINE MONTHS ENDED SEPTEMBER 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

Series B
Preferred stock

 

 

Common stock

 

 

Common stock

 

 

Additional

Paid in

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Subscribed

 

 

Capital

 

 

Deficit

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2016

 

 

80,000

 

 

$ 16,000

 

 

 

160,000

 

 

$ 5,616

 

 

 

181,804,501

 

 

$ 181,805

 

 

$ 100,000

 

 

$ 10,701,116

 

 

$ (19,134,865 )

 

$ (8,130,328 )

Common stock issued for services rendered

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,003,118

 

 

 

4,003

 

 

 

-

 

 

 

280,855

 

 

 

-

 

 

 

284,858

 

Common stock issued in settlement of convertible debt

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

13,662,000

 

 

 

13,662

 

 

 

-

 

 

 

1,352,538

 

 

 

-

 

 

 

1,366,200

 

Sale of common stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

43,666,666

 

 

 

43,666

 

 

 

-

 

 

 

896,334

 

 

 

-

 

 

 

940,000

 

Reclassify fair value of debt derivative at modification of note payable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

30,806,073

 

 

 

-

 

 

 

30,806,073

 

Fair value of vested options

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

240,924

 

 

 

-

 

 

 

240,924

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(28,133,690 )

 

 

(28,133,690 )

Balance, September 30, 2017 (unaudited)

 

 

80,000

 

 

$ 16,000

 

 

 

160,000

 

 

$ 5,616

 

 

 

243,136,285

 

 

$ 243,136

 

 

$ 100,000

 

 

$ 44,277,840

 

 

$ (47,268,555 )

 

$ (2,625,963 )

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

 
5
 
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BIOCORRX INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

 

 

2017

 

 

2016

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$ (28,133,690 )

 

$ (4,211,139 )

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

25,396

 

 

 

21,706

 

Bad debt expense

 

 

20,375

 

 

 

8,750

 

Termination of licensing agreement

 

 

-

 

 

 

132,804

 

Non cash interest

 

 

9,363,244

 

 

 

21,722

 

Amortization of debt discount

 

 

1,085,856

 

 

 

474,217

 

Stock based compensation

 

 

525,782

 

 

 

287,617

 

Gain on settlement of debt

 

 

(285,924 )

 

 

-

 

Change in fair value of option modifications

 

 

-

 

 

 

53,858

 

Change in fair value of derivative liabilities

 

 

15,872,510

 

 

 

2,344,272

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(39,750 )

 

 

(45,500 )

Prepaid expenses and other current assets

 

 

(4,924 )

 

 

(10,349 )

Accounts payable and accrued expenses

 

 

13,823

 

 

 

(371,630 )

Settlement payable

 

 

(285,000 )

 

 

-

 

Deferred revenue

 

 

(378,864 )

 

 

(324,924 )

Net cash used in operating activities

 

 

(2,221,166 )

 

 

(1,618,596 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of equipment

 

 

-

 

 

 

(22,593 )

Payment of long term deposit

 

 

-

 

 

 

(17,634 )

Payment for intellectual property

 

 

-

 

 

 

(180,648 )

Net cash used in investing activities

 

 

-

 

 

 

(220,875 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from sale of common stock

 

 

940,000

 

 

 

-

 

Proceeds from convertible notes payable

 

 

1,660,000

 

 

 

2,264,448

 

Repayments of notes payable

 

 

(187,748 )

 

 

(564,412 )

Net cash provided by financing activities

 

 

2,412,252

 

 

 

1,700,036

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

 

191,086

 

 

 

(139,435 )

Cash, beginning of the period

 

 

92,455

 

 

 

220,060

 

 

 

 

 

 

 

 

 

 

Cash, end of period

 

$ 283,541

 

 

$ 80,625

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$ 10,507

 

 

$ 106,333

 

Taxes paid

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Non cash financing activities:

 

 

 

 

 

 

 

 

Reclassify fair value of debt derivative at payoff of note payable

 

$ -

 

 

$ 262,271

 

Reclassify fair value of debt derivative at note modification

 

$ 30,806,073

 

 

$ -

 

Common stock issued in settlement of convertible notes payable

 

$ 220,000

 

 

$ -

 

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

 
6
 
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BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(unaudited)

 

NOTE 1 – BUSINESS AND RECAPITALIZATION

 

BioCorRx Inc., through its subsidiaries, provides an innovative alcoholism and opioid addiction treatment program called the BioCorRx® Recovery Program, as well as research and development of related products that can empower patients to succeed in their overall recovery. We offer a unique treatment philosophy that combines medical intervention and a proprietary counseling program (plus peer support program) specifically tailored for the treatment of alcoholism and other substance abuse addictions for those receiving long-term naltrexone treatment. We are 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 and implantable naltrexone with the goal of future regulatory approval with the Food and Drug Administration.

 

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.

 

On July 28, 2016, the Company formed BioCorRx Pharmaceuticals, Inc., a Nevada Corporation, for the purpose of developing certain business lines. In connection with the formation, the, the newly formed sub issued 21.9% ownership to officers of the Company with the Company retaining 78.1%. As of September 30, 2017, there were no significant assets or liabilities in BioCorRx Pharmaceuticals, Inc., or operations since its formation.

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

 

Interim Financial Statements

 

The following (a) condensed consolidated balance sheet as of December 31, 2016, 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, 2017 are not necessarily indicative of results that may be expected for the year ending December 31, 2017. 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, 2016 included in the Company's Annual Report on Form 10-K, filed with the Securities and Exchange Commission ("SEC") on April 13, 2017.

 

Basis of presentation

 

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

 

 
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BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(unaudited)

 

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 is 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.

 

We license 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 our products and protocols and additional royalties on covered services.

 

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

 

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

 

Use of Estimates

 

The preparation of the 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 September 30, 2017 and December 31, 2016, deposits in excess of FDIC limits were $83,541 and $-0-, respectively.

 

 
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Table of Contents

 

BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(unaudited)

 

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 $99,625 and $119,000 as of September 30, 2017 and December 31, 2016, 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 September 30, 2017 and December 31, 2016. 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 10 and 12 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 September 30, 2017 and December 31, 2016, the Company's restricted cash balance of $50,000 was classified as other assets in the accompanying balance sheet.

 

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 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.

