Attached files
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 2009
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-26947
BIOCUREX, INC.
---------------------------------
(Name of Small Business Issuer in its charter)
Texas 75-2742601
------------------------ ---------------------------------
(State of incorporation) (IRS Employer Identification No.)
7080 River Road, Suite 215
Richmond, British Columbia V6X 1X5
--------------------------------------- ---------
(Address of Principal Executive Office) Zip Code
Registrant's telephone number, including area code: (866) 884-8669
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. [ ]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. [ ]
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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," "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)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act): [ ] Yes [X] No
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the common stock on June 30,
2009, was approximately $4,198,066.
As of March 31, 2010, the Registrant had 166,146,674 outstanding shares of
common stock.
Documents Incorporated by Reference: None
ITEM 1. DESCRIPTION OF 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 notable cancer markers 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 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.
2
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 March 31, 2010 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; and
o commercialize manual testing formats, principally in large cities in
foreign countries where further regulatory clearance is not required.
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.
3
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.
4
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
due to several factors that limit the capabilities of current cancer markers to
accurately diagnose the disease. These limitations have prevented cancer marker
5
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.
6
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
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
7
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.
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,
8
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. As such, 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.
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
9
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
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
10
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.
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,
India and Mexico where those laboratories can market and run the RECAF tests
without further government regulatory requirements.
11
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.
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.
12
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
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
13
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:
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;
14
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.
We recently 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
15
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 any
laboratory testing of blood samples for governmental 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
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.
16
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 little or no need for regulatory approval related to our
initial plans and, therefore, we can begin marketing our Pet-RECAF
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
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.
17
Our RECAF tests for the veterinarian market will be marketed initially by
us and by distributors of veterinarian products. We have so far received
inquires from approximately 20 veterinary distributors. When our POC rapid test
is approved for animal use on a commercial basis, we will either license it for
distribution or use a contract sales force for distribution.
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 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.
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.
18
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 known cancer
markers 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
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.
19
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 routinely
handled by the FDA within a 90-day timeframe. We expect that all of our RECAF
diagnostic products will be classified as Class II medical devices.
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.
20
Employees
As of March 15, 2010, 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 March 15, 2010,
Pacific BioScience Research Centre had seven full-time employees/consultants.
Our relationship with Pacific Bioscience Research Centre and with its employees
is good. See Item 13 of this report for information concerning our Agreement
with Pacific Bioscience Research Centre.
ITEM 2. PROPERTIES
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.
ITEM 3. LEGAL PROCEEDINGS
We are not involved in any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of our shareholders was held on October 27, 2009.
At the meeting the following proposals were ratified by the shareholders.
1. An amendment to our Articles of Incorporation such that our directors
would be authorized to issue up to 450,000,000 shares of common stock.
2. An amendment to our Articles of Incorporation to officially change our
corporate name to Biocurex, Inc.
The following is a tabulation of votes cast with respect to these
proposals:
Votes
---------------------------------------- Broker
Proposal For Against Abstain Non-Votes
1 50,116,485 2,315,811 84,785 18,196,267
2 51,747,943 185,801 163,339 18,616,265
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASE OF EQUITY SECURITIES.
Our common stock is traded on the OTC Bulletin Board under the symbol
"BOCX."
21
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
-------------- ---- ---
3/31/08 $0.75 $0.53
6/30/08 $0.65 $0.44
9/30/08 $0.43 $0.17
12/31/08 $0.25 $0.14
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
As of March 31, 2010 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 Biocurex's assets
after payment of liabilities. The Board of Directors is not obligated to declare
a dividend. Biocurex has not paid any dividends on its common stock and Biocurex
does not have any current plans to pay any common stock dividends.
Note 9 to the financial statements included as part of this report lists
the shares of our common stock which were issued during the three months ended
December 31, 2009. We relied upon the exemption provided by Section 4(2) of the
Securities Act of 1933 in connection with the issuance of the shares described
in Note 9 during the three months ended December 31, 2009.
During the year ended December 31, 2009 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, 2009 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.
As of March 31, 2010 we had 166,146,674 outstanding shares of common
stock. The following table lists additional shares of our common stock which 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:
22
Number of Note
Shares Reference
--------- ---------
Shares issuable upon conversion of notes or as
payment of principal on the notes 4,023,571 A
Shares issuable upon exercise of warrants 3,500,000 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. 5,067,057 C
Shares issuable upon exercise of warrants granted to
our officers, directors, employees, financial
consultants and private investors 7,108,470 D
Shares issuable upon conversion of notes 211,768 E
Shares issuable upon exercise of warrants issued to
note holders 4,113,541 E
Shares issuable upon warrants sold to public investors 90,456,600 F
Shares issuable upon exercise of warrants issued to
underwriter 8,400,000 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
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 March 30, 2010 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.
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.
23
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 prices between $0.001 and $0.107 per share and
expire at various dates between March 2011 and March 2014.
D. Warrants in this category were not granted pursuant to our Non-Qualified
Stock Option Plan. The warrants are exercisable at prices between $0.12 and
$0.90 per share and expire between May 2010 and 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 March 31, 2010, 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 March 31,
2010, 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
24
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 90,456,600 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. One-third of the options
granted will be exercisable April 24, 2010, and additional one third of the
options will be exercisable on January 22, 2011 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.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS 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 March 31, 2010 we had not generated any revenue from
the sale of any product.
Our principal objectives for the twelve-month period ending March 31, 2011
are as follows:
o grant one additional semi-exclusive license for testing blood samples
using automated testing equipment;
25
o commercialize veterinary applications of RECAF testing technology not
requiring regulatory approvals;
o finish developing a POC rapid format test for the doctor's office,
bedside and veterinary use;
o conduct clinical trials and seek FDA approval for marketing of the POC
rapid format test; and
o commercialize manual testing formats, principally large cities in
foreign countries where further regulatory clearance is not required.
We cannot assure you that we can successfully achieve any of these
objectives.
Liquidity and Capital Resources
We do not have any lines of credit with banks or other financial
institutions or any other traditional financing arrangements. We will need
additional capital until we are able to generate significant revenues to cover
our expenditures.
Since January 2003, we have been able to finance our operations through
the private sale of securities and from borrowings from private lenders.
Our sources and (uses) of cash during the years ended December 31, 2009
and 2008 were as follows:
2009 2008
---- ----
Cash used in operations $ (617,851) $(629,979)
Patent costs (75,042) (191,512)
Sale of investment securities 12,608 53,621
Repayment of loans from related parties 150,861 (9,086)
Repayment of convertible debt (36,251) (825,000)
Sale of common stock in private placements
and exercise of options and warrants, net of
issuance costs 303,235 274,983
Cash on hand at beginning of period 45,625 1,372,598
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 $0.07.
