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.
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Business Overview
BioCorRx Inc., through its subsidiaries, develops and provides innovative
treatment programs for substance abuse and related disorders. The BioCorRx®
Recovery Program is a non-addictive, medication-assisted treatment (MAT) program
for substance abuse that includes peer recovery support. The UnCraveRx™ Weight
Loss Management Program is a medically assisted weight management program that
is combined with a virtual platform application. The Company is also engaged in
the research and development of sustained release naltrexone products for the
treatment of addiction and other possible disorders. Specifically, the company
is developing its product candidate (BICX101) a sustained release, injectable
naltrexone for the treatment of opioid abuse and alcoholism. The company is also
developing an implantable naltrexone treatment (BICX104) a long-acting
naltrexone implant that can last several months for the treatment of opioid
dependence and alcohol use disorders with the goal of future regulatory approval
with the Food and Drug Administration.
The BioCorRx® Recovery Program is a comprehensive addiction program which
includes peer support and Cognitive Behavioral Therapy (CBT) modules (typically
completed in 16 sessions on average but not limited to), coupled with a
naltrexone implant. CBT is an evidence based method that can be used to change
thoughts, feelings, behaviors and improve overall life satisfaction. The implant
is specifically compounded with a prescription from a medical doctor for each
individual and is designed to release naltrexone into the body over multiple
months. The naltrexone implant means a single administration, long acting
naltrexone pellet(s) that consists of a naltrexone formulation in a
biodegradable form that is suitable for subcutaneous implantation in a
particular patient.
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 and UnCraveRx® Weight Loss
Management 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 medical professional 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. There are 15 licensed providers throughout the United
States that offer the BioCorRx Recovery Program and 12 providers throughout the
United States that offer the UnCraveRx® Weight Loss Management 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 related services to healthcare providers
nationwide as it expands the distribution of the BioCorRx Recovery Program and
UnCraveRx® Weight Loss Management Program to a network of independent licensed
clinics and licensed healthcare professionals.
The Company's subsidiary, BioCorRx Pharmaceuticals, is focused on acquiring and
the development of 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. The Company's pipeline includes BICX101 for the treatment of
opioid addiction and alcoholism as well as BICX104 for the same indications.
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In August 2017, the Company announced that it had decided to seek U.S. Food and
Drug Administration (the "FDA") approval on BICX102 in advance of BICX101.
Product candidate BICX102 is a long-acting naltrexone implant that can last
several months being developed for opioid dependence and alcohol use disorders.
The pre-IND meeting date for BICX102 took place on January 24, 2018. On February
12, 2018, the Company announced that the FDA deemed the 505(b)(2) pathway as an
acceptable route for approval for BICX102; the Company plans to apply for dual
indications, both opioid use disorder and alcohol use disorder, within the same
application. A grant application was submitted to the National Institutes of
Health on May 14, 2018 for funding the development and study plans for BICX102.
On January 17, 2019, the Company received a Notice of Award from the United
States Department of Health and Human Services for a grant from the National
Institutes of Health ("NIH") in support of BICX102 from the National Institute
on Drug Abuse. The grant provided for (i) $2,842,430 in funding during the first
year and (ii) $2,831,838 during the second year subject to the terms and
conditions specified in the grant, including satisfactory progress of project
and the availability of funds. In January 2020, the Company was awarded a second
year of funding from the National Institute on Drug Abuse ("NIDA") to support
the development of a 3-month implantable depot pellet of naltrexone for the
treatment of Opioid Use Disorder, which the Company refers to as BICX102. The
grant provided for $2,831,838 during the second year subject to the terms and
conditions specified in the grant, including satisfactory progress of project
and availability of funds. On August 27, 2021, the Company received a Notice of
Award from the United States Department of Health and Human Services for a grant
from National Institute on Drug Abuse. The grant provides for $3,453,367 in
funding during the third year subject to the terms and conditions specified in
the grant, including satisfactory progress of project and the availability of
funds. On March 31, 2022, the Company received a Notice of Award from the United
States Department of Health and Human Services for a grant from National
Institute on Drug Abuse. The grant provides for $99,431 in additional funding
during the third year subject to the terms and conditions specified in the
grant, including satisfactory progress of project and the availability of funds.
Grant receivables were $130,152 and $56,359 as of December 31, 2022 and 2021,
respectively. Deferred revenues related to the grant were $0 as of December 31,
2022 and 2021. $1,789,496 and $835,924 were recorded as grant income during the
years ended December 31, 2022 and 2021, respectively.
