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EX-31 - BIOCUREX INCmarch10q5-10ex31.txt
EX-32 - BIOCUREX INCmarch10q5-10ex32.txt


                       WHISPERING OAKS INTERNATIONAL, INC.
                              (DBA BIOCUREX, INC.)
                          (A Development Stage Company)
                           (Expressed in U.S. dollars)

                        NOTES TO THE FINANCIAL STATEMENTS
                   THREE MONTHS ENDED MARCH 31, 2007 AND 2006
                                   (unaudited)

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q
(Mark One)

[X]   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934

                       For the quarterly period ended March 31, 2010

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

                 For the transition period from _____ to _______

                         Commission File Number: 0-26947

                                 BIOCUREX, INC.
                         -------------------------------
             (Exact Name of Registrant as Specified in its Charter)

                 Texas                                    75-2742601
     -------------------------------        -----------------------------------
     (State or other jurisdiction of        (I.R.S. Employer Identification No.
      incorporation or organization)

                           7080 River Road, Suite 215
                       Richmond, British Columbia V6X 1X5
                 ---------------------------------------------
               (Address of Principal Executive Offices) (Zip Code)

        Registrant's telephone number including area code: (866) 884-8669

                                       N/A
        ----------------------------------------------------------------
              Former name, former address, and former fiscal year,
                          if changed since last report

Indicate by check mark whether the registrant (1) filed all reports  required to
be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during
the past 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 (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).  Yes [X]    No [ ]

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

Larger accelerated filer [  ]                   Accelerated filer [  ]
Non-accelerated filer [  ]                Smaller reporting company [X]

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

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 166,430,674 shares outstanding
as of May 10, 2010.