From the proceeds of our January 2010 public offering we repaid $1,186,700 to
the note holders. Due to principal payments and conversions, the outstanding
principal balance of the notes as of March 30, 2010 was $563,300.
26
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 90,456,600 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 March 31, 2011 will be as follows:
Research, development and production of our
diagnostic products $1,000,000
General and administrative expenses 750,000
Marketing and investor communications 150,000
Business development 200,000
Payment of interest on amended senior convertible
notes and unsecured promissory notes 150,000
Payment of outstanding liabilities 250,000
-----------
$2,500,000
===========
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.
Results of Operations
Material changes of items in our Statement of Operations for the year
ended December 31, 2009, as compared to the same period in the prior year, are
discussed below:
27
Increase (I)
Item or Decrease (D) Reason
---- --------------- ------
Revenue D In 2008 we received a $1 million
up-front licensing fee. We did not
receive any licensing fees or other
revenue in 2009.
General and D The decrease was primarily attributable
administrative to lower stock-based compensation
expense, as a result of the resignation
of one of our senior executive officers
and directors, and lower public
relations expenses.
Professional and D In 2009 we incurred professional fees
Consulting Fees in connection with preparing and
negotiating the terms of a modification
agreement with the holders of our
convertible notes, negotiating the
terms of our unsecured promissory
notes, preparing various agreements
and documents in connection with the
offer and sale of those notes and
preparing and filing the registration
statement relating to our public
offering. As of December 31, 2009,
approximately $410,000 of professional
fees were included in deferred
financing costs.
Gain on extinguishments I On August 31, 2009, we entered into a
of convertible debt loan modification agreement with the
holders of our convertible notes. We
treated the original convertible notes
as having been exchanged for the
amended convertible notes. As such, we
recorded a gain on extinguishment of
debt in the amount of $969,538.
Accretion of discounts D The convertible notes were amended in
on convertible debt November 2008 and we determined there
was no beneficial conversion feature
pertaining to the amended notes.
Accordingly, the accretion expense
relating to the notes decreased.
Amortization of debt I Additional borrowings during this year.
issue costs
Interest expense I The failure to make payments on our
convertible notes when due. As a
result, the interest rate on the notes
increased to 18%.
28
Material changes of items in our Statement of Operations for the year
ended December 31, 2008, as compared to the same period in the prior year, are
discussed below:
Increase (I)
Item or Decrease (D) Reason
---- --------------- ------
Revenue I Licensing fee from Inverness Medical
Switzerland Gmbh
General and administrative D Decrease in stock based compensation
and public relations expenses.
Professional and I We made greater use of consultants for
Consulting Fees marketing its products during 2008.
Accretion of discount I Sale of convertible notes in the
Consulting Fees principal debt amount of $3,000,000 in
June 2007. The notes bear interest
annually at a rate of prime (adjusted
monthly on the first business day of
each month) plus 2.75% per year.
Interest expense I Sale of convertible notes in the
principal amount of $3,000,000 in June
2007.
Recent Accounting Pronouncements
--------------------------------
See Note 2 to the financial statements which are included as part of this
report.
Critical Accounting Policies
----------------------------
Our significant accounting policies are more fully described in Note 2 to
the financial statements included as a part of this report. However, certain
accounting policies are particularly important to the portrayal of our financial
position and results of operations and require the application of significant
judgments by management. As a result, the consolidated financial statements are
subject to an inherent degree of uncertainty. In applying those policies,
management uses its judgment to determine the appropriate assumptions to be used
in the determination of certain estimates. These estimates are based on our
historical experience, terms of existing contracts, observance of trends in the
industry and information available from outside sources, as appropriate. Our
significant accounting policies include:
Registration Payment Arrangements. We account for registration rights
arrangements and related liquidated damages provisions under EITF 00-19-2
"Accounting for Registration Payment Arrangements" ("EITF 00-19-2"), which
addresses an issuer's accounting for registration payment arrangements. EITF
00-19-2 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
29
the registration statement is not declared effective or its effectiveness is not
maintained.
EITF 00-19-2 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 Financial Accounting Standards Board ("FASB") No. 5, "Accounting
for Contingencies" and FASB Interpretation No. 14 "Reasonable Estimation of the
Amount of a Loss".
Long-lived Assets. In accordance with SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", the carrying value of intangible
assets and other long-lived assets is reviewed on a regular basis for the
existence of facts or circumstances that may suggest impairment. We recognize
impairment when the sum of the expected undiscounted future cash flows is less
than the carrying amount of the asset. Impairment losses, if any, are measured
as the excess of the carrying amount of the asset over its estimated fair value.
Investments. Investments consist of equity securities classified as
"available-for-sale" securities under SFAS No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" and are reported at fair value.
Accordingly, unrealized gains and losses on these investments are reflected as
other comprehensive income in stockholders' equity.
Stock-based Compensation. We record stock-based compensation in accordance
with SFAS No. 123R "Share Based Payments", 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 December 31, 2009, we had received patent
approvals from five countries. Additions made after December 31, 2009 will have
a remaining life of approximately 5 years. We intend to apply for extensions in
the near future.
30
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS.
See the financial statements attached to and made a part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
In August 2009 we entered into a loan modification agreement with the
holders of our convertible notes. Initially, we determined that there was no
intrinsic value to the conversion feature of the modified notes and as a result
we recorded a discount on the modified notes. After further review, we
determined that the conversion feature should have been classified as derivative
liability. Accordingly, we restated our December 31, 2009 financial statements
to record the fair value of the derivative liability as of the date of issuance.
Our Principal Executive Officer and our Principal Financial Officer
evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) as of the end
of the period covered by this report and in their opinion our disclosure
controls and procedures were not effective due to the incorrect application of
Generally Accepted Accounting Principles to the modification of the convertible
notes discussed above.
Our management assessed the effectiveness of its internal control over
financial reporting as of December 31, 2009. In making this assessment, our
management used criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organization of the Treadway Commission
(COSO). Based on this assessment, our management was of the opinion that, as of
December 31, 2009, our internal control over financial reporting was not
effective due to the incorrect application of Generally Accepted Accounting
Principles to the modification of the convertible notes discussed above.
There were no changes in our internal controls over financial reporting
that occurred during the three months ended December 31, 2009 that have
materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting.
31
ITEM 9B. OTHER INFORMATION
Not Applicable
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Name Age Position
---- --- --------
Ricardo Moro, M.D. 57 President, Chief Executive Officer and
Director
Gladys Chan 36 Chief Financial Officer
Antonia Bold-de-Haughton 59 Secretary and Director
Denis Burger, Ph.D. 66 Executive Chairman and Director
Phil Gold, M.D. 70 Director
Jim Walsh, Ph.D. 51 Director
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
32
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
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.