The UnCraveRx® Weight Loss Management Program is a comprehensive 3-month
medically assisted weight management program that helps to reduce food cravings
combined with on-demand virtual lifestyle support, fitness and nutrition.
If determined medically appropriate by a patient's treating physician and under
his/her medical supervision, an anti-craving medication may be prescribed to
help reduce food cravings. The benefits of using the anti-craving time released
mediation is that it may aid in compliance. BioCorRx® does not sell,
manufacture, or compound any drugs or pharmaceuticals for the program.
Training is required to assist the treating physician in making the best medical
decision regarding the use of the anti-craving medication and determine whether
the program is right for the patient.
Recent Developments
In December 2019, a novel strain of coronavirus ("COVID-19") surfaced. The
spread of COVID-19 around the world in the first quarter of 2020 has caused
significant volatility in U.S. and international markets. There is significant
uncertainty around the breadth and duration of business disruptions related to
COVID-19, as well as its impact on the U.S. and international economies and, as
such, the Company is unable to determine if it will have a material impact to
its operations.
On January 3, 2022, the Company entered into a Subscription Agreement (the
"Lucido 2022 Subscription Agreement") with Louis C Lucido and Carolyn M. Lucido,
or their Successors, as Trustee of the Lucido Family Trust, Dated May 23, 2017,
managed by Mr. Louis Lucido, a member of the Company's Board of Directors.
Although the Lucido Subscription Agreement was dated January 3, 2022 and signed
on January 4th, it did not become effective until the aggregate purchase price
owed pursuant to the Lucido Subscription Agreement was paid in cash to the
Company on January 12, 2022. Pursuant to the Lucido 2022 Subscription Agreement,
Mr. Lucido purchased shares of the Company's common stock, par value $0.001 per
share, in the aggregate amount of $500,000 at a purchase price of $4.35 per
share, for a total of 114,943 shares of Common Stock. The aggregate Purchase
Price owed pursuant to the Lucido 2022 Subscription Agreement was paid in cash
to the Company on January 12, 2022.
On January 3, 2022, the Company entered into a Subscription Agreement (the
"Galligan 2022 Subscription Agreement") with The J and R Galligan Revocable
Trust, managed by Mr. Joseph Galligan, a member of the Company's Board. Although
the Galligan Subscription Agreement was dated January 3, 2022 and signed on
January 11th, it did not become effective until the aggregate purchase price
owed pursuant to the Galligan Subscription Agreement was paid in cash to the
Company on January 19, 2022.The terms and conditions of the Galligan 2022
Subscription Agreement (including the number of shares of common stock purchased
and the purchase price) are substantially the same as the Lucido 2022
Subscription Agreement.
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On May 5, 2022, the Company entered into a Subscription Agreement (the "DeCsepel
2022 Subscription Agreement") with David DeCsepel, a consultant of the Company.
Pursuant to the DeCespel 2022 Subscription Agreement, Mr. DeCsepel purchased
shares of the Company's common stock, par value $0.001 per share, in the
aggregate amount of $250,000 at a purchase price of $2.26 per share, for a total
of 110,619 shares of common stock. The aggregate purchase price owed pursuant to
the DeCsepel 2022 Subscription Agreement was paid in cash to the Company on May
6, 2022. Simultaneously, the Company issued a warrant that entitles David
DeCsepel to purchase 165,929 common stock at an exercise price of $6.00,
expiring 3 years from the date of issuance in connection with the sale of common
stock.
On August 2, 2022, the Company issued an unsecured promissory note payable to
Louis C Lucido for $300,000 with principal and interest due August 2, 2023, with
a stated interest rate of 5% per annum. Under the terms of the note the Company
shall pay quarterly interest payments of $3,750. If the Company fails to make
any payment due under the terms of the promissory note, the stated interest rate
of the note shall be increased to 20%. As additional consideration for the loan
the Company issued 33,000 shares of common stock and valued at $76,890. On
September 21, 2022, the Company entered into an Exchange Agreement (the "Louis
Exchange Agreement") with Mr. Lucido, pursuant to which Mr. Lucido agreed to
exchange of the promissory note then outstanding of $300,000, the accrued
interest on the promissory note of $2,055, and the unpaid service fees of
$215,000 into the Company's 290,480 shares of common stock.
The Company has applied for forgiveness of all of loan granted under the
Paycheck Protection Program ("PPP") Loan and forgiveness of PPP loan was
granted effective August 22, 2022.
On September 20, 2022, the Company received $20,000 advances from Louis C
Lucido, a member of the Company's Board of Directors. The balance outstanding as
of December 31, 2022 was $20,000.