 

 
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BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(unaudited)

 

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, which is five years for furniture and all other equipment. Expenditures for maintenance and repairs are expensed as incurred.

 

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 September 30, 2017 and 2016, 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 for the three and nine months ended September 30, 2017 and 2016, as they would be anti-dilutive:

 

 

 

September 30,

2017

 

 

September 30,

2016

 

Shares underlying options outstanding

 

 

47,885,000

 

 

 

47,850,000

 

Shares underlying warrants outstanding

 

 

2,430,000

 

 

 

2,630,000

 

Shares underlying convertible notes outstanding

 

 

131,250,000

 

 

 

131,250,000

 

 

 

 

181,565,000

 

 

 

181,730,000

 

 

Advertising

 

The Company follows the policy of charging the costs of advertising to expense as incurred. The Company charged to operations $41,735 and $105,506 as advertising costs for the three and nine months ended September 30, 2017 and $60,034 and $198,778 for the three and nine months ended September 30, 2016, respectively.

 

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 $107,460 and $159,030 for the three and nine months ended September 30, 2017, respectively, and $-0- for the three and nine months ended September 30, 2016.

 

 
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BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(unaudited)

 

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 September 30, 2017 and December 31, 2016, the Company did not have any derivative instruments that were designated as hedges.

 

At September 30, 2017 and December 31, 2016, the Company had outstanding convertible notes and/or warrants that contained embedded derivatives. These embedded derivatives include certain conversion features and reset provisions. (See Note 10 and Note 12).

 

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 September 30, 2017, there were 47,885,000 stock options outstanding, of which 35,510,000 were vested and exercisable. As of September 30, 2016, there were 47,850,000 stock options outstanding, of which 18,750,000 were vested and exercisable.

 

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 condensed 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, 2017 and 2016, the Company has not recorded any unrecognized tax benefits.

 

Recent Accounting Pronouncements

 

In July 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments.

 

 
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BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(unaudited)

 

As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception.

 

Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company is currently reviewing the impact of adoption of ASU 2017-11 on its financial statements.

 

There are various other 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, 2017, the Company had cash of $283,541 and working capital deficit of $826,798. During the nine months ended September 30, 2017, the Company used net cash in operating activities of $2,221,166. 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.

 

During the nine months ended September 30, 2017, the Company raised $1,660,000 in cash proceeds from the issuance of convertible notes payable and $940,000 proceeds from the sale of common stock. The Company believes that its current cash on hand will be sufficient to fund its projected operating requirements through December 2017.

 

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.

 

Accordingly, the accompanying condensed 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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BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(unaudited)

 

NOTE 4 – PROPERTY AND EQUIPMENT

 

The Company's property and equipment at September 30, 2017 and December 31, 2016:

 

 

 

September 30,

2017

 

 

December 31,

2016

 

Office equipment

 

$ 34,234

 

 

$ 34,234

 

Computer equipment

 

 

2,574

 

 

 

2,574

 

 

 

 

36,808

 

 

 

36,808

 

Less accumulated depreciation

 

 

(19,229 )

 

 

(14,644 )

 

 

$ 17,579

 

 

$ 22,164

 

 

Depreciation expense charged to operations amounted to $1,529 and $4,586, respectively, for the three and nine months ended September 30, 2017; and $1,433 and $2,801, respectively, for the three and nine months ended September 30, 2016.

 

NOTE 5 – INTELLECTUAL PROPERTY/ LICENSING RIGHTS

 

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

 

On March 31, 2016, the parties agreed to terminate the above described acquisition and to cancel any and all obligations assumed under the agreement. In connection with the cancellation, the Company recorded a loss on termination of licensing agreement of $132,804.

 

On January 26, 2016, the Company entered into an asset purchase agreement to acquire intellectual and contractual rights for all of North America with the option for Central and South America for Naltrexone Implants formulas created by the Seller for 24 months upon receipt of the intellectual property for a fee of $55,648. The Company, within the first 12 months has the right to purchase perpetual rights for above territories for a one-time fee, financed over 5 years. The rights are amortized over the 24 month contract life. Amortization charged to operations amounted to $7,013 and $20,810, respectively, for the three and nine months ended September 30, 2017.

 

On July 28, 2016, the Company and Therakine, Ltd., an Irish private company limited by shares ("Therakine"), entered into a Development, Commercialization and License Agreement (the "Agreement"). Therakine has know-how and patents related to sustained release drug delivery technology (the "Technology"). Pursuant to the Agreement, Therakine granted the Company an exclusive license to utilize the Technology in developing injectable naltrexone products to treat patients suffering addiction to opioids, methamphetamines, cocaine, or alcohol. The Company is permitted to sell on a worldwide basis the products that utilize the Technology. The Agreement expires when the Company's last valid claim to Therakine's patents expires. Upon expiration of the Agreement, the licenses granted will become irrevocable and fully paid up.

 

 
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BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(unaudited)

 

The Company agreed to pay, in return for the license to the Technology, up to $2,750,000 in milestone payments and royalties ranging from 5% to 12% of net sales of products that use the Technology with aggregate payments per year of not less than $250,000. The Company is also required to pay a percentage of any sublicense income it receives related to products that use the Technology. In the event Therakine enters into a license agreement with a third party for products unrelated to injectable naltrexone that use the Technology, Therakine will pay the Company a percentage of its income from these products. As of September 30, 2017 and December 31, 2016, the Company has paid an aggregate of $250,000 of which $75,000 was held in escrow until certain drug levels are met at December 31, 2016.

 

In 2016, the Company assigned and Therakine agreed to assign the rights under the Therakine Agreement, to BioCorRx Pharmaceuticals, Inc., the Company majority owned subsidiary.

 

The Company amortizes license fees over the shorter of the economic life of the related contract life or contract terms for each licensee. The remaining unamortized aggregate balance of deferred revenue as of September 30, 2017 and December 31, 2016 was $667,400 and $1,046,264, respectively.

 

NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consisted of the following as of September 30, 2017 and December 31, 2016:

 

 

 

September 30,

2017

 

 

December 31,

2016

 

Amounts payable

 

$ 280,008

 

 

$ 768,345

 

Interest payable on notes payable

 

 

394,204

 

 

 

168,785

 

Deferred rent

 

 

1,627

 

 

 

808

 

 

 

$ 675,839

 

 

$ 937,938

 

 

During the nine months ended September 30, 2017, the Company settled old outstanding debt with vendors recognizing a $275,924 gain on settlement of debt.