BIOCUREX, INC. CONSOLIDATED FINANCIAL STATEMENTS (unaudited) March 31, 2010 INDEX Consolidated Balance Sheets F-1 Consolidated Statements of Operations F-2 Consolidated Statements of Cash Flows F-3 Notes to the Consolidated Financial Statements F-4
BIOCUREX, INC. (A Development Stage Company) CONSOLIDATED BALANCE SHEETS (Expressed in U.S. dollars) March 31, December 31, 2010 2009 $ $ (unaudited) ASSETS Current Assets Cash 3,118,725 126,605 Prepaid expenses and other 29,316 8,380 ------------ ------------ Total Current Assets 3,148,041 134,985 Debt issue Costs (Note 4 (b) and 6 (b)) 67,134 143,927 Deferred financing costs - 689,862 Patents (Note 3) 476,662 471,464 ------------ ------------ Total Assets 3,691,837 1,440,238 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities Accounts payable 172,694 595,426 Accrued liabilities 363,054 462,159 Loans payable (Note 4 (a)) - 280,189 Due to related parties (Note 5) 444,585 594,107 Convertible notes payable (Note 6 (a)) 33,885 33,885 ------------ ------------ 1,014,218 1,965,766 ------------ ------------ Loans payable (Note 4 (b)) 69,619 62,707 Convertible debt (Note 6 (b)) 462,550 1,411,801 ------------ ------------ Total Liabilities 1,546,387 3,440,274 ------------ ------------ Commitments and Contingencies (Notes 1 and 12) Subsequent Event (Note 13) Stockholders' Equity (Deficit) Common stock Authorized: 450,000,000 shares, par value $0.001 Issued and outstanding: 166,146,675 (December 31, 2009 - 73,062,205) 166,147 73,061 Additional paid-in capital 23,183,220 17,476,322 Common stock subscribed 284 - Accumulated deficit (114,175) (114,175) Deficit accumulated during the development stage (21,090,026) (19,435,244) ------------ ------------ Stockholders' Equity (Deficit) 2,145,450 (2,000,036) ------------ ------------ Total Liabilities and Stockholders' Equity (Deficit) 3,691,837 1,440,238 ============ ============ The accompanying notes are an integral part of these consolidated financial statements F-1
BIOCUREX, INC. (A Development Stage Company) CONSOLIDATED STATEMENTS OF OPERATIONS (Expressed in U.S. dollars) (unaudited) Accumulated During the Three Months Ended Development Stage March 31, January 1, 2001 2010 2009 to March 31, 2010 $ $ $ ---- ---- ------------------ Revenue - - 1,464,456 ------------- ------------- ------------- Operating Expenses Amortization 10,691 9,822 235,231 General and administrative (Notes 5(a) & 8) 944,505 295,909 7,041,981 Professional and consulting fees 101,569 59,259 5,251,086 Research and development (Note 5(a)) 116,253 128,637 4,361,086 ------------- ------------- ------------- Total Operating Expenses 1,173,018 493,627 16,889,384 ------------- ------------- ------------- Loss From Operations (1,173,018) (493,627) (15,424,928) ------------- ------------- ------------- Other Income (Expense) Accretion of discounts on debt (414,172) (29,542) (3,680,055) Amortization of debt issue costs (76,793) (53,608) (768,024) Gain (loss) on extinguishments of convertible debt - - 96,626 Gain (loss) sale of equity investment securities - - 147,991 Gain on settlement of accounts payable 44,655 - 102,937 Interest expense (21,958) (34,837) (1,768,408) Interest income - - 383,679 Loss on impairment interest of patent cost - - (67,620) Loss on issuance of shares (13,496) (18,757) (112,224) ------------- ------------- ------------- Total Other Expense (481,764) (136,744) (5,665,098) ------------- ------------- ------------- Net Loss for the Period (1,654,782) (630,371) (21,090,026) Other Comprehensive Loss Unrealized loss on investment securities - (11,803) - ------------- ------------- ------------- Total Comprehensive Loss (1,654,782) (642,174) (21,090,026) ------------- ------------- ------------- Net Loss Per Share - Basic and Diluted (0.01) (0.01) ------------- ------------- Weighted Average Shares Outstanding 136,775,000 44,438,500 ============= ============= The accompanying notes are an integral part of these consolidated financial statements F-2
BIOCUREX, INC. (A Development Stage Company) CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in U.S. dollars) (unaudited) Accumulated During Three Months Ended The Development Stage March 31, January 1, 2001 2010 2009 to March 31, 2010 ----------------------------------------------- $ $ $ Operating Activities: Net loss for the period (1,654,782) (630,371) (21,090,026) Adjustments to reconcile net loss to net cash used in operating activities: Accretion of discounts on debt 414,172 29,542 3,680,055 Allowance for uncollectible notes receivable - - 98,129 Amortization 10,691 9,822 235,231 Amortization of debt issue costs 76,793 53,609 768,024 Loss (gain) on extinguishments of debt - - (96,626) Loss (gain) on sale of investment securities - - (253,065) Loss from impairment of patents - - 67,620 Gain on settlement of accounts payable (44,655) - (44,655) Loss on issuance of shares 13,496 18,757 112,224 Stock-based compensation 802,901 314,611 6,865,438 Changes in operating assets and liabilities: Notes and interest receivable - - (6,296) Prepaid expenses and other (20,936) 70,690 6,379 Accounts payable & accrued liabilities (409,677) 83,772 1,702,025 (Decrease) in related party (149,522) - (41,545) Deferred revenue - - (162,000) Subscriptions receivable - - (100,682) ------------ ----------- ------------- Net Cash Used in Operating Activities (961,519) (49,568) (8,259,770) ------------ ----------- ------------- Investing Activities: Net Proceeds from notes receivable - - 1,171 Patent costs (15,889) (10,005) (575,044) Proceeds from sale of investment securities - - 451,123 ------------ ----------- ------------- Net Cash Used in Investing Activities (15,889) (10,005) (122,750) ------------ ----------- ------------- Financing Activities: Due to related parties - - 552,281 Proceeds from loans payable - 50,000 575,000 Repayment on loans payable (450,000) - (450,000) Proceeds from convertible debt - - 3,639,743 Repayment on convertible debt (1,186,700) - (2,400,951) Deferred financing costs (94,850) - (769,486) Debt issue costs - - (89,444) Proceeds from shares issued of common stock and share subscriptions received 6,461,400 40,000 9,962,872 Proceeds from the exercise of stock options and warrants 1,204 - 1,147,728 Share issuance costs (761,526) - (909,049) ------------ ----------- ------------- Net Cash Provided by Financing Activities 3,969,528 90,000 11,258,694 ------------ ----------- ------------- Net Increase in Cash 2,992,120 30,427 2,876,174 Cash - Beginning of period 126,605 45,625 242,551 ------------ ----------- ------------- Cash - End of period 3,118,725 76,052 3,118,725 ------------ ----------- ------------- Non-cash Investing and Financing Activities: Share issued to settle debt 81,000 43,070 1,063,681 Units issued as share issuance costs 939,771 - 939,771 ------------ ----------- ------------- Note payable converted into common shares - - 1,594,021 ------------ ----------- ------------- Supplemental Disclosures: Interest paid 21,880 - 663,467 Income taxes - - - ============ =========== ============= The accompanying notes are an integral part of these consolidated financial statements F-3
BIOCUREX, INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. dollars) THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (unaudited) 1. NATURE OF BUSINESS AND CONTINUANCE OF OPERATIONS BioCurex, Inc. (the "Company") was incorporated on December 8, 1997, under the laws of the State of Texas. During the first quarter of 2001, the Company ceased its business activities relating to the acquisition and sale of thoroughbred racehorses when a change of majority control occurred. On February 21, 2001, the Company acquired intellectual properties and patents relating to cancer diagnostics and therapeutics. The Company is now in the business of developing, producing, marketing and licensing cancer diagnostic kits and is currently considered a development stage enterprise as defined by Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 915, Development Stage Entities. On October 31, 2008, the Company incorporated BioCurex China Co., Ltd. ("Biocurex China"), a wholly-owned subsidiary in China. The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company does not have sufficient cash nor does it have an established source of revenue to cover its ongoing costs of operations. As at March 31, 2010, the Company has a working capital of $2,133,823 and has accumulated losses of $21,090,026 since the inception of the development stage. These factors raise substantial doubt about the Company's ability to continue as a going concern. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation These consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States, and are expressed in U.S. dollars. These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Biocurex China. The Company's fiscal year-end is December 31. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 revenues and expenses during the periods. The Company regularly evaluates estimates and assumptions related to valuation of notes receivable, valuation of patent costs, stock-based compensation, financial instrument valuations, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities 4