On September 21, 2022, the Company entered into an Exchange Agreement (the
"Joseph Exchange Agreement") with Joseph J Galligan, a member of the Company's
Board, pursuant to which Mr. Joseph Galligan agreed to exchange of the
promissory note then outstanding of $125,000, the accrued interest on the
promissory note of $46,548, and the unpaid service fees of $175,090 into the
Company's 194,740 shares of common stock.
On October 6, 2022, the Company issued an unsecured promissory note payable to a
third party for $100,000 with principal and interest due October 6, 2023, with a
stated interest rate of 12.5% per annum. Under the terms of the note the Company
shall pay quarterly interest payments of $3,125. The balance outstanding as of
December 31, 2022 was $100,000. The interest expense during the year ended
December 31, 2022 was $2,979. If the Company fails to make any payment due under
the terms of the promissory note, the stated interest rate of the note shall be
increased to 25%. As additional consideration for the loan the Company
issued 16,500 shares of common stock and valued at $31,350, which was recognized
as debt discount. During the year ended December 31, 2022, the Company amortized
$7,472 of debt discount as interest expense.
On November 1, 2022, the Company issued an unsecured promissory note payable to
Louis C Lucido for $300,000 with principal and interest due November 1, 2023,
with a stated interest rate of 5% per annum. Under the terms of the note the
Company shall pay quarterly interest payments of $3,750. The balance outstanding
as of December 31, 2022 was $300,000. The interest expense during the year ended
December 31, 2022 was $2,507. If the Company fails to make any payment due under
the terms of the promissory note, the stated interest rate of the note shall be
increased to 20%. As additional consideration for the loan the Company
issued 33,000 shares of common stock and valued at $59,400, which was recognized
as debt discount. During the year ended December 31, 2022, the Company amortized
$9,927 of debt discount as interest expense.
On December 8, 2022, the Company received $55,000 advances from Louis C Lucido,
a member of the Company's Board of Directors. The balance outstanding as of
December 31, 2022 was $55,000.
Results of Operations
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Year ended December 31, 2022 Compared with Year ended December 31, 2021
2022 2021
Revenues, net $ 213,841 $ 48,272
Total operating expenses (4,911,836 ) (5,558,379 )
Interest expense - related parties (935,806 ) (546,260 )
Interest expense, net (150,969 ) (19,424 )
Loss on settlement of debt (198,939 ) -
Loss on contingency (322,000 ) -
Grant income 1,789,496 835,924
Other miscellaneous income 139,381 29,229
Net loss (4,376,832 ) (5,210,638 )
Non-controlling interest 7,419 2,384
Dividend attributable to down round feature of
warrants - (70,127 )
Net loss attributable to BioCorRx Inc. $ (4,369,413 ) $ (5,278,381 )
Revenues
Total net revenues for the year ended December 31, 2022 were $213,841 compared
with $48,272 for the year ended December 31, 2021, reflecting an increase of
343%. Sales/access fees for the year ended December 31, 2022 and 2021 were
$14,360 and $1,500, respectively, reflecting an increase of $12,860. The primary
reason for the increase in 2022 is directly related to the increased number of
patients treated at licensed clinics. Project support income for the year ended
December 31, 2022 and 2021 were $150,578 and $0, respectively, reflecting an
increase of $150,578. The project support income is generated from
administrative support to Biotechnology research customers, which is recognized
upon the transfer of promised goods to customers. The primary reason for the
increase in 2022 is directly related to the development of the new revenue
stream during 2022. Distribution rights income for the year ended December 31,
2022 and 2021 were $37,293 and $35,481, respectively, reflecting an increase of
$1,812. The primary reason for the increase in distribution rights income was
due to a new license entered during 2022. Membership/program fees for the year
ended December 31, 2022 and 2021 were $11,610 and $11,291, respectively. The
primary reason for the increase in 2022 was due to the increased customers of
the Company's UnCraveRx™ Weight Loss Management Program launched in October
2019.
Total Operating Expenses
Total operating expenses for the year ended December 31, 2022 and 2021 were
$4,911,836 and $5,558,379, respectively, reflecting a decrease of $646,543.