 

NOTE 7 – SETTLEMENT PAYABLE

 

On March 9, 2016, Jorge Andrade (former Company's Chief Executive Officer) and Terranautical Global Investments, Inc. filed with the Eighth Judicial District Court in Clark County, Nevada a lawsuit claiming unpaid compensation, bonuses and previous loans in aggregate of $316,000 plus accrued interest and damages.

 

On March 21, 2016, the Plaintiff and the Company entered into a settlement agreement whereby the Company agreed to settle for a cash payment of $250,000 due December 16, 2016. On March 8, 2017, the settlement agreement was amended with an initial payment of $190,000 to be delivered by March 15, 2017 and the remaining balance of $60,000 shall be paid in twelve (12) monthly payments of $5,000 each through April 1, 2018. At March 21, 2016, the Company reclassified $195,845 accounts payable and $54,155 notes payable, related party to settlement payable in the accompanying balance sheet. As of September 30, 2017 and December 31, 2016, the outstanding balance due was $30,000 and $250,000, respectively.

 

 
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BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(unaudited)

 

NOTE 8 – NOTES PAYABLE

 

On July 7, 2014, the Company issued unsecured promissory notes in aggregate of $545,218 in settlement of previously issued convertible debentures dated April 3, 2013 and related accrued interest. The promissory notes include monthly payments of principal and interest, at 12% per annum, of $10,658 beginning August 15, 2014 through July 15, 2016 with the remaining unpaid balance due on or before July 15, 2016. During the nine months ended September 30, 2017, the Company paid as full settlement the remaining outstanding promissory note of $172,748.

 

NOTE 9 – CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITIES

 

BICX Holding Company LLC

 

On June 10, 2016, the Company issued to BICX Holding Company, LLC a $2,500,000 senior secured convertible promissory note due June 10, 2019 and bearing interest at 8% per annum due annually beginning June 10, 2018.

 

Under the terms of the note, the note holder may, at any time, convert the unpaid principal of the note, or any portion thereof, into shares of the Company's common stock at an initial conversion price equal to 25% of the Company's total authorized common stock, determined at $0.019 per share at the date of issuance. In addition, the note contained certain anti-dilution provisions, as defined.

 

The Company is required to maintain a cash balance of $50,000 of the outstanding principal amount at all times, unrestricted and lien free (as amended).

 

BICX Holding had the right, until December 10, 2016, to purchase another convertible note from the Company in a principal amount of up to $2,500,000 for a total aggregate purchase price of $5,000,000 (the “Maximum Purchase Price”). The Company and BICX Holding agreed to extend this deadline and, on March 3, 2017, the parties entered into a First Amendment to the Note (the “First Amendment”).

 

Pursuant to the First Amendment, BIXC Holding invested another $1,660,000 for a total aggregate purchase price of $4,160,000. Based on the amount invested, BICX Holding will return the Note and the Company will issue BICX Holding a new note for $4,160,000 convertible into 42.43% of the Company’s total authorized common stock. The other terms of the new note will be identical to the Note. Pursuant to the First Amendment, the parties agreed that BICX Holding does not have the right to appoint a consultant or, if the Company’s common stock is listed on a national securities exchange, an independent member of the Board. In addition, the Company is not entitled to a break-up fee.

 

On June 29, 2017, the parties entered into the Second Amendment to the Note Purchase Agreement and the March 2017 Note (the “Second Amendment”). The Second Amendment amends the March 2017 Note such that there is no longer an anti-dilution provision in the note. This provision in the March 2017 Note created a derivative liability for the Company which is no longer present.

 

In addition, the Second Amendment amends the March 2017 Note and the Note Purchase Agreement such that the Company agreed to not engage in any financing at a purchase price below the BIXC Holding purchase price. Finally, the Second Amendment amends the Note Purchase Agreement such that BICX Holding no longer has a right to participate in a subsequent financing in which the Company engages.

 

The note is secured by all of assets of the Company and is ranked senior to all of the Company's debt currently outstanding or hereafter, unless prohibited by law.

 

 
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BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(unaudited)

 

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

 

At inception of the 2017 additions, the Company determined the aggregate fair value of $11,023,244 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 167.85% to 168.32%, (3) weighted average risk-free interest rate of 1.26% to 1.37%, (4) expected life of 2.21 to 2.25 years, and (5) estimated fair value of the Company's common stock of $0.09 to 0.1122 per share.

 

The determined fair value of the debt derivatives of $11,023,244 was charged as a debt discount up to the net proceeds of the note with the remainder of $9,363,244 charged to current period operations as non-cash interest expense.

 

At June 29, 2017, the date of the Second Amendment modifying the above described note to eliminate the anti-dilutive provision, the Company determined the aggregate fair value the embedded derivatives of $30,806,073, recognizing a gain on change in fair value of $12,217,004 and reclassifying the determined fair value at June 29, 2017 of $30,806,073 to equity. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 169.77%, (3) weighted average risk-free interest rate of 1.38%, (4) expected life of 1.95 years, and (5) estimated fair value of the Company's common stock of $0.108 per share.

 

Hoppel/Vista Capital Promissory Notes payable

 

On October 20, 2016 , the Company issued to an aggregate of $220,000 Convertible Promissory Notes. The proceeds from the notes provides was up to an aggregate of $200,000 in net proceeds after taking into consideration an Original Issue Discount ("OID") of $20,000. The maturity date is six months from the date of issuance.

 

In connection with the issuance of the promissory notes, the Company issued 800,000 shares of its common stock as an inducement and is obligated to issue an additional 250,000 shares should the Company’s common stock close below $0.025 per share prior to full pay off of the notes. The fair value of the issued shares was charged as a debt discount at the time of issuance.

 

The Note is convertible after 180 days into shares of the Company's common stock at a conversion price equal to 60% discount to the lowest closing price of the common stock for the 25 trading days immediately prior the conversion date.

 

During the nine months ended September 30, 2017, the Company issued an aggregate of 13,662,000 shares of its common stock in full settlement of the above described notes.

 

Summary:

 

At September 30, 2017, the Company did not have convertible notes with embedded derivatives. The charge of the amortization of debt discounts and costs for the three and nine months ended September 30, 2017 was $374,989, and $1,085,236; and $187,017 and $412,510 for the three and nine months ended September 30, 2016, respectively, which was accounted for as interest expense.

