Attached files
As filed with the Securities and Exchange Commission on ______, 2011
Commission File No. 333-144879
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 3 TO
FORM S-1
Registration Statement Under
THE SECURITIES ACT OF 1933
BIOCUREX, INC.
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(Exact name of registrant as specified in charter)
Texas 2831 75-2742601
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(State or other jurisdiction (Primary Standard Classi- (IRS Employer
of incorporation) fication Code Number) I.D. Number)
7080 River Road, Suite 215
Richmond, BC V6X 1X5
866-884-8669
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(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Dr. Ricardo Moro
7080 River Road, Suite 215
Richmond, BC V6X 1X5
866-884-8669
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies of all communications, including all communications sent to the
agent for service, should be sent to:
William T. Hart, Esq.
Hart & Trinen, LLP
1624 Washington Street
Denver, Colorado 80203
303-839-0061
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box [X].
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer", and "smaller reporting company" in
Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
CALCULATION OF REGISTRATION FEE
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Title of each Proposed Proposed
Class of Maximum Maximum
Securities Securities Offering Aggregate Amount of
to be to be Price Per Offering Registration
Registered Registered Share (1) Price Fee
---------- ---------- ----------- ---------- ------------
Common stock (2) 3,500,000 $0.05 $175,000 $12.45
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
(2) Shares of common stock offered by selling shareholders.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of l933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
PROSPECTUS
BIOCUREX, INC.
Common Stock
3,500,000 Shares
By means of this prospectus a number of our shareholders are offering to
sell up to 3,500,000 shares of our common stock which they own or which they may
acquire upon the exercise of warrants. The shares owned by the selling
shareholders may be sold in the over-the-counter market, or otherwise, at prices
and terms then prevailing or at prices related to the then-current market price,
or in negotiated transactions.
We will not receive any proceeds from the sale of the common stock by the
selling stockholders.
Our common stock is traded on the OTC Bulletin Board under the symbol
"BOCX".
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. FOR A
DESCRIPTION OF CERTAIN IMPORTANT FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS
PROSPECTUS.
The date of this prospectus is _________, 2011.
PROSPECTUS SUMMARY
We were incorporated in Texas in December 1997 under the name Whispering
Oaks International, Inc. Between March 2001 and October 2009 we did business
under the name Biocurex, Inc. In October 2009 our shareholders approved an
amendment to our Articles of Incorporation which officially changed our name to
Biocurex, Inc.
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 offices are located at 7080 River Road, Suite 215, Richmond, BC V6X
1X5. Our telephone number is 866-884-8669 and our fax number is 866-437-2277.
Our website address is www.biocurex.com.
The Offering
By means of this prospectus a warrant holder is offering to sell up to
3,500,000 shares of our common stock which they own or which they may acquire
upon the exercise of warrants. The shares owned by the selling shareholders may
be sold in the over-the-counter market, or otherwise, at prices and terms then
prevailing or at prices related to the then-current market price, or in
negotiated transactions.
Forward Looking Statements
This prospectus contains various forward-looking statements that are based
on our belief as well as assumptions made by and information currently available
to us. When used in this prospectus, the words "believe", "expect",
"anticipate", "estimate" and similar expressions are intended to identify
forward-looking statements. Such statements may include statements regarding and
are subject to certain risks, uncertainties and assumptions which could cause
actual results to differ materially from projections or estimates. Factors which
could cause actual results to differ materially are discussed at length under
the heading "Risk Factors". Should one or more of the enumerated risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or
projected. Investors should not place undue reliance on forward-looking
statements, all of which speak only as of the date made.
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RISK FACTORS
An investment in our securities involves a high degree of risk. You should
carefully consider the risks described below and the other information in this
registration statement, including our financial statements and the notes to
those statements, before you purchase any of our securities. The risks and
uncertainties described below are not the only ones we face. Additional risks
and uncertainties not presently known to us, or that we currently deem
immaterial, could negatively impact our business, results of operations or
financial condition in the future. If any of the following risks and
uncertainties develop into actual events, our business, results of operations or
financial condition could be adversely affected. In those cases, the trading
price of our securities could decline, and you may lose all or part of your
investment.
Risks Related to Our Business
Auditors have doubt as to our ability to continue in business.
In their report on our December 31, 2010 financial statements, our auditors
expressed substantial doubt as to our ability to continue as a going concern. A
going concern qualification could impair our ability to finance our operations
through the sale of debt or equity securities. Our ability to continue as a
going concern will depend, in large part, on our ability to obtain additional
financing and generate positive cash flow from operations, neither of which is
certain. If we are unable to achieve these goals, our business would be
jeopardized and we may not be able to continue operations.
We have limited operations and a history of losses and expect to incur
additional losses in the future.
Historically, we have funded our operations through the private sale of
securities and with private loans. However, we have never earned a profit. For
the year ended December 31, 2010 and the three months ended March 31, 2011, we
reported net losses of $(3,249,729) and $(532,350), respectively. As of March
31, 2011, our stockholders' deficit was $(24,353,299). We expect to incur
additional losses for an indefinite period. To date, we have had limited
revenues and no revenues from the sale of the products and services that we are
currently focused on developing. We cannot assure that our products and services
will be successfully commercialized or that we will ever earn a profit.
We recently entered into a loan modification agreement with the holders of our
secured notes pursuant to which they waived defaults caused by our failure to
make certain principal payments when due. We may be unable to repay the amended
notes when due.
Under the terms of the original secured convertible notes issued in June
2007, we were obligated to make certain principal payments on May 1, 2009, which
we failed to do. As a result, these notes were characterized as short-term debt,
rather than long-term debt, on our June 30, 2009 balance sheet and our working
capital deficit as of that date was $3.6 million. As of August 31, 2009, we
entered into a Loan Modification Agreement with the holders of the original
secured convertible notes under which they waived those defaults and we agreed
to issue amended secured convertible notes under which they waived those
defaults and we agreed to issue amended secured convertible notes in the
aggregate principal amount of $2.15 million in exchange for the original secured
convertible notes. The amended secured convertible notes bear interest at the
same rate as the original secured convertible notes, prime plus 2.75%, mature on
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December 31, 2012 and are convertible into shares of our commons tock at a price
of $0.14 per share. The amended secured convertible notes are collateralized by
a security interest in all of our assets. As of May 31, 2011 we owed $563,300 to
the holders of these notes. If a default under the amended secured convertible
notes should occur prior to the maturity date, the holders would be able to
require us to pay the entire outstanding balance then due. We cannot assure you
that we will not be in default under the amended secured convertible notes or
that we will be able to repay those notes when they mature. If we are unable to
repay the principal amount of those notes when due, the holders, as secured
creditors, would be able to force the sale of our assets, including our patents
and other intangible assets that are at the core of our business, in order to
repay the notes. In such case, we would no longer be able to continue operations
and you could lose your entire investment.
To date, we have generated limited revenues. Our future success depends on our
ability to begin generating revenues on a regular and continuing basis.
Since inception, we have generated aggregate revenues of only $1.5 million
all of which were license fees or transfer fees related to material, technology
and related services. Our future success depends on our ability to begin
generating revenues on a regular and continuing basis and to properly manage our
costs. Our business strategy contemplates that we will derive revenue from
licensing our technology and from sales of our products and services. Our
ability to generate these revenues depends on a number of factors, some of which
are outside our control. These factors include the following:
o our ability to obtain necessary government and regulatory approvals;
o our ability to successfully complete all the research and development
work on the various test formats and applications of RECAF technology;
o our ability to successfully commercialize the various test formats and
applications of our RECAF technology;
o our ability to protect our intellectual property;
o the success of our sales and marketing efforts;
o our ability to maintain our competitive advantages;
o new developments in the area of cancer detections and the efficacy of
competing technologies;
o market acceptance of our products and services; and
o our ability to raise additional capital as and when needed and on
acceptable terms.
We cannot assure you that we will be able to meet any of these challenges
or that we will be able to generate any revenues. If we do not generate any
revenues, you may lose your entire investment.
If we are unable to raise additional capital, we may be unable to continue
operating.
The process to obtain regulatory approval of our products involves
significant costs. In addition, the costs associated with our proposed research,
development and marketing activities may be substantially higher than our
estimated costs of these activities. We will probably need additional capital to
fully implement our growth strategy, which includes obtaining the necessary
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regulatory approvals to commercialize various applications of our RECAF
technology, sales and marketing programs and continued research and development
activities, in addition to our general and administrative expenses. If we are
unable to raise additional capital, we may be forced to delay or postpone the
regulatory approval process and our research, development and marketing
activities. Further, any capital raised through the issuance of additional
equity will have a dilutive impact on other stockholders and could have a
negative effect on the market price of our common stock.
We have granted semi-exclusive licenses relating to the development, sale and
distribution of our products, and our dependence on these licensees exposes us
to significant commercialization and development risks.
In April 2005 and December 2007, we entered into a semi-exclusive license
agreement with Abbott and Inverness, respectively, under which we granted each a
semi-exclusive license to use RECAF tests on blood samples processed in
automated equipment typically found only in large clinical and hospital
laboratories and a non-exclusive license for other test formats. Under the
license agreements, we are entitled to annual minimum royalty payments,
sublicense fees and royalties based on net sales. The Abbott license agreement
also gives Abbott the right to grant sublicenses for these activities and for
engaging in commercial sales of our products to third parties upon payment to us
of sublicense fees and also gives Abbott the right, though not the obligation,
to obtain the necessary regulatory approvals to exploit the RECAF technology
covered by the license. To date, except for license fees and transfer related to
materials, technology and related services, we have not received any payments
from Abbott or Inverness as a result of their exploitation of the licenses.
The royalty payments we receive from the sale of our products under the
Abbott and Inverness license agreements depend heavily on their efforts. Each of
Abbott and Inverness has significant discretion in determining the efforts and
resources it applies to obtaining regulatory approval and to the development and
sale of our products, and each of them likely has a significant number of other
research commitments competing for its resources. Furthermore, regardless of the
effort and resources they invest, Abbott and Inverness may not be effective in
developing or marketing our products. In addition, Abbott and Inverness may have
corporate agendas which may not be consistent with our best interests. A
disagreement between us and Abbott or Inverness could lead to lengthy and
expensive dispute resolution proceedings as well as to extensive financial and
operational consequences to us, and have a material adverse effect on our
business, results of operations and financial condition.
If our relationship with Abbott or Inverness were to terminate, we may not
be able to enter into another semi-exclusive license agreement with a company
with similar resources to develop and commercialize our products and perform
these functions on acceptable terms or at all. As a result, we could experience
delays in our ability to distribute and commercialize our products and increased
expenses, all of which would have a material adverse affect on our business,
results of operations and financial condition.
Any failure to obtain or any delay in obtaining required regulatory approvals
may adversely affect our ability to successfully license our products or market
any products we may develop.
The cancer marker RECAF tests that we have developed for human applications
are subject to oversight by regulatory authorities in the United States and in
other countries, including, without limitation, the FDA. We believe that all of
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our products are classified as Type I or II Medical Devices by the FDA. As such
these medical devices do not come under the more rigorous approval guidelines as
Type III Medical Devices (e.g., HIV test kits) or the arduous Phase I, II, and
III clinical trial process that is required for approval of drugs. Type I and II
Medical Device approval falls under the category referred to as a 510k
application and after submission of supporting data to the FDA is subject to a
90-day review process. We have not initiated the approval process for our
products with the FDA for marketing clearance in the United States.
Among other requirements, FDA marketing clearance and approval of the
facilities used to manufacture our cancer marker RECAF tests will be required
before any of these tests may be marketed in the United States. A similar
regulatory process will be required by European regulatory authorities before
our cancer tests can be marketed in Europe. As with the FDA review process,
there are numerous risks associated with the review of medical devices by
foreign regulatory agencies. The foreign regulatory agencies may request
additional data to demonstrate the clinical safety and efficacy of a product.
We rely and will continue to rely on third parties, including Abbott and
Inverness, to assist us in managing and monitoring all of our preclinical
studies and clinical trials. To our knowledge, our licensees, Abbott and
Inverness, have not initiated any steps toward regulatory approval of our
products for marketing clearance in the United States. If any of these parties
terminate their relationship with us, the development of the products covered by
those agreements could be substantially delayed. In addition, these third
parties may not successfully carry out their contractual obligations, meet
expected deadlines or follow regulatory requirements, including clinical,
laboratory and manufacturing guidelines. Our reliance on these third parties may
result in delays in completing, or in failing to complete, these trials if they
fail to perform with the speed and competency we expect. Further, if any of
these parties fail to perform their obligations under our agreements with them
in the manner specified in those agreements and in the trial design, the FDA may
not accept the data generated by those trials, which would increase the cost of
and the development time for that product candidate. If clinical testing of our
product candidates is compromised for any of the above-mentioned reasons, we
will be unable to meet our anticipated development or commercialization
timelines, which would have a material adverse effect on our business.
Although FDA marketing clearance may not be required for certain foreign
markets, we believe that FDA clearance for our RECAF cancer marker tests would
add credibility when negotiating with overseas distributors. Failure to obtain
FDA marketing clearance in the United States may limit our ability to
successfully market our products even where regulatory approvals are not
required.
Delays or rejection in obtaining FDA marketing clearance may also be
encountered based upon changes in applicable law or regulatory policy during the
period of regulatory review. Any failure to obtain, or any delay in obtaining,
marketing clearance would adversely affect our ability to license or market our
products. Moreover, even if FDA marketing clearance is granted, such approval
may include significant limitations on indicated uses for which the product
could be marketed.
Both before and after marketing clearance is obtained, a product and its
manufacturer are subject to comprehensive regulatory oversight. Violations of
regulatory requirements at any stage of the process may result in adverse
consequences, including the FDA's delay in approving or refusing to approve a
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product for marketing, withdrawal of an approved product from the market and/or
the imposition of criminal penalties against the manufacturer. In addition,
later discovery of previously unknown problems relating to a marketed product
may result in restrictions on such product or manufacturer including withdrawal
of the product from the market.
We cannot assure you that we will receive the required clearances in order
to be able to market any of our products.
If we and our third-party suppliers do not maintain high standards of
manufacturing in accordance with applicable manufacturing regulations, our
development and commercialization activities could suffer significant
interruptions or delays.
We and any third-party suppliers on which we currently or may in the future
rely must continuously adhere to applicable manufacturing regulations. In
complying with these regulations, we and our third-party suppliers must expend
significant time, money and effort in the areas of design and development,
testing, production, record-keeping and quality control to assure that our
products meet applicable specifications and other regulatory requirements. The
failure to comply with these requirements could result in an enforcement action
against us, including the seizure of products and shutting down of production.
Any of these third-party suppliers and we also may be subject to audits by the
FDA and other regulatory agencies. If any of our third-party suppliers or we
fail to comply with applicable manufacturing regulations, our ability to develop
and commercialize our products could suffer significant interruptions.
If our products do not achieve market acceptance, we will be unable to generate
significant revenues from them.
The commercial success of our products will depend primarily on convincing
health care providers and veterinarians to adopt and use our products. To
accomplish this, we, together with our licensees and any other marketing or
distribution collaborators, will have to convince members of the medical and
veterinary communities of the benefits of our products through, for example,
published papers, presentations at scientific conferences and additional
clinical data. Medical providers and veterinarians will not use our products
unless we can demonstrate that they consistently produce results comparable or
superior to existing products and have acceptable safety profiles and costs. If
we are not successful in these efforts, market acceptance of our products could
be limited. Even if we demonstrate the effectiveness of our products, medical
practitioners may still use other products. If our products do not achieve broad
market acceptance, we will be unable to generate significant revenues from them,
which would have a material adverse effect on our business, cash flows and
results of operations.
We may not achieve or maintain a competitive position in our industry and future
technological developments may result in our proprietary technologies becoming
uneconomical or obsolete.
The field in which we are involved is undergoing rapid and significant
technological change. Our ability to successfully commercialize various
applications of our cancer detection technology will depend on our ability to
maintain our technological advantage. We cannot assure you that we will achieve
or maintain such a competitive position or that other technological developments
will not cause our proprietary technologies to become uneconomical or obsolete.
Many of our potential competitors, including large multi-national pharmaceutical
companies, well-capitalized biotechnology companies, and privately and publicly
financed research facilities, have significantly greater financial resources
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than we do. Our revenues and profits will be adversely impacted if we cannot
compete successfully with new or existing products or technologies.
Our patents might not protect our technology from competitors.
Certain aspects of our technologies are covered by a United States patent
and a number of foreign patents. In addition, we have a number of patents
pending in foreign countries. There is no assurance that the applications still
pending or which may be filed in the future will result in the issuance of
additional patents. In addition, our patents expire in 2014 and 2015, and there
is no assurance that we will be able to successfully renew them. Furthermore,
there is no assurance as to the breadth and degree of protection the issued
patents might afford us. We may not be able to prevent misappropriation of our
proprietary rights, particularly in countries where the laws may not protect
such rights as fully as in the United States. Thus, any patents that we own may
not provide commercially meaningful protection from competition. Disputes may
arise between us and others as to the scope, validity and ownership rights of
these or other patents. Any defense of the patents could prove costly and time
consuming and we cannot assure you that we will be in a position, or will deem
it advisable, to carry on such a defense. Our patents may not contain claims
that are sufficiently broad to prevent others from practicing our technologies
or developing competing products. Competitors may be able to use technologies in
competing products that perform substantially the same as our technologies but
avoid infringing our patent claims. Under these circumstances, our patents would
be of little commercial value to us. Other private and public concerns may have
filed applications for, or may have been issued, patents and are expected to
obtain additional patents and other proprietary rights to technology potentially
useful or necessary to us. The scope and validity of any of these patents, if
any, are presently unknown.
For many of the technologies we employ in our business, we rely on maintaining
competitively sensitive know-how and other information as trade secrets, which
may not sufficiently protect this information. Disclosure of this information
could impair our competitive position.
As to many technical aspects of our business, we have concluded that
competitively sensitive information is either not patentable or that for
competitive reasons it is not commercially advantageous to seek patent
protection. In these circumstances, we seek to protect this know-how and other
proprietary information by maintaining it in confidence as a trade secret. To
maintain the confidentiality of our trade secrets, we generally enter into
confidentiality agreements with our employees, consultants and collaborators
when their relationship with us commences. These agreements require that all
confidential information developed by the individual or made known to the
individual by us during the course of the individual's relationship with us be
kept confidential and not disclosed to third parties. However, we may not obtain
these agreements in all circumstances, and individuals with whom we have these
agreements may not comply with the terms of these agreements. The disclosure of
our trade secrets would impair our competitive position. Adequate remedies may
not exist in the event of unauthorized use or disclosure of our confidential
information. Further, to the extent that our employees, consultants or
contractors use trade secret technology or know-how owned by others in their
work for us, disputes may arise as to the ownership of related inventions.
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We may incur significant liability if we infringe the patents and other
proprietary rights of third parties.
In the event that our technologies infringe or violate the patent or other
proprietary rights of third parties, we may be prevented from pursuing product
development, manufacturing or commercialization of our products that utilize
such technologies. There may be patents held by others of which we are unaware
that contain claims that our products or operations infringe. In addition, given
the complexities and uncertainties of patent laws, there may be patents of which
we know that we may ultimately be held to infringe, particularly if the claims
of the patent are determined to be broader than we believe them to be.
If a third party claims that we infringe its patents, any of the following
may occur:
o we may become liable for substantial damages for past infringement if
a court decides that our technologies infringe upon a competitor's
patent;
o a court may prohibit us from selling or licensing our product without
a license from the patent holder, which may not be available on
commercially acceptable terms or at all, or which may require us to
pay substantial royalties or grant cross-licenses to our patents; and
o we may have to redesign our product so that it does not infringe upon
others' patent rights, which may not be possible or could require
substantial funds or time.
In addition, employees, consultants, contractors and others may use the
trade secret information of others in their work for us or disclose our trade
secret information to others. Either of these events could lead to disputes over
the ownership of inventions derived from that information or expose us to
potential damages or other penalties.
If any of these events occurs, our business will likely suffer and the
market price of our common stock decline.
We may incur substantial costs as a result of litigation or other proceedings
relating to patent and other intellectual property rights.
There has been substantial litigation and other proceedings regarding
patent and intellectual property rights in the biotechnology industry. We may be
forced to defend claims of infringement brought by our competitors and others,
and we may institute litigation against others who we believe are infringing our
intellectual property rights. The outcome of intellectual property litigation is
subject to substantial uncertainties and may, for example, turn on the
interpretation of claim language by the court, which may not be to our
advantage, or on the testimony of experts as to technical facts upon which
experts may reasonably disagree. Our involvement in intellectual property
litigation could result in significant expense to us. Some of our competitors
have considerable resources available to them and a strong economic incentive to
undertake substantial efforts to stop or delay us from commercializing products.
We, on the other hand, are a relatively small company with comparatively few
resources available to us to engage in costly and protracted litigation.
Moreover, regardless of the outcome, intellectual property litigation against or
by us could significantly disrupt our development and commercialization efforts,
divert our management's attention and quickly consume our financial resources.
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In addition, if third parties file patent applications or issue patents
claiming technology that is also claimed by us in pending applications, we may
be required to participate in interference proceedings with the U.S. Patent and
Trademark Office or in other proceedings outside the United States, including
oppositions, to determine priority of invention or patentability. Interference
or oppositions could adversely affect our patent rights. Even if we are
successful in these proceedings, we may incur substantial costs, and the time
and attention of our management and scientific personnel will be diverted in
pursuit of these proceedings.
If product liability lawsuits are brought against us, we might incur substantial
liabilities and could be required to limit the commercialization of our
products.
Although we are not presently generating revenues from the sale of
products, our short-term objectives include commercializing various applications
of our RECAF testing technology, which may involve the sale of test kits. If our
products do not function properly, we may be exposed to the risk of product
liability claims. We may even be subject to claims against us despite the fact
that the injury is due to the actions of others, such as manufacturers with whom
we contract to make the test kits. Any product liability litigation would
consume substantial amounts of our financial and managerial resources and might
result in adverse publicity, regardless of the ultimate outcome of the
litigation. We do not currently maintain clinical trial insurance or product
liability insurance and we may never obtain such insurance. In any event,
liability insurance is subject to deductibles and coverage limitations and may
not provide adequate coverage against potential claims or losses. A successful
product liability claim brought against us could cause us to incur substantial
costs and liabilities.
Our future success depends on the continued availability of our chief executive
officer, Dr. Ricardo Moro-Vidal, and other scientific and technical personnel.
The loss of Dr. Moro-Vidal's services or those of other technical personnel
could have a significant adverse impact on our business.
The success of our business depends to a great extent on the efforts and
abilities of our senior executive officer, Dr. Ricardo Moro-Vidal. Dr.
Moro-Vidal discovered the RECAF molecule and has done or supervised most of the
research that has led to the development of our various cancer detection tests.
In addition, Dr. Moro-Vidal has most of the unpatented technical know-how that
is crucial to our research and development efforts. We do not plan to obtain a
key-person life insurance policy on Dr. Moro-Vidal. We have entered into a
four-year employment agreement with Dr. Moro-Vidal, terminating in December 31,
2013, which will contain confidentiality and non-compete covenants.
Nevertheless, we cannot assure you that Dr. Moro-Vidal will continue to work for
us or that the non-compete and confidentiality provisions of his employment
agreement will be enforceable. If Dr. Moro-Vidal terminates his employment r
elationship with us, it could be difficult to find a replacement with comparable
skill and knowledge. In addition, the pool of individuals with relevant
experience in biotechnology is limited and retaining and training personnel with
the skills necessary to continue our research and development activities would
be challenging, costly and time-consuming. The loss of any of our scientific or
technical personnel could significantly delay the achievement of our goals and
materially and adversely affect our business, financial condition and results of
operations.
We depend on the continued availability of research and development services
provided by PBRC. The loss of these services could adversely affect us.
All of the research regarding RECAF is performed by PBRC, which is
wholly-owned by Dr. Moro-Vidal. We have entered into a contract with PBRC
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pursuant to which PBRC will continue to perform research and development as well
as diagnostic services for us. The agreement has an initial term that expires on
December 31, 2013 and we have the right to extend the agreement for two
additional four-year terms. If PBRC elects to discontinue its relationship with
us, we may be unable to find another firm with the same technical expertise,
which could impair our ability to develop our technology and materially and
adversely affect our business, financial condition and results of operations.
We may expand our operations internationally in the future, particularly in
China and India, and would be subject to the political systems, economic
conditions, government programs and tax structures of those countries.
To the extent that we expand our operations internationally in the future,
particularly in China and India, the political and economic conditions of those
countries may directly affect our operations. In addition, any government
programs in which we participate or any tax benefits we may derive in those
countries may not be continued at favorable levels or at all. Further, we are a
U.S. entity and our executive officers and assets are located in Canada. It may
be difficult for us to assert legal claims in actions instituted in foreign
jurisdictions. Foreign courts may refuse to hear our legal claims because they
may not be the most appropriate forums in which to bring such a claim. Even if a
foreign court agrees to hear a claim, it may determine that the law of the
jurisdiction in which the foreign court resides, and not Canadian or U.S. law,
is applicable to the claim. Further, if Canadian or U.S. law is found to be
applicable, the content of applicable Canadian or U.S. law must be proved as a
fact, which can be a time-consuming and costly process, and certain matters of
procedure would still be governed by the law of the jurisdiction in which the
foreign court resides. As a result of the difficulty associated with enforcing a
judgment against us, you may not be able to collect any damages awarded by
either a U.S., Canadian or other foreign court.
Risks Related to Ownership of Our Securities and this Offering
The market price for our common stock is volatile and the price at which you may
be able to sell any of the securities purchased in this offering might be lower
than the offering price.
The market price of our common stock, as well as the securities of other
biotechnology companies, has historically been highly volatile, and the market
has from time to time experienced significant price and volume fluctuations that
are unrelated to the operating performance of particular companies. Factors such
as fluctuations in our operating results, announcements of technological
innovations or new products by us or our competitors, governmental regulation,
developments in patent or other proprietary rights, public concern as to the
safety of products developed by us or other biotechnology and pharmaceutical
companies, and general market conditions may have a significant effect on the
future market price of our publicly traded or quoted securities.
There is, at present, only a limited market for our common stock and no market
for the redeemable warrants and there is no assurance that an active trading
market for either or both of these securities will develop.
Trades of our common stock are subject to Rule 15g-9 promulgated by the
Securities and Exchange Commission (the SEC) under the Exchange Act, which
imposes certain requirements on broker/dealers who sell securities subject to
the rule to persons other than established customers and accredited investors.
For transactions covered by the rule, broker/dealers must make a special
10
suitability determination for purchasers of the securities and receive the
purchaser's written agreement to the transaction prior to sale. The SEC also has
other rules that regulate broker/dealer practices in connection with
transactions in "penny stocks." Penny stocks generally are equity securities
with a price of less than $5.00 (other than securities listed on a national
securities exchange, provided that current price and volume information with
respect to transactions in that security is provided by the exchange or system).
The penny stock rules require a broker/dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document prepared by the SEC that provides information about penny
stocks and the nature and level of risks in the penny stock market. The
broker/dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker/dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account. The bid and
offer quotations, and the broker/dealer and salesperson compensation
information, must be given to the customer orally or in writing prior to
effecting the transaction and must be given to the customer in writing before or
with the customer's confirmation. These disclosure requirements have the effect
of reducing the level of trading activity for our common stock. As a result of
the foregoing, investors may find it difficult to sell their shares.
We lack analyst coverage.
We do not have research analysts reviewing our performance or our
securities on an ongoing basis. Therefore, we do not have an independent review
of our performance or the value of our common stock relative to other public
companies.
You will experience immediate and substantial dilution as a result of this
offering and may experience additional dilution in the future.
If you purchase securities in this offering, you will experience immediate
and substantial dilution insofar as the public offering price of a unit will be
substantially greater than the tangible book value attributable to the shares of
our common stock included in a unit after giving effect to this offering. In the
past, we have issued options and warrants to acquire shares of common stock at
prices significantly below the imputed public offering price of a share of our
common stock (assuming no value is attributed to the redeemable warrants
included in the units). To the extent these options and warrants are ultimately
exercised, you will incur further dilution.