33
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 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
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
Alternext US.
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
34
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
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.
ITEM 11. 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, 2009.
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 2009 -- -- -- $148,480 -- $148,480
Chief Executive Officer 2008 -- -- -- $255,000 -- $255,000
Dr. Gerald Wittenberg 2009 -- -- -- -- -- --
Principal Financial 2008 -- -- -- $255,000 -- $255,000
Officer, Secretary
and Treasurer (6)
(1) The dollar value of base salary (cash and non-cash) earned. Dr. Moro does
not receive any cash compensation from us directly. We pay Pacific
BioScience Research Centre, a company owned by Dr. Moro, to conduct all
research on our behalf, and Dr. Moro receives compensation from PBRC. In
35
2009 and 2008, Dr. Moro received total payments of $71,340 and $120,000,
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) On February 17, 2009 Dr. Wittenberg resigned as an officer and director of
Biocurex.
During the fiscal year ended December 31, 2008, we compensated Dr. Moro
and Dr. Wittenberg with option grants. The number of options granted was
determined by dividing $225,000 by the average closing price of our common stock
for the two weeks prior to the date the options were awarded, which was in March
of 2008. The exercise price of the options was set at $0.001 per share.
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, 2009
-------------------------------------------------------------
The table below sets forth the compensation earned by our directors, other
than Dr. Moro, for the fiscal year ended December 31, 2009.
Stock Option
Paid in Awards Awards All other
Name Cash (1) (2) Compensation Total
---- ------- ------ -------- ------------ -----
Phil Gold -- -- $64,342 (5) -- $64,342
Denis Burger -- $10,000 (3) -- -- $10,000
Jim Walsh -- -- -- -- --
Antonia Bold-de-Haughton -- -- $21,683 (6) -- $21,683
Gerald Wittenberg (4) -- -- -- -- --
(1) The fair value of stock issued for services computed in accordance with FAS
123R on the date of grant.
36
(2) The fair value of options granted computed in accordance with FAS 123R on
the date of grant.
(3) Reflects value of 143,000 shares of stock granted on September 15, 2009.
(4) Dr. Wittenberg resigned on February 17, 2009.
(5) Options vested immediately on the date of grant and are exercisable to
purchase 684,210 shares of our common stock at $0.001 per share. At
December 31, 2009, all of Mr. Gold's options remained outstanding.
(6) Reflects value of 220,800 options granted on August 7, 2009, all of which
were outstanding on December 31, 2009. The options have an exercise price
of $0.001 per share and are exercisable at any time beginning on March 1,
2010 and ending on August 7, 2013.
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 and a Stock Bonus Plan. A
summary description of these Plans follows. In some cases these Plans 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
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.
37
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
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.
38
Options Granted
---------------
Options Exercise Price Expiration Options
Name Grant Date Granted (#) Per Share Date Exercised
---- ---------- ----------- -------------- ---------- ----------
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
Dr. Phil Gold 3/17/09 684,210 $0.001 3/19/11
Options Granted (1)
-------------------
Options Exercise Price Expiration Options
Name Grant Date Granted (#) Per Share Date Exercised
---- ---------- ----------- -------------- ---------- ----------
Dr. Ricardo Moro 1/22/10 15,000,000 $0.074 1/22/20
Gladys Chan 1/22/10 500,000 $0.074 1/22/20
Antonia Bold-de-Haughton 1/22/10 1,000,000 $0.074 1/22/20
Denis Burger 1/22/10 10,000,000 $0.074 1/22/20
Dr. Phil Gold 1/22/10 1,000,000 $0.074 1/22/20
Jim Walsh 1/22/10 1,000,000 $0.074 1/22/20
(1) Options in this table were not granted pursuant to our Non-Qualified Stock
Option Plan.
Options Exercised
-----------------
Our officers and directors did not exercise any options during the year
ended December 31, 2009.
Dr. Wittenberg resigned as an officer and director on February 17, 2009.
On February 24, 2009 Dr. Wittenberg exercised options and warrants to purchase
2,070,000 shares of our common stock. The exercise price of the options and
warrants was $0.001 per share. The closing price of our common stock on February
24, 2009 was $0.08.
The following tables show the options held by the persons named below as
of March 31, 2010. Except as indicated, all options were granted pursuant to our
Non-Qualified Stock Option Plan.
39
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 255,000 0.001 2/28/10
Dr. Ricardo Moro 1,578,947 0.001 3/19/11
Dr. Ricardo Moro 15,000,000 (1) 0.074 1/22/10
Dr. Phil Gold 25,000 0.001 1/31/12
Dr. Phil Gold 684,210 0.001 3/19/11
Dr. Phil Gold 1,000,000 (1) 0.074 1/22/10
Gladys Chan 500,000 (1) 0.074 1/22/10
Antonia Bold-de-Haughton 1,000,000 (1) 0.074 1/22/10
Denis Burger 10,000,000 (1) 0.074 1/22/10
Jim Walsh 1,000,000 (1) 0.074 1/22/10
Gladys Chan 161,400 0.001 8/17/13
Antonia Bold-de-Haughton 220,800 0.001 8/17/13
(1) These options, which were granted on January 22, 2010, were not granted
pursuant to our Non-Qualified Stock Option Plan. One-third of the options
granted will be exercisable April 24, 2010, and additional one third of the
options will be exercisable on January 22, 2011 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.
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, 2009. Our Non-Qualified Stock Option Plan has not been approved
by our shareholders.
Number Number of Securities Remaining
of Securities Available For Future Issuance
to be Issued Weighted-Average Under Equity Compensation
Upon Exercise Exercise Price of Plans (Excluding Securities
of Outstanding of Outstanding Reflected in the
Plan category Options Options First Column of This Table)
--------------------------------------------------------------------------------------
Non-Qualified Stock
Option Plan 5,987,057 $0.001 3,870,666
The following table shows the number of outstanding stock options and
stock bonuses granted by us pursuant to the Plans, as of March 30, 2010. Each
option represents the right to purchase one share of our common stock.
40
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 17,500,000 5,067,057 8,562,277 N/A 3,870,666
Option Plan
Stock Bonus Plan 10,500,000 N/A N/A 9,250,868 1,249,132
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The following table shows, as of March 31, 2010, 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 19,003,947 10.29%
7080 River Road, Suite 215
Richmond, British Columbia
Canada V6X 1X5
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 1,884,210 1.12%
3225 The Boulevard
Westmount, Quebec
Canada H3Y 1S4
41
Number of Percent of
Name and Address Shares (1) Class
---------------- ---------- ----------
Jim Walsh 1,714,286 1.02%
c/o Biocurex, Inc.