 

 
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BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(unaudited)

 

NOTE 10 – NOTES PAYABLE-RELATED PARTY

 

As of September 30, 2017 and December 31, 2016, the Company received advances from Kent Emry (the former CEO of the Company), Scott Carley, and Neil Muller (the former President of the Company) as loans from related parties. The loans are payable on demand and without interest. In addition, the Company has issued unsecured, non-interest bearing demand notes to related parties. During the nine months ended September 30, 2017, the Company paid $15,000 on Mr. Emry’s note and Neil Muller settled $10,000 of outstanding debt. The balance outstanding as of September 30, 2017 and December 31, 2016 was $22,980 and $47,980, respectively.

 

On January 22, 2013, the Company issued a unsecured promissory note payable to Kent Emry 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 required interest payments initially due starting April 22, 2013. During the year ended December 31, 2014, the Company paid $36,390 principal and accrued interest towards the promissory note.

 

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

 

The Company recorded a debt discount of $11,250 based on the fair value of the Company's common stock at the issuance date of the promissory note. The discount is amortized ratably over the term on the notes. The note holder subsequently became an officer of the Company. The balance outstanding as of September 30, 2017 and December 31, 2016 was $163,610, with unamortized debt discount of $209 and $1,037, respectively.

 

NOTE 11 – WARRANT LIABILITY

 

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

 

At September 30, 2017, the fair value of the 1,155,000 warrants containing certain reset provisions were determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 164.24%, (3) weighted average risk-free interest rate of 1.20%, (4) expected life of 0.52 years, and (5) estimated fair value of the Company's common stock of $0.0868 per share.

 

The Company recorded a loss from change in fair value of warrant liability of debt derivatives of $58,760 for the nine months ended September 30, 2017.

 

At September 30, 2017, the warrant liability valued at $85,663, the Company believes an event under the contract that would create an obligation to settle in cash or other current assets is remote and has classified the obligation as a long term liability.

 

NOTE 12 – STOCKHOLDERS' DEFICIT

 

Preferred stock

 

The Company is authorized to issue 600,000 shares of preferred stock with no par value. As of September 30, 2017 and December 31, 2016, the Company had 80,000 shares of preferred stock and 160,000 shares of Series B preferred stock issued and outstanding.

 

 
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BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(unaudited)

 

Common stock

 

The Company is authorized to issue 525,000,000 shares of common stock with par value $.001 per share. As of September 30, 2017 and December 31, 2016, the Company had 243,136,285 shares and 181,804,501 shares of common stock issued and outstanding.

 

In January 2017, the Company issued an aggregate of 228,118 shares of its common stock for services rendered valued at $7,478 based on the underlying market value of the common stock at the date of issuance.

 

In February 2017, the Company issued 350,000 shares of its common stock for services rendered valued at $25,830 based on the underlying market value of the common stock at the date of issuance.

 

In February 2017, the Company issued 43,666,666 shares of its common stock in exchange for proceeds of $940,000.

 

In March 2017, the Company issued an aggregate of 13,662,000 shares of its common stock in settlement of $220,000 convertible notes payable.

 

In April 2017, the Company issued an aggregate of 1,675,000 shares of its common stock for services rendered valued at $62,850 based on the underlying market value of the common stock at the date of issuance.

 

In May 2017, the Company issued 750,000 shares of its common stock for services rendered valued at $102,750 based on the underlying market value of the common stock at the date of issuance.

 

In August 2017, the Company issued 500,000 shares of its common stock for services rendered valued at $43,000 based on the underlying market value of the common stock at the date of issuance.

 

In September 2017, the Company issued 500,000 shares of its common stock for services rendered valued at $42,950 based on the underlying market value of the common stock at the date of issuance.

 

NOTE 13 – STOCK OPTIONS AND WARRANTS

 

Options

 

Option valuation models require the input of highly subjective assumptions. The fair value of stock-based payment awards was estimated using the Black-Scholes option model with a volatility figure derived from using the Company's historical stock prices. The Company accounts for the expected life of options based on the contractual life of options for non-employees. For employees, the Company accounts for the expected life of options in accordance with the "simplified" method, which is used for "plain-vanilla" options, as defined in the accounting standards codification.

 

The risk-free interest rate was determined from the implied yields of U.S. Treasury zero-coupon bonds with a remaining life consistent with the expected term of the options.

 

The following assumptions were used in determining the fair value of employee and vesting options during the nine months ended September 30, 2017:

 

 
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BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(unaudited)

 

 

 

September 30, 2017

 

Risk-free interest rate

 

 

1.86 %

Dividend yield

 

 

0 %

Stock price volatility

 

 

171.77 %

Expected life

 

5.00 years

 

Weighted average grant date fair value

 

$ 0.1519

 

 

On May 25, 2017, the Company awarded options to purchase 35,000 shares of common stock to key consultant of the Company. These options vest immediately and have a term of 5 years. The options have an exercise price of $0.016 per share. The options had an aggregate grant date fair value of $5,318.

 

The following table summarizes the stock option activity for the nine months ended September 30, 2017:

 

 

 

Shares

 

 

Weighted-Average

Exercise Price

 

 

Weighted-Average

Remaining

Contractual Term

 

 

Aggregate

Intrinsic Value

 

Outstanding at December 31, 2016

 

 

47,850,000

 

 

$ 0.04

 

 

 

8.9

 

 

$ 326,700

 

Grants

 

 

35,000

 

 

 

0.016

 

 

 

5.0

 

 

 

 

 

Exercised

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Expired

 

 

-

 

 

 

 

 

 

 

-

 

 

 

-

 

Outstanding at September 30, 2017

 

 

47,885,000

 

 

$ 0.04

 

 

 

7.8

 

 

$ 2,349,878

 

Exercisable at September 30, 2017

 

 

35,510,000

 

 

$ 0.05

 

 

 

7.5

 

 

$ 1,524,466

 

 

The aggregate intrinsic value in the preceding tables represents the total pretax intrinsic value, based on options with an exercise price less than the Company's stock price of $0.0868 as of September 30, 2017, which would have been received by the option holders had those option holders exercised their options as of that date.