11
Future sales, or the potential sale, of a substantial number of shares of our
common stock could cause the trading price of our securities to decline and
could impair our ability to raise capital through subsequent equity offerings.
We have outstanding convertible notes, options and warrants which, as of
May 31, 2011, potentially allow the holders to acquire a substantial number of
shares of our common stock. Until the options and warrants expire, or the
convertible notes are paid, the holders will have an opportunity to profit from
any increase in the market price of our common stock without assuming the risks
of ownership. Holders of convertible notes, options and warrants may convert or
exercise these securities at a time when we could obtain additional capital on
terms more favorable than those provided by the options. The conversion of the
notes or the exercise of the options and warrants will dilute the voting
interest of our owners of presently outstanding shares by adding a substantial
number of additional shares.
Sales of a substantial number of shares of our common stock in the public
markets, or the perception that these sales may occur, could cause the market
price of our securities to decline and could materially impair our ability to
raise capital through the sale of additional equity securities. See the section
of this prospectus captioned "Comparative Share Data" for more information.
We do not anticipate paying dividends in the foreseeable future. This could make
our stock less attractive to potential investors.
We anticipate that we will retain all future earnings and other cash
resources for the future operation and development of our business, and we do
not intend to declare or pay any cash dividends in the foreseeable future.
Future payment of cash dividends will be at the discretion of our board of
directors after taking into account many factors, including our operating
results, financial condition and capital requirements. Corporations that pay
dividends may be viewed as a better investment than corporations that do not.
Certain provisions of Texas law and our organizational documents could delay or
discourage takeover attempts that stockholders may consider favorable.
Our articles of incorporation and bylaws include provisions that are
intended to enhance the likelihood of continuity and stability in the
composition of our board of directors. These provisions may make it more
difficult to remove directors and management or could have the effect of
delaying, deferring or preventing a future takeover or a change in control,
unless the takeover or change in control is approved by our board of directors,
even though the transaction might offer our stockholders an opportunity to sell
their shares at a price above the current market price. In addition, we are
subject to the provisions of the Texas Business Combination Law (Articles 13.01
through 13.08 of the Texas Business Corporation Act), which generally prohibit
us from engaging in any business combination with certain persons who own 20% or
more of our outstanding voting stock without the approval or our board of
directors. These provisions could make it difficult for a third party to acquire
us, or for members of our board of directors to be replaced, even if doing so
would be beneficial to our stockholders. Any delay or prevention of a change of
control transaction or changes in our board of directors or management could
deter potential acquirers or prevent the completion of a transaction in which
our stockholders could receive a substantial premium over the then current
market price for their shares. As a result, these provisions may adversely
affect the price of our common stock.
12
COMPARATIVE SHARE DATA
Number of Note
Shares Reference
--------- ---------
Shares outstanding as of May 31, 2011: 171,627,131
Shares to be sold in this offering:
Shares issuable upon the exercise of warrants: 3,500,000 A
The following table lists additional shares of our common stock which, as
of May 31, 2011 may be issued as the result of payment of note principal or
interest with shares of our common stock or as the result of the exercise of
outstanding options or warrants or the conversion of notes:
Number of Note
Shares Reference
--------- ---------
Shares issuable upon conversion of notes or as
payment of principal on the notes 4,333,077 A
Shares issuable upon exercise of warrants issued
to consultants 937,500 B
Shares issuable upon exercise of Non-Qualified
Stock Options granted to officers, directors,
employees and consultants. 2,306,600 C
Shares issuable upon exercise of warrants granted to
our officers, directors, employees, financial
consultants and private investors 5,652,278 D
Shares issuable upon conversion of notes 211,768 E
Shares issuable upon exercise of warrants issued to
note holders 3,372,564 E
Shares issuable upon warrants sold to public
investors 90,459,600 F
Shares issuable upon exercise of warrants issued to
underwriter 16,800,000 F
Shares issuable upon exercise of options granted to
officers and directors 28,500,000 G
A. 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
13
convertible into shares of our common stock at a conversion price of $0.13. Due
to principal payments and conversions, the outstanding principal balance of the
notes as of May 31, 2011 was $563,300.
The warrants were subsequently sold to Warrant Strategies Fund, LLC.
The warrants allow the holder to purchase up to 3,500,000 shares of our
common stock at a price of $0.135 per share at any time prior to June 29, 2012.
In the event the closing price of our common stock is $1.20 or greater for
ten consecutive trading days, the holders will be required to exercise the
3,500,000 warrants. Following the exercise of the warrants, we will issue to the
holders new warrants, which will entitle the holders to purchase 1,750,000
shares of our common stock. The new 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 warrants are issued.
At our election and under certain conditions, we may use shares of our
common stock to make interest or principal payments on the notes. The actual
number of shares which may be issued as payment of interest or principal may
increase if the price of our common stock is below the then applicable
conversion price of the notes.
To the extent we use our shares to make principal payments on the notes,
the number of shares which may be issued upon the conversion of the notes may be
less due to the reduction in the outstanding principal balance of the notes.
The actual number of shares which will ultimately be issued upon the
payment or conversion of the notes and the exercise of the warrants (if any)
will vary depending upon a number of factors, including the price at which we
sell any additional shares of our common stock prior to the date the notes are
paid or converted or the date the warrants are exercised or expire.
B. Pursuant to the terms of a consulting agreement with a sales agent, we issued
the sales agent warrants to purchase 937,500 shares of our common stock as
consideration for services the sales agent provided in connection with the sale
of our notes and warrants. Warrants to purchase 187,500 of the 937,500 shares
are exercisable at a price of $0.01 per share and warrants to purchase the
remaining 750,000 shares are exercisable at a price of $0.60 per share. These
warrants expire on June 30, 2012. The sales agent subsequently assigned 234,375
warrants each to two of its employees.
C. Options are exercisable at a price of $0.001 per share and expire on various
prior to March 2014.
14
D. Warrants in this category were not granted pursuant to our Non-Qualified
Stock Option Plan. The warrants are exercisable at prices between $0.05 and
$0.12 per share and expire on various dates prior to August 2014.
E. During 2003 we sold convertible notes in the principal amount of $529,813 to
six private investors. The notes bear interest at 5% per year and are due and
payable five years from the respective dates of the notes. Each note may, at the
option of the holder, be converted at any time into shares of our common stock.
The number of shares to be issued upon the conversion of any note is equal to
the amount determined by dividing (i) the principal amount to be converted by
(ii) the conversion price. The conversion price was separately negotiated for
each note and ranges between $0.05 and $0.23 and was based upon the market price
of our common stock on the date the notes were sold. As of May 31, 2011, one
note in the principal amount of $53,000 had been repaid and eight notes in the
aggregate principal amount of $442,860 had been converted into 4,328,364 shares
of our common stock. If all remaining notes were converted we would be obligated
to issue an additional 211,768 shares of common stock. The note holders also
received warrants to purchase 4,328,364 shares of our common stock at prices
between $0.08 and $0.38 per share. The warrants expire in 2014. As of May 31,
2011, warrants to purchase 2,648,911 shares had been exercised or expired. For
every share issued upon conversion, the note holders are entitled to receive new
warrants to purchase one additional share of common stock at prices between
$0.055 and $0.176 per share. These new warrants expire at various dates in 2011.
Warrants for 4,328,364 shares were issued when notes in the principal amount of
$442,860 were converted. If all remaining notes were converted, we would be
obligated to issue the holders of the notes warrants to purchase 211,768
additional shares of our common stock.
F. 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.
Paulson Investment Company, Inc., the underwriter of our public offering,
received a sales commission as well as warrants. The warrants entitle Paulson to
purchase 120,000 units at a price of $6.00 per unit. Each unit consists of 70
shares of our common stock and 70 warrants. Each warrant entitles Paulson to
purchase one additional share of our common stock at a price of $0.107 per share
at any time on or before January 2015.
G. These options, which were granted on January 22, 2010, were not granted
pursuant to our Non-Qualified Stock Option Plan. Two-thirds of the options are
presently exercisable and the final third of the options will be exercisable on
January 22, 2012. If, before January 22, 2012, an option holder's employment
terminates for any reason other than death or disability or an option holder
ceases to be a director for any reason other than death or disability, any
options which are not then exercisable will expire. In the event of the death or
disability of an option holder, all options will be immediately exercisable. The
options will be exercisable for cash or, in our discretion, through the delivery
of shares of our common stock having a market value equal to the exercise price
of the options.
15
MARKET FOR OUR COMMON STOCK.
Our common stock is traded on the OTC Bulletin Board under the symbol
"BOCX."
Shown below is the range of high and low quotations for our common stock
for the periods indicated as reported by the OTC Bulletin Board. The market
quotations reflect inter-dealer prices, without retail mark-up, markdown or
commissions and may not necessarily represent actual transactions.
Quarter Ending High Low
-------------- ---- ---
3/31/09 $0.18 $0.06
6/30/09 $0.11 $0.04
9/30/09 $0.29 $0.07
12/31/09 $0.21 $0.10
3/31/10 $0.12 $0.07
6/30/10 $0.07 $0.05
9/30/10 $0.07 $0.05
12/31/10 $0.07 $0.06
3/31/11 $0.07 $0.05
As of May 31, 2011 there were approximately 140 record holders of our
common stock and over 2,000 shareholders who owned shares through brokerage
houses, banks and similar financial institutions.
Holders of common stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available and, in the
event of liquidation, to share pro rata in any distribution of our assets after
payment of liabilities. Our Directors are not obligated to declare a dividend.
We have not paid any dividends on its common stock and we do not have any
current plans to pay any common stock dividends.
During the year ended December 31, 2010 we did not purchase any shares of
its common stock from third parties in a private transaction or as a result of
any purchases in the open market. During the year ended December 31, 2010 none
of our officers or directors, nor any of its principal shareholders, purchased,
on our behalf, any shares of its common stock from third parties in a private
transaction or as a result of purchases in the open market.
16
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 May 31, 2011 we had not generated any revenue from the
sale of any product.
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.
Our sources and (uses) of cash during the three months ended March 31, 2011
and the year ended December 31, 2010 were as follows:
17
Three Months Ended Year Ended
March 31, December 31
2011 2010
--------- ----------
Cash used in operations $ (401,795) $ (2,228,477)
Patent costs (18,700) 130,198
Repayment of loans -- (450,000)
Repayment of convertible debt -- (1,186,700)
Proceeds from sale of common stock and
exercise of options and warrants, net of
issuance costs 2,888 5,701,266
Deferred financing costs (94,851)
Cash on hand at beginning of period 418,207 --
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 May 31, 2011 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 May 31, 2011 will be as follows:
Research, development and production of our
diagnostic products $900,000
General and administrative expenses 700,000
Marketing and investor communications 150,000
Business development 50,000 Payment of interest on
amended senior convertible notes and
unsecured promissory notes 100,000
Payment of outstanding liabilities 250,000
------------
$2,150,000
18
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, 2011, as compared to the same period in the prior year,
are discussed below:
Increase (I)
Item or Decrease (D) Reason
---- --------------- ------
General and administrative D Lower stock-based
compensation expense.
Professional and Consulting Fees I Use of consultants to
strengthen overall marketing
strategies.
Accretion of discount on D The repayment of a large
convertible debt portion of the convertible
notes in January 2010 resulted
in the decrease in accretion
of discount on the convertible
debt during the year.
Amortization of debt issue costs D A large portion of the
convertible notes were repaid
in January 2010. As a result,
debt issue costs were less
during the current period.
Results of Operations
Material changes of items in our Statement of Operations for the year ended
December 31, 2010, as compared to the same period in the prior year, are
discussed below:
Increase (I)
Item or Decrease (D) Reason
---- --------------- ------
Cash I (1)
Deferred financing costs D (1)
19
Accounts payable D (1)
Derivative liability D Derivative Liability decreased
as a result of a decrease in the
volatility of the price of our
common stock. The volatility in
the price of our common stock is
one component used in
determining the amount of the
derivative liability.
Loans payable D (1)
Due to related parties D (1)
Convertible debt D (1)
(1) In January 2010 we sold 90,459,600 shares of our common stock, and
90,459,600 warrants, in a public offering. The proceeds to us from the sale
of the shares and warrants, net of underwriting commissions and offering
expenses, were approximately $4,800,000, resulting in the increase in cash.
Deferred financing costs at December 31, 2009, which pertained to our
public offering, were transferred to Additional Paid-In Capital/Share
Issuance Costs upon the completion of the offering. With proceeds from the
public offering we reduced our accounts payable, and made payments on
outstanding loans, amounts due to related parties, and convertible debt.
Recent Accounting Pronouncements
See Note 2 to the financial statements which are included as part of this
prospectus.
Critical Accounting Policies
Our significant accounting policies are more fully described in Note 2 to
the financial statements included as a part of this prospectus. 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.
20
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
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 May 31, 2011, we had received patent
approvals from five countries. Additions made after May 31, 2011 will have a
remaining life of approximately 5 years. We intend to apply for extensions in
the near future.
21
BUSINESS
We were incorporated in Texas in December 1997 under the name Whispering
Oaks International, Inc. Between March 2001 and October 2009 we did business
under the name Biocurex, Inc. In October 2009 our shareholders approved an
amendment to our Articles of Incorporation which officially changed our name to
Biocurex, Inc.
Overview
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 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.
RECAF is a molecule found on most cancer cells, including breast, colon,
prostate and lung cancers, but not on normal cells. RECAF can be used in blood
tests to determine if a patient has cancer. The blood test can be formatted for
use on automated instrumentation typically found in large clinical and hospital
laboratories or manually. It can also be formatted as a point-of-care (POC)
single use rapid test for use in physicians' offices, urgent care facilities and
at the bedside. Once approved by the FDA, the tests could be used in general
screening or in high risk patients to determine if an individual has cancer. It
could also be used to detect recurrence of cancer in patients after therapy.
Unlike other cancer markers mentioned in the American Cancer Society
website (www.cancer.org) that only detect the presence of a specific cancer type
(CEA for colon cancer and PSA for prostate cancer), RECAF is found on most types
of cancer and, therefore, could have much broader use than most other cancer
markers in development or currently in use. Moreover, unlike these existing
cancer markers, RECAF has been shown to detect early stages of breast and
prostate cancers when the likelihood of cure is highest.
We have granted Abbott and Inverness, two large diagnostic equipment
manufacturers, semi-exclusive licenses to use the RECAF tests on blood samples
processed in automatic equipment typically found only in large clinical/hospital
laboratories and non-exclusive licenses for other test formats. Under the terms
of these licenses, we can grant one additional similar semi-exclusive license
for automated testing and we have retained rights for manual tests not processed
in automatic equipment, POC rapid tests for the physicians' office, including
all other single-format potential uses and all test formats used for veterinary
applications. The Abbott license has been amended to relieve them of research
and development responsibilities and, to our knowledge, they have not taken any
steps towards commercializing our technology. Inverness has been conducting
research and development trying to adapt our technology to their diagnostic
platform. However, to our knowledge, they have not yet reached the stage where
they are prepared to enter into clinical trials in order to obtain FDA approval
or to commercialize our technology or any related products.
22
We have previously developed the following tests, which are no longer the
focus of our growth plans, for the detection of cancer in tissue or cells based
on RECAF technology:
o Histo-RECAF--a tissue-based cancer detection test that involves
staining cancer cells, thereby allowing a pathologist to easily view
the cancer cells with the use of a microscope; and
o Cryo-RECAF--a cell-based cancer detection test that can be used by
pathologists during surgery to determine whether cancer cells are
benign or malignant.
Our principal objectives for the twelve months ending May 31, 2012 are as
follows:
o grant one additional semi-exclusive license for testing blood samples
using automated testing equipment;
o commercialize veterinary applications 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 for human applications and
o commercialize manual testing formats, principally in 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.
Cancer
Cancer is a term used for diseases in which abnormal cells divide without
control and are able to invade other healthy tissue. Cancer cells spread to
other parts of the body through the blood and lymph systems. There are more than
100 different types of cancers which are named for the organ or type of cell in
which they appear - e.g., lung cancer, colon cancer, breast cancer, prostate
cancer, liver cancer and stomach cancer.
The American Cancer Society has estimated that there were over 12.3 million
new cancer diagnoses worldwide and roughly 7.6 million deaths during 2007, of
which nearly 40% were in developed nations. Although the United States has
reported declining cancer-related deaths for the past few years, the World
Health Organization estimates that worldwide there will likely be approximately
16 million new cancer diagnoses annually by the year 2020, with roughly 10
million related deaths each year. Over the next 20 years, the global incidence
of cancer is projected to increase by 50%. We believe that the growing numbers
of people developing and living with cancer will continue to increase the demand
for cancer diagnostic products. In particular, two diagnostic areas that have
significant unmet need are the early detection of primary cancer and early
detection of recurrence after therapy.
23
Market Dynamics
The oncology market is one of the largest pharmaceutical markets. The
global cancer market is forecast to grow at an average annual growth rate of
5.49% to $53.1 billion in 2009, up from $38.5 billion in 2003. Overall costs of
cancer in 2008 were estimated to be $228.1 billion, composed of $93.2 billion
for direct medical costs (total of all health expenditures), $18.8 billion for
indirect morbidity costs (cost of lost productivity due to illness), and $116.1
billion for indirect mortality costs (cost of lost productivity due to premature
death).
Worldwide Cancer Diagnostics Market
As of 2005, the global market for laboratory-based diagnostic tests
exceeded $25 billion annually, with molecular diagnostic testing growing by
approximately 20% each year and forecast to reach over $5 billion by 2009.
Within this larger diagnostics market, cancer testing is anticipated to
experience some of the most robust growth over the next three to five years,
having recently exceeded $1 billion in annual sales. We believe that the primary
drivers for sales of diagnostic products for cancer markers are performance,
price, service and marketing. At present, the five largest markets for these
products are the United States, Europe, Japan, China and India.
Need for Improved Early Detection Methods
Cancer that is detected early has the best prognosis. If cancer is
diagnosed early in the disease process, before it spreads (metastasizes) to
surrounding tissue, physicians are more likely to be able to successfully treat
the patient and the likelihood of survival can be significantly increased.
Surgical removal of malignant tumors is much less effective once cancer cells
have invaded additional locations, many of which are undetectable.
While advances in early detection have improved the prognosis of many
cancers, prostate, lung, and breast cancers are still among the most commonly
diagnosed and the most fatal cancers. For example, among both men and women,
lung cancer is the number one cause of cancer-related death, which is believed
to be due to the lack of early detection methods. By the time of diagnosis, only
approximately 16% of lung cancer patients have tumors that are still in an early
stage. For these patients, the five-year survival rate is 50% versus 15% when
more advanced tumors are also included. If breast cancer is caught and treated
at its earliest stages, patients have five-year survival rates between 81% and
100%. However, if the cancer progresses to Stage IV before it is diagnosed, a
patient's likelihood of survival at five years is only 20%.
Cancer Markers
Cancer markers are a group of proteins, hormones, enzymes, receptors and
other cellular products that are over expressed (produced in higher than normal
amounts) by malignant cells. Cancer markers are usually normal cellular
constituents that are present at very low levels in the blood of healthy
persons. If the substance in question is produced by the cancer, its levels will
be increased in blood or other body fluids or in the tissue of origin.
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Detecting a cancer marker in higher-than-normal amounts in the body may
signify the presence of a malignancy. For some indications, the expressed amount
of a particular marker can also signal the disease's stage (i.e., how far the
cancer has progressed). For instance, a common cancer marker for liver cancer,
alpha-fetoprotein ("AFP"), not only signals the potential presence of liver
cancer, but can also indicate the size of the tumor. However, it is important to
note that AFP's sensitivity as a cancer marker is only approximately 60%,
meaning that roughly 40% of patients with liver cancer do not have an elevated
AFP. (In oncology, sensitivity is the ability of a test to detect cancer. If all
cancer patients test positive for having cancer with a particular test, the
test's sensitivity would be 100%. Specificity measures how well the test detects
healthy individuals, i.e., whether it produces false positives, that is, falsely
identifies patients as having cancer when they do not. If a test does not return
any false positives, it has 100% specificity.)
Cancer Markers in Clinical Use
Markers Associated Cancers
------- ------------------
Alpha-fetoprotein ("AFP") Testicular cancer, Liver
cancer
CA-125 Ovarian cancer, Endometrial
cancer
Carcinoembryonic antigen ("CEA") Colorectal cancer
Prostate specific antigen ("PSA") Prostate cancer
Human chorionic gonadotropin ("hCG") Testicular cancer,
Choriocarcinoma
Nuclear matrix protein ("NMP22") Bladder cancer
After testing for a cancer marker, further identifying the cells that
express the marker may enable a definitive diagnosis. Oncologists measure marker
levels to assess a patient's response to treatment, evaluate appropriate future
treatments, and check for signs that the cancer may be recurring. If, after
treatment, marker levels have decreased from the level at diagnosis, it may
indicate that the cancer is responding favorably to the treatment. Conversely,
if marker levels rise, the oncologist may consider an alternative therapy
option, as the tumor is probably not responding to treatment. Depending upon the
patient and the cancer, these follow-up tests may be continued for life,
occurring as frequently as every two to three months.
Limitations of Current Cancer Markers
We believe that validation of new cancer markers is one of the most
important goals in cancer research. The National Cancer Institute (NCI)
emphasized the need for finding new markers for prostate cancer as well as
identifying markers for hard-to-detect cancers, such as those in the ovary and
pancreas. In addition, the NCI specifically listed validating cancer markers for
disease prognosis, metastasis, treatment response, and progression as one of its
future strategies. The continuing need for enhanced cancer diagnostic markers is
partly due to the limitations of current markers.
Although there has been significant historical research into cancer
diagnostics, we believe that few cancer markers have been accepted into clinical
use. Moreover, markers are not used today as the sole method to diagnose cancer
25
due to several factors that limit the capabilities of current cancer markers to
accurately diagnose the disease. These limitations have prevented cancer marker
tests from functioning as wholly effective screens for many cancers. We believe
that a cancer marker that is expressed on all cancer cells regardless of type
would be an effective screening tool.
o Currently available markers are not 100% specific to a particular type
of cancer, indicating that other non-cancerous conditions can also
cause an increase in certain cancer markers. For example, elevated
levels of the prostate-specific antigen (PSA), a marker for prostate
cancer, do not always signal a malignant condition. The NCI reports
that only 25% to 35% of men that express higher-than-normal amounts of
PSA in the blood actually have prostate cancer. The remaining 65% to
75% of men have benign prostate conditions, such as inflammation,
which also cause an increase in PSA levels.
o If the minimum PSA value is increased (where men would have to show
even higher levels of the marker in order to enable detection by a PSA
test), the PSA could be considered to be more accurate, as more men
will likely be correctly identified as having prostate cancer and not
a benign condition. However, for many of these men, waiting for their
PSA levels to
o increase to an amount detectable by a more stringent test also
prevents early detection of the prostate cancer. If the PSA cut-off
value is increased, over 50% of men may not be diagnosed with prostate
cancer until after their tumor has spread beyond the prostate gland,
significantly decreasing the likelihood of successful treatment. As a
result, there is still an unmet need for a clinically effective
diagnostic technique for the early detection of prostate cancer.
o Many markers are also restricted to only certain cancers. For example,
the PSA test can help detect prostate cancer, but would not be used to
screen for breast cancer.
o The same marker is not always expressed on every patient's cancer even
if it is related to the same organ. For instance, Genentech's cancer
drug, Herceptin, treats metastatic breast cancer that is positive for
human epidermal growth factor receptor 2 (HER2). However, HER2
over-expression occurs in only approximately 25% of women with breast
cancer.
o The detection of "normal" levels of a cancer marker can occasionally
be ambiguous. For some cancer markers (such as CA-125, which is more
prevalent in ovarian cancer cells than in other cells), even
individuals without the cancer can demonstrate varying levels of the
marker. In some cases, CA- 125 expression depends on age and gender,
with women younger than 50 having higher amounts of this protein in
their bodies than women over 50 or men. Like other markers, benign
conditions, including infections and endometriosis, can also cause
elevated CA-125 levels. As a result, the classification of a normal
value is difficult. MedlinePlus, a service of the U.S. National
Library of Medicine and the National Institutes of Health (NIH),
reports that perceived normal CA-125 levels vary depending on which
laboratory is administering the test. Consequently, CA-125 tests are
more effectively used to monitor the progression of ovarian cancer and
the patient's response to treatment, rather than to diagnose the
cancer in an otherwise healthy individual.
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In addition, in the early stages of cancer, many patients express
relatively low levels of known cancer markers, evading detection by current
cancer marker tests. As a result, even widespread markers--such as
carcinoembryonic antigen (CEA), which can be found in patients with a variety of
cancers--are not effective at detecting occult (hidden) cancers. The CEA assay,
discovered by Dr. Phil Gold, a member of our board of directors, was one of the
first successful blood tests to enter general clinical use.
Types of Cancer Testing
Cancer testing encompasses a wide variety of products and technologies,
including the following: (1) assays for cancer markers; (2) imaging, such as
mammography (a breast X-ray to detect tumors); (3) clinical chemistry assays
that detect changes in normal physiological parameters; and (4) cytological and
histological tests. Each of these procedures is used for at least one of three
tasks--screening, diagnosis/monitoring, or imaging--each of which is briefly
described below.
Screening. Cancer screening entails performing regular tests on people who
have no symptoms. Mammograms, Papanicolaou (Pap) smears, and PSA tests are all
examples of cancer screens. These tests can reveal hidden diseases, but need
further corroboration, such as a tissue biopsy, to provide a final diagnosis.
Most cancer marker tests do not have high enough measures of sensitivity or
specificity to be considered useful as a cancer screen. Even the PSA test, which
is routinely used to screen men for prostate cancer, is still debated as to its
usefulness in older males.
Diagnosis/Monitoring. Cancer markers are primarily used for diagnostic and
monitoring purposes. While typically markers alone are not used to diagnose a
disease, they do help determine if cancer is likely. They also help monitor the
cancer's progression, response to treatment, and potential for recurrence. To
test for a marker, a sample of the patient's tissue, blood or other body fluid
is sent to a laboratory where the detection of the marker is determined.
Imaging. In healthcare, imaging is the process by which physicians obtain
pictures of the body's interior. Oncologists use imaging as a noninvasive method
to help see tumors and detect occult metastatic cancer. Special dyes are often
administered to enable organs to show up better on film. We believe that there
are two primary unmet needs in imaging at present: (1) the existence of a marker
test that can detect cancerous cells before the disease clinically manifests
itself; and (2) the presence of a marker to identify secondary cancer after the
primary treatment has begun.
Cancer testing is dominated by serum-based cancer markers, including CEA,
PSA, CA-125, bladder tumor antigen (BTA), and TruQuant BR (for monitoring breast
cancer). In 2003, worldwide sales of these serum assays were approximately $860
million. We estimate that there are over 100 million serum screening tests
performed each year. However, most of the assays are specific to a particular
cancer and suffer from poor sensitivity and specificity. As an example, assay
27
sales for CEA, a relatively insensitive assay for colorectal cancer, are
estimated to be over $300 million annually. In The Nation's Investment in Cancer
Research: A Plan and Budget Proposal for Fiscal Year 2008, the NCI emphasized
the need for improved markers for prostate cancer as well as the development of
more markers for hard-to-detect cancers. In addition, the NCI specifically
listed validating cancer markers for disease prognosis, metastasis, treatment
response, and progression as one of its future strategies.
Reasons for Growth of Cancer Diagnostics
The following factors may affect the size and growth of the worldwide
cancer diagnostic market:
Demographic shifts due to an aging population. The United Nations has
documented a rapidly aging population worldwide. In developed countries, the
number of individuals over 60 years old exceeded the number of children under 15
years old for the first time in 1998. While risk factors for cancer include
tobacco and alcohol use, diet, and sun exposure, one of the most significant
factors is age. For example, more than 65% of all prostate cancers occur in men
over the age of 65, and overall, approximately 77% of all cancers are diagnosed
in individuals over the age of 55.