The reasons for the decrease in 2022 are primarily due to (i) a decrease of
$263,010 in accounting and legal fees due to less legal services used in 2022,
from $779,518 for the year ended December 31, 2021 to $516,508 for the year
ended December 31, 2022; (ii) a decrease of $146,449 in research and development
expense and conclusion of the preclinical studies of BICX102, from $1,605,907
for the year ended December 31, 2021 to $1,459,458 for the year ended December
31, 2022; (iii) a decrease of $141,480 impairment expense, from $141,480 for the
year ended December 31, 2021 to $0 for the year ended December 31, 2022, (iv) a
decrease of $100,952 in advertising expense, from $426,917 for the year ended
December 31, 2021 to $325,965 for the year ended December 31, 2022, (v) a
decrease of $52,084 in payroll expense, from $983,389 for the year ended
December 31, 2021 to $931,305 for the year ended December 31, 2022, and (vi) a
decrease of $43,476 in consulting expense, from $775,648 for the year ended
December 31, 2021 to $732,173 for the year ended December 31, 2022, partially
offset by an increase of $144,993 in stock-based compensation related to both
directors and service providers due to new issuance of stock options in 2022,
from $209,515 for the year ended December 31, 2021 to $354,508 for the year
ended December 31, 2022.
Interest Expense - Related Parties
Interest expense - related parties for the years ended December 31, 2022 and
2021 were $935,806 and $546,260, respectively. The increase is mainly due to (i)
the issuance of note payable with a stated interest rate of 25% per annum, (ii)
the issuance of two note payables with a stated interest rate of 5% per annum,
(iii) the issuance of shares as additional consideration for the issuance of a
promissory note (see Note 10), and (iv) the issuance of warrants in connection
with loan default.
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Interest Expense
Interest expense for the years ended December 31, 2022 and 2021 were $150,969
and $19,424, respectively. The increase is mainly due to (i) the issuance of
note payable with a stated interest rate of 25% per annum, (ii) the issuance of
note payable with a stated interest rate of 12.5% per annum, (iii) the issuance
of shares as additional consideration for the issuance of a promissory note (see
Note 10), and (iv) the issuance of warrants in connection with loan default.
Loss on Settlement of Debt
Loss on settlement of debt for the years ended December 31, 2022 and 2021 were
$198,939 and $0, respectively. During 2022, the Company issued an aggregate of
485,220 shares of its common stock in connection with conversion of promissory
notes and accounts payable (see Note 10). The 485,220 shares of common stock
were valued at an aggregate value of $1,062,632, resulting in $198,939 of loss
on settlement of debt recognized for the difference between the fair value of
common stock issued and the carrying value of the debt.
Loss on Contingency
The Company initiated litigation in 2019 based on a claim that Pellecome and Dr.
Orbeck utilized the Company's confidential information to advance their own
weight loss product. The Company dismissed this litigation without prejudice in
July 2021. On March 30, 2022, the court entered judgment in favor of Pellecome
as an individual defendant whereby the Company was ordered to pay Pellecome
total costs and attorneys' fees of $235,886. Pursuant to the judgment, this
amount is accruing interest at the rate of ten percent (10%) per annum from
October 6, 2021 (the date of the original award of attorneys' fees by the court
which was followed by a number of filings by each party through February 2022).
The Company has not yet paid any amount to Pellecome. On May 27, 2022, the
Company filed a notice of appeal with California Superior Court for Orange
County regarding the March 30, 2022 judgment entered in favor of Pellecome.
During the year ended December 31, 2022, the Company recognized $322,000 as loss
on contingency.
Grant Income
During the year ended December 31, 2022, the Company recognized grant income of
$1,789,496 as compared to $835,924 for the comparable period last year. The
larger grant income in 2022 was due on May 7, 2021, the FDA cleared the
Company's Investigational New Drug Application (IND) application for BICX104. On
August 27, 2021, the Company received a Notice of Award from the United States
Department of Health and Human Services for a grant from National Institute on
Drug Abuse. The grant provides for $3,453,367 in funding during the third year
subject to the terms and conditions specified in the grant, including
satisfactory progress of project and the availability of funds. The funds are
available to reimburse the Company for certain incurred direct costs and 17% of
indirect costs. Indirect costs are costs that are not directly related to the
project itself but are required to conduct the research and are critical to the
success of the project and organization as a whole.
Other Miscellaneous Income
Other miscellaneous income for the years ended December 31, 2022 and 2021 were
$139,381 and $29,229, respectively. The increase is mainly due to the
forgiveness of the PPP loan on August 22, 2022.
Net Loss
For the year ended December 31, 2022, the Company experienced a net loss of
$4,376,832 compared with a net loss of $5,210,638 for the year ended December
31, 2021. The decrease in net loss is primarily due to the decreased operating
expenses.
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Liquidity and Capital Resources
As of December 31, 2022, the Company had cash of $68,615. The following table
provides a summary of the Company's net cash flows from operating, investing,
and financing activities.