 

The following table presents information related to stock options at September 30, 2017:

 

Options Outstanding

 

 

Options Exercisable

 

 

 

 

 

 

 

Weighted Average

 

 

Exercisable

 

Exercise

 

 

Number of

 

 

Remaining Life

 

 

Number of

 

Price

 

 

Options

 

 

In Years

 

 

Options

 

 

 

 

 

 

 

 

 

 

 

 

$

0.01-0.025

 

 

 

33,035,000

 

 

 

8.7

 

 

 

20,660,000

 

0.0251-0.05

 

 

 

3,500,000

 

 

 

2.8

 

 

 

3,500,000

 

 

0.051

 

 

 

11,350,000

 

 

 

6.6

 

 

 

11,350,000

 

 

 

 

 

 

47,885,000

 

 

 

7.8

 

 

 

35,510,000

 

 

The stock-based compensation expense related to option grants was $83,853 and $240,924 during the three and nine months ended September 30, 2017, respectively; and $78,535 and $104,713 for the three and nine months ended September 30, 2016.

 

As of September 30, 2017, stock-based compensation related to options of $209,428 remains unamortized and is expected to be amortized over the weighted average remaining period of 9 months.

 

 
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BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(unaudited)

 

Warrants:

 

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

 

Warrants Outstanding

 

Warrants Exercisable

 

Exercise Prices

 

Number Outstanding

 

Weighted

Average

Remaining

Contractual

Life (Years)

 

Weighted

Average

Exercise

Price

 

Number

Exercisable

 

Weighted

Average

Remaining

Contractual

Life (Years)

 

$

0.25

 

1,275,000

 

1.77

 

$

0.25

 

1,275,000

 

1.77

 

1.00

 

1,155,000

 

0.50

 

1.00

 

1,155,000

 

0.50

 

$

0.58

 

2,430,000

 

1.16

 

$

0.61

 

2,430,000

 

1.16

 

The following table summarizes the warrant activity for the nine months ended September 30, 2017:

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price Per

Share

 

Outstanding at December 31, 2016

 

 

2,630,000

 

 

$ 0.58

 

Issued

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

Expired

 

 

(200,000 )

 

 

0.25

 

Outstanding at September 30, 2017

 

 

2,430,000

 

 

$ 0.61

 

 

NOTE 14 – RELATED PARTY TRANSACTIONS

 

The Company has an arrangement with Premier Aftercare Recovery Service, ("PARS"). PARS is a Company controlled by Neil Muller, a shareholder of the Company and prior officer of the Company, that provided consulting services to the Company. There is no formal agreement between the parties and the amount of remuneration was $14,583 per month. During the three and nine months ended September 30, 2017 and 2016, the Company incurred $-0-, as consulting fees and expense reimbursements. As of September 30, 2017 and December 31, 2016, there was an unpaid balance of $32,318 and $64,638, respectively.

 

The Company has an arrangement with Felix Financial Enterprises ("FFE"). FFE is a Company controlled by Lourdes Felix, an officer of the Company that provides consulting services to the Company. Until June 17, 2016, there was no formal agreement between the parties and the amount of remuneration is $14,583 per month. During the three and nine months ended September 30, 2017, the Company incurred $40,000 and $146,500, respectively, and during the three and nine months ended September 30, 2016, the Company incurred $40,000 and $126,756, respectively, as consulting fees. As of September 30, 2017 and December 31, 2016, there was an unpaid balance of $25,000 and $91,465, respectively.

 

On June 17, 2016, the Company entered into an executive service contract with Felix Financial Enterprises LLC to provide consulting services. The agreement is an at will agreement and provides for a base salary of $160,000 per year, 11,200,000 stock options, extended previously issued options and an auto allowance.

 

 
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BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(unaudited)

 

The Company had an arrangement with Brady Granier, an officer of the Company. Until June 17, 2016 there was no formal agreement between the parties and the amount of remuneration is $14,583 per month. For the three and nine months ended September 30, 2017 the Company incurred $0 and $30,727, respectively and during the three and nine months ended September 30, 2016, the Company incurred $43,750 and $131,250, respectively, as consulting fees. As of September 30, 2017 and December 31, 2016, there was an unpaid balance of $-0- and $64,481, respectively. Beginning in 2017, Mr. Granier preformed services under Soupface LLC (see below).

 

On June 17, 2016, the Company entered into an executive service contract with Brady Granier as the Company's President and Chief Executive Officer. The agreement is an at will agreement and provides for a base salary of $175,000 per year, 10,600,000 stock options, extended previously issued options and an auto allowance.

 

The Company has an arrangement with Soupface LLC ("Soupface"). Soupface is a Company controlled by Brady Granier, an officer of the Company that provides consulting services to the Company. There was no formal agreement between the parties and the amount of remuneration is $14,583 per month. For the three and nine months ended September 30, 2017 the Company incurred $43,750 and $134,375, respectively and during the three and nine months ended September 30, 2016, the Company incurred $0, as consulting fees. As of September 30, 2017 and December 31, 2016, there was an unpaid balance of $25,000 and $-0-, respectively.

 

On June 17, 2016, the Company entered into an executive service contract with Tom Welch as the Company's Vice President of Operations. The agreement is an at will agreement and provides for a base salary of $140,000 per year, 11,200,000 stock options, extended previously issued options and an auto allowance.

 

On July 28, 2016, the Company formed BioCorRx Pharmaceuticals, Inc. for the purpose of developing certain business lines. In connection with the formation, the, the newly formed sub issued 21.9% ownership to Brady Granier, Lourdes Felix and Kent Emry, current or former officers of the Company, with the Company retaining 78.1%. As of September 30, 2017, there were no significant transactions, assets or liabilities in BioCorRx Pharmaceuticals, Inc., or operations since its formation.

 

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

 

NOTE 15 – CONCENTRATIONS

 

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

 

The Company's revenues earned from sale of products and services for the three months ended September 30, 2017 included 21% from one customer of the Company's total revenues.

 

The Company's revenues earned from sale of products and services for the three months ended September 30, 2016 included 13%, 34%, 24% and 26% (aggregate of 97%) from four customers of the Company's total revenues.

 

The Company did not have a concentration for the nine months ended September 30, 2017.

 

The Company's revenues earned from sale of products and services for the nine months ended September 30, 2016 included 14% and 17% (aggregate of 31%) from two customers of the Company's total revenues.