BIOCUREX, INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. dollars) THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (unaudited) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Use of Estimates (continued) and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. Interim Financial Statements The interim unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions for Securities and Exchange Commission ("SEC") Form 10-Q. They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with the Company's audited financial statements and notes thereto for the year ended December 31, 2009, included in the Company's Annual Report on Form 10-K filed on April 1, 2010 with the SEC. The financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the Company's financial position as at March 31, 2010, and the results of its operations and cash flows for the three months ended March 31, 2010 and 2009. The results of operations for the three months ended March 31, 2010 are not necessarily indicative of the results to be expected for future quarters or the full year. Cash and Cash Equivalents The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents. Registration Payment Arrangements The Company accounts for registration rights arrangements and related liquidated damages provisions under FASB ASC 815-40, Derivatives and Hedging - Contracts in Entity's own Entity, which addresses an issuer's accounting for registration payment arrangements. ASC 815-40 defines a registration payment arrangement as an arrangement where the issuer i) will endeavor to file a registration statement for the resale of financial instruments, have the registration statement declared effective, or maintain its effectiveness and ii) transfer consideration to the counterparty if the registration statement is not declared effective or its effectiveness is not maintained. 5
BIOCUREX, INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. dollars) THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (unaudited) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Registration Payment Arrangements (continued) ASC 815-40 requires the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, to be separately recognized and measured in accordance with ASC 450, Contingencies. As at March 31, 2010, the Company has no liabilities related to its registration statement. Research and Development Costs Research and development costs are charged to operations as incurred. Foreign Currency Translation The Company's functional and reporting currency is the United States dollar. Monetary assets and liabilities denominated in foreign currencies are translated to United States dollars in accordance with ASC 830, Foreign Currency Translation Matters using the exchange rate prevailing at the balance sheet date. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income. Foreign currency transactions are primarily undertaken in Canadian dollars and Chinese Renminbi. Revenue Recognition The Company recognizes revenue in accordance with ASC 605 Revenue Recognition, Revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed, and ~ollectability is reasonably assured. The Company's revenue consists of license fees related to the licensing of its RECAF(TM) technology. Long-lived Assets In accordance with ASC 360, Property Plant and Equipment , the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. 6
BIOCUREX, INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. dollars) THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (unaudited) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Long-lived Assets (continued) Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. Fair Value of Financial Instruments The Company's financial instruments, which consist principally of cash, accounts payable, loans payable, convertible notes payable, convertible debt and amounts due to related parties, are valued in accordance with ASC 820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments, See Note 11. Income Taxes The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Income Taxes. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. Stock-based Compensation The Company records stock-based compensation in accordance with ASC 718, Compensation - Stock Compensation, and ASC 505-50, Equity-Based Payments to Non-Employees using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. 7
BIOCUREX, INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. dollars) THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (unaudited) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Basic and Diluted Net Loss per Share The Company computes net loss per share in accordance with ASC 260 Earnings Per Share which requires presentation of basic earnings per share and diluted earnings per share. The computation of basic earnings per share is computed by dividing income available to common stockholders by the weighted-average number of outstanding common shares during the period. Diluted earnings per share gives effect to all potentially dilutive common shares outstanding during the period. The computation of diluted EPS does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on earnings. As of March 31, 2010 and 2009, the Company had approximately 159,712,000 and 19,298,000 respectively, of potentially dilutive securities, including options, warrants and equity instruments related to convertible notes payable and convertible debt. Recent Accounting Pronouncements The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations. Reclassifications Certain reclassifications have been made to the prior period's financial statements to conform to the current period's presentation. 3. PATENTS Patents relate to developing the method for diagnostic and treatment of cancer using a new cancer marker called "RECAF." These patents are presently registered in 23 countries with ongoing registrations currently being conducted. Patents are recorded at cost and have a definite life. Once the Company receives patent approval, amortization is calculated using the straight-line method over the remaining life of the patents. As of March 31, 2010, the Company had received patent approvals from five countries. Additions made after March 31, 2010 will have a remaining life of approximately 5 years. The Company intends to apply for extensions in the near future. 8
BIOCUREX, INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. dollars) THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (unaudited) 3. PATENTS (continued) A schedule of the patents is as follows: March 31, December 31, 2010 2009 -------- ------------ $ $ Patents 703,142 696,003 Less: Accumulated amortization (226,480) (224,539) ---------------------------------------------------------------------------- Net Carrying Value 476,662 471,464 ============================================================================ Amortization expense totaled $10,691 and $9,822 for the three months ended March 31, 2010 and 2009, respectively. The estimated future amortization expense is as follows: $ 2010 32,075 2011 42,765 2012 42,765 2013 42,765 2014 42,765 Thereafter 273,527 ----------- 476,662 =========== 4. LOANS PAYABLE a) On September 10, 2009, the Company completed a private placement financing in which it sold units consisting of 17 promissory notes in the aggregate principal amount of $450,000 and 6,428,578 shares of its common stock for an aggregate purchase price of $450,000. The promissory notes bear interest at a rate of 10% per annum. Both interest and principal are payable on August 31, 2010. However, if the Company sells any capital stock and receives gross proceeds of at least $3 million from such sale prior to August 31, 2010, it must prepay the principal under the notes from such proceeds. The aggregate purchase price for the units was allocated equally between the notes and shares contained in each Unit based on their relative fair value. The relative fair value assigned to the shares totaled $225,000. These amounts were recorded as a notes discount 9