2022 2021
Net cash used in operating activities $ (2,041,773 ) $ (3,537,658 )
Net cash used in investing activities
- (49,997 )
Net cash provided by financing activities 2,024,550 3,081,440
Net decrease in cash (17,223 ) (506,215 )
Cash, beginning of year 85,838 592,053
Cash, end of year $ 68,615 $ 85,838The Company has historically sought and continue to seek financing from private
sources to move its business plan forward. In order to satisfy the financial
commitments, the Company had relied upon private party financing that has
inherent risks in terms of availability and adequacy of funding. During years
ended December 31, 2022 and 2021, the Company received $1,250,000 and
$2,250,000, respectively, proceeds from common stock subscription agreement.
On September 9, 2021, the Company issued an unsecured promissory note payable to
one third party for $200,000 due June 8, 2022, with a stated interest rate of
25% per annum. The balance outstanding as of December 31, 2022 and 2021 is
$200,000. If the Company fails to make any payment due under the terms of the
promissory note, the Company shall issue a warrant to the third party to which
the number of common shares that the third party has the right to purchase
equals 48,309 common shares. The warrant shall have a term of three years with
an exercise price of $4.14 and shall be equitably adjusted to offset the effect
of any stock splits and similar events. During the year ended December 31, 2022,
the Company issued the warrant that entitles the third party to purchase 48,309
common shares due to the loan default.
On September 9, 2021, the Company issued an unsecured promissory note payable to
Kent Emry for $500,000 due June 8, 2022, with a stated interest rate of 25% per
annum. The balance outstanding as of December 31, 2022 and 2021 is $500,000. If
the Company fails to make any payment due under the terms of the promissory
note, the Company shall issue a warrant to Kent Emry to which the number of
common shares that Kent Emry has the right to purchase equals 119,617 common
shares. The warrant shall have a term of three years with an exercise price of
$4.14 and shall be equitably adjusted to offset the effect of any stock splits
and similar events. During the year ended December 31, 2022, the Company issued
the warrant that entitles Kent Emry to purchase 119,617 common shares due to the
loan default.
On August 2, 2022, the Company issued an unsecured promissory note payable to
Louis C Lucido for $300,000 with principal and interest due August 2, 2023, with
a stated interest rate of 5% per annum. Under the terms of the note the Company
shall pay quarterly interest payments of $3,750. If the Company fails to make
any payment due under the terms of the promissory note, the stated interest rate
of the note shall be increased to 20%. As additional consideration for the loan
the Company issued 33,000 shares of common stock and valued at $76,890. On
September 21, 2022, the Company entered into an Exchange Agreement (the "Louis
Exchange Agreement") with Mr. Lucido, pursuant to which Mr. Lucido agreed to
exchange of the promissory note then outstanding of $300,000, the accrued
interest on the promissory note of $2,055, and the unpaid service fees of
$215,000 into the Company's 290,480 shares of common stock.
The Company has applied for forgiveness of all of loan granted under the PPP and
forgiveness of PPP loan been granted effective August 22, 2022.
On September 20, 2022, the Company received $20,000 advances from Louis C
Lucido, a member of the Company's Board of Directors. The balance outstanding as
of December 31, 2022 was $20,000.
On September 21, 2022, the Company entered into an Exchange Agreement (the
"Joseph Exchange Agreement") with Joseph J Galligan, a member of the Company's
Board, pursuant to which Mr. Joseph Galligan agreed to exchange of the
promissory note then outstanding of $125,000, the accrued interest on the
promissory note of $46,548, and the unpaid service fees of $175,090 into the
Company's 194,740 shares of common stock.
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On October 6, 2022, the Company issued an unsecured promissory note payable to a
third party for $100,000 with principal and interest due October 6, 2023, with a
stated interest rate of 12.5% per annum. Under the terms of the note the Company
shall pay quarterly interest payments of $3,125. The balance outstanding as of
December 31, 2022 was $100,000. The interest expense during the year ended
December 31, 2022 was $2,979. If the Company fails to make any payment due under
the terms of the promissory note, the stated interest rate of the note shall be
increased to 25%. As additional consideration for the loan the Company
issued 16,500 shares of common stock and valued at $31,350, which was recognized
as debt discount. During the year ended December 31, 2022, the Company amortized
$7,472 of debt discount as interest expense.