Increased focus on early detection and diagnostics. According to the NCI,
85% of cancer patients are treated in community-based, private practice oncology
settings. Accordingly, global expansion of cancer marker technologies may be
fueled by an increased marketing of new diagnostic tests to physicians. In
addition, as a growing number of people are considered to be at high risk for
developing cancer, diagnostic tests may also be administered more frequently.
Reimbursement, third-party payers and financing for companies developing
diagnostics. In the United States, the costs of a variety of medical procedures,
including diagnostic laboratory tests, are covered by both federal and private
insurance plans. We believe the reimbursement policies of healthcare providers
will drive increased usage of cancer marker tests and that reimbursement amounts
will reflect the usefulness of the tests--the more accurate the test, the higher
the reimbursement amount. On that basis, a RECAF-based test, which has broad
applicability and is highly accurate, should command a relatively high
reimbursement amount. Due to cost containment practices of managed care
organizations as well as federal healthcare programs, certain testing
technologies may be used more selectively by medical providers. We estimate that
reducing healthcare expenses could lead to the reduction or the elimination of
cancer markers with low associated sensitivities and specificities. We want to
market RECAF as a high value-added test with widespread utility and significant
predictive value that will meet applicable cost containment guidelines.
Funding for basic and disease-related research. The NIH invests over $28
billion annually in medical research, of which an estimated $5.5 billion was
spent on cancer research in particular during fiscal year 2008, which ended
September 30, 2008. Additionally, R&D spending is increasing, with the top 100
biotechnology companies having spent approximately $14.8 billion on R&D during
2006, up from $12.6 billion in 2005 and $11.2 billion in 2004.
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An increased focus on lowering healthcare spending via improved diagnostic
testing and patient monitoring that can reduce the costs of misdiagnosis. In
2006, U.S. healthcare expenditures totaled approximately $2.2 trillion, and are
forecasted to reach $2.5 trillion in 2009 and $4.4 trillion by 2018. For 2005,
healthcare accounted for 16.0% of the gross domestic product in the United
States compared to 10.9% in Switzerland, 10.7% in Germany, 9.7% in Canada, and
9.5% in France. U.S. healthcare premiums increased by 8.8% between 2004 and
2005. The largest cause of this increase was a greater utilization of services,
accounting for approximately 43.0% of the rise in premiums.
This growing utilization is attributable to new medical treatments, more
intensive diagnostic testing (i.e., defensive medicine), an aging population,
which requires more medical attention, and progressively unhealthy lifestyles.
As a result of rising costs, we believe that there is a demand for more
cost-effective approaches to disease management, specifically for cancer, as
well as for emphasis on screening and accurate diagnostic testing to facilitate
early detection of potentially costly, severe afflictions. Likewise, a poll
conducted by the Harvard School of Public Health in June 2009 found that 54.0%
of respondents felt that high costs were one of the most important healthcare
issues for the government to address. We also estimate that up to 20.0% of all
diagnostic tests may eventually be performed in non-laboratory settings, such as
by patients or non-medical professionals.
Our Technology
We believe that our RECAF technology offers an improved detection,
diagnostic, and monitoring solution for patients with cancer.
The RECAF Cancer Marker
Based on our research, which has been confirmed by Abbott and jointly
presented at an international cancer conference, RECAF appears to be a cancer
marker for multiple types of cancer. Every cancerous tissue that we have tested
has expressed RECAF. It is expressed on over 90% of cancer samples that we have
studied thus far, including breast, lung, stomach, colon, ovarian and prostate
cancer samples. To our knowledge, there is no other cancer marker that has the
same universal presence as RECAF. Since RECAF detects cancer earlier and more
accurately with less false positives than other markers, we believe that RECAF
could replace many currently available cancer markers that are targeted to only
one type of cancer, as well as offer a useful diagnostic tool for cancers where
there is not yet thought to be an effective marker, such a lung and breast
cancer.
RECAF is a molecule that is present on cancer cells but is not detected in
significant levels on healthy cells or benign tumor cells. This characteristic
enables RECAF to more accurately detect cancer than many current tumor markers,
as RECAF is less likely to report a false positive result.
29
However, since RECAF does not identify a specific type of cancer, a
positive test would be followed up with further testing using other diagnostic
tools to determine the location and type of cancer.
RECAF is a receptor for AFP (Alpha-fetoprotein), which is a marker for
liver and testicular cancer that was discovered in 1963 by Dr. Garri Abelev, a
member of our scientific advisory board. RECAF is present on the cell surface
and binds and takes up circulating AFP. Both AFP and RECAF first emerge in the
fetus, but disappear by birth. AFP binds small molecules, such as lipids, and
transports them into fetal cells when taken up by the receptor for AFP. Once a
fetal organ or tissue reaches its maturity, it no longer takes up AFP or
expresses RECAF. After birth, RECAF is only known to exist in a cancerous state,
where tissues re-express the ability to take up AFP via the RECAF receptor. The
expression of RECAF is related to rapid tissue growth, which is characteristic
of both cancer and fetal development. RECAF is classified as an oncofetal
antigen due to its presence on both fetal tissues that incorporate AFP and on
malignant tissues in later life.
We believe that RECAF has potential as a universal cancer marker for the
following reasons:
o Current serum markers are deficient in terms of sensitivity and
specificity, creating a need for enhanced markers.
o Current markers for breast and lung cancers (one of the most fatal
cancers) are not very accurate and therefore not widely used. These
types of cancers are among the best detected by RECAF.
o Routine RECAF testing after cancer therapy may be able to detect
recurrence earlier and more economically than other technologies in
current use. We believe that having one cancer marker to monitor all
patients is a great advantage for the clinical laboratory.
o There is not yet a universal cancer marker. Oncologists use different
tests for each cancer. Moreover, we believe only a few of the cancer
markers used today are very useful. Our intent is to develop RECAF as
a universal cancer marker, potentially capable of detecting many
cancers with high sensitivity and specificity.
Product Pipeline
All of our product candidates are based on the RECAF technology. The RECAF
molecule is expressed on the cell surface of cancer cells and, because tumors
are highly vascularized, it is shed into the blood stream and other bodily
fluids. As a result, we can detect the marker using blood, or serum, as the test
sample. Since 2004, we have performed over 120,000 tests on more than 4,000
serum samples. Results of these studies have shown that our serum-based assay,
Serum-RECAF, has between 80% and 90% sensitivity for a variety of cancers, with
95% specificity for lung, breast, prostate, stomach, and ovarian cancers among
others. Moreover, these tests demonstrate that RECAF technology performs better
30
than competing technologies at detecting prostate cancers and at discriminating
between malignant and benign lesions.
RECAF technology detected 92% of cervical cancer with 95.7% specificity in
a study involving 25 cervical cancer samples and 69 normal samples. In contrast,
the Pap test, which is widely used to detect cervical abnormalities, has an
estimated sensitivity for high-grade lesions of only 55% to 80%. Further, we
compared 73 colon cancer samples to 352 normal samples and found that our RECAF
blood test had a sensitivity of 74% with 95% specificity. When the specificity
was improved to 100%, the test was still able to identify over 71% of the colon
cancers. Data suggest an average sensitivity for RECAF of 90% across all cancers
when the specificity is 95%.
Serum-RECAF can be effectively used to initially screen patients who
present symptoms of cancer as well as to monitor patients for recurrence who
have already been treated for cancer. We believe that our Serum-RECAF assay
performs better than many current technologies at detecting prostate cancer as
well as at discriminating between malignant and benign tumors. Accordingly,
Serum-RECAF may have the potential to become a standardized blood test widely
available in clinical laboratories due to its detection capabilities and ease of
use. If successfully developed and submitted to the FDA for clearance, we
believe that Serum-RECAF will be considered a Class II Medical Device, which is
important in the pathway to regulatory approval. Future variations of this
product could include the ability to test other body fluids, such as saliva,
vaginal fluids, and urine, for RECAF.
RECAF Product Formats
There are three basic formats for RECAF technology: (i) automated testing
in large clinical and hospital laboratories; (ii) non-automated, or manual,
testing by clinicians in smaller laboratory settings and where expensive
automated instrumentation is not available or not practical; and (iii) point-of-
care ("POC"), rapid test formats for physicians' offices, urgent care
facilities, or the bedside. These formats may be used to detect cancer in
patients and for veterinarian use.
Automated Format
Our initial business strategy was to license the automated testing format
on a semi-exclusive basis to three licensees. We have granted two of the three
semi-exclusive licenses for this testing format-one to Abbott and one to
Inverness. Under the agreements with Abbott and Inverness, we are allowed to
grant one more semi-exclusive license for the automated format.
In early 2007, we completed converting our blood based Serum-RECAF test to
colorimetric format ("flash chemiluminescense") to make it more practical for
laboratory use required by our licensees and to improve sensitivity. This format
improves detection of smaller, earlier stage tumors and magnifies the measured
difference in RECAF serum values between cancer and normal patients. The test
results found that RECAF had 80% to 90% sensitivity for a variety of cancers,
with 95% specificity for lung, breast, stomach and ovarian cancers in
particular.
31
Manual Format
We have developed prototype RECAF test kits and materials for small
laboratories where automated instrumentation is not available or not practical.
These manual formats have the same sensitivity and specificity as the formats
that use automated instrumentation. We plan to finish development of these kits
and to place them in a few laboratories in major metropolitan cities in China,
where those laboratories can market and run the RECAF tests in accordance with
existing government regulatory requirements pertaining to business operations in
general.
To initiate this, we have formed a wholly owned subsidiary in China. The
subsidiary, named "Biocurex China Co., Ltd." will be used to assemble, market,
and distribute our RECAF tests in China. The critical reagents will be shipped
from North America for quality control purposes. Our first market is Shanghai,
where we are represented by a clinical oncologist who will collect the samples
and administer the tests in-house. Once we are operational in Shanghai, we will
expand to other large population centers in China such as Beijing and Tianjin.
If the model is successful, we then plan to replicate it in other countries in
Asia, Latin America and Eastern Europe.
In the United States, once the FDA has approved the automated testing
format, we will be able to apply for 510k approval for the manual testing format
on an expedited basis.
Point-of-Care, Rapid Test
As another segment of our current strategy, we have developed a prototype
blood-based POC rapid test for cancer detection or follow-up in physicians'
offices and urgent care facilities. This format may also be useful in
third-world countries or areas with large rural populations where access to even
small clinical laboratories is not available.
Our POC rapid test device, a rendering of which appears below, will be
similar to a common pregnancy test kit. The rapid test cartridge will contain a
small strip that is coated with the indicator molecules to detect RECAF in a
blood sample. These types of tests are used for a variety of applications in
diagnostic medicine, and they can be efficiently developed from the prototype
data that we currently have. We intend to contract with an experienced developer
of POC tests to fully develop our POC rapid test. We have selected QuantRx Inc.
to run a feasibility study for our POC test on their fully developed RapidSense
POC platform. This platform was selected since it avoids the many patent issues
surrounding POC test formats, has already been developed for another POC cancer
marker, and has an instrument reader available for it.
We anticipate that our POC rapid test will require the development of a
small, portable instrument to read the intensity of the colorimetric endpoint
line in order to alleviate the variability of eye measurements. We will likely
need to eliminate operator variability to be eligible for certain medical
reimbursements.
32
When a patient enters a physician's office with a specific symptom or
concern where cancer is suspected, the physician could administer the rapid test
to receive a preliminary indication as to the presence of elevated RECAF levels
in the blood. We anticipate that such a cancer test could be used as easily and
as routinely as a blood sugar or cholesterol reading is now used as part of a
blood test. The more detailed Serum-RECAF laboratory test would be used to
confirm the rapid test result as is common now for most of the rapid tests used
in the infectious disease setting.
License Agreements
We have licensed aspects of our RECAF technology on a semi-exclusive and on
a non-exclusive basis to Abbott, a worldwide leader in diagnostics, and
Inverness, a global supplier of in vitro diagnostic products.
Abbott License
In March 2005, we entered into a worldwide, semi-exclusive licensing
agreement with Abbott to commercialize Serum-RECAF. Manual and POC RECAF test
formats are licensed on a non-exclusive basis. Thus, we may commercialize and
license manual tests to as many licensees as we deem appropriate. Under the
license agreement, as amended, Abbott has the right, but not the obligation, to
commercialize or perform further research and development on the RECAF
technology. Abbott paid us an upfront licensing fee of $200,000 and will pay us
royalties on any RECAF products it sells during the term of the license. In
April 2008, Abbott and we amended the license agreement. The amendment relieved
Abbott of future obligations to perform further research and development with
respect to the RECAF technology as well as the obligation to pay annual minimum
royalties. At any time, at its option, Abbott may resume research and
development work and commercialize products incorporating the RECAF technology
in accordance with the license agreement. In consideration for this
modification, we will receive a more favorable royalty rate on any RECAF
products that may be sold by Abbott. We have the right to terminate the license
at any time, if following notice from us, Abbott and we do not agree within 90
days to new due diligence obligations for the commercialization of any products
using the RECAF technology. Since this agreement was amended, Abbott has not
conducted any research and development regarding RECAF technology or, to our
knowledge, taken any other steps toward commercializing our technology. Finally,
Abbott has the right to grant sublicenses to third parties.
Inverness License
In December 2007, we entered into a second semi-exclusive, worldwide
licensing agreement for our Serum-RECAF technology. This agreement allows
Inverness to commercialize products using the Serum-RECAF technology in exchange
for paying an upfront fee and periodic royalty payments. In addition, Inverness
is responsible for obtaining FDA approvals, and managing manufacturing,
marketing, and distribution for clinical laboratory testing. The manual and POC
rapid tests, as well as other applications of RECAF, are licensed on a
non-exclusive basis. Inverness paid us a $1 million up-front fee for RECAF
technology and material and assistance that would enable it to produce RECAF
33
material on its own. Inverness has been conducting research and development on
our technology and may have successfully adapted our technology to their
diagnostic platform. The agreement with Inverness provides for periodic
exchanges of information between the parties. Our policy is to tell them as much
as we can on the technical side. Inverness, on the other hand, has been
reluctant to share with us their intentions or progress on their general
business strategy including manufacturing, commercialization, regulatory
approval and marketing. Inverness has advised us of their intention to implement
the RECAF test in a particular format (called Triage), which is not based on
classic and widely known assay formats but rather on their proprietary platform.
We believe their reluctance is caused in large part on their concern to protect
the intellectual property relating to their proprietary diagnostic platform. Our
last communication with Inverness took place in June 2009 and, at the time, they
indicated that our assay was working in their facilities and generating results
consistent with ours. However, they did not share those results with us or
indicate what diagnostic platform they used. Inverness has also informed us that
they had become self-sufficient and independent in generating the critical
reagents necessary to produce the test. We do not know what Inverness intends to
do next. If they have been successful in adapting our technology to their
diagnostic platform, the logical next step for them would be to initiate
clinical trials for the purpose of obtaining regulatory approvals, whether in
the United States or elsewhere, but we have not had been able to confirm whether
that is the case. Our license agreement with Inverness does not provide for any
development or product milestones. Under the license agreement, the annual
minimum royalty of $150,000 began to accrue on December 4, 2009 and will
continue until December 4 following the first commercial sale by Inverness of a
product using RECAF technology to a third party. Thereafter, for the balance of
the annual minimum royalty term, which ends on the later of the expiration of
all the RECAF patents or when Inverness ceases to manufacture and distribute any
products based on RECAF technology, Inverness is obligated to pay a higher
minimum royalty. The Inverness license agreement does not provide when or how
the annual minimum will be paid. Presumably, that will be determined based on
subsequent discussions with Inverness.
Additional Licensing Opportunities
Under the license agreements with Abbott and Inverness we are free to grant
one additional semi-exclusive license regarding Serum-RECAF and pursue unlimited
licensing opportunities with respect to all other applications of our RECAF
technology and test formats, including manual and POC rapid tests and veterinary
applications. Further, our RECAF technology has additional applications that
could be licensed, including imaging functions and therapeutic uses. Ultimately,
we seek to license out specific aspects of our technology, striving to achieve a
significant market share by selecting licensees that can support this goal. We
believe that this licensing strategy will be the most effective way to expand
our market share.
Business Strategy
Our RECAF technology has possibilities in a wide variety of applications in
the fields of human and veterinary medicine. Our strategy is to continue to
focus on obtaining non-exclusive licensing agreements for various application of
RECAF technology while developing other applications ourselves. Specifically,
with the net proceeds of this offering we intend to pursue the following:
34
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 and
bedside use;
o conduct clinical trials and seek FDA approval for marketing of the POC
rapid format test; and
o commercialize manual testing formats, principally in large cities in
foreign countries where further regulatory clearance is not required.
Licensing
To date our primary business strategy has been to license our Serum-RECAF
technology under semi-exclusive limited license agreements. With this strategy,
instead of having to allocate all of our funding in an attempt to commercialize
one product, we select licensees that have strategic advantages over us when it
comes to commercialization (e.g., our licenses with Abbott and Inverness). As
part of this strategy, we provide all the assistance that we can to our
licensees; however, the licensees are responsible for obtaining regulatory
approvals and bringing the products to market. Under our existing semi-exclusive
licenses with Abbott and Inverness, we are allowed to enter into one additional
semi-exclusive license for Serum-RECAF. These licenses only cover the automated
testing format for Serum-RECAF in a clinical and hospital laboratory settings.
They cover the use of Serum-RECAF in connection with other test formats and
other applications of our technology on a non-exclusive basis.
Market distribution channels for a diagnostic test kit typically entail
accessing the automated diagnostic platforms of one or more of the larger
diagnostic companies, such as Abbott, F. Hoffmann-La Roche or Bayer AG. These
companies provide automated diagnostic instruments that are capable of
processing a variety of laboratory tests. Some instruments can process 1,200
clinical chemistry and 200 immunoassay tests each hour. Through licensing, we
seek to place our cancer assays, such as Serum-RECAF, on the instrument menu of
these diagnostic platforms.
Point-of Care Rapid Tests
We anticipate that a POC rapid cancer test could be used in the future as
easily and as routinely as a blood sugar or cholesterol reading is now part of a
blood test. When a patient enters a physician's office with a specific symptom
or concern where cancer is suspected, the physician could administer the rapid
test to receive a preliminary indication as to the presence of elevated RECAF
levels in the blood. The more detailed Serum-RECAF laboratory test would be used
to confirm the rapid test result as is common now for most of the rapid tests
used in the infectious disease setting.
35
In September 2007, we presented preliminary results with our prototype
rapid test to an international cancer congress. Data indicated solid
discrimination between cancer and healthy cells and correlated with results from
our Serum-RECAF. With the N.N. Blokhin Cancer Research Center in Moscow, Russia,
we studied RECAF as a rapid test for cancer detection. Results found that RECAF
could detect 80.4% of ovarian cancers in Stages I to III with an 88%
specificity. This study tested 64 normal, non-cancerous samples and 51 ovarian
cancer serum samples, which included 25 Stage I or II cancers and 26 Stage III
cancers. We believe that these results signify a potential breakthrough that
could simplify cancer detection. When applied to early stage ovarian cancer, our
prototype POC demonstrated better performance than a CA-125 blood test, a tumor
marker often found in higher-than-normal amounts in the blood of women with
ovarian cancer.
We believe that the POC tests will not cannibalize the clinical laboratory
markets since POC tests are routinely confirmed by the slightly more accurate
clinical laboratory tests. We believe that the widespread use of POC RECAF tests
will actually promote the use of the clinical laboratory RECAF tests.
We estimate that there are approximately 250,000 physicians in the United
States who would use these POC tests. One test per doctor per week would yield
13 million rapid tests per year. We expect final development, clinical testing,
FDA registration and Medicare approval to take approximately 18 months. We may
license this test for distribution, contract with a distribution network or use
a contract sales force for marketing and sales of this test.
Veterinary Applications
Basic research shows that RECAF is a highly conserved (common and
essentially identical) molecule in humans and animals. We confirmed in our
laboratory with samples provided from three different sources that our RECAF
test detects malignancy in dogs and cats. The test, which we call Pet- RECAF,
correctly detected 85% of the cancers at the standard specificity value of 95.
These figures are consistent with those obtained on human patients.
Initially our focus will be directed to dogs and cats. We believe we can
begin marketing this application quickly because it does not require government
or regulatory approvals and we have completed the developmental testing. We will
market this application under a separate brand name. We plan to pursue a
dual-channel revenue generation strategy. In some markets we will license our
technology to clinical labs who will conduct the testing and in other markets
PBRC will do the testing in our own contract laboratory. Our POC rapid test is
also being developed for the veterinary market and may be available for
commercialization before it is available for human use. We will market our
product directly to end users, such as veterinarians and animal protection
societies, and through distributors.
Cancer in Household Pets
Cancer is the number one cause of death among dogs and cats in the United
States, Europe, and Japan. Recent studies have shown that more than 50% of all
36
dogs ultimately die of cancer, and some breeds, like golden retrievers and
boxers, have cancer rates that are even higher. However, cancer is also the most
curable of all chronic diseases in pets. To help improve detection, specialists
encourage veterinarians to include cancer screenings in their wellness exams for
pets of all ages.
Expenditures on Household Pets and Market Size
There are approximately 75 million household dogs in the United States and
on average dog owners spend $219 on veterinary visits annually. There are
approximately 88 million household cats in the United States and their owners
spend an average of $175 a year on routine veterinary visits. Dog- owning
households that spent $1,000 or more in a year jumped from 2.2 percent in 1996
to 8.4 percent in 2006. Dogs averaged 1.5 visits to the veterinarian during
2006, and cats averaged 0.7 visits to the vet in the same year.
We have studied the market in British Columbia and, based on our findings,
we believe that the potential market for testing dogs and cats in British
Columbia may be $5.0 million per year. We found that in British Columbia at
least 120,000 routine blood-screening tests are carried out every year in dogs
and cats, at a cost of $35-$40 per test to the veterinarian. This does not
include tests conducted by veterinary hospitals that have their own in-house
laboratories. We believe that the addition of a screening test for cancer for
$50 is reasonable to both owners and veterinarians and may be incorporated in
routine annual checkups. In addition to screening, animals already diagnosed and
treated for cancer can be monitored for the disease with the Pet-RECAF test. We
estimate that each animal diagnosed with cancer could be tested 3-4 times over
its lifespan.
Market Strategy
Our marketing strategy for our Pet-RECAF test is based on the following
assumptions:
o There is no need for regulatory approval with respect to our Pet-RECAF
product and, therefore, we can begin marketing this product
immediately.
o The costs involved to commercialize Pet-RECAF are manageable.
We plan to begin in British Columbia where we can commercialize the
application ourselves and then expand into other markets as we establish
ourselves. In essence, the local market becomes a testing ground to trim and
assess the logistics related to this enterprise. Blotted blood samples collected
by veterinarians will be shipped to PBRC for testing. Our marketing efforts will
target both veterinarians, who have to recommend Pet-RECAF to the pet owners,
and the pet owners themselves. For marketing purposes, we have reserved the
Internet domain OncoPet.net.
Sales and Marketing
We do not plan to build our own sales force for any of our RECAF formats
for human use. Sales and marketing for our automated laboratory testing format
37
will be done primarily by our licensees. Manual laboratory test kits and
materials will be marketed by our partner laboratories. Once we have achieved
FDA clearance in the United States for our POC rapid test, we plan to contract
with medical device distributors and/or a contract sales force for marketing and
sales.
Our RECAF tests for the veterinarian market will be marketed initially by
us and by distributors of veterinarian products.
Suppliers and Manufacturing/Production
For the Serum-RECAF products licensed on a semi-exclusive basis, our
licensees are responsible for manufacturing. We plan to contract with OEMs for
all of the products that are not covered by our license agreements.
Research and Development
Our research and development efforts are all related to improving our RECAF
technology for detection, diagnosis and follow-up of cancer. We continually
focus on improving our various RECAF test formats leading to filing of
additional patents to protect our technology. Since the basic research on our
RECAF cancer marker is complete, most of our continuing work will be in the
development area rather than in research. The clinical data from our studies,
which have been ongoing since 2004, and the validation from independent data
from our licensees, Abbott and Inverness, support our contention that we are in
the final development stages rather than at the research stage.
Patents
Our patents, currently registered in over 20 countries, cover over 40
claims and relate to methods for diagnosis and treatment of cancer using the
RECAF cancer marker. Our U.S. patent expires in 2014 and our patents in
Australia, Russia and China expire in 2015. Our U.S. patent ("Detection of
cancer using antibodies to the AFP receptor") includes 17 claims and protects
technologies using Serum-RECAF kits. The patent also entails in vitro
applications for diagnosis, screening, and follow-up of cancer and leukemia. At
present, we are working toward the submission of additional patent applications
related to RECAF that potentially could provide us with protection for an
additional 20 years.
In March 2008, the European Patent Office granted our patent claims for
cancer diagnostic serum tests based on the RECAF marker. These patents will also
expire in 2015. This development is particularly beneficial as granted patent
claims can generate a higher royalty than pending claims per our existing
license agreements. In addition, we believe that the European healthcare and
medical insurance systems are more familiar and supportive of cancer markers
than are other locales. As a result, we anticipate that regulatory approval for
diagnostic tests in Europe could be easier and faster than in the United States.
38
Due to the complexity of RECAF technology, we believe that our proprietary
know-how for developing the technology and working with the RECAF family of
molecules is critical and extends beyond patented information. Accordingly, we
include know-how in our licensing packages in order to obtain royalties in
countries where we do not have patent protection.
We have granted a security interest in all of our assets, including our
patents and other intangible property, to the holders of our amended secured
convertible notes as security for the repayment of those notes.
Competition
Given the nature of our product and the fact that it works well in
combination with existing cancer markers, it is difficult to separate
competitors from potential partners/clients/licensees.
We have found that we can combine RECAF with a second marker (e.g., CEA for
colorectal cancer samples, PSA for prostate cancer samples and CA125 for ovarian
samples), thus increasing the overall performance. For example, combining CEA
with RECAF results in 91% sensitivity and 100% specificity, which is extremely
important for screening purposes. From a marketing point of view, the
possibility of combining existing and widely used tests with ours offers obvious
advantages in terms of acceptance, market penetration time and pricing. The
latter is of particular interest for licensees who are already commercializing
other markers because the enhanced performance allows them to increase the price
of the other marker, which is usually low due to competition and lack of patent
protection. Under our existing semi-exclusive license agreements with Abbott and
Inverness, we receive, as a royalty, a portion of the additional price on any
other marker sold in conjunction with RECAF.
Our potential competitors include large pharmaceutical and medical device
companies who develop, market, and sell diagnostic products such as cancer
detection kits, instruments and reagents used in clinical laboratories to
measure serum cancer markers. Such companies include F. Hoffman-La Roche Ltd.,
Dako A/S, DIANON Systems (an affiliate of Lab Corp. of America Holdings),
Miraculins Inc. and Ortho-Clinical Diagnostics, Inc. (an affiliate of Johnson &
Johnson Co.). In addition, potential competition may come from smaller
companies, research facilities and government-funded organizations that seek to
discover improved cancer markers or that are developing new screening and
diagnostic tests and tools for patients and animals. To our knowledge, no
existing cancer markers can detect the range of cancers that can be detected by
RECAF with similar sensitivity and specificity. Potential competitors in the
veterinary market include Idexx and Abaxis but they are also potential
licensees.