BIOCUREX, INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. dollars) THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (unaudited) 4. LOANS PAYABLE (continued) and will be amortized as interest expense over the term of the promissory notes. In February 2010, the Company repaid principal of $450,000 and interest of $16,890. As of the period ended of March 31, 2010, the Company recorded $169,811 (2008 - $Nil) of accretion expense related to these promissory notes. b) On September 21, 2009, the Company completed a private placement financing in which it sold units consisting of three promissory notes in the aggregate principal amount of $125,000 and 1,785,715 shares of its common stock for an aggregate purchase price of $125,000. The promissory notes bear interest at a rate of 10% per annum. Both interest and principal are payable on January 31, 2013. The aggregate purchase price for the units was allocated equally between the notes and shares contained in each Unit based on their relative fair value. The relative fair value assigned to the shares totaled $62,500. These amounts were recorded as a notes discount and will be amortized as interest expense over the term of the promissory notes. During the three months ended of March 31, 2010, the Company paid interest in the amount of $3,082 (2009 - $ nil) and recorded of $6,912 as the accretion expense related to these promissory notes. As at March 31, 2010, the carring value of these notes was $69,619 (December 31, 2009 - $62,707). The Company incurred $118,612 in debt issue costs for the promissory notes described in Note 4(a) and (b). The debt issue costs are being expensed over the term of the promissory notes. During the three month ended March 31, 2010, the Company expensed $71,559 (2009 - $nil) of the debt issue costs related to these promissory notes, the balance of debt issue costs was $8,641 (December 31, 2009 - $80,200). 5. RELATED PARTY BALANCE AND TRANSACTIONS March 31, December 31, 2010 2009 -------- ------------ Due to Pacific BioSciences Research Centre Inc. and Company's President (a) $415,655 $526,827 Due to Company's Chairman (b) 24,000 62,350 Due to former officer (c) 4,930 4,930 ---------- ---------- $444,585 $594,107 ========== ========== 10
BIOCUREX, INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. dollars) THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (unaudited) 5. RELATED PARTY BALANCE AND TRANSACTIONS (continued) a) The Company's research and development is performed by Pacific BioSciences Research Centre ("Pacific"). Pacific is 100% owned by the President of the Company. During the three months ended March 31, 2010 and 2009, Pacific performed research and development for the Company valued at $96,332 and $128,437, respectively. Pacific also provided administrative services during the three months ended March 31, 2010 and 2009, valued at $53,457 and $41,541, respectively. During the three months ended March 31, 2010, and 2009, Pacific charged interest of $2,345 and $2,631, respectively, calculated at bank prime rate on the monthly balance owed. As at March 31, 2010 and December 31, 2009, the amount due to Pacific of $403,181 and $479,129, respectively, is unsecured and due on demand. On September 15, 2009, the Company made an agreement with the Company's President to provide management services for a fee of $250,000 per annum. During three months ended March 31, 2010, the Company incurred $62,500 (2009 - $nil) for the management services of which $12,474 remains unpaid balance as of March 31, 2010 (2009 - $nil). b) On September 15, 2009, the Company made an agreement with the Company's Chairman to provide management services for a fee of $100,000 per annum based on 40 hours per month. During the three months ended March 31, 2010, the Company incurred $32,333 of which $24,000 remains unpaid as of March 31, 2010 (2009: $nil). c) The balance includes $4,930 owing to a former officer which is unsecured, non-interest bearing and due on demand. d) During the three months ended March 31, 2010, the Company granted 28,500,000 (2009 - 2,263,157) stock options to five directors and one officer at a market exercise price of $0.0714 per share (see note 8). 6. CONVERTIBLE NOTES PAYABLE AND CONVERTIBLE DEBT a) The Company received funds during 2003 from the issuance of ten convertible notes totaling $529,743, bearing interest at 5% and due on demand. Under the convertibility terms of the notes payable, the principal, plus accrued interest, can be converted immediately, at the option of the holder, either in whole, or in part, into fully paid common shares of the Company. The conversion price per share is equal to the lesser of the stated price (ranging between $0.05 and $0.23) or 75% of the average closing bid prices for the five trading days ending on the trading day immediately before the date of the conversion. In conjunction with the issuance of the notes, the Company issued 2,434,088 warrants to the note holders entitling them to purchase 2,434,088 shares of common stock at exercise prices between $0.08 and $0.38. The warrants expired two years after the issuance date. 11
BIOCUREX, INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. dollars) THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (unaudited) 6. CONVERTIBLE NOTES PAYABLE AND CONVERTIBLE DEBT (continued) In accordance with ASC 470-20, Debt - Debt with Conversion and Other Options, the proceeds were allocated between the debt and warrants based on their relative fair values. The value assigned to the warrants totaled $274,601 and was expensed immediately due to the notes being due on demand. In addition to the shares to be received upon conversion, the note holder will also receive an equal number of warrants to purchase shares at 110% of the conversion price amount. The beneficial conversion feature was calculated under ASC 470-20, and equaled $255,142. Due to the notes being due on demand, the discount was expensed in fiscal 2003. One of the notes payable in the amount of $53,000 was repaid in April 2003. A gain of $33,584 was recorded on the date of repurchase of the convertible debenture as determined through the calculation of the intrinsic value of the beneficial conversion feature on the date of extinguishment. Prior to December 31, 2006, notes in the amount of $281,915 were converted into 2,123,634 units consisting of one share and one share purchase warrant. In accordance with ASC 470-20, the Company recognized $132,989 for the intrinsic values of the embedded conversion options. In August 2009, four notes in the amount of $160,945 were converted into 2,204,730 units, consisting of one common share at $0.073 per share and one common share purchase warrant entitling the holder to acquire an additional common share at an exercise price of $0.08 per share expiring on August 26, 2014. In accordance with ASC 470-20, the Company recognized $71,389 for the intrinsic value of the embedded conversion option. At March 31, 2010, one $33,885 (December 31, 2009 - $33,885) convertible note remains outstanding. b) On July 7, 2007, the Company received proceeds of $3,000,000 from the issuance of convertible notes (the "Notes"), plus share purchase warrants, to two private investors. The share purchase warrants allow the holders to purchase up to 3,500,000 shares of the Company's common stock at a price of $0.60 per share expiring September 25, 2012. The Notes bear interest annually at a rate of prime (as adjusted monthly on the first business day of each month) plus 2.75% per year. The Notes are due and payable on June 25, 2010 and are secured by substantially all of the Company's assets. Interest is payable monthly with the first interest payment due on August 1, 2007. 12
BIOCUREX, INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. dollars) THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (unaudited) 6. CONVERTIBLE NOTES PAYABLE AND CONVERTIBLE DEBT (continued) Beginning on November 1, 2007, the Company was required to make monthly payments of $100,000 towards the principal amount of the Notes. If the Company fails to make any interest or principal payment when due, the Notes will become immediately due and payable. At the holders' option the Notes were convertible into shares of the Company's common stock at a conversion price of $0.60 per share. The Company may elect to pay the monthly redemption amounts and accrued interest with shares of its common stock, which will be determined by dividing the amount to be paid by the lesser of the conversion price then in effect or 80% of the weighted average price of the Company's common stock for the ten trading days preceding the payment date. In order to make principal or interest payments with shares of its common stock certain conditions must be met, including the condition that the number of shares to be issued in payment of principal or interest cannot exceed 25% of the total shares traded for the ten trading days prior to the payment date. The Company agreed to file a Form SB-2 Registration Statement ("SB-2") with the U.S. Securities and Exchange Commission in order that the shares of common stock issuable upon the conversion of the Notes or the exercise of the share purchase warrants may be resold in the public market. The Company was required