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BICX > SEC Filings for BICX > Form 10-K on 14-Apr-2014All Recent SEC Filings

Show all filings for BIOCORRX INC.

Form 10-K for BIOCORRX INC.


14-Apr-2014

Annual Report


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

The Start Fresh Program is an alcoholism treatment program comprised of two parts: (1) an implant, administered by a licensed physician, of a proprietary compounded formulation of the drug, Naltrexone (implanted under the skin) (the "Implant") which reduces alcohol cravings over a period of time which typically is longer than other formulations or means of injection of the drug Naltrexone; and (2) uniquely and specifically structured, intensive one on one alcohol addiction life coaching program developed by BioCorRx, Inc. (the "Coaching Program").

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

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


BioCorRx has issued several license agreements to several unrelated third parties involving the establishment of alcoholism rehabilitation and treatment centers and creating certain alcoholism rehabilitation programs. The Company has substantially expanded its operations in 2013 through the licensing and distribution opportunities of its Start Fresh Program. The four new locations now offering the Start Fresh Program are Arizona, Northern California, Nebraska and Connecticut. The company's current focus will continue on expansion to more territories across the United States, branding of the Start Fresh Program and acquisition of healthcare related products and services. The Company is committed to continuing to provide excellent rehabilitation services to clients nationwide as it expands its network of licensed clinics.

Results of Operations

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

                                                    2013              2012

       Net Sales                                $    714,962      $    868,161
       Cost of Sales                                 160,187           402,482
       Gross Profit (Loss)                           554,775           465,679
       Total Operating Expenses                   (3,055,140 )      (1,086,383 )
       Gain on settlement of debt                     25,100                 -
       Net Interest Expense                         (310,403 )        (260,246 )
       Loss on change in derivative liability     (1,051,254 )          (1,269 )
       Income taxes                                   (1,600 )          (1,600 )
       Net Loss                                 $ (3,838,522 )    $   (885,807 )

Year Ended December 31, 2013 Compared with Year Ended December 31, 2012

Sales

Sales for the year ended December 31, 2013 were $714,962 compared with $868,161 for the year ended December 31, 2012, reflecting a decrease of 18%. Advertising promoting the Company's program for the year ended December 31, 2013 and 2012 were $36,053 and $100,624, respectively, reflecting a decrease of 64% due to no radio advertising in the third and fourth quarter 2013.

The decrease in sales revenue is directly related to the Company's focus on licensing and distribution efforts in the third and fourth quarter of 2013 which will enable the Company to create a stronger revenue stream going forward.

Cost of Sales

Cost of sales for the year ended December 31, 2013 were $160,187 compared with $402,482 for the year ended December 31, 2012, reflecting a decrease of 60%. Cost of sales have dropped dramatically because of the new variation of the licensing and distribution revenue model.

Gross Profit

Gross profit percentage for the year ended December 31, 2013 was 77.6% compared to 53.6% for the year ended December 31, 2012. The gross profit percentage increase is reflective of the reduction in cost of sales.


Total Operating Expenses

Total operating expenses for the year ended December 31, 2013 and 2012 were $3,055,140 and $1,086,383 reflecting an increase of 182%. Specifically, comparing the year ended December 31, 2012 to December 31, 2013, consulting fees increased from $516,975 to $671,892, accounting fees increased from $45,123 to $92,159, advertising decreased from $100,629 to $36,053, and rent decreased from $44,899 to $30,195. In addition, we incurred $822,813 as stock based compensation in 2013 compared to 259,148 in 2012.

Interest Expenses

Interest expense for the year ended December 31, 2013 and 2012 were $311,879 and $260,246, respectively, reflecting additional costs incurred from our 2013 borrowings.

Income taxes

Income taxes for the year ended December 31, 2013 and 2012 were $1,600 and $1,600, respectively.

The components of the income tax provisions for 2013 and 2012 are as follows:

                                    2013            2012
Current provision:
 Federal                        $          -     $        -
 State                                 1,600          1,600
                                       1,600          1,600
Deferred benefit:
 Federal                            (946,991 )     (290,248 )
 State                              (246,076 )      (75,465 )
                                  (1,193,068 )     (365,713 )

Change in valuation allowance      1,193,068        365,713

Total provision                 $      1,600     $    1,600

The difference between the income tax provision and income taxes computed using a U.S. federal income tax rate of 34% consisted of the following:

                                       2013         2012

Provision at statutory rate              34.0 %       34.0 %
State taxes, net of federal benefit       5.8 %        5.8 %
Other                                    (8.8 %)       1.3 %

Change in valuation allowance           (31.1 %)     (41.4 %)


Total                                    (0.1 %)      (0.2 %)


                                           2013            2012
Deferred tax assets:
Net operating loss carryforwards       $  1,239,529     $  818,573
Share-based compensation                     86,806         62,039
Accrual to Cash                             622,243              -
Other                                        11,297         11,298

Total deferred tax assets                 1,959,875        891,910
Valuation Allowance                      (1,768,722 )     (664,300 )
                                            191,153        227,590
Deferred tax liabilities:
Tax deductible licensing agreement         (187,645 )     (132,300 )
Accrual to cash                                   -        (94,516 )
Other                                        (3,509 )         (774 )

Total deferred tax liabilities             (191,153 )     (227,590 )


Net deferred tax assets(liabilities)   $          -     $        -

A full valuation allowance has been provided against the Company's deferred tax assets at December 31, 2013, as the Company believes it is more likely than not that sufficient taxable income will not be generated to realize these temporary differences.