At this point in time, we believe that our competitive position in the
cancer detection market is strong for a number of reasons including the
following:
o Inherent Advantages of the RECAF marker. As previously discussed, the
RECAF marker has several advantages over all other cancer markers know
to us including its ability (i) to detect all of the major cancers and
likely the less ubiquitous ones as well, (ii) to detect them in early
stages, where 80-90% can be cured and (iii) to function as a
39
diagnostic and follow-up tool. In addition, and based upon studies we
have conducted, we believe that for certain types of cancer, its
serum-based screening assays is more accurate than the screening
assays of our competitors.
o Strategic relationships. Our license agreements with Abbott and
Inverness provide us with access to major testing laboratories. In
addition, Abbot and Inverness have agreed to bear the cost of
obtaining FDA approval for our serum-detection technology and, once
obtained, will market our testing technology to laboratories,
healthcare providers and consumers. At the same time, our license
agreements with Abbot and Inverness give us the flexibility to exploit
other applications of the technology.
o Funding. While many of our existing and potential competitors are
large pharmaceutical companies with large research and development
budgets and government-funded research facilities, the large capital
investment required to identify and prove the efficacy of a cancer
marker may act as a deterrent. On the other hand, most of the research
into verifying the RECAF marker has been completed.
Government Regulation
Drugs, pharmaceutical products, medical devices and other related products
are regulated in the United States under the Federal Food, Drug and Cosmetic
Act, the Public Health Service Act, and the laws of certain states. The FDA
exercises significant regulatory control over the clinical investigation,
manufacture and marketing of pharmaceutical and biological products.
Medical device regulation is based on classification of the device into
three classes, I, II or III. Class III medical devices are regulated much like
drugs, whereas Class I and II devices have less stringent data requirements than
drugs and do not require the rigorous clinical trials that the FDA requires for
drugs. Products submitted to the FDA for clearance as medical devices can refer
to the safety and effectiveness data of medical devices which perform similar
functions as other products and which the FDA has already cleared. As long as a
medical device submitted to the FDA has the same clinical use as a medical
device previously cleared by the FDA, the medical device submitted will normally
receive FDA clearance provided data proving substantial equivalence to the other
approved medical devices and verification of claims is provided to the FDA.
This type of FDA submission is referred to as a 510k submission and is
initially handled by the FDA within a 90-day timeframe but can be longer if
additional information is required. Based upon our review of the FDA's
classification of other cancer markers, we believe that all of our RECAF
diagnostic products for human applications will be classified as Class II
medical devices. If the FDA classifies our RECAF tests as Class III medical
devices, then a pre market approval (PMA) would be required which typically
40
requires more extensive clinical data and a longer regulatory process
(approximately one year or longer if additional data and review are required).
With respect to our Pet-RECAF test, devices for infectious disease
currently require U.S. Department of Agriculture approval whereas devices for
cancer detection currently do not. Cancer tests run in our laboratory do not
require USDA or Canadian approval as devices are not being marked. Our Pet-RECAF
test does not require FDA or Canadian approval.
Under our existing license agreements, the licensees are responsible for
obtaining the necessary regulatory approvals. However, we cannot assure you that
any of our licensees will be successful in obtaining additional clearances or
approvals from any regulatory authority with respect to our cancer detection
kits or its serum screening assay. The lack of regulatory approval for our
products will prevent the sale of these products. Delays in obtaining regulatory
approval or the failure to obtain regulatory approval in one or more countries
will have a material adverse impact on our operations.
Employees
As of May 31, 2011, we had three employees, all of whom are in
administrative positions. All of our research and development and other
technical activities and administrative services are performed for us by Pacific
Bioscience Research Centre, which is owned by Dr. Moro-Vidal, our chief
executive officer and a member of our board of directors. All of our employees
are also employees of Pacific Bioscience Research Centre. As of May 31, 2011,
Pacific BioScience Research Centre had nine full-time employees/consultants. Our
relationship with Pacific Bioscience Research Centre and with its employees is
good. See the section of this prospectus captioned "Management - Transactions
with Related Parties" for information concerning our Agreement with Pacific
Bioscience Research Centre.
Our offices are located at 7080 River Road, Suite 215 Richmond, British
Columbia, and consist of 5,000 square feet of space which offices are rented on
a month-to-month basis for $4,895 per month. We rent our office space from
Pacific Bioscience Research Centre, a company owned by Dr. Ricardo Moro.
MANAGEMENT
Name Age Position
---- --- --------
Ricardo Moro, M.D. 58 President, Chief Executive Officer and
Director
Gladys Chan 37 Chief Financial Officer
Antonia Bold-de-Haughton 60 Secretary and Director
Denis Burger, Ph.D. 61 Executive Chairman and Director
Phil Gold, M.D. 71 Director
Jim Walsh, Ph.D. 52 Director
41
Directors serve for one-year terms and are elected annually by our
stockholders. Our executive officers are appointed by and serve at the pleasure
of the board of directors.
Ricardo Moro, M.D. has been an officer and director since March 2001. Since
1996, Dr. Moro has been the president of PBRC, formerly named Curex Technologies
Inc., where he developed the RECAF cancer marker concept. From 1980 to 1985, Dr.
Moro worked in cancer research at the French National Cancer Institute near
Paris, France. From late 1985 to 1988, he worked at the University of Alberta,
Edmonton on onco-developmental biology. From 1989 to 1996, he was engaged in
various entrepreneurial ventures relating to diagnostics and instrumentation.
Dr. Moro received his medical degree from the University of the Republic of
Uruguay in 1979.
Denis R. Burger, Ph.D. was appointed a director and our executive chairman
in September 2009. Prior to joining us, he had been managing director of
Sovereign Ventures, LLC, a biotech investing and consulting firm, since 1991. He
was chairman and chief executive officer of AVI BioPharma, Inc., a drug
development company using gene targeted therapeutics, from 1997 to 2007 and
founding chairman of Epitope, Inc., a developer of diagnostic products, from
1981 to 1990. He is currently a director of Trinity Biotech PLC, a diagnostic
products developer, and Lorus Therapeutics, a cancer therapeutics company.
Earlier in his career, he was a Professor of Microbiology and Immunology, an
Associate Professor of Surgery and the Director of the Histocompatibility
Testing Laboratory at Oregon Health Sciences University. He holds a B.A. degree
in Bacteriology and Immunology from the University of California at Berkeley, a
M.S. and Ph.D. in Microbiology and Immunology from the University of Arizona,
Tucson.
Gladys Chan joined us in July 2005 as comptroller and was promoted to chief
financial officer in October 2009. Prior to joining us, from September 2004 to
June 2005, Ms. Chan served as senior accountant at DTI Dental Technologies Inc.
She is a Certified General Accountant in Canada, qualified in August 2004, and
holds a Bachelor degree in Art from the University of Tunghai, Taiwan.
Antonia Bold-De-Haughton has served as our corporate administrator since
our inception. In October 2009, she was appointed to the Board and corporate
secretary. From March 2006 to February 2008, she was also the chief financial
officer of Douglas Lake Minerals Inc. (OTCBB: DLKM). Ms. Haughton has over 20
years of experience in administration and management, is a commercial arbitrator
and was educated at the University of Oxford, England and the University of
British Columbia.
Phil Gold, C.C., O.Q., M.D., Ph.D. has been a director since March 2001. He
has been employed by McGill University and/or its affiliate, Montreal General
Hospital, in one or more capacities since 1968. Currently, he is the Douglas G.
Cameron Professor of Medicine, and Professor of Physiology and Oncology, at
McGill University and the Executive Director of the Clinical Research Centre of
the McGill University Health Centre. In the past he has served as Chairman of
the Department of Medicine at McGill and Physician-in-Chief at the Montreal
General Hospital. From 1978 to 1980, Dr. Gold was Director of the McGill Cancer
42
Centre in Montreal, Quebec. From 1980 to 1984, he was Physician-in-Chief of the
Montreal General Hospital. From 1985 to 1990, he served as Chairman of the
Department of Medicine at McGill University in Montreal. Dr. Gold's early
research led to the discovery and definition of the Carcinoembryonic Antigen
(CEA), the blood test most frequently used in the diagnosis and management of
patients with cancer. He has been elected to numerous prestigious organizations
and has been the recipient of such outstanding awards as the Gairdner Foundation
Annual International Award, the Isaak Walton Killam Award in Medicine of the
Canada Council, the National Cancer Institute of Canada R.M. Taylor Medal, the
Heath Medal of the MD Anderson Hospital, the Inaugural Ernest C. Manning
Foundation Award, the Johann- Georg-Zimmerman Prize for Cancer Research,
Medizinische Hochschule, Germany, the ISOBM Abbott Award (Japan), the Award of
the Academy of International Dental Studies, and the Queen Elizabeth II Jubilee
Medal. He has been elected to membership in the Royal Society of Canada, the
American Society for Clinical Investigation, the Association of American
Physicians, and Mastership in the American College of Physicians. His
contributions to teaching have been recognized by an award as a Teacher of
Distinction from his Faculty of Medicine. He has been honored by his country,
his province his city, and his university by appointment as a Companion of the
Order of Canada, an Officer of l'Ordre National du Quebec, a member of the
Academy of Great Montrealers; and a the recipient of the Gold Medal of the
McGill University Graduate Society, respectively. He has been the Sir Arthur
Sims Traveling Professor to the British Commonwealth, and has served as a member
of the Executive, and Chair of the Burroughs Wellcome Fund. In 2006, the Phil
Gold Chair in Medicine was inaugurated at McGill University and the first
incumbent was selected in 2009. Dr. Gold received a B. Sc. in 1957 and a M.Sc.
in 1961 in Physiology from McGill University. He received his MDCM in 1961 and
his Ph.D. in 1965 from McGill University as well.
Jim Walsh, Ph.D. was appointed a director in September 2009. Dr. Walsh has
been the chief executive officer of Biosensia Ltd., a point of care diagnostics
company, since 2008 and Interim Chief Executive Officer of Stokes Bio Ltd., a
company specializing in the area of molecular diagnostics, since 2006. Dr. Walsh
has also been a non-executive director of Trinity Biotech Plc (NASDAQ: TRIB), an
Irish diagnostics company, since 1996 and a non-executive director of PuriCore
Plc. (LSE: PURI), a U.S.-based healthcare company, since 2006. Dr. Walsh has
also been investment advisor to Bank of Ireland Kernel Capital Partners since
2007. From 1990 to 1995, Dr. Walsh was managing director of Cambridge
Diagnostics Ltd., a wholly owned subsidiary of Inverness Medical Innovations
Inc. (AMEX: IMA). From 1988 to 1990, Dr. Walsh worked with Fleming GmbH as R&D
Manager. Dr. Walsh is a graduate of the National University of Ireland and holds
a Doctorate in Inorganic Chemistry and Post Doctorate qualifications in
Immunochemistry.
We believe that Ricardo Moro, Antonia Bold-de-Haughton and Phil Gold should
serve as directors due to their long standing relationship with us
We believe Denis Burger and Jim Walsh should serve as directors due to
their past experience with companies involved with the development of drugs and
diagnostic products.
We do not have a compensation committee. Our directors of serve as our
Audit Committee. We do not have a director serving as a financial expert. We do
43
not believe a financial expert is necessary since we have only minimal revenues.
Dr. Phil Gold and Dr. Jim Walsh are the only directors who are independent, as
that term is defined in Section 803 of the listing standards of the NYSE Amex.
We have adopted a Code of Ethics which is applicable to our principal
executive, financial, and accounting officers and persons performing similar
functions. The Code of Ethics is available on our website located at
www.biocurex.com.
Compensation Committee Interlocks and Insider Participation
Our directors act as our compensation committee. During the year ended
December 31, 2009 each director participated in deliberations concerning
executive officer compensation.
During the year ended December 31, 2009, none of our officers were also a
member of the compensation committee or a director of another entity, which
other entity had one of its executive officers serving as one of our directors.
Employment Agreements
As of September 15, 2009, we entered into an employment agreement with
Denis R. Burger, Ph.D., our executive chairman. The employment agreement expires
on December 31, 2013. If we do not renew the employment agreement, we must pay
Dr. Burger twelve months severance pay. Under the employment agreement, Dr.
Burger is responsible for performing such duties as assigned to him from time to
time by our board of directors. Dr. Burger is also required to devote his best
efforts to our service throughout the term of the agreement, including devoting
at least 40 hours per month to our affairs. In return for his services, Dr.
Burger will receive an initial annual base compensation of $100,000 and
reimbursement for all expenses reasonably incurred by him in discharging his
duties and is entitled to participate in any applicable benefit plans. Dr.
Burger may also receive a bonus at the discretion of the board of directors. Our
employment agreement with Dr. Burger may be terminated voluntarily by Dr. Burger
upon sixty days written notice. We may terminate the employment agreement upon
thirty days written notice, in which event we must pay Dr. Burger eighteen
months severance pay.
As of October 1, 2009, we entered into an employment agreement with Dr.
Ricardo Moro, our chief executive officer. The employment agreement expires on
December 31, 2013. If we do not renew the employment agreement, we must pay Dr.
Moro twelve months severance pay. Under the employment agreement, Dr. Moro is
responsible for performing such duties as assigned to him from time to time by
our board of directors. Dr. Moro is also required to devote his best efforts to
our service throughout the term of the agreement, on a full-time basis except to
the extent his services are required by Pacific Bioscience Research Centre. In
return for his services, Dr. Moro will receive an initial annual base
compensation of $250,000 and reimbursement for all expenses reasonably incurred
by him in discharging his duties and is entitled to participate in any
applicable benefit plans. We will receive a credit against Dr. Moro's annual
base compensation for any "profit" paid to Pacific Bioscience Research Centre
under our services agreement with Pacific Bioscience Research Centre. Dr. Moro
44
may also receive a bonus at the discretion of the board of directors. Our
employment agreement with Dr. Moro may be terminated voluntarily by him upon
sixty days written notice. We may terminate the employment agreement upon thirty
days written notice, in which event we must pay Dr. Moro eighteen months
severance pay.
Executive Compensation
The following table shows in summary form the compensation received by (i)
our Chief Executive Officer and (ii) by each other executive officer who
received total compensation in excess of $100,000 during the two years ended
December 31, 2010.
All
Other
Annual
Restric- Com-
Name and ted Stock Option pensa-
Principal Fiscal Salary Bonus Awards Awards tion
Position Year (1) (2) (3) (4) (5) Total
------------ ------ ------ ----- --------- ------ ------ -----
Dr. Ricardo Moro 2010 $148,407 -- -- $847,418 -- $995,825
Chief Executive Officer 2009 -- -- -- $148,480 -- $148,480
Gladys Chan 2010 $75,000 -- -- $28,247 -- $103,247
Principal Financial and 2009 -- -- -- -- -- --
Accounting Officer (6)
Denis Burger 2010 $104,333 -- -- $564,946 -- $669,279
Executive Chairman 2009 -- -- -- -- -- --
(1) The dollar value of base salary (cash and non-cash) earned. During 2009 Dr.
Moro did not receive any cash compensation from us directly. We paid
Pacific BioScience Research Centre, a company owned by Dr. Moro, to conduct
all research on our behalf, and Dr. Moro received compensation from PBRC.
In 2010 and 2009, Dr. Moro received total payments of $101,593 and $71,340,
respectively, from PBRC.
(2) The dollar value of bonus (cash and non-cash) earned.
(3) During the periods covered by the table, the value of the shares of
restricted stock issued as compensation for services to the persons listed
in the table.
(4) The value of all stock options granted during the periods covered by the
table.
(5) All other compensation received that could not be properly reported in any
other column of the table.
(6) Ms. Chan became our Principal Financial and Accounting Officer on in
October 2009.
45
We do not have a compensation committee. Our directors approve their own
compensation since decisions regarding compensation to be paid to our officers
and directors are made by the directors. We do not have any policy which
prohibits or limits the power of directors to approve their own compensation.
Compensation of Directors During Year Ended December 31, 2010
The table below sets forth the compensation earned by our directors, other
than Dr. Moro and Denis Burger, for the fiscal year ended December 31, 2010.
Paid Stock Option
in Awards Awards All other
Name Cash (1) (2) Compensation Total
--------------------------------------------------------------------------------
Phil Gold -- -- $56,495 -- $56,495
Jim Walsh -- -- $56,495 -- $56,495
Antonia Bold-de-Haughton $78,000 -- $56,495 -- $134,495
(1) The fair value of stock issued for services computed in accordance with ASC
718 on the date of grant.
(2) The fair value of options granted computed in accordance with ASC 718 on
the date of grant.
Long-Term Incentive Plans - Awards in Last Fiscal Year
None.
Employee Pension, Profit Sharing or Other Retirement Plans
None.
Stock Option and Bonus Plans
We have a Non-Qualified Stock Option Plan, a Stock Bonus Plan and six Stock
Option Agreements. A summary description of these Plans follows. In some cases
these Plans and the Stock Option Agreements are collectively referred to as the
"Plans."
Non-Qualified Stock Option Plan
The Non-Qualified Stock Option Plan authorizes the issuance of shares of
our common stock to persons that exercise options or warrants granted pursuant
to the Plan. Our employees, directors, officers, consultants and advisors are
eligible to be granted options or warrants pursuant to the Plan, provided
however that bona fide services must be rendered by such consultants or advisors
46
and such services must not be in connection with the offer or sale of securities
in a capital-raising transaction. The exercise price of the option or warrant is
determined by ours Board of Directors.
Stock Bonus Plan
Under the Stock Bonus Plan, our employees, directors, officers, consultants
and advisors are eligible to receive a grant of our shares, provided however
that bona fide services must be 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.
Stock Option Agreements
The Stock Option Agreements provided for the issuance of up to 28,500,000
shares of our common stock upon the exercise of options granted pursuant to the
Stock Option agreements.
Two-thirds of the options are presently exercisable, and the final third of
the options will be exercisable on January 22, 2012. If, before January 22,
2012, an option holder's employment terminates for any reason other than death
or disability or an option holder ceases to be a director for any reason other
than death or disability, any options which are not then exercisable will
expire. In the event of the death or disability of an option holder, all options
will be immediately exercisable. The options will be exercisable for cash or, in
our discretion, through the delivery of shares of our common stock having a
market value equal to the exercise price of the options.
Other Information Regarding the Plans
The Plans are administered by our Board of Directors. The Directors serve
for a one-year tenure and until their successors are elected. A Director may be
removed at any time by the vote of a majority of our shareholders. Any vacancies
that may occur on the Board of Directors may be filled by the Board of
Directors. The Board of Directors is vested with the authority to interpret the
provisions of the Plans and supervise the administration of the Plans. In
addition, the Board of Directors is empowered to select those persons to whom
shares or options are to be granted, to determine the number of shares subject
to each grant of a stock bonus or an option and to determine when, and upon what
conditions, shares or options granted under the Plans will vest or otherwise be
subject to forfeiture and cancellation.
In the discretion of the Board of Directors, any option granted pursuant to
the Plans may include installment exercise terms such that the option becomes
fully exercisable in a series of cumulating portions. Our Board of Directors may
also accelerate the date upon which any option is first exercisable. Any shares
issued pursuant to the Stock Bonus Plan and any options granted pursuant to the
Non-Qualified Stock Option Plan will be forfeited if the "vesting" schedule
established by the Board of Directors at the time of the grant is not met. For
this purpose, vesting means the period during which the employee must remain an
employee of ours for the period of time a non-employee must provide services to
us. At the discretion of our Board of Directors, payment for the shares of
common stock underlying options may be paid through the delivery of shares of
our common stock having an aggregate fair market value equal to the option
47
price, provided such shares have been owned by the option holder for at least
one year prior to such exercise. A combination of cash and shares of common
stock may also be permitted at the discretion of the Board of Directors.
Options are generally non-transferable except upon the death of the option
holder. Shares issued pursuant to the Stock Bonus Plan will generally not be
transferable until the person receiving the shares satisfies the vesting
requirements imposed by the Board of Directors when the shares were issued.
Our Directors may at any time, and from time to time, amend, terminate, or
suspend one or more of the Plans in any manner they deem appropriate, provided
that such amendment, termination or suspension will not adversely affect rights
or obligations with respect to shares or options previously granted. Our
Directors may not make any amendment which would materially modify the
eligibility requirements for the Plans or materially increase in any other way
the benefits accruing to employees who are eligible to participate in the Plans,
without shareholder approval.
The following tables show the options granted to the persons named below
during the periods indicated. Except as indicated, all options were granted
pursuant to our Non-Qualified Stock Option Plan.
Options Granted
---------------
Exercise
Options Price Expiration Options
Name Grant Date Granted (#) Per Share Date Exercised
---- ---------- ----------- --------- ---- ---------
Dr. Phil Gold 1/26/05 25,000 $0.001 3/19/11 25,000
Dr. Ricardo Moro 2/23/06 230,000 $0.001 2/28/10 230,000
Dr. Phil Gold 2/23/06 55,000 $0.001 2/28/10 55,000
Dr. Ricardo Moro 1/31/07 260,000 $0.001 1/31/10 260,000
Dr. Phil Gold 1/31/07 60,000 $0.001 1/31/10 60,000
Dr. Ricardo Moro 2/14/08 255,000 $0.001 2/28/10 255,000
Dr. Phil Gold 2/14/08 60,000 $0.001 2/28/10 60,000
Dr. Ricardo Moro 3/17/09 1,578,947 $0.001 3/19/11 1,578,947
Dr. Phil Gold 3/17/09 684,210 $0.001 3/19/11 684,210
Options Granted (1)
-------------------
Exercise
Options Price Expiration Options
Name Grant Date Granted (#) Per Share Date Exercised
---- ---------- ----------- --------- ---- ---------
Dr. Ricardo Moro 1/22/10 15,000,000 $0.0714 1/22/20 --
Gladys Chan 1/22/10 500,000 $0.0714 1/22/20 --
Antonia Bold-de-Haughton 1/22/10 1,000,000 $0.0714 1/22/20 --
Denis Burger 1/22/10 10,000,000 $0.0714 1/22/20 --
Dr. Phil Gold 1/22/10 1,000,000 $0.0714 1/22/20 --
Jim Walsh 1/22/10 1,000,000 $0.0714 1/22/20 --
48
(1) Options in this table were granted pursuant to our six Stock Option
Agreements.
Our officers and directors did not exercise any options during the year
ended December 31, 20010.
The following tables show the options held by the persons named below as of
May 31, 2011. Except as indicated, all options were granted pursuant to our
Non-Qualified Stock Option Plan.
Shares underlying unexercised
options which are: Exercise Expiration
Name Exercisable Unexercisable Price Date
---- ----------- ------------- -------- ----------
Dr. Ricardo Moro 225,000 0.001 1/31/12
Dr. Ricardo Moro 450,000 0.001 3/31/12
Dr. Ricardo Moro 650,000 0.001 3/31/14
Dr. Ricardo Moro 10,000,000(1) 5,000,000 0.0714 1/22/10
Dr. Phil Gold 666,666 333,334 (1) 0.0714 1/22/20
Gladys Chan 333,333 166,667 (1) 0.0714 1/22/20
Antonia Bold-de-
Haughton 666,666 333,334 (1) 0.0714 1/22/20
Denis Burger 6,666,666 3,333,334 (1) 0.0714 1/22/20
Jim Walsh 666,666 333,334 (1) 0.0714 1/22/20
Gladys Chan 161,400 0.001 8/17/13
Antonia Bold-de-
Haughton 220,800 0.001 8/17/13
(1) These options, were granted pursuant to our six Stock Option Agreements.
The following table shows the weighted average exercise price of the
outstanding options granted pursuant to our Non-Qualified Stock Option Plan as
of December 31, 2010. Our Non-Qualified Stock Option Plan has not been approved
by our shareholders.
49
Number of Securities
Remaining
Available For Future
Number Issuance
of Securities Under Equity Compensation
to be Issued Weighted-Average Plans (Excluding
Upon Exercise Exercise Price of Securities
of Outstanding of Outstanding Reflected in the
Plan category Options Options First Column of This Table
-------------------------------------------------------------------------------
Non-Qualified Stock
Option Plan 2,306,000 $0.001 8,870,666
On November 30, 2010 our directors adopted a resolution increasing the
number of shares of common stock issuable under the Non-Qualified Stock Option
Plan to 22,500,000 shares and the number of shares issuable under the Stock
Bonus Plan to 20,000,000 shares.
The following table shows the number of outstanding stock options and stock
bonuses granted by us pursuant to the Plans, as of May 31, 2011. Each option
represents the right to purchase one share of our common stock.
Total Shares Shares Remaining
Reserved Options Options Issued As Options/Shares
Name of Plan Under Plans Outstanding Exercised Stock Bonus Under Plans
------------ ----------- ----------- --------- ----------- --------------
Non-Qualified Stock 22,500,000 4,594,757 9,034,577 N/A 8,870,666
Option Plan
Stock Bonus Plan 20,000,000 N/A N/A 10,670,868 9,329,132
Stock Option
Agreements 28,500,000 28,500,000 -- N/A --
Transactions With Related Parties
All research involving RECAF is conducted on our behalf by Pacific
Bioscience Research Centre, which is owned by Dr. Ricardo Moro, our chief
executive officer and a member of our board of directors. We expect that PBRC
will also function as a testing laboratory for the veterinarian market once it
is developed. We have an agreement with PBRC under which we will pay PBRC fees
for research and development and general and administrative expenses. The
material terms of the agreement include the following:
o The balance that we owed to PBRC at September 30, 2009, approximately
$390,000, plus all accrued and unpaid interest, will be due and
payable on December 31, 2014, unless the agreement is earlier
terminated by us without cause or by PBRC as a result of our breach of
our monthly payment obligation, in which instances all amounts due
PBRC will become immediately due and payable.
o The amount due will accrue interest at a rate equal to the prime rate.
Interest will be payable monthly.
50
o We will pay PBRC monthly for its services in an amount that is equal
to all costs incurred by PBRC in connection with services it provides
to us (the "Costs") plus a 15% cost adjustment. The Costs will not
include any salary paid by PBRC to Dr. Moro.
o To the extent the cost adjustment in any month exceeds $20,834, such
excess will reduce the amount owed by us to PBRC.
o PBRC will not be allowed to provide services to any person or entity
other than us unless its average monthly Costs for any three
consecutive months are less than its total expense for salaries and
consulting fees for that three-month period. However, we will be
allowed to use other laboratories together with or in lieu of PBRC. In
addition, we will have the right to terminate the agreement with PBRC
at any time upon 90 days prior written notice.
o PBRC has assigned to us all of its right, title and interest in and to
all intellectual property developed or to be developed, including, but
not limited to, know-how, processes, data and research results and all
tangible property relating to RECAF.
o The initial term of the agreement expires December 31, 2013 and we
have the right to extend the agreement for two additional four-year
terms.
o If we terminate the agreement for any reason other than on account of
a default by PBRC, then (i) we must pay PBRC a cancellation payment in
an amount equal to 15% of the Costs incurred by PBRC for the six
months preceding such termination, (ii) we must give PBRC a perpetual
non-exclusive license to our RECAF technology and (iii) PBRC may
thereafter perform services for any person or entity.
PRINCIPAL SHAREHOLDERS
The following table shows, as of May 31, 2011, information with respect to
the shareholdings of (i) each person owning beneficially 5% or more of our
common stock, (ii) each of our officers and directors, and (iii) all officers
and directors as a group. Unless otherwise indicated, each owner has sole voting
and investment powers over his shares of common stock.
Number of Percent of
Name and Address Shares (1) Class
---------------- ------------ -----------
Dr. Ricardo Moro 17,425,000 10.29%
7080 River Road, Suite 215
Richmond, British Columbia
Canada V6X 1X5
51
Number of Percent of
Name and Address Shares (1) Class
---------------- ------------ -----------
Gladys Chan 661,400 0.40%
7080 River Road, Suite 215
Richmond, British Columbia
Canada V6X 1X5
Antonia Bold-de-Haughton 1,220,800 0.73%
7080 River Road, Suite 215
Richmond, British Columbia
Canada V6X 1X5
Dennis Burger, Ph.D 12,257,286 6.91%
1534 SW Myrtle St.
Portland, OR 97201
Dr. Phil Gold 1,309,210 1.12%
3225 The Boulevard
Westmount, Quebec
Canada H3Y 1S4
Jim Walsh 1,714,286 1.02%
c/o Biocurex, Inc.