On November 1, 2022, the Company issued an unsecured promissory note payable to
Louis C Lucido for $300,000 with principal and interest due November 1, 2023,
with a stated interest rate of 5% per annum. Under the terms of the note the
Company shall pay quarterly interest payments of $3,750. The balance outstanding
as of December 31, 2022 was $300,000. The interest expense during the year ended
December 31, 2022 was $2,507. If the Company fails to make any payment due under
the terms of the promissory note, the stated interest rate of the note shall be
increased to 20%. As additional consideration for the loan the Company
issued 33,000 shares of common stock and valued at $59,400, which was recognized
as debt discount. During the year ended December 31, 2022, the Company amortized
$9,927 of debt discount as interest expense.
On December 8, 2022, the Company received $55,000 advances from Louis C Lucido,
a member of the Company's Board of Directors. The balance outstanding as of
December 31, 2022 was $55,000.
For the next twelve months, the Company anticipates that it will need to
supplement its revenues with additional capital investment or debt to ensure
that the Company 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 the Company can raise adequate capital from outside sources. If
the Company is unable to raise funds when required or on acceptable terms, it
has to significantly scale back, or discontinue its operations.
Net Cash Flow from Operating Activities
Net cash used in operating activities was $2,041,773 for the year ended December
31, 2022 compared to $3,537,658 used in operating activities for the year ended
December 31, 2021. The decrease was primarily due to a decrease in net loss and
an increase in operating liabilities.
Net Cash Flow from Investing Activities
Net cash used in investing activities for the year ended December 31, 2022 was
$0 compared to $49,997 used in investing activities for the year ended December
31, 2021. The decrease was primarily due to purchase on equipment and costs on
software development during the year ended December 31, 2021.
Net Cash Flow from Financing Activities
Net cash provided by financing activities decreased by $1,056,890, from
$3,081,440 provided by financing activities for the year ended December 31, 2021
to $2,024,550 cash provided by financing activities for the year ended December
31, 2022.
The Company issued 340,505 shares of common stock for proceeds of $1,250,000
during the year ended December 31, 2022. On September 20, 2022, the Company
received $20,000 advances from Mr. Lucido. On August 2, 2022, the Company issued
an unsecured promissory note payable to Mr. Lucido for $300,000 with principal
and interest due August 2, 2023, with a stated interest rate of 5% per annum. On
October 6, 2022, the Company issued an unsecured promissory note payable to a
third party for $100,000 with principal and interest due October 6, 2023, with a
stated interest rate of 12.5% per annum. On November 1, 2022, the Company issued
an unsecured promissory note payable to Mr. Lucido for $300,000 with principal
and interest due November 1, 2023, with a stated interest rate of 5% per annum.
On December 8, 2022, the Company received $55,000 advances from Mr. Lucido.
The Company issued 1,125,000 shares of common stock for proceeds of $2,250,000
during the year ended December 31, 2021. The Company also received $131,440 from
Citizens Business Bank as the second tranche loan under the PPP loan during the
year ended December 31, 2021. The Company has applied for forgiveness of all of
the loan granted under the PPP and forgiveness of the PPP has been granted
effective August 22, 2022. On September 9, 2021, the Company issued an unsecured
promissory note payable to Kent Emry (member of the Company's Board of
Directors) for $500,000 due June 8, 2022, with a stated interest rate of 25% per
annum. On September 9, 2021, the Company issued an unsecured promissory note
payable to one third party for $200,000 due June 8, 2022, with a stated interest
rate of 25% per annum.
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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, 2022, the Company had a working capital
deficit of $(5,046,882), and an accumulated deficit of $74,336,105. The Company
has not yet generated any significant revenues, and has incurred net losses
since inception. These conditions raise substantial doubt about the Company's
ability to continue as a going concern for the next twelve-month period since
the date of the financial statements were issued.
The Company believes that its current cash on hand will not be sufficient to
fund its projected operating requirements for the next twelve months since the
date of the issuance of the financial statements.
The Company will be dependent upon the raising of additional capital through
placement of its 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
The Company does not have any off balance sheet arrangements that have or are
reasonably likely to have a current or future effect on its 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 its securities.
Critical Accounting Policies and Estimates
Management's discussion and analysis of financial condition and results of
operations are based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States
("GAAP"). The preparation of these consolidated financial statements requires
our management to make assumptions and estimates about future events and apply
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. These
estimates are based on management's historical and industry experience and on
various other assumptions that are believed to be reasonable under the
circumstances. On a regular basis, we evaluate these accounting policies,
assumptions, estimates and judgments to ensure that our financial statements are
presented fairly and in accordance with GAAP. However, because future events and
their effects cannot be determined with certainty, actual results may differ
from our estimates, and such differences could be material.