 
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BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(unaudited)

 

Three customers accounted for 12%, 19% and 13% (aggregate of 44%) of the Company's total accounts receivable at September 30, 2017 and three customers accounted for 27%, 11% and 18% (aggregate of 56%) of the Company's total accounts receivable at December 31, 2016.

 

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

 

NOTE 16 – NON CONTROLLING INTEREST

 

On July 28, 2016, the Company formed BioCorRx Pharmaceuticals, Inc., a Nevada Corporation, for the purpose of developing certain business lines. In connection with the formation, the, the newly formed sub issued 21.9% ownership to officers of the Company with the Company retaining 78.1%. From inception through September 30, 2017, there were no significant transactions, assets or liabilities in BioCorRx Pharmaceuticals, Inc., or operations since its formation.

 

NOTE 17 – FAIR VALUE MEASUREMENTS

 

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

 

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

 

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

 

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

 

Items recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements consisted of the following items as of September 30, 2017:

 

 

 

Level 1

 

Level 2

 

Level 3

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

Warrant liability

 

 

 

 

 

 

85,663

 

 

 

85,663

 

 

 
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BIOCORRX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(unaudited)

Items recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements consisted of the following items as of December 31, 2016:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liability

 

$ -

 

 

$ -

 

 

$ 5,115,280

 

 

$ 5,115,280

 

Warrant liability

 

 

 

 

 

 

 

 

 

 

26,903

 

 

 

26,903

 

Total

 

$ -

 

 

$ -

 

 

$ 5,142,183

 

 

$ 5,142,183

 

 

The table below sets forth a summary of changes in the fair value of the Company's Level 3 financial liabilities from December 31, 2016 through September 30, 2017:

 

 

 

Debt Derivative Liability

 

 

Warrant

Liability

 

Balance, December 31, 2016

 

 

5,115,280

 

 

 

26,903

 

Transfers in (out):

 

 

 

 

 

 

 

 

Initial fair value of debt derivative at note issuance

 

 

11,023,244

 

 

 

-

 

Transfers out of Level 3 upon conversion and settlement of notes

 

 

(1,146,201 )

 

 

-

 

Transfers out of Level 3 upon note modification

 

 

(30,806,073 )

 

 

 

 

Mark-to-market at September 30, 2017:

 

 

 

 

 

 

 

 

Embedded derivative

 

 

15,813,750

 

 

 

58,760

 

Balance, September 30, 2017

 

$ -0-

 

 

$ 85,663

 

 

NOTE 18 – SUBSEQUENT EVENTS

 

Stock issuance


In October 2017, the Company issued an aggregate of 100,000 shares of its common stock for consulting services.

 

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

 

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

 

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

 

Business Overview

 

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

 

The BioCorRx Recovery Program is used for the treatment of alcoholism and opioid addiction consisting of a naltrexone implant that is placed under the skin in the lower abdomen coupled with a counseling/life coaching program which includes a series of modules to be used by trained counselors usually within 16 sessions, as well as 12 months of peer recovery support and tracking.

 

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

 

Our subsidiary, BioCorRx Pharmaceuticals, is focused on acquiring and the development of sustained release naltrexone products for the treatment of addiction and other possible disorders. Specifically, the company is developing injectable and implantable naltrexone with the goal of future regulatory approval with the Food and Drug Administration. Our pipeline includes BICX101 for the treatment of opioid addiction and alcoholism as well as a naltrexone implant (BICX102).

 

In August 2017, the Company announced that it had decided to seek FDA approval on BICX102 in advance of BICX101. The Company has formally requested a pre-IND meeting for BICX102 while also working on the IND application. The pre-IND meeting date for BICX102 has been scheduled for January 24, 2018.

 

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

 

BioCorRx does not condition its license to health care providers accessing the implant on their making available the Counseling Program to the providers' patients although BioCorRx certainly encourages that providers do so.

 

BioCorRx has issued several license and distribution agreements to several unrelated third parties involving the establishment of alcoholism and opioid addiction rehabilitation and treatment centers and creating certain addiction rehabilitation programs. The Company has continued to expand its operations in 2017 through distribution opportunities of its BioCorRx Recovery Program. There are 24 licensed providers throughout the United States that offer the BioCorRx Recovery Program. The company's current focus will continue on wider distribution across the United States, branding of the BioCorRx Recovery Program and acquisition of healthcare related products and services. The Company is committed to continuing to provide excellent rehabilitation products and services to healthcare providers nationwide as it expands the distribution of the BioCorRx Recovery Program to a network of independent licensed clinics and licensed healthcare professionals.

 

Amendment to Convertible Note Purchase Agreement Entered into with BICX Holding Company LLC

 

As previously disclosed, on June 14, 2016, the Company and BICX Holding Company LLC (“BICX Holding”) entered into a Senior Secured Convertible Note Purchase Agreement (the “Note Purchase Agreement”) and the Company issued and sold to BICX Holding an 8% Senior Secured Convertible Promissory Note (the “June 2016 Note”) in the principal amount of $2,500,000. BICX Holding is an entity controlled by Alpine Creek Capital Partners. In addition, as previously disclosed, on March 3, 2017, the parties entered into the First Amendment to the Note Purchase Agreement (the “First Amendment”). Pursuant to the First Amendment, BIXC Holding invested another $1,660,000 for a total aggregate purchase price of $4,160,000. Based on the amount invested, the Company issued a new note to replace the June 2016 Note (the “March 2017 Note”). The main differences between the June 2016 Note and the March 2017 Note are that the principal owed to BICX Holding is now $4,160,000 and the percentage of the Company’s total authorized common stock as of March 3, 2017 into which the March 2017 Note is convertible is now 42.43%. The March 2017 Note matures on March 3, 2020.

 

On June 29, 2017, the parties entered into the Second Amendment to the Note Purchase Agreement and the March 2017 Note (the “Second Amendment”). The Second Amendment amends the March 2017 Note such that there is no longer an anti-dilution provision in the note. This provision in the March 2017 Note created a derivative liability for the Company which is no longer present.

 

 
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In addition, the Second Amendment amends the March 2017 Note and the Note Purchase Agreement such that the Company agreed to not engage in any financing at a purchase price below the BIXC Holding purchase price. Finally, the Second Amendment amends the Note Purchase Agreement such that BICX Holding no longer has a right to participate in a subsequent financing in which the Company engages.