to file the SB-2 no later than July 30, 2007 (filed), to cause the SB-2 to become effective by November 26, 2007, and to keep the SB-2 continuously effective until the shares covered by the SB-2 have been sold or can be sold pursuant to Rule 144(k). In the event the closing price of the Company's common stock is $1.20 or greater for ten consecutive trading days, the holders will be required to exercise the 3,500,000 share purchase warrants within ten days notice by the Company. Following the exercise of the share purchase warrants, the Company will issue to the holders 3,500,000 new share purchase warrants, which will entitle the holders to purchase 1,750,000 shares of common stock. Two share purchase warrants will be exercisable at a price of $1.20 per share at any time prior to the later of June 25, 2012 or three years from the date the new share purchase warrants are issued. In accordance with ASC 470-20, the proceeds were allocated between the debt and warrants based on their relative fair values. The relative fair value assigned to the share purchase warrants totaled $1,426,381 and was determined using the Black-Scholes option pricing model using the following weighted average assumptions: average risk-free interest rate of 4.76%; expected life of five years; expected volatility of 176%; and no expected dividends. These amounts were recorded as a debt discount and will be amortized as interest expense over the term of the convertible debentures. The effective interest rate at December 31, 2008 is 406%. For the year ended December 31, 2008, the Company recorded $976,064 (2007 - $791,092) of accretion expense related to the convertible debt. 13
BIOCUREX, INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. dollars) THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (unaudited) 6. CONVERTIBLE NOTES PAYABLE AND CONVERTIBLE DEBT (continued) On August 18, 2008, the Company agreed to re-price the 3,500,000 share purchase warrants to an exercise price of $0.25 per share. In accordance with ASC 718, modifications to the terms of an award are treated as an exchange of the original award for a new award. Incremental interest expense is measured as the excess, if any, of the fair value of the original award immediately before its terms are modified, measured based on the share price and other pertinent factors at that date. The Company recognized an incremental interest expense of $192,264 for these modified purchase warrants. On November 26, 2008, the Company received notification from the note holders which modified the terms of the Notes. Pursuant to the notification the interest and principal payments payable in December 2008 and all subsequent principal and interest payments were deferred until May 1, 2009. In addition the principal amount outstanding was increased by $255,000 to $1,955,000. In accordance with ASC 470-60 Debt - Troubled Debt Restructurings by Debtors the Company determined that the creditor did not grant a concession even though the payments were deferred as the total amount owing by the Company was increased. As at November 26, 2008, prior to the modification of the convertible notes, the carrying value of the convertible notes was $613,738. The remaining unaccredited discount of $304,467 related to the convertible notes was charged to operations in the year ended of 2008. In accordance with ASC 470-20, the Company determined there was no beneficial conversion feature on the modified convertible notes. The Company recorded a discount of $130,298 which was equal to the difference of the face value of the new note and the present value of the revised cash flows. The effective interest rate of the new notes was 6.56%. The Company incurred $717,668 in debt issue costs for these convertible notes. The debt issue costs will be expensed over the term of the convertible notes. During the three month period ended March 31, 2010, the Company expensed $42,233 (2009 - $53,608) of the debt issue costs related to the convertible notes. On May 1, 2009, as a result of the Company defaulting on paying interest and principal repayment, the Company expensed the remaining discount of $69,412 and deferred financing fees of $214,434 relating to the notes. On June 4, 2009, the Company repaid $36,250 to the debt holders and the amount was applied to the principal. As a result of the default on repayment, the Company accrued a mandatory prepayment amount of $479,688 at 25% of the outstanding principal, interest in the amount of $232,324 at 18% retroactive from November 1, 2008 and late fee of $12,009 at 18% on the unpaid interest. 14
BIOCUREX, INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. dollars) THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (unaudited) 6. CONVERTIBLE NOTES PAYABLE AND CONVERTIBLE DEBT (continued) PersonNameThe Company entered into a loan modification agreement, dated as of August 31, 2009, with the debt holders. Pursuant to the agreement, the mandatory prepayment amount and late interest were waived and the terms of the notes were amended as follows: - The maturity date of the notes was extended to December 31, 2012 and no principal payments are due on the notes prior to the maturity date. - All interest due on the notes through June 30, 2009 was added to the outstanding principal balance and as a result the aggregate principal amount of the notes at June 30, 2009 was $2,150,000. - The interest rate on the notes remains at prime (as adjusted monthly) plus 2.75% per annum and accrued from July 1, 2009 and is payable in arrears on the first day of each month - The conversion price was reset at $0.14 per share. The present value of the cash flows under the terms of the July 1, 2009 debt instrument was greater than 10% different from the November 26, 2008 debt instrument. As a result, in accordance with ASC 470-50 Debt - Modifications and Extinguishments, the Company deemed the terms of the amendment to be substantially different and treated the November 26, 2008 convertible notes as extinguished and exchanged for new convertible notes. The Company recorded a gain on extinguishment of debt of $969,538. In accordance with ASC 470-20, the Company determined there was no intrinsic value to the conversion feature and thus no beneficial conversion feature. The Company recorded a discount of $476,757 which equals to the difference of the face value of the new note and the present value of the revised cash flows. During the year ended December 31, 2009, the debt holders converted $400,000 of note principal into 2,912,088 shares at $0.14 per share. The Company recorded interest expense of $81,455 related to the amounts converted which is included in accretion expense based on the modified convertible loan agreement. 15
BIOCUREX, INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. dollars) THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (unaudited) 6. CONVERTIBLE NOTES PAYABLE AND CONVERTIBLE DEBT (continued) For the year ended December 31, 2009, the Company recorded $129,642 (2008 - $976,064) of accretion expense related to the original convertible debt, and $138,558 of accretion expense based on the modified convertible loan agreement entered into on August 31, 2009. During the three months ended March 31, 2010, the Company repaid $1,186,700 of the outstanding notes. For the three months ended March 31, 2010, the Company recorded $237,449(2009 - $29,542) of accretion expense related to the modified convertible loan agreement entered into an August 31, 2009. The unamortized discount as at March 31, 2010 is $100,750 (December 31, 2009 - $338,212). The effective interest rate of remaining convertible notes at March 31, 2010 is 7.21% 7. COMMON STOCK For the three months ended March 31, 2010: a) In January 2010, the Company entered into an Underwriting Agreement with Paulson Investment Company ("Paulson"), as representative of the two underwriters named therein. Pursuant to the terms of such Underwriting Agreement, Paulson agreed to underwrite the offer and sale by the Company of 1,200,000 units, each consisting of 70 shares of the Company's common stock and 70 redeemable common stock purchase warrants. Each warrant allows the holder to purchase one common share of the Company for $0.107 per share for a term expiring on January 15, 2015. In addition, the Company issued the underwriters a 45-day option to purchase an additional 92,280 units to cover over-allotments. The underwriters agreed to offer the units to the public at $5.00 per unit. As compensation for the services to be provided to the underwriters in connection with the offering of the units, the Company agreed to a 9% underwriting discount for $581,526 in cash. In addition, the Company agreed to pay $180,000 to Paulson for the non-accountable expense allowance, and issue "Representative's Warrant", with an estimated fair value of $939,771 which allows the underwriters to purchase up to 120,000 units at $6.00 per unit for a term of five years from January 19, 2011 (see note 10). The offer and sale of all of the units, including the units covered by the over-allotment option and the Representative's Warrant, all of the shares and warrants included in the units as well as the Representative's Warrant are covered by a registration statement on Form S-1 filed by the Company under the Securities Act of 1933, as amended, which was declared effective by the Securities and Exchange Commission on January 19, 2010. Pursuant to the Form S-1, the Company issued a total of 90,459,600 shares and 90,459,600 warrants on January 28, 2010. 16