A full discussion of our significant accounting policies is contained in Note 2
to our consolidated financial statements, which is included in Item 8 -
"Financial Statements and Supplementary Data" of this report. We believe that
the following accounting estimates are the most critical to aid in fully
understanding and evaluating our financial results. These estimates require our
most difficult, subjective or complex judgments because they relate to matters
that are inherently uncertain. We have reviewed these critical accounting
policies and estimates and related disclosures with our Audit Committee.
Revenue Recognition
The Company recognizes revenue in accordance with Financial Accounting Standards
Board "FASB" Accounting Standards Codification "ASC" 606. A five-step analysis a
must be met as outlined in Topic 606: (i) identify the contract with the
customer, (ii) identify the performance obligations in the contract, (iii)
determine the transaction price, (iv) allocate the transaction price to the
performance obligations, and (v) recognize revenue when (or as) performance
obligations are satisfied. Provisions for discounts and rebates to customers,
estimated returns and allowances, and other adjustments are provided for in the
same period the related sales are recorded.
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The Company has elected the following practical expedients in applying ASC 606:
· Unsatisfied Performance Obligations - all performance obligations relate
to contracts with a duration of less than one year. The Company has
elected to apply the optional exemption provided in ASC 606 and
therefore, is not required to disclose the aggregate amount of the
transaction price allocated to performance obligations that are
unsatisfied or partially unsatisfied at the end of the reporting period.
· Contract Costs - all incremental customer contract acquisition costs are
expensed as they are incurred as the amortization period of the asset
that the Company otherwise would have recognized is one year or less in
duration.
· Significant Financing Component - the Company does not adjust the
promised amount of consideration for the effects of a significant
financing component as the Company expects, at contract inception, that
the period between when the entity transfers a promised good or service
to a customer and when the customer pays for that good or service will
be one year or less.
· Sales Tax Exclusion from the Transaction Price - the Company excludes
from the measurement of the transaction price all taxes assessed by a
governmental authority that are both imposed on and concurrent with a
specific revenue-producing transaction and collected by the Company from
the customer.
· Shipping and Handling Activities - the Company elected to account for
shipping and handling activities as a fulfillment cost rather than as a
separate performance obligation.
The Company's net sales are disaggregated by product category. The sales/access
fees consist of product sales, which is recognized upon the transfer of promised
goods to customers. The project support income is generated from administrative
support to Biotechnology research customers, which is recognized upon the
transfer of promised goods to customers. The distribution rights income consists
of the income recognized from the amortization of distribution agreements
entered into for its products. The membership/program fees are generated from
the Company's UnCraveRx™ Weight Loss Management Program, which is recognized
upon the transfer of promised goods to customers.
The following table presents the Company's net sales by product category for the
year ended December 31, 2022 and 2021:
2022 2021
Sales/access fees $ 14,360 $ 1,500
Project support income 150,578 -
Distribution rights income 37,293 35,481
Membership/program fees 11,610 11,291
Net sales $ 213,841 $ 48,272
Deferred revenue:
The Company licenses proprietary products and protocols to customers under
licensing agreements that allow those customers to access the products and
protocols in services they provide to their customers during the term of the
license agreement. The timing and amount of revenue recognized from license
agreements depends upon a variety of factors, including the specific terms of
each agreement. Such agreements are reviewed for multiple performance
obligations. Performance obligations can include amounts related to initial
non-refundable license fees for the use of the Company's products and protocols
and additional royalties on covered services.
The Company granted license and sub-license agreements for various regions or
States in the United States allowing the licensee to market, distributes and
sell solely in the defined license territory, as defined, the products provided
by the Company. The agreements are granted for a defined period or perpetual and
are effective as long as annual milestones are achieved.
Terms for payments for licensee agreements vary from full cash payment to
defined terms. In cases where license or sub-license fees are uncollected or
deferred; the Company nets those uncollected fees with the deferred revenue for
balance sheet presentation.
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The Company amortizes license fees over the shorter of the economic life of the
related contract life or contract terms for each licensee.
On October 1, 2019, the Company launched the UnCraveRx™ Weight Loss Management
Program. Customers are charged a membership fee and are requested to pay for
three training programs at inception. The payments are recorded as deferred
revenue until earned.
The following table presents the changes in deferred revenue, reflected as
current and long term liabilities on the Company's consolidated balance sheet:
Balance as of December 31, 2021:
Short term $ 34,981
Long term 37,301
Total as of December 31, 2021 72,282
Net sales recognized (34,981 )
Balance as of December 31, 2022 37,301
Less short term 33,256
Long term $ 4,045
Deferred Revenue-Grant
The Company recognizes grant revenues in the period during which the related
research and development costs are incurred. The timing and amount of revenue
recognized from reimbursement for research and development costs depends upon
the specific terms for the contracted work. Such costs are reviewed for multiple
performance obligations which can include amounts related to contracted work
performed or as milestones have been achieved.