7080 River Road
Richmond, British Columbia
Canada V6X 1X5
All Officers and Directors 36,741,929 18.4%
as a Group (6 persons)
(1) Includes shares issuable upon the exercise of options or warrants granted to
the following persons, all of which are exercisable prior to June 30, 2010.
Shares Issuable
Upon Exercise Expiration
Name of Options or Warrants Exercise Price Date
---- ----------------------- -------------- -----------
Dr. Ricardo Moro 17,903,947 .001 - .074 3/11-1/20
Gladys Chan 661,400 .001 - .074 8/13-1/20
Antonia Bold-de-Haughton 1,220,800 .001 - .074 8/13-1/20
Denis Burger 10,700,000 .074 - .107 1/15-1/20
Dr. Phil Gold 1,709,210 .001 - .074 3/11-1/20
Jim Walsh 1,000,000 .074 1/21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, DIRECTOR INDEPENDENCE.
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.
42
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.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Manning Elliott LLP, Chartered Accountants ("Manning Elliott"), served as
our independent public accountants for the fiscal year ended December 31, 2009
and 2008.
The following table shows the aggregate fees billed to us for the year
ended December 31, 2009 and 2008 by Manning Elliott.
2009 2008
---- ----
Audit Fees $45,588 $59,905
Audit Related Fees -- --
All Other Fees $20,075 --
Audit fees represent amounts billed for professional services rendered for
the audit of our annual financial statements and the reviews of the financial
statements included in our reports on Form 10-Q for the fiscal year. All Other
Fees relate to the filings of the registration statement pertaining to our
public offering that was declared effective by the Securities and Exchange
43
Commission in January 2010. Before Manning Elliott was engaged by us to render
audit or audit related services, the engagement was approved by our Directors.
ITEM 15. EXHIBITS
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-ExclusiveLicense 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)
31 Rule 13a-14(a) Certifications __________________________________
32 Section 1350 Certifications __________________________________
(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).
44
(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.
(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.
45
BIOCUREX, INC.
(formerly, WHISPERING OAKS INTERNATIONAL, INC.)
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
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 - 12
Notes to the Consolidated Financial Statements F-13
Report of Independent Registered Public Accounting Firm
To the Directors and Stockholders
Biocurex (formerly Whispering Oaks International, Inc.)
(A Development Stage Company)
We have audited the accompanying consolidated balance sheets of Biocurex
(formerly Whispering Oaks International, Inc.)(A Development Stage Company) as
of December 31, 2009 and 2008, and the related statements of operations, cash
flows and stockholders' deficit for the years then ended and accumulated for the
period from January 1, 2001 to December 31, 2009. 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 (formerly
Whispering Oaks International, Inc.)(A Development Stage Company) as of December
31, 2009 and 2008, 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, 2009, in conformity with accounting principles generally accepted in the
United States.
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 ELLIOTT LLP
CHARTERED ACCOUNTANTS
Vancouver, Canada
March 27, 2010
F-1
BIOCUREX, INC.
(formerly, WHISPERING OAKS INTERNATIONAL, INC.)
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. dollars)
December 31, December 31,
ASSETS 2009 2008
$ $
Current Assets
Cash 126,605 45,625
Investment securities (Note 3) - 18,014
Prepaid expenses and other 8,380 137,672
Notes receivable, net (Note 4) - 2,666
------------- -------------
Total Current Assets 134,985 203,977
Debt issue costs 169,709 321,651
Deferred financing costs (Note 6 and 8 (b) ) 664,080 -
Patents (Note 5) 471,464 446,946
------------- -------------
Total Assets 1,440,238 972,574
------------- -------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable 595,426 174,400
Accrued liabilities 462,159 377,627
Loans payable (Note 6 (a)) 280,189 -
Due to related parties (Note 7) 594,107 335,269
Convertible notes payable (Note 8 (a)) 33,885 194,828
Current portion of convertible debt (Note 8 (b)) - 688,754
------------- -------------
1,965,766 1,770,878
Loans payable (Note 6 (b)) 62,707 -
Convertible debt (Note 8 (b)) 1,411,801 1,136,604
------------- -------------
Total Liabilities 3,440,274 2,907,482
------------- -------------
Nature of Operations and Continuance of Business
(Note 1)
Commitments and Contingencies (Notes 1 and 13)
Subsequent Events (Note 15)
Stockholders' Deficit
Common stock
Authorized: 450,000,000 shares, par value
$0.001
Issued and outstanding: 73,062,205 and
43,713,399
respectively 73,061 43,713
Additional paid-in capital 17,476,322 15,178,205
Common stock subscribed - 40,050
Accumulated other comprehensive loss - (15,529)
Accumulated deficit (114,175) (114,175)
Deficit accumulated during the development
stage (19,435,244) (17,067,172)
------------- -------------
Stockholders' Deficit (2,000,036) (1,934,908)
------------- -------------
Total Liabilities and Stockholders' Deficit 1,440,238 972,574
------------- -------------
The accompanying notes are an integral part of these consolidated financial
statements
F-2
BIOCUREX, INC.