BIOCUREX, INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. dollars) THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (unaudited) 7. COMMON STOCK (continued) b) In February 2010, the Company issued 800,000 shares of common stock with a fair value of $56,000 for consulting services. c) In February 2010, the Company issued 200,000 shares of common stock to a vendor to settle $14,000 of services owed. d) In February 2010, a total of 920,000 stock options were exercised at $0.001 per share. e) In February 2010, the Company issued 347,727 shares of common stock pursuant to the cashless exercise of 1,275,000 warrants by a note holder. This exercise was based on the cashless exercise provision of the stock purchase warrant f) In February 2010, the Company issued 357,143 shares of common stock with a fair value of $25,000 for legal services provided. g) In March 2010, the Company received $284 for share subscription from 284,000 stock options exercised at $0.001 per share. 8. STOCK-BASED COMPENSATION Stock Bonus Plan Under the Company's Stock Bonus Plan, employees, directors, officers, consultants and advisors are eligible to receive a grant of the Company's shares, provided that bona fide services are rendered by consultants or advisors and such services must not be in connection with the offer or sale of securities in a capital-raising transaction. On April 23, 2009, the Company increased the number of shares issuable pursuant to this plan from 5,500,000 shares to 10,500,000 shares with 1,249,132 common shares available for future issuance as of March 31, 2010. Non-Qualified Stock Option Plan The Company's Non-Qualified Stock Option Plan authorizes the issuance of common shares to persons that exercise stock options granted. The Company's employees, directors, officers, consultants and advisors are eligible to be granted stock options pursuant to this plan, provided that bona fide services are rendered by such consultants or advisors and such services must not be in connection with the offer or sale of securities in a capital-raising transaction. The stock option exercise price is determined by a committee and cannot be less than $0.001. On April 23, 2009, the Company increased the number of shares issuable pursuant to this plan from 12,500,000 shares to 17,500,000 shares with 3,870,666 common shares available for future issuance as of March 31, 2010. 17
BIOCUREX, INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. dollars) THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (unaudited) 8. STOCK-BASED COMPENSATION (continued) Non-Qualified Stock Option Plan (continued) During the three months ended March 31, 2010, there were no stock options granted pursuant to this plan, for the period ended of March 31, 2009, the Company granted 2,263,157 stock options from this plan at a fair value of $212,822 to two directors at a below market exercise price of $0.001 per share. A summary of the changes in the Company's stock options is presented below: Weighted Weighted Average Average Aggregate Exercise Remaining Intrinsic Number of Price Contractual Value Shares $ Life (Years) $ ----------------------------------------------------------------------------- Outstanding, December 31, 2008 3,890,000 0.001 2.99 774,110 Granted 3,717,057 0.001 Exercised (1,620,000) 0.001 ----------------------------------------------------------------------------- Outstanding, December 31, 2009 5,987,057 0.001 1.65 652,589 Granted 28,500,000 0.071 Exercised (1,204,000) 0.001 ----------------------------------------------------------------------------- Outstanding, March 31, 2010 33,283,057 0.061 8.71 349,627 ----------------------------------------------------------------------------- Exercisable, March 31, 2010 4,783,057 0.001 2.13 349,627 ----------------------------------------------------------------------------- During the three months ended March 31, 2010, the Company granted 28,500,000 stock options at a fair value of $1,994,903 to five directors and one officer at a market exercise price of $0.0714 per share. Holders of the management stock options may exercise the options by paying the exercise price to the Company or on a cashless basis upon the approval of the Company's board of directors. Should the options be exercised on a cashless basis, the Company will issue common shares of the Company with a market value equal to the intrinsic value of the options at the close of trading on the date of exercise. The management stock options were not issued under the Company's Non-Qualified Stock Option Plan and as at May 14, 2010, have not been registered under the Securities Act of 1933. Accordingly, any shares issuable upon the exercise of these options will be restricted securities unless the shares are registered. The fair value for stock options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the weighted average fair value of stock options granted during the period ended March 31, 2010 and 2009 was $0.07 and $0.10 per share (under non-qualified stock options plan), respectively. 18
BIOCUREX, INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. dollars) THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (unaudited) 8. STOCK-BASED COMPENSATION (continued) The weighted average assumptions used are as follows: Three Months Ended March 31, March 31, 2010 2009 --------- --------- Expected dividend yield 0% 0% Risk-free interest rate 3.7% 1.05% Expected volatility 255% 123% Expected option life (in years) 10.00 2.00 As at March 31, 2010, there was $1,276,293 of unrecognized compensation costs related to non-vested share-based compensation arrangements granted which are expected to be recognized over a weighted-average period of two years. The total fair value of shares vested during the period ended March 31, 2010 and 2009 were $765,525 and $212,822, respectively. 9.SHARE PURCHASE WARRANTS A summary of the status of the Company's non-vested options as of March 31, 2010, and changes during the period of March 31, 2010, is presented below: Weighted Average Grant Date Number of Fair Value Non-vested shares Options $ Non-vested at December 31, 1,453,900 0.001 2009 Granted 28,500,000 0.0714 Vested (1,453,900) 0.001 ------------------------------------------------------------------------ Non-vested at March 31, 2010 28,500,000 0.0714 ------------------------------------------------------------------------ 19
BIOCUREX, INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. dollars) THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (unaudited) 9.SHARE PURCHASE WARRANTS (continued) A summary of the changes in the Company's share purchase warrants is presented below: Number Weighted Average Exercise Price $ ------------------------------------------------------------------------- Balance, December 31, 2008 11,774,962 0.35 Issued 7,812,422 0.10 Exercised (450,000) 0.001 Expired (2,184,573) 0.77 ------------------------------------------------------------------------- Balance, December 31, 2009 16,952,811 0.14 Issued 90,459,600 0.107 Exercised (1,275,000) 0.08 Expired (955,800) 0.17 ------------------------------------------------------------------------- Balance, March 31, 2010 105,181,611 0.14 ------------------------------------------------------------------------- In January 2010, the Company modified the exercise price of 3,500,000 shares purchase warrants issued with the convertible debt described in Note 6 (b) from $0.25 to $0.135, in accordance with the adjustment provisions contained in the agreement. In accordance with ASC 718, modifications to the terms of an award are treated as an exchange of the original award for a new award. Incremental compensation cost is measured as the excess, if any, of the fair value of the original award immediately before its terms are modified, measured based on the share price and other pertinent factors at that date. The Company recognized an incremental compensation cost of $23,376 for these modified share purchase warrants. As at March 31, 2010, the following share purchase warrants were outstanding: Warrants Exercise Expiration Date Price $ -------------------------------------------- 115,000 0.65 May 1, 2010 133,500 0.30 November 30, 2010 199,311 0.17 November 11, 2010 233,092 0.06 July 7, 2011 252,278 0.05 December 31, 2011 (1) 20