7080 River Road
Richmond, British Columbia
Canada V6X 1X5
All Officers and Directors
as a Group (6 persons) 34,587,982
(1) Includes shares issuable upon the exercise of options or warrants granted
to the following persons, all of which are exercisable prior to August 31,
2011.
Shares Issuable
Upon Exercise Expiration
Name of Options or Warrants Exercise Price Date
---- ---------------------- -------------- ----------
$
Dr. Ricardo Moro 16,325,000 .001 - .0714 3/11 -1/20
Gladys Chan 661,400 .001 - .0714 8/13 - 1/20
Antonia Bold-de-Haughton 1,220,800 .001 - .0714 8/13 - 1/20
Denis Burger 10,000,000 .0714 1/20
Dr. Phil Gold 1,000,000 .0714 1/20
Jim Walsh 1,000,000 .0714 1/20
52
SELLING SHAREHOLDERS
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. Due
to principal payments and conversions, the outstanding principal balance of the
notes as of May 31, 2011 was $563,300. The warrants allow the holders to
purchase up to 3,500,000 shares of our common stock at a price of $0.135 per
share at any time prior to June 29, 2012.
The shares issuable upon the exercise of the warrants are being offered by
means of this prospectus. The holders of the warrants are sometimes referred to
in this prospectus as the "Selling Shareholders".
We will not receive any proceeds from the sale of the shares by the selling
shareholders. We will pay all costs of registering the shares offered by the
selling shareholders. The selling shareholders will pay all sales commissions
and other costs of the sale of the shares offered by them.
Shares
Issuable Share
Upon Shares to be Ownership
Shares Exercise Sold in this After
Name Owned of Warrants Offering Offering
---- ----- ----------- -------- --------
Warrant Strategies Fund, LLC -- 3,500,000 3,500,000 --
Mark Bitter is the controlling person of Warrant Strategies Fund, LLC.
Plan of Distribution
The shares of common stock owned by the selling shareholders may be offered
and sold by means of this prospectus from time to time as market conditions
permit. The shares owned by the selling shareholders may be sold in the
over-the-counter market, or otherwise, at prices and terms then prevailing or at
prices related to the then-current market price, or in negotiated transactions.
These shares may be sold by one or more of the following methods, without
limitation:
o a block trade in which a broker or dealer so engaged will attempt to
sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
o purchases by a broker or dealer as principal and resale by such broker
or dealer for its account pursuant to this prospectus;
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
53
o face-to-face transactions between sellers and purchasers without a
broker/dealer.
In competing sales, brokers or dealers engaged by the selling shareholders
may arrange for other brokers or dealers to participate. Brokers or dealers may
receive commissions or discounts from selling shareholders in amounts to be
negotiated. As to any particular broker-dealer, this compensation might be in
excess of customary commissions. Neither we nor the selling stockholders can
presently estimate the amount of such compensation. Notwithstanding the above,
no NASD member will charge commissions that exceed 8% of the total proceeds from
the sale.
The selling shareholders and any broker/dealers who act in connection with
the sale of the shares may be deemed to be "underwriters" within the meaning of
ss.2(11) of the Securities Acts of 1933, and any commissions received by them
and any profit on any resale of the shares as principal might be deemed to be
underwriting discounts and commissions under the Securities Act.
If any selling shareholder enters into an agreement to sell his or her
shares to a broker-dealer as principal, and the broker-dealer is acting as an
underwriter, we will file a post-effective amendment to the registration
statement, of which this prospectus is a part, identifying the broker-dealer,
providing required information concerning the plan of distribution, and
otherwise revising the disclosures in this prospectus as needed. We will also
file the agreement between the selling shareholder and the broker-dealer as an
exhibit to the post-effective amendment to the registration statement.
The selling stockholders may also sell their shares pursuant to Rule 144
under the Securities Act of 1933.
We have advised the selling shareholders that they and any securities
broker/dealers or others who may be deemed to be statutory underwriters will be
subject to the prospectus delivery requirements under the Securities Act of
1933. We have also advised each selling shareholder that in the event of a
"distribution" of the shares owned by the selling shareholder, such selling
shareholder, any "affiliated purchasers", and any broker/dealer or other person
who participates in the distribution may be subject to Rule 102 of Regulation M
under the Securities Exchange Act of 1934 ("1934 Act") until their participation
in that distribution is completed. Rule 102 makes it unlawful for any person who
is participating in a distribution to bid for or purchase stock of the same
class as is the subject of the distribution. A "distribution" is defined in Rule
102 as an offering of securities "that is distinguished from ordinary trading
transactions by the magnitude of the offering and the presence of special
selling efforts and selling methods". We have also advised the selling
shareholders that Rule 101 of Regulation M under the 1934 Act prohibits any
"stabilizing bid" or "stabilizing purchase" for the purpose of pegging, fixing
or stabilizing the price of the common stock in connection with this offering.
DESCRIPTION OF SECURITIES
We are authorized to issue 450,000,000 shares of common stock. Holders of
common stock are each entitled to cast one vote for each share held of record on
54
all matters presented to shareholders. Cumulative voting is not allowed; hence,
the holders of a majority of the outstanding common stock can elect all
directors.
Holders of common stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available therefore and,
in the event of liquidation, to share pro rata in any distribution of our assets
after payment of liabilities. The board is not obligated to declare a dividend.
It is not anticipated that dividends will be paid in the foreseeable future.
Holders of common stock do not have preemptive rights to subscribe to
additional shares if issued by us. There are no conversion, redemption, sinking
fund or similar provisions regarding the common stock. All outstanding shares of
common stock are fully paid and non-assessable.
LEGAL PROCEEDINGS
We are not involved in any legal proceedings and we do not know of any
legal proceedings which are threatened or contemplated.
INDEMNIFICATION
Our Bylaws authorize indemnification of a director, officer, employee or
our agent against expenses incurred by him in connection with any action, suit,
or proceeding to which he is named a party by reason of his having acted or
served in such capacity, except for liabilities arising from his own misconduct
or negligence in performance of his duty. In addition, even a director, officer,
employee, or agent of Biocurex, who was found liable for misconduct or
negligence in the performance of his duty, may obtain such indemnification if,
in view of all the circumstances in the case, a court of competent jurisdiction
determines such person is fairly and reasonably entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers, or persons controlling Biocurex's
pursuant to the foregoing provisions, Biocurex has been informed that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1 (together with all amendments and exhibits) under the
Securities Act of 1933, as amended, with respect to the Securities offered by
this prospectus. This prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Securities and Exchange
Commission. For further information, reference is made to the Registration
Statement which may be read and copied at the Commission's Public Reference Room
at 100 F. Street, N.E., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The registration statement is also available at
www.sec.gov, the website of the Securities and Exchange Commission.
55
We are subject to the requirements of the Securities Exchange Act of l934
and are required to file reports, proxy statements and other information with
the Securities and Exchange Commission. Copies of any of these reports, proxy
statements and other information we have filed can be read and copied at the
Commission's Public Reference Room or read and downloaded from the Commission's
website, www.sec.gov.
BIOCUREX, INC.
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
December 31, 2010
INDEX
Consolidated Balance Sheets F-1
Consolidated Statements of Operations F-2
Consolidated Statements of Cash Flows F-3
Consolidated Statements of Stockholders' Equity (Deficit) F-4
Notes to the Consolidated Financial Statements F-14
Report of Independent Registered Public Accounting Firm
To the Directors and Stockholders of
BioCurex, Inc.
(A Development Stage Company)
We have audited the accompanying consolidated balance sheets of BioCurex, Inc.
(A Development Stage Company) as of December 31, 2010 and 2009, and the related
statements of operations, cash flows and stockholders' equity (deficit) for the
years then ended and accumulated for the period from January 1, 2001 to December
31, 2010. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting.
An audit includes consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of internal control over financial reporting. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of BioCurex, Inc. (A
Development Stage Company) as of December 31, 2010 and 2009, and the results of
its operations and its cash flows for the years then ended and accumulated for
the period from January 1, 2001 to December 31, 2010, in conformity with
accounting principles generally accepted in the United States.
As discussed in Note 16 to the consolidated financial statements, the 2009
consolidated financial statements have been restated to correct a misstatement.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has a working capital deficiency and has incurred
significant operating losses since inception. These factors raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also discussed in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Manning Elliot LLP
CHARTERED ACCOUNTANTS
Vancouver, Canada
March 29, 2011
BIOCUREX, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. dollars)
December 31, December 31,
ASSETS 2010 2009
$ $
(Restated -
Note 16)
Current Assets
Cash 1,770,194 126,605
Prepaid expenses 4,623 8,380
----------- ---------
Total Current Assets 1,774,817 134,985
Debt issue costs (Notes 4 (b) and 6 (b)) 48,851 143,927
Deferred financing costs - 689,862
Patents (Note 3) 498,500 471,464
----------- ---------
Total Assets 2,322,168 1,440,238
----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable 90,022 555,460
Derivative liability (Note 12) 145,159 1,019,503
Accrued liabilities 359,322 462,159
Loans payable (Note 4 (a) and (c)) 32,550 280,189
Due to related parties (Note 5) 434,718 594,107
Convertible note payable to a
related party (Note 6 (a)) 33,885 33,885
----------- ---------
1,095,656 2,945,303
Loans payable (Note 4 (b)) 81,301 62,707
Convertible debt (Note 6 (b)) 437,735 1,198,999
----------- ---------
1,614,692 4,207,009
Commitments and Contingencies (Notes 1 and 13)
Stockholders' Equity (Deficit)
Common stock
Authorized: 450,000,000 shares, par value $0.001
Issued and outstanding: 168,188,974 (December
31, 2009 - 73,062,205) 168,189 73,061
Additional paid-in capital 24,474,411 17,845,563
Accumulated deficit (114,175) (114,175)
Deficit accumulated during the development
stage (23,820,949) (20,571,220)
----------- ---------
Stockholders' Equity (Deficit) 707,476 (2,766,771)
----------- ---------
Total Liabilities and Stockholders'
Equity (Deficit) 2,322,168 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)
Accumulated
During the
Development Stage
Year Ended January 1, 2001
December 31, to December 31,
2010 2009 2010
$ $ $
(Restated - (Restated -
note 16) note 16)
------------ ------------ ------------
Revenue - - 1,464,456
------------ ------------ ------------
Operating Expenses
Amortization of patents 103,162 50,524 327,702
General and administrative (Notes 5(a)
and 8) 2,249,000 881,767 8,346,476
Impairment of patents - - 67,620
Professional and consulting fees 450,092 352,063 5,599,609
Research and development (Note 5(a)) 534,363 504,996 4,779,196
------------ ------------ ------------
Total Operating Expenses 3,336,617 1,789,350 19,120,603
------------ ------------ ------------
Loss From Operations (3,336,617) (1,789,350) (17,656,147)
------------ ------------ ------------
Other Income (Expense)
Accretion of discounts on debt (613,841) (372,978) (3,927,975)
Amortization of debt issue costs (95,076) (369,581) (786,307)
Gain (loss) on derivative 816,194 (635,250) 101,276
Gain (loss) on extinguishments of
convertible debt - 498,003 (374,909)
Gain (loss) sale of equity investment
securities - (20,935) 147,991
Gain on settlement of accounts payable 44,655 58,282 102,937
Interest expense (65,044) (872,239) (1,811,494)
Interest income - - 383,679
------------ ------------ ------------
Total Other Expense 86,888 (1,714,698) (6,164,802)
------------ ------------ ------------
Net Loss (3,249,729) (3,504,048) (23,820,949)
Other Comprehensive Income
Unrealized gain on investment securities - 15,529 -
------------ ------------ ------------
Total Comprehensive Loss (3,249,729) (3,488,519) (23,820,949)
------------ ------------ ------------
Net Loss Per Share - Basic and Diluted (0.02) (0.06)
------------ ------------
Weighted Average Shares Outstanding 159,605,039 56,579,000
------------ ------------
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)
Accumulated
During the
Development Stage
Year Ended January 1, 2001
December 31, to December 31,
2010 2009 2010
$ $ $
(Restated - (Restated -
note 16) note 16)
------------ ------------ ------------
Operating Activities:
Net loss (3,249,729) (3,504,048) (23,820,949)
Adjustments to reconcile net loss to net cash
used in operating activities:
Accretion of discounts on debt 613,841 372,978 3,927,975
Allowance for uncollectible notes
receivable - - 98,129
Amortization of patents 103,162 50,524 327,702
Amortization of debt issue costs 95,076 369,581 786,307
Gain on extinguishments of debt - (498,003) 374,909
Gain on write off accounts payable (44,655) (58,282)
Loss (gain) on sale of investment
securities - 20,935 (253,065)
Loss from impairment of patents - - 67,620
Change in fair value of derivative
liability (816,194) 635,250 (101,276)
Stock-based compensation 1,680,221 1,176,076 7,742,759
Changes in operating assets and liabilities:
Notes and interest receivable - (8,380) (6,296)
Prepaid expenses and other 3,757 100,000 31,072
Accounts payable and accrued liabilities (454,567) 725,518 1,715,416
(Decrease) in related party (159,389) - (51,412)
Deferred revenue - - (162,000)
Subscriptions receivable - - (100,682)
------------ ------------ ------------
Net Cash Used in Operating Activities (2,228,477) (617,851) (9,526,728)
--------------------------------------------
Investing Activities:
Net proceeds from notes receivable - - 1,171
Patent costs (130,198) (75,042) (689,353)
Proceeds from sale of investment
securities - 12,608 451,123
------------ ------------ ------------
Net Cash Used in Investing Activities (130,198) (62,434) (237,059)
------------ ------------ ------------
Financing Activities:
Due to related parties - 150,861 552,281
Proceeds from loans payable 32,549 575,000 607,549
Repayment on loans payable (450,000) - (450,000)
Proceeds from convertible debt - - 3,639,743
Repayment on convertible debt (1,186,700) (36,251) (2,400,951)
Deferred financing costs (94,851) (142,136) (769,487)
Debt issue costs - (89,444) (89,444)
Proceeds from shares issued of common
stock 6,461,400 315,000 9,962,872
Proceeds from the exercise of stock
options and warrants 1,392 2,070 1,147,916
Share issuance costs (761,526) (13,835) (909,049)
------------ ------------ ------------
Net Cash Provided by Financing Activities 4,002,264 761,265 11,291,430
------------ ------------ ------------
Net Increase in Cash 1,643,589 80,980 1,527,643
Cash - Beginning of Period 126,605 45,625 242,551
------------ ------------ ------------
Cash - End of Period 1,770,194 126,605 1,770,194
------------ ------------ ------------
Non-cash Investing and Financing Activities:
Shares issued to settle accounts payable 127,200 164,334 1,109,881
Units issued as share issuance costs 939,771 - 939,771
Note payable converted into common shares - 560,945 1,594,021
------------ ------------ ------------
Supplemental Disclosures:
Interest paid 63,700 76,222 705,287
Income taxes - - -
------------ ------------ ------------
The accompanying notes are an integral part of these consolidated financial
statements
F-3
BIOCUREX, INC.
(formerly, WHISPERING OAKS INTERNATIONAL, INC.)
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM JANUARY 1, 2001 (INCEPTION OF DEVELOPMENT STAGE) TO
DECEMBER 31, 2009
(Expressed in U.S. dollars)
Deficit
Accumu-
lated
Other during
Compre- the Stock-
Common Stock Additional Common Stock Sub- Deferred hensive Accumu- Develop- holders'
Paid-in Stock scriptions Compen- Income lated ment Equity
Shares Amount Capital Subscribed Receivable sation (Loss) Deficit Stage (Deficit)
------ ------ ---------- ---------- ---------- --------- ------- ------- -------- ---------
# $ $ $ $ $ $ $ $ $
Balance at
January 1, 2001 8,225,022 8,225 46,775 - - - - (114,175) - (59,175)
Capital contributed
relating to the
forgiveness of
advances payable
(February 2001) - - 59,175 - - - - - - 59,175
Issuance of common
stock at $2.00 per
share for patents
and intellectual
properties
(February 2001) 1,950,000 1,950 (1,950) - - - - - - -
Issuance of common
stock at $1.51 per
share in settlement
of convertible
notes payable
(May 2001) 1,544,404 1,545 464,616 - - - - - - 466,161
Issuance of common
stock for cash:
October 2001 - $1.25
per share 52,000 52 65,000 - - - - - - 65,052
December 2001 - $0.97
per share 32,260 32 31,406 - - - - - - 31,438
Issuance of common
stock at $2.00 per
share for services
rendered (December
2001) 11,000 11 21,989 - - - - - - 22,000
Issuance of warrants - - 175,000 - - - - - - 175,000
Cumulative foreign
currency translation
adjustment - - - - - - 28,213 - - 28,213
Net loss for the year - - - - - - - - (1,089,464) (1,089,464)
----------- --------- ---------- --------- ---------- --------- -------- ---------- ----------- -----------
Balance at December
31, 2001 11,814,686 11,815 862,011 - - - 28,213 (114,175) (1,089,464) (301,600)
Issuance of common
stock at $0.75 per
share (January 2002) 105,313 105 78,880 - - - - - - 78,985
Issuance of common
stock at $0.10 per
share to settle
convertible notes
payable
(December 2002) 1,100,000 1,100 108,900 - - - - - - 110,000
Issuance of common
stock for services
rendered
April 2002 - $0.64
per share 77,149 77 49,062 - - - - - - 49,139
July 2002 - $1.25
per share 7,400 8 9,207 - - - - - - 9,215
Issuance of common
stock for consulting
services at $0.05
per share (November
2002) 2,300,000 2,300 112,700 - - (115,000) - - - -
Issuance of common
stock to settle
accounts payable at
$0.08 per share
(December 2002) 929,244 929 74,181 - - - - - - 75,110
Fair value of stock
options granted - - 21,042 - - - - - - 21,042
Fair value of
warrants issued - - 207,188 - - - - - - 207,188
Reclassification
of warrants and
options to liability - - (529,785) - - - - - - (529,785)
Reclassification of
warrant liability to
equity - - 71,675 - - - - - - 71,675
Beneficial conversion
feature of convertible
debt - - 99,800 - - - - - - 99,800
Cumulative foreign
currency translation
adjustment - - - - - - (28,213) - - (28,213)
Net loss for the year - - - - - - - - (646,771) (646,771)
----------- --------- ---------- --------- ---------- --------- -------- ---------- ----------- -----------
Balance - December
31, 2002 16,333,792 16,334 1,164,861 - - (115,000) - (114,175)(1,736,23(784,215)
----------- --------- ---------- --------- ---------- --------- -------- ---------- ----------- -----------
F-4
Deficit
Accumu-
lated
Other during
Compre- the Stock-
Common Stock Additional Common Stock Sub- Deferred hensive Accumu- Develop- holders'
Paid-in Stock scriptions Compen- Income lated ment Equity
Shares Amount Capital Subscribed Receivable sation (Loss) Deficit Stage (Deficit)
------ ------ ---------- ---------- ---------- --------- ------- ------- -------- ---------
# $ $ $ $ $ $ $ $ $
Balance - December
31, 2002 16,333,792 16,334 1,164,861 - - (115,000) - (114,175) (1,736,235) (784,215)
Issuance of common
stock for cash:
January 2003 -
$0.07 per share 900,543 900 62,137 - - - - - - 63,037
November 2003 -
$0.21 per share 288,095 288 60,195 - - - - - - 60,483
Issuance of common
stock pursuant to
exercise of stock
options:
March 2003 - $0.07
per share 1,560,000 1,560 107,640 - - - - - - 109,200
May 2003 - $0.16
per share 1,000,000 1,000 159,000 - - - - - - 160,000
June 2003 - $0.17
per share 305,822 306 51,594 - - - - - - 51,900
November 2003 -
$0.001 per share 450,000 450 - - - - - - - 450
March 2003 - $0.07
per share 135,000 135 9,315 - - - - - - 9,450
June 2003 - $0.17
per share 294,118 294 49,706 - - - - - - 50,000
October 2003 -
$0.18 per share 277,777 278 49,722 - - - - - - 50,000
November 2003 -
$0.24 per share 104,167 104 24,896 - - - - - - 25,000
Issuance of common
stock for services:
March 2003 - $0.40
per share 156,250 156 62,344 - - - - - - 62,500
October 2003 -
$0.16 per share 1,000,000 1,000 159,000 - - (160,000) - - - -
Fair value of stock
options granted - - 841,349 - - - - - - 841,349
Amortization of
deferred compensation - - - - - 141,667 - - - 141,667
Fair value of
warrants issued - - 274,601 - - - - - - 274,601
Fair value of
beneficial conversion
feature related to
convertible notes - - 255,142 - - - - - - 255,142
Fair value of warrants
issued for loan provided - - 99,778 - - - - - - 99,778
Reacquisition value of
beneficial conversion
feature - - (33,584) - - - - - - (33,584)
Unrealized gain on
investment securities - - - - - - 48,000 - - 48,000
Net loss for the year - - - - - - - - (2,618,955) (2,618,955)
----------- --------- ---------- --------- ---------- --------- -------- ---------- ----------- -----------
Balance - December
31, 2003 24,983,564 24,983 3,741,470 - - (133,333) 48,000 (114,175) (4,355,190) (788,245)
Issuance of common
stock for cash:
January 2004 -
$0.19 per share 100,000 100 18,900 - - - - - - 19,000
March 2004 -
$0.15 per share 633,334 633 94,367 - - - - - - 95,000
March 2004 -
$0.19 per share 315,790 316 59,684 - - - - - - 60,000
July 2004 -
$0.50 per share 500,000 500 249,500 - - - - - - 250,000
F-5
Deficit
Accumu-
lated
Other during
Compre- the Stock-
Common Stock Additional Common Stock Sub- Deferred hensive Accumu- Develop- holders'
Paid-in Stock scriptions Compen- Income lated ment Equity
Shares Amount Capital Subscribed Receivable sation (Loss) Deficit Stage (Deficit)
------ ------ ---------- ---------- ---------- --------- ------- ------- -------- ---------
# $ $ $ $ $ $ $ $ $
July 2004 - $0.60
per share 33,333 33 19,967 - - - - - - 20,000
Dec 2004 - $0.47
per share 320,600 321 150,361 - (150,682) - - - - -
Issuance of common
stock for services:
February 2004 -
$0.22 per share 142,928 143 31,301 - - - - - - 31,444
March 2004 -
$0.23 per share 25,000 25 5,725 - - - - - - 5,750
July 2004 - $0.91
per share 200,000 200 181,800 - - - - - - 182,000
October 2004 -
$0.72 per share 60,000 60 43,140 - - - - - - 43,200
December 2004 -
$0.63 per share 79,616 80 50,078 - - - - - - 50,158
Issuance of common
stock pursuant to the
exercise of stock
options for cash:
March 2004 - $0.14
per share 40,000 40 5,560 - - - - - - 5,600
March 2004 - $0.22
per share 200,000 200 43,800 - - - - - - 44,000
April 2004 - $0.14
per share 65,000 65 9,035 - - - - - - 9,100
April 2004 - $0.001
per share 150,000 150 - - - - - - - 150
July 2004 - $0.14
per share 125,000 125 17,375 - - - - - - 17,500
July 2004 - $0.07
per share 25,000 25 1,725 - - - - - - 1,725
July 2004 - $0.001
per share 200,000 200 - - - - - - 200
September 2004 -
$0.07 per share 20,000 20 1,380 - - - - - - 1,400
October 2004 -
$0.73 per share 128,000 128 93,312 - - - - - - 93,440
Fair value of stock
options granted - - 419,204 - - - - - - 419,204
Issuance of common
stock pursuant to
the exercise of
warrants for cash:
June 2004 - $0.07
per share 628,571 629 43,371 - - - - - - 44,000
June 2004 - $0.19
per share 105,263 105 19,895 - - - - - - 20,000
July 2004 - $0.05
per share 30,000 30 1,470 - - - - - - 1,500
July 2004 - $0.30
per share 153,945 154 46,030 - - - - - - 46,184
August 2004 - $0.21
per share 338,095 338 70,662 - - - - - - 71,000
September 2004 -
$0.07 per share 271,972 272 18,766 - - - - - - 19,038
September 2004 -
$0.001 per share 200,000 200 - - - - - - - 200
Issuance of common
stock pursuant to the
exercise of warrants
for cash:
December 2004 -
$0.08 per share 145,683 146 11,509 - - - - - - 11,655
F-6
Deficit
Accumu-
lated
Other during
Compre- the Stock-
Common Stock Additional Common Stock Sub- Deferred hensive Accumu- Develop- holders'
Paid-in Stock scriptions Compen- Income lated ment Equity
Shares Amount Capital Subscribed Receivable sation (Loss) Deficit Stage (Deficit)
------ ------ ---------- ---------- ---------- --------- ------- ------- -------- ---------
# $ $ $ $ $ $ $ $ $
December 2004 -
$0.05 per share 337,313 337 16,528 - - - - - - 16,865
December 2004 -
$0.30 per share 206,300 206 61,684 - - - - - - 61,890
Amortization of
deferred
compensation - - - - - 106,499 - - - 106,499
Unrealized gain
on investment
securities - - - - - - 174,000 - - 174,000
Net loss for the year - - - - - - - - (1,406,455) (1,406,455)
----------- --------- ---------- --------- ---------- --------- -------- ---------- ----------- -----------
Balance - December
31, 2004 30,764,307 30,764 5,527,599 - (150,682) (26,834) 222,000 (114,175) (5,761,645) (272,973)
Issuance of common
stock for services:
February 2005 -
$0.71 per share 15,492 15 10,985 - - - - - - 11,000
March 2005 - $0.90
per share 30,000 30 26,970 - - - - - - 27,000
May 2005 - $1.26
per share 15,000 15 18,885 - - - - - - 18,900
July 2005 - $1.00
per share 70,000 70 72,930 - - - - - - 73,000
December 2005 -
$0.89 per share 25,000 25 22,225 - - - - - - 22,250
Issuance of common
stock for cash:
May 2005 - $1.00
per share 25,000 25 24,975 - - - - - - 25,000
June 2005 - $1.00
per share 135,000 135 134,865 - - - - - - 135,000
June 2005 - $1.10
per share 4,545 5 4,995 - - - - - - 5,000
Issuance of common
stock pursuant to the
exercise of stock options
for notes receivable:
February 2005 -
$0.60 per share 209,000 209 125,191 - - - - - - 125,400
April 2005 - $0.60
per share 5,000 5 7,495 - - - - - - 7,500
Fair value of stock
options granted - - 384,500 - - - - - - 384,500
Issuance of common
stock pursuant to the
exercise of stock
options for cash:
March 2005 - $0.001
per share 1,750,000 1,750 - - - - - - - 1,750
March 2005 - $0.07
per share 25,000 25 1,725 - - - - - - 1,750
December 2005 -
$0.001 per share
(cancellation) (1,750,000) (1,750) - - - - - - - (1,750)
Issuance of common
stock pursuant to the
exercise of warrants
for cash:
January 2005 -
$0.30 per share 26,305 26 7,865 - - - - - - 7,891
January 2005 -
$0.38 per share 65,789 66 24,934 - - - - - - 25,000
F-7
Deficit
Accumu-
lated
Other during
Compre- the Stock-
Common Stock Additional Common Stock Sub- Deferred hensive Accumu- Develop- holders'
Paid-in Stock scriptions Compen- Income lated ment Equity
Shares Amount Capital Subscribed Receivable sation (Loss) Deficit Stage (Deficit)
------ ------ ---------- ---------- ---------- --------- ------- ------- -------- ---------
# $ $ $ $ $ $ $ $ $
March 2005 - $0.21
per share 50,000 50 10,450 - - - - - - 10,500
March 2005 - $0.001
per share 450,000 450 - - - - - - - 450
June 2005 - $0.21
per share 682,714 683 142,687 - - - - - - 143,370
Issuance of common
stock pursuant to the
exercise of warrants
for cash:
June 2005 - $0.10
per share 600,000 600 59,400 - - - - - - 60,000
August 2005 - $0.75
per share 77,266 77 57,873 - - - - - - 57,950
December 2005 -
$0.001 per share
(cancellation) (450,000) (450) - - - - - - - (450)
Issuance of common
stock pursuant to the
cashless exercise of
warrants:
February 2005
(139,474 warrants) 70,643 71 (71) - - - - - - -
March 2005 (272,903
warrants) 213,576 213 (213) - - - - - - -
Issuance of common
stock pursuant to the
conversion of notes
payable (February
2005) 955,800 956 142,414 - - - - - - 143,370
February 2005, fair
value of warrants
issued on conversion
of note payable - - 67,829 - - - - - - 67,829
December 2005, fair
value of warrants
issued for services - - 222,587 - - - - - - 222,587
Proceeds from stock
subscriptions receivable - - - - 150,682 - - - - 150,682
Proceeds from common
shares subscribed
pursuant to warrants
exercised - - - 85,962 - - - - - 85,962
Amortization of
deferred compensation - - - - - 26,834 - - - 26,834
Unrealized loss on investment
securities - - - - - - (18,000) - - (18,000)
Net loss for the year - - - - - - - - (1,755,930) (1,755,930)
----------- --------- ---------- --------- ---------- --------- -------- ---------- ----------- -----------
Balance - December
31, 2005 34,065,437 34,065 7,099,095 85,962 - - 204,000 (114,175) (7,517,575) (208,628)