(formerly, WHISPERING OAKS INTERNATIONAL, INC.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. dollars)
(unaudited)
Accumulated
During the
Development Stage
Year Ended January 1, 2001
December 31, to December 31,
2009 2008 2009
$ $ $
Revenue - 1,000,000 1,464,456
------------ ------------ ------------
Operating Expenses
Amortization 50,524 37,758 224,540
General and administrative (Note 7(a)) 881,767 928,845 6,097,476
Professional and consulting fees 352,063 381,421 5,149,517
Research and development (Note 7(a)) 504,996 675,302 4,244,833
------------ ------------ ------------
Total Operating Expenses 1,789,350 2,023,326 15,716,366
------------ ------------ ------------
Loss From Operations (1,789,350) (1,023,326) (14,251,910)
------------ ------------ ------------
Other Income (Expense)
Accretion of discounts on debt (324,727) (1,280,531) (3,265,883)
Amortization of debt issue costs (369,581) (214,434) (691,231)
Gain (loss) on extinguishments of
convertible debt 969,538 (906,496) 96,626
Gain (loss) on sale of equity investment
securities (20,935) (16,389) 147,991
Gain on settlement of accounts payable 58,282 - 58,282
Interest expense (872,239) (569,982) (1,746,450)
Interest income - 8,164 383,679
Loss on impairment interest of patent cost - (67,620) (67,620)
Loss on issuance of shares (19,060) (43,371) (98,728)
------------ ------------ ------------
Total Other Expense (578,722) (3,090,659) (5,183,334)
------------ ------------ ------------
Net Loss for the Period (2,368,072) (4,113,985) (19,435,244)
Other Comprehensive Income
Unrealized gain on investment securities 15,529 26,660 -
------------ ------------ ------------
Total Comprehensive Loss (2,352,543) (4,087,325) (19,435,244)
------------ ------------ ------------
Net Loss Per Share - Basic and diluted (0.04) (0.10)
------------ ------------
Weighted Average Shares Outstanding 56,579,000 42,917,000
------------ ------------
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 STATEMENTS OF CASH FLOWS
(Expressed in U.S. dollars)
Accumulated During
The Development
Stage
Year Ended 1-Jan-01
December 31, to December 31,
2009 2008 2009
------------------------------------------
$ $ $
Operating Activities:
Net loss for the year (2,368,072) (4,113,985) (19,435,244)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Accretion of discounts on debt 324,727 1,280,531 3,265,883
Allowance for uncollectible notes
receivable - 32,831 98,129
Amortization of patent 50,524 37,758 224,539
Amortization of debt issue costs 369,581 214,433 691,231
Loss (gain) on extinguishments of
debt (969,538) 906,496 (96,626)
Loss (gain) on sale of investment
securities 20,935 16,389 (253,065)
Loss from impairment of patents - 67,620 67,620
Loss on issuance of shares 19,060 43,371 98,728
Stock-based compensation 1,176,076 729,402 6,062,538
Changes in operating assets and liabilities:
Amounts receivable (8,380) - (8,380)
Notes and interest receivable - - (6,296)
Prepaid expenses and other 100,000 (28,627) 35,695
Subscriptions receivable - - (100,682)
Accounts payable and accrued
liabilities 559,259 183,802 2,111,702
(Decrease)in related party 107,977 - 107,977
Deferred revenue - - (162,000)
------------ ------------ ------------
Net Cash Used in Operating Activities (617,851) (629,979) (7,298,251)
------------ ------------ ------------
Investing Activities:
Net Proceeds from notes receivable - 1,171
Patent costs (75,042) (191,512) (559,155)
Proceeds from sale of investment
securities 12,608 53,621 451,123
------------ ------------ ------------
Net Cash Used in Investing Activities (62,434) (137,891) (106,861)
------------ ------------ ------------
Financing Activities:
Due to related parties 150,861 (9,086) 552,281
Proceeds from loans payable 575,000 - 575,000
Proceeds from convertible debt - - 3,639,743
Repayment on convertible debt (36,251) (825,000) (1,214,251)
Deferred financing costs (142,136) - (674,636)
Debt issue costs (89,444) - (89,444)
Proceeds from private placements
of common stock and share
subscriptions received 315,000 258,950 3,501,472
Proceeds from the exercise of
stock options and warrants 2,070 16,033 1,146,524
Share issuance costs (13,835) - (147,523)
------------ ------------ ------------
Net Cash Provided by (Used in)
Financing Activities 761,265 (559,103) 7,289,166
------------ ------------ ------------
Net Increase (Decrease) in Cash 80,980 (1,326,973) (115,946)
Cash - Beginning of year 45,625 1,372,598 242,551
------------ ------------ ------------
Cash - End of year 126,605 45,625 126,605
------------ ------------ ------------
Non-cash Investing and Financing
Activities:
Shares issued to settle debt 164,334 140,500 982,681
Note payable converted into
common shares 560,945 175,000 1,594,021
------------ ------------ ------------
Supplemental Disclosures:
Interest paid 76,222 359,453 641,587
Income taxes - - -
------------ ------------ ------------
The accompanying notes are an integral part of these consolidated financial
statement
F-4
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-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)
------ ------ ---------- ---------- ---------- --------- ------- ------- -------- ---------
# $ $ $ $ $ $ $ $ $
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-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)
------ ------ ---------- ---------- ---------- --------- ------- ------- -------- ---------
# $ $ $ $ $ $ $ $ $
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-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)
------ ------ ---------- ---------- ---------- --------- ------- ------- -------- ---------
# $ $ $ $ $ $ $ $ $
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-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)
------ ------ ---------- ---------- ---------- --------- ------- ------- -------- ---------
# $ $ $ $ $ $ $ $ $
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-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)
------ ------ ---------- ---------- ---------- --------- ------- ------- -------- ---------
# $ $ $ $ $ $ $ $ $
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-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, 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-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)
------ ------ ---------- ---------- ---------- --------- ------- ------- -------- ---------
# $ $ $ $ $ $ $ $ $
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-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)
------ ------ ---------- ---------- ---------- --------- ------- ------- -------- ---------
# $ $ $ $ $ $ $ $ $
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-13
BIOCUREX, INC.
(formerly, WHISPERING OAKS INTERNATIONAL, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
1. NATURE OF BUSINESS AND CONTINUANCE OF OPERATIONS
BioCurex, Inc. (formerly Whispering Oaks International, Inc.) (the "Company")
was incorporated on December 8, 1997, under the laws of the State of Texas.
During the first quarter of 2001, the Company ceased its business activities
relating to the acquisition and sale of thoroughbred racehorses when a change
of majority control occurred. On February 21, 2001, the Company acquired
intellectual properties and patents relating to cancer diagnostics and
therapeutics. The Company is now in the business of developing, producing,
marketing and licensing cancer diagnostic kits and is currently considered a
development stage enterprise as defined by Financial Accounting Standards
Board ("FASB") Accounting Standards Codification ("ASC") 915, Development
Stage Entities. On October 31, 2008, the Company incorporated BioCurex China
Co., Ltd. ("Biocurex China"), a wholly-owned subsidiary in China.
The consolidated financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America
applicable to a going concern, which contemplates the realization of assets
and liquidation of liabilities in the normal course of business. The Company
does not have sufficient cash nor does it have an established source of
revenue to cover its ongoing costs of operations. As at December 31, 2009,
the Company has a working capital deficiency of $1,830,781 and has
accumulated losses of $19,435,244 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
subsidiary, Biocurex China. The Company's fiscal year-end is December 31.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the periods. The Company regularly evaluates estimates and assumptions
related to allowance for doubtful accounts, 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.
F-14
BIOCUREX, INC.
(formerly, WHISPERING OAKS INTERNATIONAL, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Marketable Securities
The Company defines marketable securities as income yielding securities that
can be readily converted into cash. Examples of marketable securities include
U.S. Treasury and agency obligations, commercial paper, corporate notes and
bonds, time deposits, foreign notes and certificates of deposit. The Company
accounts for its investment in debt and equity instruments under FASB ASC
320, Investments - Debt and Equity Securities. We follow the guidance
provided by ASC 320 to assess whether our investments with unrealized loss
positions are other than temporarily impaired. Realized gains and losses and
declines in value judged to be other than temporary are determined based on
the specific identification method and are reported in other income
(expense). Management determines the appropriate classification of such
securities at the time of purchase and re-evaluates such classification as of
each balance sheet date.