The Company has federal and California net operating losses (NOLs) of approximately $2,894,630 and $2,888,633, respectively, which begin to expire in the years beginning in 2029 and 2029 for federal and state purposes, respectively. Pursuant to Section 382 of the Internal Revenue Code, use of the Company's NOLs and credit carryforwards may be limited if the Company experiences a cumulative change in ownership of greater than 50% in a moving three-year period.

The Company also has federal credits that begin to expire 2027 and state tax credits that may be carried forward indefinitely.

The Company provides for uncertain tax positions when such tax positions do not meet the recognition thresholds or measurement standards as set forth in ASC Topic 740, Income Taxes, regarding accounting for uncertainty in income taxes. Amounts for uncertain tax positions are adjusted in periods when new information becomes available or when positions are effectively settled. There are no unrecognized benefits related to uncertain tax positions as of December 31, 2013. The Company does not anticipate that there will be material change in the liability for unrecognized tax benefits within the next 12 months.

Interest and penalties associated with unrecognized tax benefits are recorded in nonoperating income and expenses and selling, general and administrative expenses, respectively. As of December 31, 2013, the Company did not have any accrued interest or penalties associated with any unrecognized tax benefits. As of December 31, 2013, the Company's federal tax returns are open to audit under the statute of limitations for the years 2010 and later, and the Company's state tax returns generally are open to audit under statutes of limitations for the years 2009 and later. However, if NOLs that originated in earlier tax years are utilized in the future, the amount of such NOLs from those earlier years remain subject to review by tax authorities.


Net Loss

For the year ended December 31, 2013, the Company experienced a loss of $3,706,170 compared with a net loss of $885,807 for the year ended December 31, 2012.

Liquidity and Capital Resources

As of December 31, 2013, we had cash of approximately $108,566. The following table provides a summary of our net cash flows from operating, investing, and financing activities.

                                                           2013           2012

   Net cash provided by (used in) operating activities   $ 103,458     $  (927,758 )
   Net cash used in investing activities                   (34,721 )       (75,820 )
   Net cash provided by financing activities                33,827       1,007,923
   Net increase in cash                                    102,564           4,345
   Cash, beginning of period                                 6,002           1,657
   Cash, end of period                                   $ 108,566     $     6,002

Currently we have no material commitments for capital expenditures as of the end of the year ending December 31, 2013. We historically sought and continue to seek financing from private sources to move our business plan forward. In order to satisfy the financial commitments, we had relied upon private party financing that has inherent risks in terms of availability and adequacy of funding.

For the next twelve months, we anticipate that we will need to supplement our revenues with additional capital investment or debt to ensure that we will have adequate cash to provide the minimum operating cash requirements to continue as a going concern. In 2013, the company entered into five separate licensing and distribution agreements whereby the Company received up-front licensing fees which allowed for sufficient cash flow to maintain operations. We believe that providing licensing and distribution opportunities will create a steady revenue stream by which sufficient cash flows can be maintained while the Company continues its growth and expansion.

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

Net Cash Flow From Operating Activities

Net Cash provided in operating activities decreased by $1,031,216 for the year ended December 31, 2013 compared to 2012 primarily due to the Company's ability to increase its cash flow from earned revenue that is directly attributable to licensing and distribution agreements.

Net Cash Flow From Investing Activities

Net cash used in investing activities decreased by $41,099 for the year ended December 31, 2013 compared to of 2012 primarily due to reduction in purchasing of assets.


Net Cash Flow From Financing Activities

Net cash provided by financing activities decreased by $974,096 for the year ended December 31, 2013 compared to 2012 due to the decrease in borrowings.

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 December 31, 2013 and December 31, 2012, the Company has a working capital deficit of $833,194 and $1,141,259, and an accumulated deficit of $5,437,113 and $1,598,591. The Company's revenues have decreased from 2012 to 2013. We will be dependent upon the raising of additional capital through placement of our common stock in order to implement its business plan or by using outside financing. There can be no assurance that the Company will be successful in these situations in order to continue as a going concern. The Company is funding its operations by additional borrowings and some shareholder advances.

Off Balance Sheet Arrangements

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

Critical Accounting Policies

Use of Estimates and Assumptions

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

Revenue Recognition

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

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


Deferred Revenue

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

Advertising

Advertising costs are expensed as incurred. As of December 31, 2013 and 2012, $36,053 and $100,629 advertising costs have been incurred.

Equipment

Equipment, leasehold improvements, and additions thereto are carried at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the depreciable property generally five to seven years for assets purchased new and two to three years for assets purchased used. Leasehold improvements are amortized over the shorter of the lease term or the estimated lives. Management evaluates useful lives regularly in order to determine recoverability taking into consideration current technological conditions. Maintenance and repairs are charged to expense as incurred; additions and betterments are capitalized. Fully depreciated assets are retained in equipment and accumulated depreciation accounts until retirement or disposal. Upon retirement or disposal of an asset, the cost and related accumulated depreciation are removed, and any resulting gain or loss, net of proceeds, is credited or charged to operations.

Income Taxes

The Company accounts for income taxes under FASB ASC 740 "Income Taxes." Under the asset and liability method of FASB ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under FASB ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.


Stock-Based Compensation

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

Derivative Financial Instruments

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

Recent Accounting Pronouncements

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

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