Issuance of common
stock for services:
June 2006 - $1.50
per share 25,000 25 37,475 - - - - - - 37,500
July 2006 - $0.72
per share 37,500 38 26,962 - - - - - - 27,000
July 2006 - $0.77
per share 37,500 38 28,837 - - - - - - 28,875
September 2006 -
$0.80 per share 100,000 100 79,900 - - - - - - 80,000
October 2006 -
$0.75 per share 225,000 225 168,525 - - - - - - 168,750
F-8
Deficit
Accumu-
lated
Other during
Compre- the Stock-
Common Stock Additional Common Stock Sub- Deferred hensive Accumu- Develop- holders'
Paid-in Stock scriptions Compen- Income lated ment Equity
Shares Amount Capital Subscribed Receivable sation (Loss) Deficit Stage (Deficit)
------ ------ ---------- ---------- ---------- --------- ------- ------- -------- ---------
# $ $ $ $ $ $ $ $ $
November 2006 -
$0.86 per share 50,000 50 42,950 - - - - - - 43,000
Issuance of common
stock for debt
settlement:
January 2006 -
$0.78 per share 200,000 200 155,800 - - - - - - 156,000
January 2006 -
$0.83 per share 6,250 6 5,181 - - - - - - 5,187
February 2006 -
$0.73 per share 6,850 6 4,994 - - - - - - 5,000
June 2006 -
$0.95 per share 90,000 90 85,410 - - - - - - 85,500
September 2006 -
$0.55 per share 15,000 15 8,235 - - - - - - 8,250
September 2006 -
$0.80 per share 200,000 200 159,800 - - - - - - 160,000
October 2006 -
$0.72 per share 90,000 90 64,710 - - - - - - 64,800
Issuance of common
stock for cash:
April 2006 - $0.50
per share 150,000 150 74,850 - - - - - - 75,000
July 2006 - $0.50
per share 150,000 150 74,850 - - - - - - 75,000
July 2006 - $0.70
per share 110,000 110 76,890 - - - - - - 77,000
September 2006 -
$0.50 per share 460,000 460 229,540 - - - - - - 230,000
October 2006 -
$0.50 per share 1,995,000 1,995 995,505 - - - - - - 997,500
Share issuance costs - - (122,500) - - - - - - (122,500)
Issuance of common
stock pursuant to
the exercise of
stock options
(December 2006) 25,000 25 - - - - - - - 25
Fair value of stock
options granted - - 375,457 - - - - - - 375,457
Fair value of stock
options modified - - 68,067 - - - - - - 68,067
Issuance of common
stock pursuant to
the exercise of
warrants for cash:
January 2006 -
$0.10 per share 500,000 500 49,500 (50,000) - - - - - -
January 2006 -
$0.05 per share 719,244 719 35,243 (35,962) - - - - - -
Issuance of common
stock pursuant to
the conversion of
notes payable
(September 2006) 1,167,834 1,168 137,377 - - - - - - 138,545
September 2006, fair
value of warrants
issued on conversion
of note payable - - 65,160 - - - - - - 65,160
Unrealized loss on
investment securities - - - - - - (131,128) - - (131,128)
Net loss for the year - - - - - - - - (2,081,293) (2,081,293)
----------- --------- ---------- --------- ---------- --------- -------- ---------- ----------- -----------
Balance, December
31, 2006 40,425,615 40,425 10,027,813 - - - 72,872 (114,175) (9,598,868) 428,067
----------- --------- ---------- --------- ---------- --------- -------- ---------- ----------- -----------
F-9
Deficit
Accumu-
lated
Other during
Compre- the Stock-
Common Stock Additional Common Stock Sub- Deferred hensive Accumu- Develop- holders'
Paid-in Stock scriptions Compen- Income lated ment Equity
Shares Amount Capital Subscribed Receivable sation (Loss) Deficit Stage (Deficit)
------ ------ ---------- ---------- ---------- --------- ------- ------- -------- ---------
# $ $ $ $ $ $ $ $ $
Balance,
December 31, 2006 40,425,615 40,425 10,027,813 - - - 72,872 (114,175) (9,598,868) 428,067
Issuance of common
stock for services:
January 2007 -
$0.62 per share 135,000 135 83,565 - - - - - - 83,700
August 2007 -
$0.63 per share 15,873 16 9,984 - - - - - - 10,000
August 2007 -
$0.56 per share 17,857 18 9,982 - - - - - - 10,000
December 2007 -
$0.72 per share 57,142 57 41,085 - - - - - - 41,142
December 2007 -
$0.62 per share 10,488 10 6,492 - - - - - - 6,502
December 2007 -
$0.53 per share 223,000 223 117,967 - - - - - - 118,190
Issuance of common
stock for debt
settlement:
May 2007 -
$0.65 per share 100,000 100 55,900 - - - - - - 56,000
Jul 2007 -
$0.62 per share 100,000 100 61,900 - - - - - - 62,000
Issuance of common
stock for cash:
June 2007 -
$0.45 per share 220,000 220 98,780 - - - - - - 99,000
May 2007 -
$0.43 per share 23,256 23 9,977 - - - - - - 10,000
April 2007 -
$0.45 per share 35,000 35 15,715 - - - - - - 15,750
Share issuance costs - - (11,188) - - - - - - (11,188)
Fair value of stock
options granted - - 412,545 - - - - - - 412,545
Issuance of common
stock pursuant to
the exercise of
warrants for cash:
March 2007 -
$0.15 per share 266,667 267 39,733 - - - - - - 40,000
March 2007 -
$0.17 per share 266,667 267 45,067 - - - - - - 45,334
Fair value of
warrants issued - - 22,106 - - - - - - 22,106
Issuance of common
stock pursuant to
the cashless
exercise of
warrants
(December 2007) 246,710 247 (247) - - - - - - -
Fair value of
warrants issued
with convertible
debt - 1,426,381 - - - - - - - 1,426,381
Intrinsic value
of beneficial
conversion feature
on convertible debt - - 1,426,381 - - - - - - 1,426,381
Unrealized loss on
investment securities - - - - - - (115,061) - - (115,061)
Net loss for the year - - - - - - - - (3,354,319) (3,354,319)
----------- -------- ---------- ---------- ---------- --------- ------- ---------- ----------- -----------
Balance,
December 31, 2007 42,143,275 42,143 13,899,938 - - - (42,189) (114,175)(12,953,187) 832,530
=========== ======== =========== ========== ========== ========= ======== ========= =========== ===========
F-10
Deficit
Accumu-
lated
Other during
Compre- the Stock-
Common Stock Additional Common Stock Sub- Deferred hensive Accumu- Develop- holders'
Paid-in Stock scriptions Compen- Income lated ment Equity
Shares Amount Capital Subscribed Receivable sation (Loss) Deficit Stage (Deficit)
------ ------ ---------- ---------- ---------- --------- ------- ------- -------- ---------
# $ $ $ $ $ $ $ $ $
Balance,
December 31, 2007 42,143,275 42,143 13,899,938 - - - (42,189) (114,175)(12,953,187) 832,530
Issuance of common
stock for services:
December 2008 -
$0.17 per share 36,000 36 6,084 - - - - - - 6,120
December 2008 -
$0.15 per share 469,914 470 70,017 - - - - - - 70,487
Issuance of common
stock for debt
settlement:
January 2008 -
$0.53 per share 100,000 100 52,900 - - - - - - 53,000
April 2008 -
$0.70 per share 125,000 125 87,375 - - - - - - 87,500
Issuance of common
stock for cash:
March 2008 -
$0.60 per share 200,000 200 119,800 - - - - - - 120,000
June 2008 -
$0.43 per share 230,000 230 98,670 - - - - - - 98,900
Exercise of stock
options at $0.001
per share 33,333 33 - - - - - - - 33
Fair value of
stock options
granted - - 372,848 - - - - - - 372,848
July 2008, fair
value of warrants
issued for services - - 27,150 - - - - - - 27,150
Exercise of warrants
at $0.19 per share 84,210 84 15,916 - - - - - - 16,000
Fair value of
warrants/options
modified - - 252,799 - - - - - - 252,799
Notes payable
converted into
common shares at
$0.60 per share 291,667 292 174,708 - - - - - - 175,000
Common stock
subscribed - $0.15
per share - - - 40,050 - - - - - 40,050
Unrealized loss
on investment
securities - - - - - - 26,660 - - 26,660
Net loss for the year - - - - - - - - (4,113,985) (4,113,985)
----------- -------- ---------- ---------- ---------- --------- ------- ---------- ----------- -----------
Balance,
December 31, 2008 43,713,399 43,713 15,178,205 40,050 - - (15,529) (114,175)(17,067,172) (1,934,908)
=========== ======== =========== ========== ========== ========= ======== ========= =========== ===========
F-11
Deficit
Accumu-
lated
Other during
Compre- the Stock-
Common Stock Additional Common Stock Sub- Deferred hensive Accumu- Develop- holders'
Paid-in Stock scriptions Compen- Income lated ment Equity
Shares Amount Capital Subscribed Receivable sation (Loss) Deficit Stage (Deficit)
------ ------ ---------- ---------- ---------- --------- ------- ------- -------- ---------
# $ $ $ $ $ $ $ $ $
Issuance of common
stock for Services:
Jan 2009 - $0.16
per share 56,000 56 8,904 - - - - - - 8,960
Feb 2009 - $0.14
per share 639,142 639 88,841 - - - - - - 89,480
Apr 2009 - $0.08
per share 418,060 418 33,445 - - - - - - 33,863
May 2009 - $0.05 -
$0.08 per share 819,480 819 58,739 - - - - - - 59,558
Jun 2009 - $0.06 -
$0.09 per share 1,116,932 1,117 70,514 - - - - - - 71,631
Jul 2009 - $0.082
per share 379,452 380 30,735 - - - - - - 31,115
Sep 2009 - $0.06 -
$0.082 per share 3,070,820 3,070 211,263 - - - - - - 214,333
Issuance of common
stock for Debt
Settlement:
Jan 2009 - $0.16 -
$0.24 per share 181,250 181 40,819 - - - - - - 41,000
Feb 2009 - $0.08
per share (33,333) (33) (2,633) - - - - - - (2,666)
Apr 2009 - $0.09
per share 250,000 250 22,250 - - - - - - 22,500
May 2009 - $0.08
per share 125,000 125 9,875 - - - - - - 10,000
Jul 2009 - $0.075 -
$0.08 per share 750,000 750 56,750 - - - - - - 57,500
Dec 2009 - $0.12
per share 300,000 300 35,700 - - - - - - 36,000
Issuance of common
stock for Cash:
Jan 2009 - $0.60
per share 267,000 267 39,783 (40,050) - - - - - -
Jan 2009 - $0.13
per share 307,892 308 39,692 - - - - - - 40,000
Apr 2009 - $0.05
per share 2,900,000 2,900 142,100 - - - - - - 145,000
Aug 2009 - $0.05
per share 1,000,000 1,000 49,000 - - - - - - 50,000
Sep 2009 - $0.05
per share 400,000 400 19,600 - - - - - - 20,000
Sep 2009 - $0.05
per share 500,000 500 24,500 - - - - - - 25,000
Sep 2009 - $0.07
per share 500,000 500 34,500 - - - - - 35,000
Finder fees on
financing - - (12,500) - - - - - - (12,500)
Issuance of common
stock pursuant to
the exercise of
stock options:
Fair Value of
options granted - - 324,650 - - - - - - 324,650
Issuance of common
stock pursuant to
the exercise of
stock options and
warrants 2,070,000 2,070 - - - - - - - 2,070
Fair value of
warrants granted - - 71,389 - - - - - - 71,389
Fair value of
warrants modified - - 66,423 - - - - - - 66,423
Issuance of common
stock pursuant to
the conversion of
notes payable
Sep 2009 - $0.014
per share - $0.073
per share 5,116,818 5,117 555,827 - - - - - - 560,944
Issuance of common
stock of Bridge loan 8,214,293 8,214 279,286 - - - - - - 287,500
Share issue cost of
Bridge loan - - (1,335) - - - - - - (1,335)
Comprehensive income -
unrealized gain - - - - - - 15,529 - - 15,529
Net loss of the year ended
December 31, 2009 - - - - - - - - (2,368,072) (2,368,072)
----------- --------- ---------- --------- ---------- --------- -------- ---------- ----------- -----------
Balance, December
31, 2009 73,062,207 3,061 17,476,322 - - - - (114,175)(19,435,244) (2,000,036)
----------- --------- ---------- --------- ---------- --------- -------- ---------- ----------- -----------
F-12
Deficit
Accumu-
lated
Other during
Compre- the Stock-
Common Stock Additional Common Stock Sub- Deferred hensive Accumu- Develop- holders'
Paid-in Stock scriptions Compen- Income lated ment Equity
Shares Amount Capital Subscribed Receivable sation (Loss) Deficit Stage (Deficit)
------ ------ ---------- ---------- ---------- --------- ------- ------- -------- ---------
# $ $ $ $ $ $ $ $ $
Balance, December
31, 2009,
restated 73,062,207 3,061 17,845,563 - - - - (114,175) (20,571,220) (2,766,771)
------------------------------------------------------------------------------------------------------------------------------------
Issuance of common
stock for services:
Feb 2010 - $0.07
per share 200,000 200 13,800 - - - - - - 14,000
Nov 2010 - $0.05
per share 800,000 800 43,200 - - - - - - 44,000
Issuance of common
stock for debt
settlement:
Feb 2010 - $0.07
per share 1,157,143 1,157 79,843 - - - - - - 81,000
Jun 2010 - $0.06
per share 420,000 420 24,780 - - - - - - 25,200
Sep 2010 - $0.06
per share 350,000 350 20,650 - - - - - - 21,000
Issuance of common
stock for cash:
Jan 2010 - $0.0714
per share 90,459,600 90,460 6,370,940 - - - - - - 6,461,400
Finder fees &
Shares issue costs
on financing - - (1,546,238) - - - - - - (1,546,238)
Issuance of common
stock pursuant to
the exercise of
stock options:
Feb 2010 - $0.001
per share 920,000 920 - - - - - - - 920
Apr 2010 - $0.001
per share 284,000 284 - - - - - - - 284
Sep 2010 - $0.001
per share 188,300 189 - - - - - - - 189
Fair value of options
granted - - 1,598,845 - - - - - - 1,598,845
Issuance of common
stock pursuant to
the exercise of
warrants for cash:
Warrants exercised
with cashless 347,727 348 (348) - - - - - - -
feature
Fair value of
warrants modified - - 23,376 - - - - - - 23,376
Net loss for the
year ended
December 31, 2010 - - - - - - - - (3,249,729) (3,249,729)
------------------------------------------------------------------------------------------------------------------
Balance, December
31, 2010 168,188,916 168,189 24,474,411 - - - - (114,175) (23,820,949) 707,476
------------------------------------------------------------------------------------------------------------------
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
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 products
based on patented and proprietary technology in the area of cancer
diagnostics. The Company is 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. On December 8, 2009, the
Company incorporated OncoPet Diagnostics Inc., a wholly-owned subsidiary
under the laws of the State of Colorado.
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 for the next
twelve months. Management plans to obtain additional funds through the sale
of its securities. However there is no assurance of additional funding
being available. As at December 31, 2010, the Company has has accumulated
losses of $23,820,949 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 and related notes 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
subsidiaries, Biocurex China, and OncoPet Diagnostics Inc. 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 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 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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.
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 collectibility is reasonably assured. The Company's revenue
since the inception of the development stage consisted of license fees
related to the licensing of its RECAF(TM) technology.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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 consist principally of cash, accounts
payable, derivative liability, loans payable, convertible notes payable,
convertible debt and amounts due to related parties. These financial
instruments 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.
Comprehensive Income
ASC 220, Comprehensive Income establishes standards for the reporting and
display of comprehensive income and its components in the financial
statements. During the year ended December 31, 2009, the Company's only
component of other comprehensive income was unrealized holding gains on
available-for-sale investment securities.
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 December 31, 2010,
the Company had approximately 158,843,504 of potentially dilutive
securities, including options, warrants and equity instruments related to
convertible notes payable and convertible debt, all of which were
anti-dilutive since the Company incurred losses during these periods.
Patents
Patents are stated 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.
Reclassifications
Certain reclassifications have been made to the prior period's financial
statements to conform to the current period's presentation.
Recent Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards Update (ASU) No.
2010-06, Improving Disclosures about Fair Value Measurements, which amends
the ASC Topic 820, Fair Value Measures and Disclosures. ASU No. 2010-06
amends the ASC to require disclosure of transfers into and out of Level 1
and Level 2 fair value measurements, and also requires more detailed
disclosure about the activity within Level 3 fair value measurements. The
new disclosures and clarifications of existing disclosures are effective
for interim and annual reporting periods beginning after December 15, 2009,
except for the disclosures concerning purchases, sales, issuances, and
settlements in the roll forward of activity in Level 3 fair value
measurements. Those disclosures are effective for fiscal years beginning
after December 15, 2010, and for interim periods within those fiscal years.
This guidance requires expanded disclosures only, and is not expected to
have a material impact on the Company's financial statements.
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.
3. PATENTS
Patents relate to developing the method for diagnostic and treatment of
cancer using a new cancer marker called "RECAF." The Company has filed
patent applications in 23 countries with ongoing applications currently
being prepared. As of December 31, 2010, the Company had received patent
approval from five countries and the European patent office. Additions made
after December 31, 2010 will have a remaining life of approximately four
years. The Company intends to apply for extensions in the near future.
A schedule of the patents is as follows:
December 31, December 31,
2010 2009
$ $
Patents 817,451 696,003
Less:
Accumulated amortization (318,951) (224,539)
---------------------------------------------------------------------------
Net Carrying Value 498,500 471,646
---------------------------------------------------------------------------
Amortization expense totaled $103,162 and $50,524 for the year ended
December 31, 2010 and 2009, respectively.
The estimated future amortization expense is as follows:
$
2011 103,162
2012 103,162
2013 103,162
2014 103,162
Thereafter 85,852
--------------
498,500
--------------
4. LOANS PAYABLE
a) On September 10, 2009, the Company completed a private placement
financing in which it sold 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 were payable on August 31, 2010. 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 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. For the year ended December 31, 2010, the Company recorded
$169,811 (2009 - $55,190) of accretion expense related to these promissory
notes.
b) On September 21, 2009, the Company completed a private placement in
which it sold 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 year ended of December 31, 2010, the Company paid interest in
the amount of $12,466 (2009 - $ 3,493) and recorded $15,130 (2009 - $207)
as the accretion expense related to these promissory notes. As at December
31, 2010, the carrying value of these notes was $81,301(2009 - $62,707).
The Company incurred $118,612 in debt issue costs for the promissory notes
described above. The debt issue costs are being expensed over the term of
the promissory notes.
During the year ended December 31, 2010, the Company expensed $73,853 (2009
- $32,722) of the debt issue costs related to promissory note, and at
December 31, 2010, the balance of debt issue costs was $6,347 (December 31,
2009 - $80,021).
c) During the year ended December 31, 2010, the Company received a net
advance of 207,325 RMB (US$32,530) from BioCurex China's Agent.
The advance is non interest bearing, unsecured and due on demand.
5. RELATED PARTY TRANSACTIONS AND BALANCES
December 31, December 31,
2009 2009
$ $
Due to Pacific BioSciences Research Centre Inc. &
Company's President (a) 417,734 526,827
Due to Company's Chairman (b) 12,054 62,350
Due to a former officers (c) 4,930 4,930
-----------------------------------------------------------------------------
434,718 594,107
-----------------------------------------------------------------------------
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 year ended December 31, 2010 and 2009,
Pacific performed research and development for the Company valued at
$479,778 and $514,225, respectively.
Pacific also provided administrative services during the year ended
December 31, 2010 and 2009, valued at $198,230 and $216,522, respectively.
During the year ended December 31, 2010, and 2009, Pacific charged interest
of $8,904 and $10,669, respectively, calculated at the bank prime rate on
the monthly balance owed. As at December 31, 2010 and 2009, the amount due
to Pacific of $405,688 and $479,129, respectively, is unsecured and due on
demand.
On September 15, 2009, the Company has an agreement with the Company's
President to provide management services for a fee of $250,000 per annum.
During year ended December 31, 2010, the Company incurred $250,000 (2009 -
$44,049) for the management services of which $12,054 remains unpaid as of
December 31, 2010 (2009 - $36,049).
b) On September 15, 2009, the Company has 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 year ended December 31, 2010, the
Company incurred $140,333 (2009 - $29,167) for management services. As at
December 31, 2010, the Company is indebted to the Company's Chairman for
$12,054 of December management fees and miscellaneous expense (2009 -
$33,183).
c) The balance represents $4,930 owing to a former officer which is
unsecured, non-interest bearing and due on demand.
6. CONVERTIBLE NOTES AND DEBT
a) The Company received funds during 2003 relating to ten convertible notes
payable 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.
6. CONVERTIBLE NOTES AND 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.
As of December 31, 2010, one $33,885 (2009 - $33,885) convertible note
remained outstanding which is payable to a related party.
b) Convertible Notes (the "Notes") bear interest at an annual rate of prime
(as adjusted monthly on the first business day of each month) plus 2.75%
per year, payable in arrears on the first day of each month. The Notes are
due and payable on December 31, 2012 and are secured by substantially all
of the Company's assets. At the holders' option, the Notes are convertible
into shares of the Company's common stock at a conversion price of $0.14
per share. The embedded conversion option contains a reset provision that
can cause an adjustment to the conversion price if the Company issues an
equity instrument that does not qualify as an Exempt Issuance at a price
lower than the initial conversion price. An Exempt Issuance is defined as:
i. shares or options issued to employees of Biocurex for services
rendered pursuant to any stock or option plan adopted by the Directors
of Biocurex, not to exceed 500,000 shares or options in any year;
ii. options issued to officers or directors of Biocurex, provided that
the number of options issued during any twelve-month period may not
exceed 500,000;
iii. shares or options issued at fair market value for services
rendered to independent consultants, limited to 500,000 shares or
options in any year;
iv. restricted equity securities sold for cash, provided that no more
than 500,000 restricted equity securities can be sold in any year, the
restricted equity securities cannot be registered for public sale, and
the restricted equity securities, and the exercise price of any
warrants, cannot be less than 75% of the market price of Biocurex's
common stock;
v. shares issued to any note holder in payment of principal or
interest;
vi. shares sold to any note holder;
vii. securities issued upon the conversion of the Notes or the
exercise of the Warrants;
viii. securities issued upon the conversion of notes or the exercise
of options or warrants issued and outstanding on June 25, 2007,
provided that the securities have not been amended to increase the
number of such securities or to decrease the exercise, exchange or
conversion price of the securities.
Due to this provision, the embedded conversion option qualifies for
derivative accounting under ASC 815-15 (See Note 16 below). This fair value
of the derivative liability at issuance of $732,588 was discounted from the
note payable.
6. CONVERTIBLE NOTES AND DEBT (continued)
During the year ended December 31, 2010, the Company modified the
conversion price on outstanding convertible debt with a principal amount of
$563,300 from $0.14 to $0.13, in accordance with the contingent adjustment
provisions contained in the modified convertible loan agreement.
The following table summarizes the changes in the Notes during the years
ended December 31, 2010 and 2009:
Carrying
Principal Discount Value
$ $ $
--------------------------------
Balance, December 31, 2008 1,955,000 (129,642)
Penalty of default 231,250 - 231,250
Principal repayments (36,250) - (36,250)
Modification of principal - (608,168) (608,168)
Conversion of debt (400,000) - (400,000)
Accretion of discount on convertible
debt - 186,809 186,809
--------------------------------
Balance, December 31, 2009 1,750,000 (551,001) 1,198,999
Accretion of discount on convertible
debt - 425,436 425,436
Principal repayments (1,186,700) - (1,186,700)
--------------------------------
Balance, December 31, 2010 563,300 (125,565) 437,735
================================
During the year ended December 31, 2010, the Company expensed $21,223 (2009
- $10,640) of the debt issue costs related to these convertible notes. The
balance of debt issue costs at December 31, 2010 is $42,504 (December 31,
2009 - $63,727).
7. COMMON STOCK
For the year ended December 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 19, 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 commission for $581,526 in cash. In
addition, the Company agreed to pay $180,000 to Paulson for a
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
expiring January 19, 2015 (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.
b) In February 2010, the Company issued 800,000 shares of common stock to a
vendor to settle account payable of $56,000.
c) In February 2010, the Company issued 200,000 shares of common stock to a
vendor for $14,000 of services.
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 to a
vendor to settle account payable of $25,000.
g) In April 2010, a total of 284,000 stock options were exercised at $0.001
per share.
h) In June 2010, the Company issued 420,000 shares of common stock to a
vendor to settle $25,200 of accounts payable.
i) In September 2010, a total of 188,300 stock options were exercised at
$0.001 per share.
j) In September 2010, the Company issued 350,000 shares of common stock to
a vendor to settle $21,000 of accounts payable.
k) In November 2010, the Company issued 800,000 shares of common stock to
an investor relations company for their consulting services at a fair value
of $44,000.
7. COMMON STOCK (continued)
For the year ended December 31, 2009: (continued)
a) In January 2009, the Company issued 150,000 shares of common stock at a
fair value of $36,000 to settle debt.
b) In January 2009, the Company issued 267,000 units at $0.15 per unit for
common share subscriptions totaling $40,050 received in December 2008. Each
unit consisted of one share of common stock and one half share purchase
warrant entitling the holder to purchase one share of common stock at an
exercise price of $0.30 per share expiring on November 30, 2010.
c) In January 2009, the Company issued 31,250 shares of common stock at a
fair value of $5,000 to settle debt.
d) In January 2009, the Company issued 56,000 shares of common stock at a
fair value of $8,960 to an employee for services rendered in December 2008
and January 2009.
e) In February 2009, the Company issued 639,142 shares of common stock at a
fair value of $89,480 to eight employees and one consultant for services
provided from February to March 2009.
f) In March 2009, an employee returned 33,333 shares with a fair value of
$2,666, to settle $20,000 amount owing to the Company. The Company recorded
$17,333 of bad debt expense in the fiscal year ended December 31, 2008.
g) In April 2009, the Company issued 900,000 units at $0.05 per unit for
common share for proceeds of $45,000. Each unit consisted of one share of
common stock and one purchase warrant entitling the holder to purchase one
share of common stock at an exercise price of $0.11 per share expiring on
April 5, 2011.
h) In April 2009, the Company issued 125,000 shares of common stock at a
fair value of $10,000 to settle debt.
i) In April 2009, the Company issued 2,070,000 shares of common stock to a
former director for the exercise of 1,620,000 options and 450,000 warrants
at $0.001 per share. A total of $2,070 was reduced from the outstanding
balance of amounts owing to related parties. See note 7(b).
j) In April 2009, the Company issued 418,060 shares of common stock at a
fair value of $33,863 to eight employees and one consultant for services
provided in April 2009.
k) In April 2009, the Company issued 307,892 units at $0.13 per unit for
common share subscriptions totaling $40,000 received in January 2009. Each
unit consisted of one share of common stock and one purchase warrant
entitling the holder to purchase one share of common stock at an exercise
price of $0.17 per share expiring on January 2, 2011.
l) In April 2009, the Company issued 250,000 shares of common stock at a
fair value of $22,500 to settle debt.
m) In May 2009, the Company issued 200,000 shares of common stock to an
investor relations company for consulting services at a fair value of
$10,000.
n) In May 2009, the Company issued 350,750 shares of common stock at a fair
value of $28,060 to six employees for services provided in May 2009.
o) In May 2009, the Company issued 2,000,000 shares of common stock at
$0.05 per share for proceeds of $100,000. Each unit consisted of one share
of common stock and purchase warrant entitling the holder to purchase one
share of common stock at an exercise price of $0.11 per share expiring on
April 1, 2012. The Company paid a commission of $10,000 in connection with
this private placement.