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
consists of license fees related to the licensing of its RECAF(TM)
technology.
F-15
BIOCUREX, INC.
(formerly, WHISPERING OAKS INTERNATIONAL, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
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, investment
securities, notes receivable, accounts payable, loans payable, convertible
notes payable, convertible debt and amounts due to related parties.
Investment securities consist of time deposits longer than three months and
are classified as held to maturity securities. Pursuant to ASC 820, Fair
Value Measurements and Disclosures and ASC 825, Financial Instruments, the
fair value of our cash equivalents and marketable securities is determined
based on "Level 1" inputs, which consist of quoted prices in active markets
for identical assets. We believe that the recorded values of all of our other
financial instruments approximate their current fair values because of their
nature or their respective relatively short maturity dates or durations.
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.
Comprehensive Income
ASC 220, Comprehensive Income establishes standards for the reporting and
display of comprehensive income and its components in the financial
statements. As at December 31, 2009 and 2008, the Company's only component of
comprehensive income was unrealized holding gains and losses on
available-for-sale investment securities.
F-16
BIOCUREX, INC.
(formerly, WHISPERING OAKS INTERNATIONAL, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
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 ("Diluted EPS"). 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 give 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, 2009 and 2008,
the Company had approximately 66,580,500 and 20,650,000 respectively, of
dilutive securities, including options, warrants and equity instruments
related to convertible notes payable and convertible debt.
Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718,
Compensation - Stock Based Compensation, 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.
Recent Accounting Pronouncements
In June 2009, the FASB issued guidance now codified as FASB ASC Topic 105,
Generally Accepted Accounting Principles as the single source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity with U.S. GAAP, aside from those issued by the SEC. ASC 105 does
not change current U.S. GAAP, but is intended to simplify user access to all
authoritative U.S. GAAP by providing all authoritative literature related to
a particular topic in one place. The adoption of ASC 105 did not have a
material impact on the Company's consolidated financial statements, but did
eliminate all references to pre-codification standards
In May 2009, FASB issued ASC 855, Subsequent Events, which establishes
general standards of for the evaluation, recognition and disclosure of events
and transactions that occur after the balance sheet date. Although there is
new terminology, the standard is based on the same principles as those that
currently exist in the auditing standards. The standard, which includes a new
required disclosure of the date through which an entity has evaluated
subsequent events, is effective for interim or annual periods ending after
June 15, 2009. The adoption of ASC 855-10 did not have a material effect on
the Company's consolidated financial statements. Refer to Note 15.
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-17
BIOCUREX, INC.
(formerly, WHISPERING OAKS INTERNATIONAL, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Reclassifications
Certain reclassifications have been made to the prior period's financial
statements to conform to the current period's presentation.
3. INVESTMENT SECURITIES
In November 2002, the Company entered into a licensing agreement with a
third party whereby it licensed part of its technology in exchange for cash
and 600,000 shares of the third party's publicly traded common stock that had
a fair value of $162,000. The 600,000 shares of common stock were classified
as "available for sale" in accordance with ASC 320 and reported at fair
value. During the year ended December 31, 2009, the Company sold the
remaining 124,235 shares for proceeds of $12,608, resulting in a realized
loss of $20,935.
4. NOTES RECEIVABLE, NET
December 31, December 31,
2009 2008
$ $
---------------------------------------------------------------------------
Note receivable including interest at prime plus 73,489 73,489
4%
Notes receivables from employees 15,497 35,497
Less: allowance for doubtful accounts (88,986) (106,320)
---------------------------------------------------------------------------
Total - 2,666
---------------------------------------------------------------------------
Notes receivable from various employees are pursuant to stock options
exercised and are non-interest bearing and due on demand.
5. PATENTS
Patents relate to developing the method for diagnostic and treatment of
cancer using a new cancer marker called "RECAF." These patents are presently
registered in 23 countries with ongoing registrations currently being
conducted. Patents are 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. As of December
31, 2009, the Company received a total of five countries patent approval.
Additions made after December 31, 2009 will have a remaining life of
approximately 5 years. The Company intends to apply for extensions in the
near future.
A schedule of the patents is as follows:
December 31, December 31
2009 2008
$ $
Patents 696,003 688,581
Less:
Accumulated amortization (224,539) (174,015)
Loss on impairment of patent cost - (67,620)
----------------------------------------------------------------------------
Net Carrying Value 471,464 446,946
----------------------------------------------------------------------------
F-18
BIOCUREX, INC.
(formerly, WHISPERING OAKS INTERNATIONAL, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
5. PATENTS (continued)
Amortization expense totaled $50,524 and $37,758 for the years ended December
31, 2009 and 2008, respectively.
The estimated future amortization expense is as follows:
$
2010 41,774
2011 41,774
2012 41,774
2013 41,774
2014 41,774
Thereafter 262,594
--------------
471,646
--------------
6. 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 are payable on August 31, 2010. However, if the
Company sells any capital stock and receives gross proceeds of at least $3
million from such sale prior to August 31, 2010, it must prepay the
principal under the notes from such proceeds. As of December 31, 2009, the
Company accrued interest payable in the amount of $13,932 (2008 - $nil).
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. For the year ended
December 31, 2009, the Company recorded $55,189 (2008 - $nil) of accretion
expense related to these promissory notes. As at December 31, 2009, the
carrying vaule of these notes was $280,189.
b) On September 21, 2009, the Company completed a private placement financing
in which it sold 3 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. However, if the
Company sells any capital stock and receives gross proceeds of at least $3
million from such sale prior to August 31, 2010, it must prepay the
principal under the notes from such proceeds. As of December 31, 2009, the
Company paid interest in the amount of $3,493 (2008 - $nil) and charged
into interest expense.
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. For the year ended
December 31, 2009, the Company recorded $207 (2008 - $nil) of accretion
expense related to these promissory notes. As at December 31, 2009, the
carrying vaule of these notes was $62,707.
F-19
BIOCUREX, INC.
(formerly, WHISPERING OAKS INTERNATIONAL, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
6. LOANS PAYABLE (continued)
The Company incurred $118,612 in debt issue costs for the promissory notes
described in Note 6(a) and (b). The debt issue costs are being expensed
over the term of the promissory notes. During the year ended December 31,
2009, the Company expensed $32,722 (2008 - $nil) of the debt issue costs
related to these promissory notes.