 

The March 2017 Note remains a long-term debt obligation that is material to the Company. The March 2017 Note contains certain events of default and, in the event of default, BICX Holding may, at its option, consider the March 2017 Note immediately due and payable.

 

Results of Operations

 

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

 

Three Months ended September 30, 2017 Compared with Three Months ended September 30, 2016

 

Three months ended September 30,

 

 

 

2017

 

 

2016

 

Net Revenues

 

$ 147,593

 

 

$ 167,598

 

Total Operating Expenses

 

 

(811,238 )

 

 

(684,966 )

Net Interest Expense

 

 

(463,929 )

 

 

(214,192 )

Gain (loss) on change in derivative liability

 

 

25,483

 

 

 

(1,877,231 )

Net income (loss)

 

$ (1,102,091 )

 

$ (2,608,791 )

 

Revenues

 

Sales for the three months ended September 30, 2017 were $147,593 compared with $167,598 for the three months ended September 30, 2016, reflecting a decrease of 12%.

 

The decrease in revenue is directly related to the decreased number of patients treated at licensed clinics and a decrease in BioCorRx Recovery Program distribution.

 

Total Operating Expenses

 

Total operating expenses for the three months ended September 30, 2017 and 2016 were $811,238 and $684,966, respectively, reflecting an increase of $126,272. The primary reason for the increase in 2017 is an increase in service provider costs as compared to 2016.

 

In addition, comparing the three months ended September 30, 2017 to September 30, 2016, consulting and investor relations fees decreased from $312,014 to $236,496, accounting and legal fees increased from $57,149 to $105,993, advertising decreased from $60,034 to $41,735, and rent increased from $13,040 to $15,573. In addition, we incurred $169,804 in stock based compensation expense in 2017 compared to $85,311 in 2016.

 

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

 

During the three months ended September 30, 2017, we had outstanding and warrants with variable conversion provisions that had the possibility of exceeding our common shares authorized when considering the number of possible shares that may be issuable to satisfy settlement provision of this note. As such, we are required to determine the fair value of this derivative and mark to market each reporting period. For the three months ended September 30, 2017, we incurred a $25,483 gain on change in fair value of our derivative liabilities compared to $(1,877,231) loss in the same period, last year.

 

 
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Interest Expense

 

Interest expense for the three months ended September 30, 2017 and 2016 were $463,929 and $214,192, respectively, the increase is due to debt discount amortization and a non-cash interest charge.

 

Net Loss

 

For the three months ended September 30, 2017, the Company experienced a net loss of $1,102,091 compared with a net loss of $2,608,791 for the three months ended September 30, 2016. The decrease in net loss is primarily due to the gain on change in fair value of derivative liabilities.

 

Nine Months ended September 30, 2017 Compared with Nine Months ended September 30, 2016

 

Nine months ended September 30,

 

 

 

2017

 

 

2016

 

Net Revenues

 

$ 492,364

 

 

$ 585,923

 

Total Operating Expenses

 

 

(2,354,970 )

 

 

(1,850,239 )

Gain on settlement of debt

 

 

285,924

 

 

 

-

 

Net Interest Expense

 

 

(10,684,498 )

 

 

(602,551 )

Loss on change in derivative liability

 

 

(15,872,510 )

 

 

(2,344,272 )

Net loss

 

$ (28,133,690 )

 

$ (4,211,139 )

 

Revenues

 

Sales for the nine months ended September 30, 2017 were $492,364 compared with $585,923 for the nine months ended September 30, 2016, reflecting a decrease of 16%.

 

The decrease in revenue is directly related to the decreased number of patients treated at licensed clinics and a decrease in BioCorRx Recovery Program distribution.

 

Total Operating Expenses

 

Total operating expenses for the nine months ended September 30, 2017 and 2016 were $2,354,970 and $1,850,239, respectively, reflecting an increase of $504,731. The primary reason for the increase in 2017 is an increase in service provider costs as compared to 2016.

 

In addition, comparing the nine months ended September 30, 2017 to September 30, 2016, consulting and investor relations fees increased from $655,290 to $797,993, accounting and legal fees decreased from $243,953 to $198,718, advertising decreased from $198,778 to $105,506, and rent increased from $22,362 to $28,613. In addition, we incurred $525,782 in stock based compensation in 2017 compared to $287,617 in 2016.

 

Gain on settlement of debt

 

During the nine months ended September 30, 2017, we settled outstanding accounts and other payables, realizing a gain on settlement of debt of $285,924 as compared to $0 for the same comparable period, last year.

 

 
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Loss on change in Fair Value of Derivative Liability

 

During the nine months ended September 30, 2017, we had outstanding convertible debt and warrants with variable conversion provisions that had the possibility of exceeding our common shares authorized when considering the number of possible shares that may be issuable to satisfy settlement provision of this note. As such, we are required to determine the fair value of this derivative and mark to market each reporting period. For the nine months ended September 30, 2017, we incurred a $15,872,510 loss on change in fair value of our derivative liabilities compared to a $2,344,272 loss in the same period, last year. The primary driver for the current period loss was the increase in our stock price. On June 29, 2017, pursuant to the Second Amendment, we modified our outstanding convertible debt with embedded derivatives significantly reducing the carrying value on our balance sheet these liabilities as of September 30, 2017.

 

Interest Expense

 

Interest expense for the nine months ended September 30, 2017 and 2016 were $10,684,498 and $602,551, respectively, the increase is due to debt discount amortization and a non-cash interest charge.

 

Net Loss

 

For the nine months ended September 30, 2017, the Company experienced a net loss of $28,133,690 compared with a net loss of $4,211,139 for the nine months ended September 30, 2016. The increase in net loss is primarily due to the loss on change in fair value of derivative liabilities and non-cash interest charges.

 

Liquidity and Capital Resources

 

As of September 30, 2017, we had cash of approximately $284,000. The following table provides a summary of our net cash flows from operating, investing, and financing activities.

 

Nine months ended September 30,

 

 

 

2017

 

 

2016

 

Net cash used in operating activities

 

$ (2,221,166 )

 

$ (1,618,596 )

Net cash used in investing activities

 

 

-

 

 

 

(220,875 )

Net cash provided by financing activities

 

 

2,412,252

 

 

 

1,700,036

 

Net increase (decrease) in cash

 

 

191,086

 

 

 

(139,435 )

Cash, beginning of period

 

 

92,455

 

 

 

220,060

 

Cash, end of period

 

$ 283,541

 

 

$ 80,625

 

 

On June 10, 2016, the Company issued to BICX Holding Company, LLC a $2,500,000 senior secured convertible promissory note due June 10, 2019 and bearing interest at 8% per annum due annually beginning June 10, 2018.