BIOCUREX, INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. dollars) THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (unaudited) 9.SHARE PURCHASE WARRANTS (continued) 307,692 0.17 February 2, 2011 343,833 0.20 July 7, 2011 400,000 0.11 August 18, 2011 500,000 0.11 August 17, 2011 500,000 0.11 September 3, 2011 541,666 0.12 October 31, 2010 590,909 0.12 July 19, 2011 900,000 0.11 April 5, 2011 1,000,000 0.11 June 15, 2011 1,000,000 0.25 April 30, 2012 2,000,000 0.11 April 1, 2012 2,204,730 0.08 August 26, 2014 3,500,000 0.135 June 27, 2012 90,459,600 0.107 January 19, 2015 (2) ------------ (1)The warrants can be exercised by either paying cash or on a cashless basis. (2)The public warrants are exercisable at any time before January 19, 2015. The Company may redeem some or all of the public warrants at a price of $0.003 per warrant by giving the holders not less than 30 days' notice at any time the common stock closes, as quoted on the OTC Bulletin Board, at or above 0.143 per share for five consecutive trading days. 10. UNIT PURCHASE WARRANTS On January 28, 2010, the Company issued a warrant in conjunction with the Underwriting Agreement described in Note 7(a). The warrant had an estimated fair value of $939,771 and it allows the underwriters to purchase up to 120,000 units at $6.00 per unit for a term of five years from January 19, 2015. Each unit consists of 70 shares of common stock and 70 warrants to purchase shares of the Company's common stock at an exercise price of $0.107 per share. 21
BIOCUREX, INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. dollars) THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (unaudited) 11. FAIR VALUE MEASUREMENTS ASC 825 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. In determining fair value 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 it considers assumptions that market participants would use when pricing the asset or liability. Fair Value Hierarchy ASC 825 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. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 825 establishes three levels of inputs that may be used to measure fair value. Level 1 Level 1 applies to assets and liabilities for which there are quoted prices in active markets for identical assets or liabilities. Valuations are based on quoted prices that are readily and regularly available in an active market and do not entail a significant degree of judgment. Level 2 Level 2 applies to assets and liabilities for which there are other than Level 1 observable inputs such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. Level 2 instruments require more management judgment and subjectivity as compared to Level 1 instruments. For instance: Determining which instruments are most similar to the instrument being priced requires management to identify a sample of similar securities based on the coupon rates, maturity, issuer, credit rating and instrument type, and subjectively select an individual security or multiple securities that are deemed most similar to the security being priced. Determining whether a market is considered active requires management judgment. 22
BIOCUREX, INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. dollars) THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (unaudited) 11. FAIR VALUE MEASUREMENTS (continued) Level 3 Level 3 applies to assets and liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. The determination of fair value for Level 3 instruments requires the most management judgment and subjectivity. Pursuant to ASC 825, the fair value of the cash is determined based on "Level 1" inputs. Loans payable, convertible notes payable and convertible debt are valued based on "Level 2" inputs, using model in which significant inputs are observable or can be derived principally from, or collaborated by observable market data. Assets and liabilities measured at fair value on a recurring basis were presented on the Company's consolidated balance sheet as of March 31, 2010 as follows: Fair Value Measurements Using ---------------------------------------------------------------- Quoted Prices in Significant Active Markets Other Significant For Identical Observable Unobservable Balance as of Instruments Inputs Inputs March 31, (Level 1) (Level 2) (Level 3) 2010 ---------------------------------------------------------------- Assets: Cash $ 3,118,725 $ - $ - $ 3,118,725 ---------------------------------------------------------------- Total assets measured at fair value $ 3,118,725 $ - $ - $ 3,118,725 ---------------------------------------------------------------- Liabilities: Loans payable $ - $ 69,619 $ - $ 69,619 Convertible notes payable - 33,885 - 33,885 Convertible notes - 462,550 - 462,550 ---------------------------------------------------------------- Total liabilities measured at fair value $ - $ 566,054 $ - $ 566,054 ---------------------------------------------------------------- 23
BIOCUREX, INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. dollars) THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (unaudited) 12. COMMITMENTS AND CONTINGENCIES a) On April 4, 2006, the Company entered into a consulting agreement with a term of nine months for consideration of 75,000 common shares. As of March 31, 2010, the Company has issued 37,500 common shares and 37,500 common shares are still owed to the consultant. b) On April 10, 2006, the Company entered into a consulting agreement with a term of one year for consideration of 75,000 common shares. As of March 31, 2010, the Company has issued 37,500 common shares and 37,500 common shares are still owed to the consultant. 13. SUBSEQUENT EVENT On April 20, 2010, the Company issued 284,000 shares of common stock pursuant to stock options exercised at $0.001 per share for common shares subscriptions totaling $284 received in March 2010. 24
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION We are a development stage company focusing on developing and commercializing products for the early detection, diagnosis and monitoring the recurrence of cancer. We have developed and evaluated, using clinical blood samples, a blood test that can detect the presence of cancer in humans and animals using a new cancer marker named RECAF. We developed and own, royalty free, the proprietary technology related to the RECAF marker, with patents granted in the United States, Europe and China and pending in other major worldwide markets. As of April 30, 2010 we had not generated any revenue from the sale of any product. Our principal objectives for the twelve-month period ending March 31, 2011 are as follows: o grant one additional semi-exclusive license for testing blood samples using automated testing equipment; o commercialize veterinary applications of RECAF testing technology not requiring regulatory approvals; o finish developing a POC rapid format test for the doctor's office, bedside and veterinary use; o conduct clinical trials and seek FDA approval for marketing of the POC rapid format test; and o commercialize manual testing formats, principally large cities in foreign countries where further regulatory clearance is not required. We cannot assure you that we can successfully achieve any of these objectives. Liquidity and Capital Resources We do not have any lines of credit with banks or other financial institutions or any other traditional financing arrangements. We will need additional capital until we are able to generate significant revenues to cover our expenditures. Since January 2003, we have been able to finance our operations through the private sale of securities and from borrowings from private lenders. 1