7. RELATED PARTY BALANCE AND TRANSACTIONS
December 31, December
2009 31,
$ 2008
$
Due to Pacific BioSciences Research Centre Inc. & 526,827 328,269
Company's President (a)
Due to Company's Chairman (b) 62,350 -
Due to former officer (c) 4,930 7,000
------- -------
594,107 335,269
======= =======
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, 2009 and 2008, Pacific
performed research and development for the Company valued at $514,225 and
$674,326, respectively.
Pacific also provided administrative services during the year ended
December 31, 2009 and 2008, valued at $216,522 and $242,583, respectively.
During the year ended December 31, 2009, and 2008, Pacific charged
interest of $10,669 and $7,241, respectively, calculated at bank prime
rate on the monthly balance owed. As at December 31, 2009, the amount due
to Pacific of $479,129 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 fiscal year 2009, the Company accrued $44,049 (2008: $nil) for the
management services (2008: $nil) and paid out $8,000 (2008: $nil). The
balance includes stock options payable to the president at a fair value of
$3,649.
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.
During fiscal year 2009, the Company accrued $29,167 (2008: $nil) as the
management services and accrued $33,183 travel expenses on the road show
presentation between October to December 2009.
c) The balance includes $4,930 owing to a former officer which is unsecured,
non-interest bearing and due on demand.
d) During the year ended December 31, 2009, the Company granted 2,263,157
(2008 - 570,000) stock options to two directors at a below market exercise
price of $0.001 per share.
F-20
BIOCUREX, INC.
(formerly, WHISPERING OAKS INTERNATIONAL, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
8. CONVERTIBLE NOTES PAYABLE AND CONVERTIBLE 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. One
of the notes payable in the amount of $53,000 was repaid in April 2003. A
gain of $33,584 was recorded on the date of repurchase of the convertible
debenture as determined through the calculation of the intrinsic value of
the beneficial conversion feature on the date of extinguishment. 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. The fair values were determined using the Black-Scholes option
pricing model using the following weighted average assumptions: average
risk-free interest rate of 1.49%; expected life of two years; expected
volatility of 473%; and no expected dividends. 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.
In February 2005, a note in the amount of $143,370 was converted into
955,800 units, consisting of one common share at $0.15 per share and one
common share purchase warrant entitling the holder to acquire an
additional common share at an exercise price of $0.17 per share expiring
on March 9, 2010. In accordance with ASC 470-20, the Company recognized
$67,829 for the intrinsic value of the embedded conversion option.
In July 2006, a note in the amount of $61,890 was converted into 343,833
units, consisting of one common share at $0.18 per share and one common
share purchase warrant entitling the holder to acquire an additional
common share at an exercise price of $0.20 per share expiring on July 7,
2011. In accordance with ASC 470-20, the Company recognized $29,506 for
the intrinsic value of the embedded conversion option.
In July 2006, a note in the amount of $11,655 was converted into 233,092
units, consisting of one common share at $0.05 per share and one common
share purchase warrant entitling the holder to acquire an additional
common share at an exercise price of $0.055 per share expiring on July 7,
2011. In accordance with ASC 470-20, the Company recognized $5,565 for the
intrinsic value of the embedded conversion option.
In July 2006, a note in the amount of $65,000 was converted into 590,909
units, consisting of one common share at $0.11 per share and one common
share purchase warrant entitling the holder to acquire an additional
common share at an exercise price of $0.12 per share expiring on July 19,
2011. In accordance with ASC 470-20, the Company recognized $30,089 for
the intrinsic value of the embedded conversion option.
F-21
BIOCUREX, INC.
(formerly, WHISPERING OAKS INTERNATIONAL, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
8. CONVERTIBLE NOTES PAYABLE AND CONVERTIBLE DEBT (continued)
In August 2009, four notes in the amount of $160,945 were converted into
2,204,730 units, consisting of one common share at $0.073 per share and
one common share purchase warrant entitling the holder to acquire an
additional common share at an exercise price of $0.08 per share expiring
on August 26, 2014. In accordance with ASC 470-20, the Company recognized
$71,389 for the intrinsic value of the embedded conversion option.
b) On July 7, 2007, the Company received proceeds of $3,000,000 from the
issuance of convertible notes (the "Notes"), plus share purchase warrants,
to two private investors. The share purchase warrants allow the holders to
purchase up to 3,500,000 shares of the Company's common stock at a price
of $0.60 per share expiring September 25, 2012. The Notes bear interest
annually at a rate of prime (as adjusted monthly on the first business day
of each month) plus 2.75% per year. The Notes are due and payable on June
25, 2010 and are secured by substantially all of the Company's assets.
Interest is payable monthly with the first interest payment due on August
1, 2007.
Beginning on November 1, 2007, the Company is required to make monthly
payments of $100,000 towards the principal amount of the Notes. If the
Company fails to make any interest or principal payment when due, the
Notes will become immediately due and payable. At the holders' option the
Notes are convertible into shares of the Company's common stock at a
conversion price of $0.60 per share. The Company may elect to pay the
monthly redemption amounts and accrued interest with shares of its common
stock, which will be determined by dividing the amount to be paid by the
lesser of the conversion price then in effect or 80% of the weighted
average price of the Company's common stock for the ten trading days
preceding the payment date.
In order to make principal or interest payments with shares of its common
stock certain conditions must be met, including the condition that the
number of shares to be issued in payment of principal or interest cannot
exceed 25% of the total shares traded for the ten trading days prior to
the payment date. The Company agreed to file a Form SB-2 Registration
Statement ("SB-2") with the U.S. Securities and Exchange Commission in
order that the shares of common stock issuable upon the conversion of the
Notes or the exercise of the share purchase warrants may be resold in the
public market. The Company was required to file the SB-2 no later than
July 30, 2007 (filed), to cause the SB-2 to become effective by November
26, 2007, and to keep the SB-2 continuously effective until the shares
covered by the SB-2 have been sold or can be sold pursuant to Rule 144(k).
In the event the closing price of the Company's common stock is $1.20 or
greater for ten consecutive trading days, the holders will be required to
exercise the 3,500,000 share purchase warrants within ten days notice by
the Company. Following the exercise of the share purchase warrants, the
Company will issue to the holders 3,500,000 new share purchase warrants,
which will entitle the holders to purchase 1,750,000 shares of common
stock. Two share purchase warrants will be exercisable at a price of $1.20
per share at any time prior to the later of June 25, 2012 or three years
from the date the new share purchase warrants are issued.
F-22
BIOCUREX, INC.