Grant Income
On January 17, 2019, the Company received a Notice of Award from the United
States Department of Health and Human Services for a grant from the National
Institutes of Health ("NIH") in support of BICX102 from the National Institute
on Drug Abuse. The grant provides for (i) $2,842,430 in funding during the first
year and (ii) $2,831,838 during the second year subject to the terms and
conditions specified in the grant, including satisfactory progress of project
and the availability of funds. On August 27, 2021, the Company received a Notice
of Award from the United States Department of Health and Human Services for a
grant from National Institute on Drug Abuse. The grant provides for
$3,453,367 in funding during the third year subject to the terms and conditions
specified in the grant, including satisfactory progress of project and the
availability of funds. On March 31, 2022, the Company received a Notice of Award
from the United States Department of Health and Human Services for a grant from
National Institute on Drug Abuse. The grant provides for $99,431 in additional
funding during the third year subject to the terms and conditions specified in
the grant, including satisfactory progress of project and the availability of
funds. Grant payments received prior to the Company's performance of work
required by the terms of the research grant are recorded as deferred income and
recognized as grant income once work is performed and qualifying costs are
incurred. Grant receivables were $122,652 and $56,359 as of December 31, 2022
and 2021, respectively. Deferred revenues related to the grant were $0 as of
December 31, 2022 and 2021. $1,789,496 and $835,924 were recorded as grant
income for the years ended December 31, 2022 and 2021, respectively. The F&A
indirect costs were $253,208 and $272,681 as of December 31, 2022 and 2021,
respectively. The grant provides for $516,218 in funding for F&A indirect costs.
The remaining facilities and administrative indirect cost over allocation is
$9,671 as of December 31, 2022. The Company will credit over allocation of the
F&A indirect cost rate.
Stock Based Compensation
Share-based compensation issued to employees is measured at the grant date,
based on the fair value of the award, and is recognized as an expense over the
requisite service period. The Company measures the fair value of the share-based
compensation issued to non-employees at the grant date using the stock price
observed in the trading market (for stock transactions) or the fair value of the
award (for non-stock transactions), which were considered to be more reliably
determinable measures of fair value than the value of the services being
rendered.
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Income Taxes
Deferred income tax assets and liabilities are determined based on the estimated
future tax effects of net operating loss and credit carry forwards and temporary
differences between the tax basis of assets and liabilities and their respective
financial reporting amounts measured at the current enacted tax rates. The
Company records an estimated valuation allowance on its deferred income tax
assets if it is more likely than not that these deferred income tax assets will
not be realized.
The Company recognizes a tax benefit from an uncertain tax position only if it
is more likely than not that the tax position will be sustained on examination
by taxing authorities, based on the technical merits of the position. The tax
benefits recognized in the consolidated financial statements from such a
position are measured based on the largest benefit that has a greater than 50%
likelihood of being realized upon ultimate settlement. As of December 31, 2022
and 2021, the Company has not recorded any unrecognized tax benefits.
Variable Interest Entity
The Company evaluates all interests in the VIE for consolidation. When the
Company's interests are determined to be variable interests, an assessment is
made on whether the Company is deemed to be the primary beneficiary of the VIE.
The primary beneficiary of a VIE is required to consolidate the VIE. Accounting
Standards Codification ("ASC") 810, Consolidation, defines the primary
beneficiary as the party that has both (i) the power to direct the activities of
the VIE that most significantly impact its economic performance, and (ii) the
obligation to absorb losses and the right to receive benefits from the VIE which
could be potentially significant. Variable interests are considered in making
this determination. Where both of these factors are present, the Company is
deemed to be the primary beneficiary and the Company consolidates the VIE.
Royalty Obligations, net
The Company accounted for royalty obligations as debt in accordance with ASC
470-10-25 and derived a debt discount, which is amortized using the
straight-line method over the expected life of the arrangement, which is 15
years. The Company has no obligation to repay the then outstanding balance if
during the expected life of 15 years the treatment is discontinued. In order to
record the discount of the liability, the Company fair valued the royalty and
the difference between fair value of the royalty obligation and the gross
projected future payments was $7,171,200 and was recorded as non-cash interest
expense over the life of the liability and offset to additional paid in capital
at inception.
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