7. COMMON STOCK (continued)
For the year ended December 31, 2009: (continued)
p) In May 2009, the Company issued 268,730 shares of common stock at a fair
value of $21,498 to five employees as bonus.
q) In June 2009, the Company issued 300,000 shares of common stock to an
investor relations company for their consulting services at a fair value of
$26,700.
r) In June 2009, the Company issued 816,932 shares of common stock at a
fair value of $44,931 to five employees for services provided in June 2009.
s) In July 2009, the Company issued 125,000 shares of common stock at a
fair value of $10,000 to settle debt.
t) In July 2009, the Company issued 500,000 shares of common stock at a
fair value of $37,500 to settle debt.
u) In August 2009, the Company issued 379,452 shares of common stock at a
fair value of $31,115 to five employees for services provided in August
2009.
v) In August 2009, the Company issued 125,000 shares of common stock at a
fair value of $10,000 for settle debt.
w) In August 2009, the Company issued 1,000,000 units at $0.05 per unit for
common shares subscriptions totaling $50,000 received in June 2009. Each
unit consisted of one share of common stock and purchase warrant entitling
the holder to purchase one share of common stock at an exercise price of
$0.11 per share expiring on June 15, 2011. The Company recorded a
commission of $2,500 that was paid in July 2009 in connection with this
private placement.
x) In September 2009, the Company issued 300,000 shares of common stock to
an investor relations company for consulting services at a fair value of
$24,600.
y) In September 2009, the Company issued 143,000 shares of common stock to
a director for management services at a fair value of $10,000.
z) In September 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.
aa) In September 2009, the Company issued 3,648,947 shares of common stock
to a director for the exercise of 3,648,947 options at $0.001 per share for
gross proceeds of $3,649.
bb) In September 2009, the Company issued 2,000,000 shares of common stock
at a fair value of $70,000 to a legal firm for legal services.
cc) In September 2009, the Company issued 92,500 shares of common stock at
a fair value of $3,332 to settle debt.
dd) In September 2009, the Company issued 535,320 shares of common stock at
a fair value of $36,402 to five employees for services provided in
September 2009.
ee) In September 2009, the Company issued 6,428,578 shares pursuant to the
promissory notes described in Note 6. The aggregate purchase price of
$450,000 for the units was allocated equally between the notes and shares
contained in each unit. The relative fair value assigned to the shares
totaled $225,000.
ff) In September 2009, the Company issued 1,428,572 shares to a convertible
debt holder for the debt conversion of $200,000.
7. COMMON STOCK (continued)
For the year ended December 31, 2009: (continued)
gg) In September 2009, the Company issued 400,000 units at $0.05 per unit
for proceeds of $20,000. Each unit consisted of one share of common stock
and purchase warrant entitling the holder to purchase one share of common
stock at an exercise price of $0.11 per share expiring on August 18, 2011.
hh) In October 2009, the Company issued 500,000 shares of common stock at
$0.05 per share for common share subscriptions totaling $25,000 received in
August 2009. Each unit consisted of one share of common stock and purchase
warrant entitling the holder to purchase one share of common stock at an
exercise price of $0.11 per share expiring on August 17, 2011.
ii) In October 2009, the convertible debt holders elected to convert
$100,000 of the principal amount of those notes into 714,286 shares of
common stock. See Note 8(b).
jj) On November, 2009, the Company issued an aggregate of 1,785,715 shares
of common stock to three investors. These shares were sold in September
2009. See Note 6(b).
kk) In December 2009, the Company issued 500,000 shares of common stock at
$0.07 per share for common share subscriptions totaling $35,000 received in
September 2009. Each unit consisted of one share of common stock and
purchase warrant entitling the holder to purchase one share of common stock
at an exercise price of $0.11 per share expiring on September 3, 2011.
ll) In December 2009, the convertible debt holders elected to convert
$100,000 of the principal amount of those notes into 769,230 shares of
common stock. See Note 8(b).
mm) In December 2009, the Company issued 300,000 shares of common stock at
a fair value of $36,000 for settle debt.
nn) In December 2009, the President of the Company returned 3,648,947
shares of common stock to for his stock options exercised in September 2009
and total of $3,649 was charged back to related party's account.
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 November 30, 2010, the
Company increased the number of shares issuable pursuant to this plan from
10,500,000 shares to 20,000,000 shares with 9,979,132 common shares
available for future issuance as of December 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 November 30, 2010, the Company increased the number of shares issuable
pursuant to this plan from 17,500,000 shares to 22,500,000 shares with
8,870,666 common shares available for future issuance as of December 31,
2010.
8. STOCK-BASED COMPENSATION (continued)
During the year ended December 31, 2010, there were no stock options
granted pursuant to this plan. During the year ended December 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.
Management stock options
During the year ended December 31, 2010, the Company granted 28,500,000
stock options with a grant date value of $1,994,903 to five directors and
one officer at an exercise price of $0.0714 per share. The Stock options
expire on December 31, 2020. These options were revalued at December 31,
2010 to be $1,994,346. 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 July 1, 2010, the Company filed a registration
statement under the Securities Act of 1933 to register the underlying
shares. Accordingly, any shares issuable upon the exercise of these options
will be free trading securities.
The fair value for stock options granted was estimated at the date of grant
and revalued on December 31, 2010 using the Black-Scholes option-pricing
model and the weighted average fair value of stock options granted during
the year ended December 31, 2010 and 2009 was $0.07 and $0.09 per share,
respectively.
The weighted average assumptions used are as follows:
Year Ended December 31
2010 2009
---- ----
Expected dividend yield 0% 0%
Risk-free interest rate 3.28% 1.50%
Expected volatility 239% 123%
Expected option life (in years) 8.93 2.78
A summary of the changes in the Company's stock options is presented below:
Weighted
Weighted Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Number of Price Life Value
Shares $ (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 0.0714
Exercised (1,392,300) 0.001
---------------------------------------------------------------------------
Outstanding, December 31,
2010 33,094,757 0.062 7.98 294,064
---------------------------------------------------------------------------
Exercisable, December 31,
2010 14,094,757 0.048 6.54 310,085
---------------------------------------------------------------------------
As at December 31, 2010, there was $384,251 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 compensation cost of shares vested during the year ended
December 31, 2010 and 2009 were $1,610,095 and $324,650, respectively.
8.STOCK-BASED COMPENSATION (continued)
A summary of the status of the Company's non-vested options as of December
31, 2010, and changes during the year end of December 31, 2010, is
presented below:
Number of Weighted Average
Non-vested Options Exercise Price
----------- ------- --------------
Non-vested at December 31, 2009 1,453,900 0.0010
Granted 28,500,000 0.0714
Vested (10,953,900) 0.0621
--------------------------------------------------------------------------
Non-vested at December 31, 2010 19,000,000 0.0714
==========================================================================
9. SHARE PURCHASE WARRANTS
A summary of the changes in the Company's share purchase warrants is
presented below:
Weighted Average
Number of shares 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(1)
Expired (1,945,277) 0.19
-------------------------------------------------------------------------
Balance, December 31, 2010 0.134
-------------------------------------------------------------------------
(1) In February 2010, the Company issued 347,727 shares of common
stock pursuant to the cashless exercise of 1,275,000 warrants by a
prior director of the Company. This exercise is in accordance with the
cashless exercise provision of the stock purchase warrant. (see note
7(e) and note 8)
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 warrant agreement. In accordance with ASC 718,
modifications to the terms of an award (i.e. a warrant) 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. During the year ended
December 31, 2010, the Company recognized an incremental compensation cost
of $23,376 for these modified share purchase warrants.
9. SHARE PURCHASE WARRANTS (continued)
As at December 31, 2010, the following share purchase warrants were
outstanding:
Warrants Exercise Price Expiration Date
-------- -------------- ---------------
233,092 $0.06 7-Jul-2011
252,278 $0.05 31-Dec 2011(1)
307,692 $0.17 2-Feb-2011
343,833 $0.20 7-Jul-2011
400,000 $0.11 18-Aug-2011
500,000 $0.11 17-Aug-2011
500,000 $0.11 3-Sep-2011
590,909 $0.12 19-Jul-2011
900,000 $0.11 5-Apr-2011
1,000,000 $0.11 15-Jun-2011
1,000,000 $0.25 30-Apr-2012
2,000,000 $0.11 1-Apr-2012
2,204,730 $0.08 26-Aug-2014
3,500,000 $0.14 27-Jun-2012
90,459,600 $0.11 19-Jan-2015(2)
-----------
104,192,134
-----------
(1) The warrants can be exercised by paying in cash or on a cashless
basis. (see note 7).
(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
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. As at December 31, 2010, the 120,000 unit purchase
warrants were outstanding.
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.
11. FAIR VALUE MEASUREMENTS (continued)
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.
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.
Assets measured at fair value on a recurring basis were presented on the
Company's consolidated balance sheet as of December 31, 2010 as follows:
Fair Value Measurements Using
Quoted
Prices in
Active Significant
Markets For Other Significant
Identical Observable Unobservable Balance as of
Instruments Inputs Inputs December 31,
(Level 1) (Level 2) (Level 3) 2010
-------------------------------------------------
Assets:
Cash equivalents $ 1,770,194 $ - $ - $ 1,770,194
-----------------------------------------------------------------------------
Total assets measured at $ 1,770,194 $ - $ - $ 1,770,194
fair value
-----------------------------------------------------------------------------
Liabilities:
Derivative liabilities $ - $ 145,159 $ - $ 145,159
-----------------------------------------------------------------------------
Total liabilities
measured at fair value $ - $ 145,159 $ - $ 145,159
-----------------------------------------------------------------------------
12. DERIVATIVE LIABILITIES
The embedded conversion option in the Company's note described in Note 6(b)
contains a reset provision that can cause an adjustment to the conversion
price if the Company issues certain equity instruments at a price lower
than the initial conversion price. The fair value of these liabilities will
be re-measured at the end of every reporting period and the change in fair
value will be reported in our consolidated statement of operations as a
gain or loss on derivative financial instruments.
The following table summarizes the change in derivative liabilities for the
year ended December 31, 2010 and 2009:
$
Derivative Liabilities at December 31, 2008 -
Addition of new derivative liabilities 753,494
Conversion of derivative liabilities (369,241)
Change in fair value of derivative liabilities 635,250
---------------------------------------------------------------------------
Derivative Liabilities at December 31, 2009 1,019,503
Settlement of derivative liabilities (58,150)
Change in fair value of derivative liabilities (816,194)
---------------------------------------------------------------------------
Derivative Liabilities at December 31, 2010 145,159
---------------------------------------------------------------------------
The Company used the Black-Scholes option pricing model to value the
embedded conversion feature using the following assumptions: number of
options as set forth in the convertible note agreements; no expected
dividend yield; expected volatility ranging from 182% - 228%; risk-free
interest rates ranging from 0.42% - 1.98% and expected terms based on the
contractual term.
13. 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
December 31, 2010, the Company had 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
December 31, 2010, the Company had issued 37,500 common shares and 37,500
common shares are still owed to the consultant.
c) During the year ended December 31, 2010, BioCurex China
entered into a lease agreement with a third party with a term from February
15, 2009 to February 1, 2012 in consideration of $78,200 RMB (approximately
$11,885 USD) at December 31, 2010 to paid annually.
14. INCOME TAXES
The Company has adopted the provisions of ASC 740, "Accounting for Income
Taxes". Pursuant to ASC 740 the Company is required to compute tax asset
benefits for net operating losses carried forward. The potential benefit of
net operating losses have not been recognized in the consolidated financial
statements because the Company cannot be assured that it is more likely
than not that it will utilize the net operating losses carried forward in
future years.
The Company has incurred operating losses of approximately $14,435,298
which, if unutilized, will expire through to 2030. Future tax benefits,
which may arise as a result of these losses, have not been recognized in
these consolidated financial statements, and have been offset by a
valuation allowance. The following table lists the fiscal year in which the
loss was incurred and the expiration date of the loss.
Year Net Expiration
Incurred Loss Date
-------- ---- ----
2000 $ 24,052 2020
2001 793,976 2021
2002 231,928 2022
2003 1,120,379 2023
2004 1,400,412 2024
2005 1,645,391 2025
2006 1,888,080 2026
2007 2,327,750 2027
2008 1,050,348 2028
2009 2,221,456 2029
2010 1,731,526 2030
-----------
$14,435,298
-----------
The Company is subject to United States federal and state income
taxes at an approximate rate of 35%. The reconciliation of the provision
for income taxes at the United States federal statutory rate
compared to the Company's income tax expense as reported is as follows:
Year Ended Year Ended
December 31, December 31,
2010 2009
$ $
Income tax recovery at statutory rate 1,137,405 1,226,417
Accretion of discount on debt (214,844) (130,542)
Derivative gain/loss 285,668 (222,338)
Loss on convertible debt modification - 174,301
Stock based compensation (567,778) (144,400)
Financing costs (33,277) (129,353)
Other 15,630 6,400
Expiry of losses (31,483) -
Valuation allowance change (591,321) (780,485)
--------------------------------------------------------------------------
Provision for income taxes - -
--------------------------------------------------------------------------
14. INCOME TAXES (continued)
The significant components of deferred income tax assets and liabilities as
at December 31, 2010 and 2009 are as follows:
December 31, December 31,
2010 2009
$ $
------------------------------
Net operating loss carryforward 5,052,354 4,477,802
Intangible assets 52,012 35,243
Valuation allowance (5,104,366) (4,513,045)
---------------------------------------------------------------------------
Net deferred income tax asset - -
---------------------------------------------------------------------------
15. SUBSEQUENT EVENTS
a) In January 2011, the Company issued 500,000 shares of common stock to a
vendor to settle accounts payable of $35,000.
b) In January 2011, the Company entered into a consulting agreement for
investor relation consulting services ending May 31, 2011. The Company
agreed to issue 500,000 restricted common shares on the agreement date and
issue up to 4,500,000 restricted shares which will be held in custody by
the Company subject to certain performance conditions. The Company has the
option to issue cash rather than shares based on a formula specified in the
agreement.
16. RESTATEMENT
The Company has restated the December 31, 2009 financial statements due to
an error in the accounting for the conversion feature embedded in the
convertible note described in Note 6(b). The Company entered into a loan
modification agreement, dated as of August 31, 2009, with the debt holders.
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 extinguished and exchanged for new convertible notes. The
fair value of the July 1, 2009 Notes was recorded at July 1, 2009. In
accordance with ASC 470-20, the Company determined there was no intrinsic
value to the conversion feature and thus no beneficial conversion feature
and the Company recorded a discount equal to the difference of the face
value of the new note and the present value of the revised cash flows.
After further review, the Company has determined that the conversion
feature should have been classified as derivative liability. The Company
has recorded the fair value of the derivative liability on the date of
issuance and the change in fair value of the derivative liability for each
subsequent balance sheet date.
16. RESTATEMENT (continued)
The following tables reflect the adjustment and restated amounts:
December 31, 2009
As Previously December 31, 2009
Reported Adjustment As Restated
$ $ $
----------------- ---------- ----------------
Consolidated Balance Sheets
Current Liabilities
Derivative liabilities 39,966 732,588 (a)
616,190 (b)
(369,241) (d) 1,019,503
Long Term Liabilities
Convertible debt 1,411,801 48,251 (c)
(261,053) (e) 1,198,999
Stockholders' Equity
Additional Paid-in Capital 17,476,322 369,241 (d) 17,845,563
Retained Earnings (19,435,244) (1,135,976) (20,571,220)
Period from
January 1, 2001 Period from
(Date of January 1, 2001
Inception) to (Date of
December 31, Inception) to
2009 December 31,
As Previously 2009
Reported Adjustment As Restated
$ $ $
Consolidated Statements of
Operations and Other
Comprehensive Loss
Accretion of discounts on
debt (3,265,883) (48,251) (c) (3,314,134)
Loss on derivative 616,190)
financial instruments (98,728) (471,535) (b) (714,918)
Gain (loss) on
extinguishments of
convertible debt 96,626 (471,535) (e) (374,909)
Net Loss (19,435,244) (616,190) (b)
(48,251) (c)
(471,535) (e) (20,571,220)
Total Comprehensive Loss (19,435,244) (616,190) (b)
(48,251) (c)
(471,535) (e) (20,571,220)
16. RESTATEMENT (continued)
Year Ended
December 31,
2009 Year Ended
As Previously December 31, 2009
Reported Adjustment As Restated
$ $ $
Consolidated Statements of
Operations and Other
Comprehensive Loss
Accretion of discounts on
debt (324,727) (48,251) (c) (372,978)
Loss on derivative 616,190)
financial instruments (19,060) (471,535) (b) (635,250)
Gain (loss) on
extinguishments of
convertible debt 969,538 (471,535) (e) 498,003
Net Loss (2,368,072) (616,190) (b)
(48,251) (c)
(471,535) (e) (3,504,048)
Total Comprehensive Loss (2,352,543) (616,190) (b)
(48,251) (c)
(471,535) (e) (3,488,519)
(a) To record fair value of derivative liabilities upon issuance of
convertible notes.
(b) To record change in fair value of the derivative liabilities.
(c) To adjust the discount and accretion on the convertible note.
(d) To record conversion of derivative liability upon conversion of debt.
(e) To revise accounting for modification of convertible debt for
derivative included in modified convertible debt.
Biocurex Inc.
March 31, 2011
Interim Financial Statements
(Unaudited)
BIOCUREX, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. dollars)
March 31, December 31,
ASSETS 2011 2010
$ $
(unaudited)
Current Assets
Cash 1,351,987 1,770,194
Prepaid expenses and other - 4,623
------------------------------
Total Current Assets 1,351,987 1,774,817
Debt issue costs (Note 4 (a) and 6 (b)) 42,867 48,851
Patents (Note 3) 490,688 498,500
------------------------------
Total Assets 1,885,542 2,322,168
------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable 121,805 90,022
Derivative liability (Note 12) 89,443 145,159
Accrued liabilities 374,283 359,322
Loans payable (Note 4 (b)) 31,681 32,550
Due to related parties (Note 5) 446,893 434,718
Convertible notes payable (Note 6 (a)) 33,885 33,885
------------------------------
1,097,990 1,095,656
Loans payable (Note 4 (a)) 85,537 81,301
Convertible debt (Note 6 (b)) 451,543 437,735
------------------------------
1,635,070 1,614,692
Commitments and Contingencies (Notes 1 and 13)
Subsequent Events (Note 14)
Stockholders' Equity
Common stock
Authorized: 450,000,000 shares, par
value $0.001
Issued and outstanding: 169,188,974
(December 31, 2010 - 168,188,974) 169,189 168,189
Additional paid-in capital 24,546,469 24,474,411
Commitment to purchase shares 2,288 -
Accumulated deficit (114,175) (114,175)
Deficit accumulated during the development
stage (24,353,299) (23,820,949)
------------------------------
Stockholders' Equity 250,472 707,476
------------------------------
Total Liabilities and Stockholders' Equity 1,885,542 2,322,168
------------------------------
The accompanying notes are an integral part of these consolidated
financial statements
F-2
BIOCUREX, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. dollars)
(Unaudited)
Accumulated
During the
Development Stage
Three months Ended January 1, 2001
March 31, to March 31,
2011 2010 2011
$ $ $
Revenue - - 1,464,456
-----------------------------------------------
Operating Expenses
Amortization of patents (Note 3) 26,512 10,691 354,214
General and administrative (Note
5(a) & 8) 172,908 944,505 8,519,386
Impairment of patents - - 67,620
Professional and consulting fees 159,668 101,569 5,759,277
Research and development (Note 5(a)) 190,210 116,253 4,969,404
-----------------------------------------------
Total Operating Expenses 549,298 1,173,018
-----------------------------------------------
Loss From Operations (549,298) (1,173,018) (18,205,445)
-----------------------------------------------
Other Income (Expense)
Accretion of discounts on debt (18,044) (414,172) (3,946,019)
Amortization of debt issue costs (5,984) (76,793) (792,291)
Gain (loss) on derivative 54,996 (13,496) 156,272
Gain on sale of equity investment
securities - - 147,991
Gain on settlement of accounts
payable - 44,655 102,937
Loss on extinguishments of
convertible debt - - (374,909)
Interest expense (14,020) (21,958) (1,825,514)
Interest income - - 383,679
-----------------------------------------------
Total Other Income (Expense) 16,948 (481,764) (6,147,854)
-----------------------------------------------
Net Loss and Comprehensive loss for the
Period (532,350) (1,654,782) (24,353,299)
-----------------------------------------------
Net Loss Per Share - Basic and Diluted (0.00) (0.01)
--------------------------
Weighted Average Shares Outstanding 168,645,000 136,775,000
--------------------------
The accompanying notes are an integral part of these consolidated financial
statements
F-3
BIOCUREX, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. dollars)
(Unaudited)
Accumulated
During
The Development
Three months Ended Stage
March 31, January 1, 2001
to March 31,
2011 2010 2011
------------------------------------------
$ $ $
Operating Activities:
Net loss for the period (532,350) (1,654,782) (24,353,299)
Adjustments to reconcile net loss to net cash
used in operating activities:
Accretion of discounts on debt 18,044 414,172 3,946,019
Allowance for uncollectible notes
receivable - - 98,129
Amortization of patents 26,512 10,691 354,214
Amortization of debt issue costs - 76,793 786,307
Debt issue costs 5,984 - (83,460)
Gain (loss) on derivative liability (54,996) 13,496 (156,272)
Gain on extinguishments of debt - - 374,909
Gain on write off accounts payable - (44,655) (102,937)
Gain on sale of investment securities - - (253,065)
Loss from impairment of patents - - 67,620
Stock-based compensation 73,058 802,901 7,815,817
Unrealized foreign exchange gain (869) - (869)
Changes in operating assets and liabilities:
Notes and interest receivable - - (6,296)
Prepaid expenses and other 4,623 (20,936) 35,695
Accounts payable & accrued liabilities 46,024 (409,677) 1,761,440
Increase (Decrease) in related party 12,175 (149,522) (39,237)
Deferred revenue - - (162,000)
Subscriptions receivable - - (100,682)
------------------------------------------
Net Cash Used in Operating Activities (401,795) (961,519) (10,017,967)
------------------------------------------
Investing Activities:
Net proceeds from notes receivable - - 1,171
Patent costs (18,700) (15,889) (708,053)
Proceeds from sale of investment
securities - - 451,123
------------------------------------------
Net Cash Used in Investing Activities (18,700) (15,889) (255,759)
------------------------------------------
Financing Activities:
Due to related parties - - 552,281
Proceeds from loans payable - - 607,549
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) (769,487)
Proceeds from shares issued of common
stock - 6,461,400 9,962,872
Proceeds from the exercise of stock
options and warrants 2,288 1,204 1,150,204
Share issuance costs - (761,526) (909,049)
------------------------------------------
Net Cash Provided by Financing Activities 2,288 3,969,528 11,383,162
------------------------------------------
Net (Decrease) Increase in Cash (418,207) 2,992,120 1,109,436
Cash - Beginning of period 1,770,194 126,605 242,551
------------------------------------------
Cash - End of period 1,351,987 3,118,725 1,351,987
------------------------------------------
Non-cash Investing and Financing Activities:
Share issued to settle debt and services 70,000 81,000 1,179,881
Units issued as share issuance costs - 939,771 939,771
Note payable converted into common shares - - 1,594,021
------------------------------------------
Supplemental Disclosures:
Interest paid 13,602 21,880 718,889
Income taxes - - -
------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
(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 StateplaceTexas. 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 products
based on patented and proprietary technology in the area of cancer
diagnostics. The Company is 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 country-regionChina Co., Ltd. ("Biocurex
country-regionChina"), a wholly-owned subsidiary in country-regionplaceChina.
On December 8, 2009, the Company incorporated OncoPet Diagnostics Inc., a
wholly-owned subsidiary under the laws of the State of StateplaceColorado.
The consolidated financial statements are prepared in conformity with
accounting principles generally accepted in the country-regionplaceUnited
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 for
the next twelve months. Management plans to obtain additional funds through
the sale of its securities. However there is no assurance of additional
funding being available. As at March 31, 2011, the Company has accumulated
losses of $24,353,299 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 and related notes are presented in
accordance with accounting principles generally accepted in the
country-regionplaceUnited States, and are expressed in U.S. dollars. These
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries, BioCurex country-regionplaceChina and OncoPet
Diagnostics Inc. The Company's fiscal year-end is December 31.
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 and 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, 2010, included
in the Company's Annual Report on Form 10-K/A filed on April 1, 2011 with the
SEC.
In the opinion of the Company's management, these consolidated financial
statements reflect all adjustments necessary to present fairly the Company's
consolidated financial position at March 31, 2011, and the consolidated
results of operations and the consolidated statements of cash flows for the
three months ended March 31, 2011 and 2010. The results of operations for the
three months ended March 31, 2011 are not necessarily indicative of the
results to be expected for the entire fiscal year.
F-4
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the country-regionplaceUnited 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 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 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.
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.
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.
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
country-regionplaceUnited States dollar. Monetary assets and liabilities
denominated in foreign currencies are translated to country-regionplaceUnited
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 collectibility is reasonably assured. The Company's revenue
since the inception of the development stage consisted of license fees
related to the licensing of its RECAF(TM) technology.
F-5
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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.
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.
F-6
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, 2011, the Company had
approximately 156,247,655 of potentially dilutive securities, including
options, warrants and equity instruments related to convertible notes payable
and convertible debt, all of which were anti-dilutive since the Company
incurred losses during these periods.
Comprehensive Loss
ASC 220, Comprehensive Income, establishes standards for the reporting and
display of comprehensive loss and its components in the financial statements.
During the three months ended March 31, 2011 and 2010, the Company has no
items that represent other comprehensive loss and, therefore, has not
included a schedule of other comprehensive loss in the financial statements.
Patents
Patents are stated 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.
Reclassifications
Certain reclassifications have been made to the prior period's financial
statements to conform to the current period's presentation.
Recent Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards Update (ASU) No.
2010-06, Improving Disclosures about Fair Value Measurements, which amends
the ASC Topic 820, Fair Value Measures and Disclosures. ASU No. 2010-06
amends the ASC to require disclosure of transfers into and out of Level 1 and
Level 2 fair value measurements, and also requires more detailed disclosure
about the activity within Level 3 fair value measurements. The new
disclosures and clarifications of existing disclosures were effective for
interim and annual reporting periods beginning after December 15, 2009,
except for the disclosures concerning purchases, sales, issuances, and
settlements in the roll forward of activity in Level 3 fair value
measurements. Those disclosures were effective for fiscal years beginning
after December 15, 2010, and for interim periods within those fiscal years.
This guidance requires expanded disclosures only, and did not have a material
impact on the Company's financial statements.
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.
F-7
3. PATENTS
Patents relate to developing the method for diagnostic and treatment of
cancer using a new cancer marker called "RECAF." The Company has filed patent
applications in 23 countries with ongoing applications currently being
prepared. As of March 31, 2011, the Company had received patent approval from
five countries and the European patent office. Additions made after March 31,
2011 will have a remaining life of approximately four years. The Company
intends to apply for extensions in the near future.