Our sources and (uses) of cash during the three months ended March 31, 2010 and 2009 were as follows: Three Months Ended March 31, 2010 2009 ---- ---- Cash used in operations (961,519) (49,568) Patent costs (15,889) (10,005) Sale of investment securities -- Repayment of loans from related parties (149,522) -- Repayment of convertible debt (1,186,700) -- Proceeds from sale of common stock and exercise of options and warrants, net of issuance costs 6,461,400 40,000 In June 2007, we sold convertible notes, plus warrants, to private investors for $3,000,000. The notes are due and payable on December 31, 2012 and are secured by substantially all of our assets. At the holder's option the notes are convertible into shares of our common stock at a conversion price of $0.14. From the proceeds of our January 2010 public offering we repaid $1,186,700 to the note holders. Due to principal payments and conversions, the outstanding principal balance of the notes as of March 30, 2010 was $563,300. In September 2009, we sold promissory notes in the principal amount of $575,000 to twenty accredited investors. As partial consideration for lending us the $575,000 we issued 8,214,292 shares of our common stock to the investors. With the proceeds from our January 2010 public offering we repaid $450,000 to the investors. The remaining balance of $125,000 bears interest at 10%, is unsecured, and is payable on or before January 31, 2013. In January 2010 we sold 90,459,600 shares of our common stock at a price of $0.0714 per share in a public offering. For each share sold the investor also received one warrant. Each warrant entitles the holder to purchase one share of our common stock at a price of $0.107 per share at any time on or before January 2015. The net proceeds to us from the sale of the shares and warrants, after deducting underwriting commissions and offering costs, were approximately $5,700,000. We anticipate that our capital requirements for the twelve-month period ending April 30, 2011 will be as follows: Research, development and production of our diagnostic products $1,000,000 General and administrative expenses 750,000 Marketing and investor communications 150,000 Business development 200,000 Payment of interest on amended senior convertible notes and unsecured promissory notes 150,000 Payment of outstanding liabilities 250,000 ------------ $2,500,000 ============ 2
Our most significant capital requirements are general research and development and administrative expenses. General and administrative expenses, exclusive of depreciation, amortization and other expenses not requiring the use of cash (such as the costs associated with issuing stock and options for services), average approximately $60,000 per month. Our research and development expenses vary, depending upon available capital. When more capital is available to us, research and development expenses increase. Conversely, research and development expenses decline when less capital is available. We may not be successful in obtaining additional capital in the future. If we are unable to raise the capital we need, our research and development activities will be curtailed or delayed and our operations will be reduced to a level which can be funded with the capital available to us. Material changes of items in our Statement of Operations for the three months ended March 31, 2010, as compared to the same period in the prior year, are discussed below: Increase (I) or Decrease Item (D) Reason ---- ------------ ------ The increase was primarily attributable to higher stock-based compensation General and administrative expense, and an increase in I management fees for two directors. In 2010 we incurred professional fees in connection with documentation of the repayment of the convertible debt and general Professional and Consulting Fees securities filings. In addition, the Company entered I into consulting agreements to strength the overall marketing strategies. A large portion of the convertible notes were repaid Accretion of discounts on in January 2010, the convertible debt accretion of discount on the I convertible debt was amortized accordingly. The debt issue costs were amortized correspondingly Amortization of debt issue costs I when a large portion of convertible notes were paid. 3
Increase (I) or Decrease Item (D) Reason ---- ------------ ------ The Company entered into negotiations with two service Gain on settlement of accounts providers regarding their payable fees. Negotiations were amicably concluded, resulting I in favorable terms to the Company. The decrease of interest expense was primarily due to Interest expense D a large portion of convertible notes having been repaid in January 2010. Recent Accounting Pronouncements -------------------------------- See Note 2 to the financial statements which are included as part of this report. Critical Accounting Policies ---------------------------- Our significant accounting policies are more fully described in Note 2 to the financial statements included as a part of this report. However, certain accounting policies are particularly important to the portrayal of our financial position and results of operations and require the application of significant judgments by management. As a result, the consolidated financial statements are subject to an inherent degree of uncertainty. In applying those policies, management uses its judgment to determine the appropriate assumptions to be used in the determination of certain estimates. These estimates are based on our historical experience, terms of existing contracts, observance of trends in the industry and information available from outside sources, as appropriate. Our significant accounting policies include: Registration Payment Arrangements. We account for registration rights arrangements and related liquidated damages provisions under FASB ASC 815-40, Derivatives and Hedging - Contracts in Entity's own Entity, which addresses an issuer's accounting for registration payment arrangements. ASC 815-40 defines a registration payment arrangement as an arrangement where the issuer i) will endeavor to file a registration statement for the resale of financial instruments, have the registration statement declared effective, or maintain its effectiveness and ii) transfer consideration to the counterparty if the registration statement is not declared effective or its effectiveness is not maintained. ASC 815-40 requires the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, to be separately recognized and measured in accordance with ASC 450, Contingencies. As at March 31, 2010, we did not have 4
any liability relating to our registration statement which was declared effective by the SEC in January 2010. Long-lived Assets. In accordance with ASC 360, Property Plant and Equipment , we test long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. Stock-based Compensation. We record stock-based compensation in accordance with ASC 718, Compensation - Stock Compensation, and ASC 505-50, Equity-Based Payments to Non-Employees using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Revenue Recognition. We recognize revenue in accordance with ASC 605 Revenue Recognition, Revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed, and collectibility is reasonably assured. Our revenue consists of license fees related to the licensing of our RECAF(TM) technology. Patents relate to developing the method for diagnostic and treatment of cancer using a new cancer marker called "RECAF." These patents are presently registered in 23 countries with ongoing registrations currently being conducted. Patents are stated at cost and have a definite life. Once we receive patent approval, amortization is calculated using the straight-line method over the remaining life of the patents. As of March 31, 2010, we had received patent approvals from five countries. Additions made after March 31, 2010 will have a remaining life of approximately 5 years. We intend to apply for extensions in the near future. 5
Item 4T. Controls and Procedures Our Principal Executive and Financial Accounting Officers have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934), as of the end of the period covered by this report, and in their opinion our disclosure controls and procedures are effective. There were no changes in the Company's internal controls over financial reporting that occurred during the fiscal quarter ended March 31, 2010 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting as discussed above. PART II Item 2 Unregistered Sales of Equity Securities and Use of Proceeds. In February 2010 we issued 200,000 shares of common stock for services provided. In February 2010 we issued 347,727 shares of our common stock as a result of the exercise of a warrant. We relied upon the exemption provided by Section 4(2) of the Securities Act of 1933 with respect to the issuance of the securities referenced above. The persons who acquired these securities were sophisticated investors and were provided full information regarding the Company. There was no general solicitation in connection with the offer or sale of these securities. The persons who acquired these securities acquired them for their own accounts. The certificates representing the securities bear a restricted legend providing that they cannot be sold except pursuant to an effective registration statement or an exemption from registration. Item 6. Exhibits Exhibits 31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 6
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. BIOCUREX, INC. May 13, 2010 By: /s/ Dr. Ricardo Moro ------------------------------------- Dr. Ricardo Moro - President, Principal Executive Officer May 13, 2010 By: /s Gladys Chan ------------------------------------- Gladys Chan - Principal Financial and Accounting Officer 7