 

Pursuant to the First Amendment, BIXC Holding invested another $1,660,000 in 2017 for a total aggregate purchase price of $4,160,000. Based on the amount invested, BICX Holding returned the Note and the Company issued BICX Holding a new note for $4,160,000 convertible into 42.43% of the Company’s total authorized common stock. The other terms of the new note will be identical to the Note. Pursuant to the First Amendment, the parties agreed that BICX Holding does not have the right to appoint a consultant or, if the Company’s common stock is listed on a national securities exchange, an independent member of the Board. In addition, the Company is not entitled to a break-up fee.

 

The Company is required to maintain a cash balance of $50,000 (as amended) at all times, unrestricted and lien free.

 

 
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The note is secured by all of assets of the Company and is ranked senior to all of the Company's debt currently outstanding or hereafter, unless prohibited by law.

 

Currently we have no material commitments for capital expenditures as of September 30, 2017. We have historically sought and continue to seek financing from private sources to move our business plan forward. In order to satisfy the financial commitments, we had relied upon private party financing that has inherent risks in terms of availability and adequacy of funding.

 

For the next twelve months, we anticipate that we will need to supplement our revenues with additional capital investment or debt to ensure that we will have adequate cash to provide the minimum operating cash requirements to continue as a going concern. There can be no guarantee or assurance that we can raise adequate capital from outside sources. If we are unable to raise funds when required or on acceptable terms, we have to significantly scale back, or discontinue our operations.

 

Net Cash Flow From Operating Activities

 

Net Cash used in operating activities was $2,221,166 for the nine months ended September 30, 2017 compared to $1,618,596 used in operating activities the nine months ended September 30, 2016. The increase was primarily due to the increased operating costs and expenses incurred in 2017 along with a net decrease in operating liabilities of $650,041.

 

Net Cash Flow From Investing Activities

 

Net cash used in investing activities was $-0- for the nine months ended September 30, 2017 compared to $220,875 used in investing activities during the nine months ended September 30, 2016, which were primarily due to payments for intellectual property, purchase of equipment and lease deposit in 2016.

 

Net Cash Flow From Financing Activities

 

Net cash provided by financing activities increased by $712,216, from $1,700,036 provided by financing activities for the nine months ended September 30, 2016 to $2,412,252 cash provided by financing activities for the nine months ended September 30, 2017. The increase is primarily from $1,660,000 received from issuance of convertible note and $940,000 received from the sale of our common stock, net with repayments of notes payable of $187,748 as compared to $2,264,448 from issuance of notes, net with $564,412 repayments of notes payable in 2016.

 

Going Concern

 

The Company's financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern. This contemplates the realization of assets and the liquidation of liabilities in the normal course of business. As of September 30, 2017 and December 31, 2016, the Company has a working capital deficit of $826,798 and $2,350,268, and an accumulated deficit of $47,268,555 and $19,134,865. We will be dependent upon the raising of additional capital through placement of our common stock in order to implement the Company's business plan or by using outside financing. There can be no assurance that the Company will be successful in these situations in order to continue as a going concern. The Company is funding its operations by additional borrowings and some shareholder advances.

 

Off Balance Sheet Arrangements

 

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

 

 
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Critical Accounting Policies

 

Use of Estimates and Assumptions

 

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.

 

Revenue Recognition

 

We generate 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. We defer any revenue for which the services have not been performed or are subject to refund until such time that the we and the customer jointly determines that the services has been performed or no refund will be required.

We license 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 our products and protocols and additional royalties on covered services.

 

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

 

Under these license agreements, we receive an initial non-refundable license fee and in some cases, additional running royalties. Generally, we defer 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.

 

Deferred Revenue

 

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

 

 
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Derivative Financial Instruments

 

We account 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 September 30, 2017 and December 31, 2016, we did not have any derivative instruments that were designated as hedges.

 

During the nine months ended September 30, 2017 and December 31, 2016, we had outstanding convertible notes and warrants that contained embedded derivatives. These embedded derivatives include certain conversion features and reset provisions.

 

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.

 

Recent Accounting Pronouncements

 

See our discussion under Note 2-Signifciant Accounting Policies in our financial statements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

As required under Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2017. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of September 30, 2017 were not effective, for the same reasons as previously disclosed under Item 9A. “Controls and Procedures” in our Annual Report on Form 10-K for our fiscal year ended December 31, 2016 filed with the Securities and Exchange Commission (“SEC”) on April 13, 2017.

 

Changes in Internal Controls over Financial Reporting

 

There have been no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-(f) of the Exchange Act) that occurred during the our last fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 
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ITEM 1. LEGAL PROCEEDINGS

 

From time to time, we may be engaged in various lawsuits and legal proceedings in the ordinary course of our business. Except as described below, we are currently not aware of any legal proceedings the ultimate outcome of which, in our judgment based on information currently available, would have a material adverse effect on our business, financial condition or results of operations. We are currently not a party to any material legal proceedings or claims not previously disclosed on Form 8-K.

 

ITEM 1A. RISK FACTORS

 

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

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

Not Applicable.

 

 
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ITEM 6. EXHIBITS.

 

31.1

Certifications of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

31.2

Certifications of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

32.1

Certifications of Chief Executive Officer pursuant to 18 U.S.C. SEC. 1350 (Section 906 of Sarbanes-Oxley Act of 2002) +

32.2

Certifications of Chief Financial Officer pursuant to 18 U.S.C. SEC. 1350 (Section 906 of Sarbanes-Oxley Act of 2002) +

101.INS

XBRL Instance Document *

101.SCH

XBRL Taxonomy Extension Schema Document *

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document *

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document *

101.LAB

XBRL Taxonomy Extension Label Linkbase Document *

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document *

_______________

*

Filed herewith

+

In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.

 

 
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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

BIOCORRX INC.

 

Date: November 14, 2017

By:

/s/ Brady Granier

Brady Granier

President and Chief Executive Officer

 

Date: November 14, 2017

By:

/s/ Lourdes Felix

Lourdes Felix

Chief Financial Officer and Chief Operating Officer

 

34

 

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