A schedule of the patents is as follows:
March 31, December 31,
2011 2010
$ $
Patents 836,151 817,451
Less:
Accumulated amortization (345,463) (318,951)
----------------------------------------------------------------------------
Net Carrying Value 490,688 498,500
----------------------------------------------------------------------------
Amortization expense totaled $26,512 and $10,691 for the three months ended
March 31, 2011 and 2010, respectively.
The estimated future amortization expense is as follows:
$
2011 79,536
2012 106,047
2013 106,047
2014 106,047
Thereafter 93,011
--------------
490,688
--------------
F-8
4. LOANS PAYABLE
a) On September 21, 2009, the Company completed a private placement in which
it sold 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, 2011, the Company paid interest
in the amount of $3,082 (2010 - $ 3,082) and recorded $4,236 (2010 -
$6,912) as the accretion expense related to these promissory notes. As at
March 31, 2011, the carrying value of these notes was $85,537 (December
2010 - $81,301).
The Company incurred $9,391 in debt issue costs for the promissory notes
described above. The debt issue costs are being expensed over the term of
the promissory notes.
During three months ended March 31, 2011, the Company expensed $751 (2010
- $751) of the debt issue costs related to promissory notes, and at March
31, 2011, the balance of debt issue costs was $5,596 (December 2010 -
$6,347).
b) During the year ended December 31, 2010, the Company received a net
advance of 207,325 RMB (March 31, 2011- US$31,681; December 31, 2010 -
US$32,550) from BioCurex placecountry-regionChina's Agent. The advance is
non interest bearing, unsecured and due on demand. The balance remains
unchanged at March 31, 2011
5. RELATED PARTY TRANSACTIONS AND BALANCES
March 31, December 31,
2011 2010
$ $
Due to Pacific BioSciences Research Centre Inc.
and Company's President (a) 429,909 417,734
Due to Company's Chairman (b) 12,054 12,054
Due to a former officer (c) 4,930 4,930
-----------------------------------------------------------------------------
446,893 434,718
-----------------------------------------------------------------------------
F-9
5. RELATED PARTY TRANSACTIONS AND BALANCES (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, 2011 and 2010, Pacific
performed research and development for the Company valued at $165,949 and
$96,332, respectively.
Pacific also provided administrative services during the three months
ended March 31, 2011 and 2010, valued at $49,720 and $53,457,
respectively. During the three months ended March 31, 2011, and 2010,
Pacific charged interest of $2,031 and $2,345, respectively, calculated at
the bank prime rate on the monthly balance owed. As at March 31, 2011 and
December 31, 2010, the amount due to Pacific was $422,337 and $405,688,
respectively, and is unsecured and due on demand.
On September 15, 2009, the Company entered into 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, 2011, the Company incurred
$62,500 (2010 - $62,500) for the management services of which $7,572
remains unpaid as of March 31, 2011 (December 31, 2010 - $12,046).
b) On September 15, 2009, the Company entered into 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, 2011, the Company incurred $36,000 (2010 - $32,333) for management
services. As at March 31, 2011, the Company is indebted to the Company's
Chairman for $12,054 of March management fees and miscellaneous expense
(December 31, 2010- $12,054).
c) The balance represents $4,930 owing to a former officer which is
unsecured, non-interest bearing and due on demand.
6. CONVERTIBLE NOTES AND DEBT
a) The Company received funds during 2003 relating to ten convertible notes
payable 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.
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.
As of March 31, 2011, one $33,885 (2010 - $33,885) convertible note
remained outstanding which is payable to a related party.
F-10
6. CONVERTIBLE NOTES AND DEBT (continued)
b) In August 2009, the Company sold Convertible Notes (the "Notes") in the
principal amount of $2,150,000. The Notes bear interest at an annual rate
of prime (as adjusted monthly on the first business day of each month)
plus 2.75% per year, payable in arrears on the first day of each month.
The Notes are due and payable on December 31, 2012 and are secured by
substantially all of the Company's assets. At the holders' option, the
Notes are convertible into shares of the Company's common stock at a
conversion price of $0.14 per share. The embedded conversion option
contains a reset provision that can cause an adjustment to the conversion
price if the Company issues an equity instrument that does not qualify as
an Exempt Issuance at a price lower than the initial conversion price. An
Exempt Issuance is defined as:
i. shares or options issued to employees of Biocurex for services
rendered pursuant to any stock or option plan adopted by the
Directors of Biocurex, not to exceed 500,000 shares or options in
any year;
ii. options issued to officers or directors of Biocurex, provided
that the number of options issued during any twelve-month period
may not exceed 500,000;
iii. shares or options issued at fair market value for services
rendered to independent consultants, limited to 500,000 shares or
options in any year;
iv. restricted equity securities sold for cash, provided that no more
than 500,000 restricted equity securities can be sold in any
year, the restricted equity securities cannot be registered for
public sale, and the restricted equity securities, and the
exercise price of any warrants, cannot be less than 75% of the
market price of Biocurex's common stock;
v. shares issued to any note holder in payment of principal or
interest;
vi. shares sold to any note holder;
vii. securities issued upon the conversion of the Notes or the
exercise of the Warrants;
viii. securities issued upon the conversion of notes or the exercise
of options or warrants issued and outstanding on June 25, 2007,
provided that the securities have not been amended to increase
the number of such securities or to decrease the exercise,
exchange or conversion price of the securities.
Due to this provision, the embedded conversion option qualifies for
derivative accounting under ASC 815-15 (See Note 12)
F-11
6. CONVERTIBLE NOTES AND DEBT (continued)
The following table summarizes the changes in the Notes during the three
months ended March 31, 2011:
Carrying
Principal Discount Value
$ $ $
--------------------------------
Balance, December 31, 2010 563,300 (125,565) 437,735
Accretion of discount on convertible
debt - 13,808 13,808
--------------------------------
Balance, March 31, 2011 563,300 (111,757) 451,543
--------------------------------
During the three months ended March 31, 2011, the Company expensed
$5,233 (2010 - $5,233) of the debt issue costs related to these
convertible notes. The balance of debt issue costs at March 31, 2011 is
$37,271 (December 31, 2010 - $42,504).
7. COMMON STOCK
For the three months ended March 31, 2011:
a) In January 2011, the Company issued 500,000 shares of common stock to
a vendor to settle accounts payable of $35,000.
b) In January 2011, the Company entered into a consulting agreement for
investor relation consulting services ending May 31, 2011. The Company
issued 500,000 restricted common shares with a fair value of $35,000.
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 November 30, 2010, the
Company increased the number of shares issuable pursuant to this plan from
10,500,000 shares to 20,000,000 shares with 9,479,132 common shares available
for future issuance as of March 31, 2011.
F-12
8. STOCK-BASED COMPENSATION (continued)
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 November 30, 2010, the Company increased the number of shares issuable
pursuant to this plan from 17,500,000 shares to 22,500,000 shares with
8,870,666 common shares available for future issuance as of March 31, 2011.
Management stock options
During the year ended December 31, 2010, the Company granted 28,500,000 stock
options with a grant date value of $1,613,263 to five directors and one
officer at an exercise price of $0.0714 per share. The stock options expire
on December 31, 2020. These options were revalued at March 31, 2011 to be
$1,804,427. 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 July 1, 2010,
the Company filed a registration statement under the Securities Act of 1933
to register the underlying shares. Accordingly, any shares issuable upon the
exercise of these options will be free trading securities.
The fair value for stock options granted was estimated at the date of grant
and revalued on March 31, 2011 using the Black-Scholes option-pricing model
and the weighted average fair value of stock options granted during the three
months ended March 31, 2011 and 2010 was $0.06 and $0.07 per share,
respectively.
The weighted average assumptions used are as follows:
Three Months Ended March 31,
----------------------------
2011 2010
---- ----
Expected dividend yield 0% 0%
Risk-free interest rate 3.42% 3.7%
Expected volatility 243% 255%
Expected option life (in years) 8.93 10
F-13
8. STOCK-BASED COMPENSATION (continued)
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, 2010 33,094,757 0.062 7.98 294,064
Exercised (2,288,157) 0.001
-----------------------------------------------------------------------------
Outstanding, March 31, 2011 30,806,600 0.066 8.31 113,023
-----------------------------------------------------------------------------
Exercisable, March 31, 2011 21,306,600 0.064 8.09 113,023
-----------------------------------------------------------------------------
As at March 31, 2011, there was $191,165 of unrecognized compensation costs
related to non-vested share-based compensation arrangements granted which are
expected to be recognized within a year. The total compensation cost of
shares vested during the three months ended March 31, 2011 and 2010 were
$3,057 and $765,525, respectively, which has been included in general and
administration expense in the statement of operations.
A summary of the status of the Company's non-vested options as of March 31,
2011, and changes during the three months end of March 31, 2011, is presented
below:
Number of Weighted Average
Non-vested Options Exercise Price
----------- ------- --------------
Non-vested at December 31, 2010 19,000,000 0.0714
Vested (9,500,000) 0.0714
---------------------------------------------------------------------------
Non-vested at March 31, 2011 9,500,000 0.0714
===========================================================================
9. SHARE PURCHASE WARRANTS
A summary of the changes in the Company's share purchase warrants is
presented below:
Weighted Average
Number of shares Exercise Price
-------------------------------------------------------------------------
Balance, December 31, 2009 16,952,811 0.14
Issued 90,459,600 0.107
Exercised (1,275,000) 0.08(1)
Expired (1,945,277) 0.19
-------------------------------------------------------------------------
Balance, December 31, 2010 104,192,134 0.134
Expired (307,692) 0.17
-------------------------------------------------------------------------
Balance, March 31, 2011 103,884,442 0.13
-------------------------------------------------------------------------
(1) In February 2010, the Company issued 347,727 shares of common stock
pursuant to the cashless exercise of 1,275,000 warrants by a prior
director of the Company. This exercise is in accordance with the
cashless exercise provision of the stock purchase warrant. (see note
7(e) and note 8)
F-14
9. SHARE PURCHASE WARRANTS (continued)
As at March 31, 2011, the following share purchase warrants were
outstanding:
Warrants Exercise Price Expiration Date
-------- -------------- ---------------
233,092 $0.06 7-Jul-2011
252,278 $0.05 31-Dec-2011(1)
343,833 $0.20 7-Jul-2011
400,000 $0.11 18-Aug-2011
500,000 $0.11 17-Aug-2011
500,000 $0.11 3-Sep-2011
590,909 $0.12 19-Jul-2011
900,000 $0.11 5-Apr-2011
1,000,000 $0.11 15-Jun-2011
1,000,000 $0.25 30-Apr-2012
2,000,000 $0.11 1-Apr-2012
2,204,730 $0.08 26-Aug-2014
3,500,000 $0.14 27-Jun-2012
90,459,600 $0.11 19-Jan-2015(2)
----------------------
103,884,442
----------------------
(1) The warrants can be exercised by paying in 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
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 an
Underwriting Agreement . 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. As at March 31, 2011,
the 120,000 unit purchase warrants were outstanding.
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.
F-15
11. FAIR VALUE MEASUREMENTS (continued)
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.
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.
The Company's financial instruments consist principally of cash, accounts
payable, derivative liability, loans payable, convertible notes payable,
convertible debt and amounts due to related parties. The carrying value of
accounts payable and amounts due to related parties approximate fair value
due to their nature and short terms of maturity. The carrying value of loans
payable, convertible notes payable and convertible notes approximate fair
value are based on market rate for similar financial instruments.
Assets and liabilities measured at fair value on a recurring basis were
presented on the Company's consolidated balance sheet as of March 31, 2011 as
follows:
Fair Value Measurements Using
Quoted
Prices in
Active
Markets Significant
For Other Significant
Identical Observable Unobservable
Instruments Inputs Inputs Balance as of
(Level 1) (Level 2) (Level 3) March 31, 2011
-------------------------------------------------------
Assets:
Cash $ 1,351,987 $ - $ - $ 1,351,987
-----------------------------------------------------------------------------------
Total assets measured at
fair value $ 1,351,987 $ - $ - $ 1,351,987
-----------------------------------------------------------------------------------
Liabilities:
Derivative liabilities $ - $ 89,443 $ - $ 89,443
-----------------------------------------------------------------------------------
Total liabilities measured
at fair value $ - $ 89,443 $ - $ 89,443
-----------------------------------------------------------------------------------
F-16
12. DERIVATIVE LIABILITIES
The embedded conversion option in the Company's note described in Note 6(b)
contains a reset provision that can cause an adjustment to the conversion
price if the Company issues certain equity instruments at a price lower than
the initial conversion price. The fair value of these liabilities will be
re-measured at the end of every reporting period and the change in fair
value will be reported in our consolidated statement of operations as a gain
or loss on derivative financial instruments.
The following table summarizes the change in derivative liabilities for the
three months ended March 31, 2011:
$
-----------------------------------------------------------------------------
Derivative Liabilities at December 31, 2010 145,159
Change in fair value of derivative liabilities (55,716)
-----------------------------------------------------------------------------
Derivative Liabilities at March 31, 2011 89,443
-----------------------------------------------------------------------------
The Company used the Black-Scholes option pricing model to value the
embedded conversion feature using the following assumptions: number of
options as set forth in the convertible note agreements; no expected
dividend yield; expected volatility ranging from 152% - 228%; risk-free
interest rates ranging from 0.33% - 1.98% and expected terms based on the
contractual term.
13. 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, 2011, the Company had 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, 2011, the Company had issued 37,500 common shares and
37,500 common shares are still owed to the consultant.
c) BioCurex China has entered into a lease agreement with a third party
with a term from February 15, 2009 to February 1, 2012 in
consideration of 78,200 RMB (approximately $11,885 USD) to be paid
annually.
d) In January 2011, the Company entered into a consulting agreement for
investor relation consulting services ending May 31, 2011. The Company
agreed issue 500,000 restricted common shares on the agreement date
and issue up to 4,500,000 restricted shares which will be held in
custody by the Company subject to certain performance conditions. The
Company has the option to issue cash rather than shares based on a
formula specified in the agreement. In January 2011, the Company
issued 500,000 restricted common shares with fair value of $35,000.
F-17
13. COMMITMENTS AND CONTINGENCIES (continued)
e) On January 3, 2011, the Company entered into a consulting agreement
with CaroLink Science Solutions ("CaroLink") whereby the CaroLink will
provide consulting services to the Company from January 3, 2011 to
December 31, 2011 in consideration of 417,000 common shares of the
Company to be paid through quarterly instalments on March 31, June 30,
September 30 and December 31. No shares were issued by the Company to
CaroLink at March 31, 2011. Subsequent to period end, the Company
issued 150,000 common shares of the Company to CaroLink at a fair
value of $6,000. This amount has been accrued as accounts payable at
March 31, 2011.
14. SUBSEQUENT EVENTS
a) In April 2011, the Company issued 2,288,157 shares of common stock
pursuant to stock options exercised at $0.001 per share for common
shares subscriptions totaling $2,288 received in March 2011.
b) In April 2011, the Company issued 150,000 shares of common stock to a
scientist with a fair value of $7,500 for consulting services.
c) On April 13, 2011, the Company entered into an agreement with First
Barrington Group, Inc.("Barrington"), whereby the Company will
repurchase 800,000 shares of the Company's common stock in
consideration for $30,000. This amount was paid subsequent to period
end.
F-18
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY .......................................................
RISK FACTORS .............................................................
COMPARATIVE SHARE DATA....................................................
MARKET FOR OUR COMMON STOCK ..............................................
MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION ...............
BUSINESS..................................................................
MANAGEMENT ...............................................................
PRINCIPAL SHAREHOLDERS....................................................
SELLING SHAREHOLDERS......................................................
DESCRIPTION OF SECURITIES.................................................
LEGAL PROCEEDINGS.........................................................
INDEMNIFICATION...........................................................
AVAILABLE INFORMATION.....................................................
FINANCIAL STATEMENTS......................................................
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this prospectus, and
if given or made, such information or representations must not be relied upon as
having been authorized by the Company. This prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy, any of the securities
offered in any jurisdiction to any person to whom it is unlawful to make an
offer by means of this prospectus.
PART II
Information Not Required in Prospectus
Item 13. Indemnification of Officers and Directors
The Texas Revised Statutes provides that we may indemnify any and all of
our officers, directors, employees or agents or former officers, directors,
employees or agents, against expenses actually and necessarily incurred by them,
in connection with the defense of any legal proceeding or threatened legal
proceeding, except as to matters in which such persons shall be determined to
not have acted in good faith and in our best interest.
Item 14. Other Expenses of Issuance and Distribution.
The following table shows the costs and expenses we expect to pay in
connection with the issuance and distribution of the securities being
registered.
SEC Filing Fee $ 12
Legal Fees and Expenses 15,000
Accounting Fees and Expenses 5,000
Miscellaneous Expenses 1,988
---------
TOTAL $22,000
=======
All expenses other than the SEC filing fee are estimated.
Item 15. Recent Sales of Unregistered Securities.
The following lists all unregistered shares of common stock that we sold or
issued during the past three years.
In April 2007, we sold 35,000 units at a price of $0.45 per unit. Each unit
consisted of one share of common stock and a warrant entitling the holder to
purchase one share of common stock at a price of $0.66 per share expiring on
April 30, 2009. We paid a commission of $788 in connection with this private
placement.
In May 2007, we sold 23,256 units at a price of $0.43 per unit. Each unit
consisted of one share of common stock and a warrant entitling the holder to
purchase one share of common stock at a price of $0.68 per share expiring on May
31, 2009. We paid a commission of $500 in connection with this private
placement.
In June 2007, we sold 220,000 units at a price of $0.45 per unit. Each unit
consisted of one share of common stock and a warrant entitling the holder to
purchase one share of common stock at a price of $0.66 per share expiring on
April 9, 2009. We paid a commission of $9,900 in connection with this private
placement.
In June 2007, we sold convertible notes in the principal amount of $3,000,000,
as well as warrants to purchase 3,500,000 shares of our common stock, in a
private placement. The total consideration received was $3,000,000.
In June 2007, we sold 533,334 shares of common stock for $85,334.
In December 2007, we issued 246,710 shares of common stock as a result of the
cashless exercise of 250,000 warrants.
In March 2008, we sold 200,000 shares of common stock at $0.60 per share.
In March 2008, we issued 291,667 shares of common stock to two holders of our
amended convertible notes upon the conversion of $175,000 in note principal.
In April 2008, we sold 84,210 shares of common stock pursuant to the exercise of
warrants, realizing proceeds of $16,000.
In June 2008, we sold 230,000 units at a price of $0.43 per unit. Each unit
consisted of one share of common stock and a warrant entitling the holder to
purchase one share of common stock at a price of $0.65 per share expiring on May
1, 2010.
In June 2008, we sold 42,105 shares of common stock pursuant to the exercise
warrants, realizing gross proceeds of $8,000.
In December 2008, we sold 267,000 units at a price of $0.15 per Unit. Each unit
consisted of one share of common stock and a warrant entitling the holder to
purchase one-half share of common stock at a price of $0.30 per share expiring
on November 30, 2010.
In January 2009, we sold 267,000 units at a price of $0.15 per unit. Each unit
consisted of one share of common stock and a warrant entitling the holder to
purchase one-half share of common stock at a price of $0.30 per share expiring
on November 30, 2010.
In April 2009, we sold 900,000 units at a price of $0.05 per unit. Each unit
consisted of one share of common stock and one purchase warrant entitling the
holder to purchase one share of common stock at a price of $0.11 per share
expiring on April 5, 2011.
In April 2009, we sold 307,892 units at a price of $0.13 per unit. Each unit
consisted of one share of common stock and a warrant entitling the holder to
purchase one share of common stock at a price of $0.17 per share expiring on
January 2, 2011.
In May 2009, we sold 2,000,000 units at a price of $0.05 per unit. Each unit
consisted of one share of common stock and one warrant entitling the holder to
purchase one share of common stock at a price of $0.11 per share expiring on
April 1, 2012. We paid a commission of $10,000 in connection with this private
placement.
2
In June 2009, we sold 1,000,000 units at a price of $0.05 per unit. Each unit
consisted of one share of common stock and a warrant entitling the holder to
purchase one share of common stock at a price of $0.11 per share expiring on
June 15, 2011. We paid a commission of $2,500 in connection with this private
placement.
In June 2009, we issued 300,000 shares of common stock to an investor relations
company for consulting services valued at $26,700.
In August 2009, we issued 143,000 shares of common stock to a consultant for
services rendered.
In August 2009 we issued 2,204,730 shares of our common stock to note holders
upon the conversion of notes in the principal amount of $160,945.
In August 2009 we issued convertible notes, in the principal amount of
$2,150,000, in exchange for convertible notes originally issued in June 2007.
In September 2009 we issued 2,000,000 shares of common stock to a legal firm for
legal services rendered. The shares were valued at $140,000.
In September 2009, we issued 1,428,576 shares of common stock to the holders of
our amended convertible notes upon the conversion of $200,000 in note principal.
In September 2009, we sold notes in the principal amount of $575,000, as well as
8,214,292 shares of common stock, to twenty private investors.
In September 2009, we sold 400,000 shares to a private investor for $20,000.
In October 2009, we issued 714,286 shares of common stock to two holders of our
amended convertible notes upon the conversion of $100,000 in note principal.
In December 2009, we issued 769,230 shares of common stock to two holders of our
amended convertible notes upon the conversion of $100,000 in note principal.
We relied upon the exemption provided by Section 4(2) of the Securities Act
of 1933 with respect to the issuance of the shares listed above. The persons who
acquired these shares were sophisticated investors. Each person had access to
the same kind of information that would be available in a registration
statement, including information available on the website maintained by the
Securities and Exchange Commission. The persons who acquired these shares
acquired the shares for their own accounts. The certificates representing the
shares of common stock bear legends stating that the shares may not be offered,
sold or transferred other than pursuant to an effective registration statement
under the Securities Act of 1933, or pursuant to an applicable exemption from
registration. The shares are "restricted" securities as defined in Rule 144 of
the Securities and Exchange Commission.
3
Item 16. Exhibits
The following exhibits are filed with this Registration Statement:
Exhibit
No. Description
------- ------------
1.1 Underwriting Agreement with Paulson Investment Company (1)
3.1 Articles of Incorporation as amended (2)
3.2 Bylaws, as amended (3)
4.4 Warrant Agreement with Paulson Investment Company (4)
10.1 Non-Qualified Stock Option Plan (5)
10.2 Stock Bonus Plan (6)
10.3(a) License Agreement with Abbott Laboratories (7)
10.3(b) Amendment to Semi-Exclusive License Agreement (4)
10.3(c) Second Amendment to Semi-Exclusive License Agreement (7)
10.4 License Agreement with Inverness Medical Switzerland GmbH
(portions of Exhibit 10.4 have been omitted pursuant to a request for
confidential treatment) (4)
10.5 Agreement with Pacific BioScience Research Centre (4)
10.6 Employment Agreement with Dr. Ricardo Moro-Vidal (4)
10.7 Employment Agreement with Denis Burger, Ph.D. (4)
21.1 Subsidiaries (4)
(1) Incorporated by reference to Exhibit 10.1 to our report on Form 8-K
which was filed on January 25, 2010.
(2) The original Articles of Incorporation are incorporated by reference to
Exhibit 3.1 of our registration statement on Form 10-SB, filed with the
SEC on August 5, 1999 and the amendment to the Articles of Incorporation
is incorporated by reference to Exhibit 3.1 to a Current Report on Form
8-K filed on October 30, 2009.
(3) Incorporated by reference to Exhibit 3.2 of our registration statement on
Form 10-SB, filed with the SEC on August 5, 1999 and to Exhibit 3.1 to a
Report on Form 8-K filed with the SEC on September 10, 2009.
(4) Incorporated by reference to the same exhibit filed with our registration
statement on Form S-1 (Commission File No. 333-162345).
(5) Incorporated by reference to Exhibit 4.1 of our registration statement on
Form S-8, filed with the SEC on April 23, 2009.
(6) Incorporated by reference to Exhibit 4.2 of our registration statement on
Form S-8, filed with the SEC on April 23, 2009.
4
(7) The original license agreement is incorporated by reference to Exhibit
10.4 of Amendment No. 2 of our registration statement on Form SB-2, filed
with the SEC on November 2, 2007 and the second amendment to the licensing
agreement is incorporated by reference to Exhibit 10 to a Current Report
on Form 8-K/A filed on August 15, 2008. Portions of Exhibits 10.3(a) and
10.3(c) have been omitted pursuant to a request for confidential
treatment.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section l0 (a)(3) of the
Securities Act:
(ii) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information
in the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities that remain unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of l933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
5
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(4) That, for the purpose of determining liability under the Securities Act
of 1933 to any purchaser:
(i) If the registrant is relying on Rule 430B:
(A) Each prospectus filed by the registrant pursuant to Rule
424(b)(3) shall be deemed to be part of the registration statement as of the
date the filed prospectus was deemed part of and included in the registration
statement; and
(B) Each prospectus required to be filed pursuant to Rule 424(b)(2),
(b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B
relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for
the purpose of providing the information required by section 10(a) of the
Securities Act of 1933 shall be deemed to be part of and included in the
registration statement as of the earlier of the date such form of prospectus is
first used after effectiveness or the date of the first contract of sale of
securities in the offering described in the prospectus. As provided in Rule
430B, for liability purposes of the issuer and any person that is at that date
an underwriter, such date shall be deemed to be a new effective date of the
registration statement relating to the securities in the registration statement
to which that prospectus relates, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof. Provided,
however, that no statement made in a registration statement or prospectus that
is part of the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a time
of contract of sale prior to such effective date, supersede or modify any
statement that was made in the registration statement or prospectus that was
part of the registration statement or made in any such document immediately
prior to such effective date; or
(ii) If the registrant is subject to Rule 430C, each prospectus filed
pursuant to Rule 424(b) as part of a registration statement relating to an
offering, other than registration statements relying on Rule 430B or other than
prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and
included in the registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement or made in a
document incorporated or deemed incorporated by reference into the registration
statement or prospectus that is part of the registration statement will, as to a
purchaser with a time of contract of sale prior to such first use, supersede or
modify any statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such document
immediately prior to such date of first use.
(5) That, for the purpose of determining liability of the registrant under
the Securities Act of 1933 to any purchaser in the initial distribution of the
securities:
The undersigned registrant undertakes that in a primary offering of
securities of the undersigned registrant pursuant to this registration
statement, regardless of the underwriting method used to sell the securities to
the purchaser, if the securities are offered or sold to such purchaser bye means
of any of the following communications, the undersigned registrant will be a
seller to the purchaser and will be considered to offer or sell such securities
to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned
registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by
or on behalf of the undersigned registrant or used or referred to by the
undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the
offering containing material information about the undersigned registrant or its
securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by
the undersigned registrant to the purchaser.
6
SIGNATURES
Pursuant to the requirements of the Securities Act of l933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Richmond, Province of
British Columbia, Canada, on July 6, 2011.
BIOCUREX, INC.
By: /s/ Ricardo Moro
---------------------------------------
Dr. Ricardo Moro, Principal Executive
Officer
Pursuant to the requirements of the Securities Act of l933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Ricardo Moro Principal Executive July 6, 2011
------------------------ Officer and a Director
Dr. Ricardo Moro
/s/ Glays Chan Principal Financial and July 6, 2011
------------------------ Accounting Officer
Gladys Chan
/s/ Antonia Bold-de-Haughton Director July 6, 2011
----------------------------
Antonia Bold-de-Haughton
Director
------------------------
Dr. Phil Gold
/s/ Denis Burger Executive Chairman and July 6, 2011
------------------------ a Director
Denis Burger, Ph.D.
/s/ Jim Walsh Director July 6, 2011
------------------------
Jim Walsh, Ph.D.
7
BIOCUREX, INC.
FORM S-1
EXHIBITS