(formerly, WHISPERING OAKS INTERNATIONAL, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
8. CONVERTIBLE NOTES PAYABLE AND CONVERTIBLE DEBT (continued)
In accordance with ASC 470-20, the proceeds were allocated between the
debt and warrants based on their relative fair values. The relative fair
value assigned to the share purchase warrants totaled $1,426,381 and was
determined using the Black-Scholes option pricing model using the
following weighted average assumptions: average risk-free interest rate of
4.76%; expected life of five years; expected volatility of 176%; and no
expected dividends. These amounts were recorded as a debt discount and
will be amortized as interest expense over the term of the convertible
debentures. The effective interest rate at December 31, 2008 is 406%. For
the year ended December 31, 2008, the Company recorded $976,064 (2007 -
$791,092) of accretion expense related to the convertible debt.
On August 18, 2008, the Company agreed to re-price the 3,500,000 share
purchase warrants to an exercise price of $0.25 per share. In accordance
with ASC 718, modifications to the terms of an award are treated as an
exchange of the original award for a new award. Incremental interest
expense is measured as the excess, if any, of the fair value of the
original award immediately before its terms are modified, measured based
on the share price and other pertinent factors at that date. The Company
recognized an incremental interest expense of $192,264 for these modified
purchase warrants.
On November 26, 2008, the Company received notification from the note
holders which modified the terms of the Notes. Pursuant to the
notification the interest and principal payments payable in December 2008
and all subsequent principal and interest payments were deferred until May
1, 2009. In addition the principal amount outstanding was increased by
$255,000 to $1,955,000.
In accordance with ASC 470-60 Debt - Troubled Debt Restructurings by
Debtors the Company determined that the creditor did not grant a
concession even though the payments were deferred as the total amount
owing by the Company was increased. As at November 26, 2008, prior to the
modification of the convertible notes, the carrying value of the
convertible notes was $613,738. The remaining unaccreted discount of
$304,467 related to the convertible notes was charged to operations in the
year ended of 2008.
In accordance with ASC 470-20, the Company determined there was no
beneficial conversion feature on the modified convertible notes. The
Company recorded a discount of $130,298 which was equal to the difference
of the face value of the new note and the present value of the revised
cash flows. The effective interest rate of the new notes was 6.56%.
The Company incurred $717,668 in debt issue costs for these convertible
debentures. The debt issue costs will be expensed over the term of the
convertible debt. During the year ended December 31, 2009, the Company
expensed $326,942 (2008 - $214,434) of the debt issue costs related to the
convertible debt.
On May 1, 2009, as a result of the Company defaulting on paying interest
and principal repayment, the Company expensed the remaining discount of
$69,412 and deferred financing fees of $214,434 relating to the Notes. On
June 4, 2009, the Company repaid $36,250 to the debt holders and the
amount was applied to the principal.
As a result of the default on repayment, the Company accrued a mandatory
prepayment amount of $479,688 at 25% of the outstanding principal,
interest in the amount of $232,324 at 18% retroactive from November 1,
2008 and late fee of $12,009 at 18% on the unpaid interest. These amounts
owing are included in accrued liabilities.
F-23
BIOCUREX, INC.
(formerly, WHISPERING OAKS INTERNATIONAL, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
8. CONVERTIBLE NOTES PAYABLE AND CONVERTIBLE DEBT (continued)
The Company entered into a loan modification agreement, dated as of August
31, 2009, with the debt holders. Pursuant to the agreement, the mandatory
prepayment amount and late interest were waived and the terms of the notes
were amended as follows:
- The maturity date of the notes was extended to December 31, 2012 and
no principal payments are due on the notes prior to the maturity date.
- All interest due on the notes through June 30, 2009 was added to the
outstanding principal balance and as a result the aggregate principal
amount of the notes at June 30, 2009 was $2,150,000.
- The interest rate on the notes remains at prime (as adjusted monthly)
plus 2.75% per annum and accrued from July 1, 2009 and is payable in
arrears on the first day of each month
- The conversion price was reset at $0.14 per share.
The present value of the cash flows under the terms of the July 1, 2009
debt instrument was greater than 10% different from the November 26, 2008
debt instrument. As a result, in accordance with ASC 470-50 Debt -
Modifications and Extinguishments, the Company deemed the terms of the
amendment to be substantially different and treated the November 26, 2008
convertible notes extinguished and exchanged for new convertible notes.
The fair value of the July 1, 2009 Notes of $1,673,243 was recorded at
July 1, 2009. The Company recorded a gain on extinguishment of debt of
$969,538.
In accordance with ASC 470-20, the Company determined there was no
intrinsic value to the conversion feature and thus no beneficial
conversion feature. The Company recorded a discount of $476,757 which
equals to the difference of the face value of the new note and the present
value of the revised cash flows.
During the year ended December 31, 2009, the debt holders converted
$400,000 into 2,912,088 shares at $0.14 per share. The Company recorded
interest expense of $81,455 related to the amounts converted which is
included in accretion expense based on the modified convertible loan
agreement as described below.
For the year ended December 31, 2009, the Company recorded $129,642 (2008
- $976,064) of accretion expense related to the original convertible debt,
and $138,558 of accretion expense based on the modified convertible loan
agreement entered into on August 31, 2009. The unamortized discount as at
December 31, 2009 is $338,199. The effective interest rate of the
remaining convertible notes at December 31, 2009 is 7.22%.
9. COMMON STOCK
For the year ended December 31, 2009:
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.
F-24
BIOCUREX, INC.
(formerly, WHISPERING OAKS INTERNATIONAL, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
9. COMMON STOCK (continued)
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.
F-25
BIOCUREX, INC.
(formerly, WHISPERING OAKS INTERNATIONAL, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
9. COMMON STOCK (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 $140,000 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.
F-26
BIOCUREX, INC.
(formerly, WHISPERING OAKS INTERNATIONAL, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
9. COMMON STOCK (continued)
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.
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.
F-27
BIOCUREX, INC.
(formerly, WHISPERING OAKS INTERNATIONAL, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
9. COMMON STOCK (continued)
For the year ended December 31, 2008:
a) In December 2008, the Company issued 505,914 shares of common stock at a
fair value of $76,607 to eight employees and one consultant for services
provided from December to January 2009, a total of $37,672 was recorded as
prepaid expenses as at December 31, 2008.
b) In December 2008, the Company received stock subscriptions of 267,000
shares of common stock at $0.15 per share for proceeds of $40,050. 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 June 2008, the Company issued 230,000 shares of common stock at $0.43
per share for proceeds of $98,900. 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 $0.65 per share
expiring on May 1, 2010.
d) In June, 2008, the Company issued 42,105 shares of common stock pursuant
to the exercise of share purchase warrants for proceeds of $8,000.
e) In April, 2008, the Company issued 33,333 shares of common stock pursuant
to the exercise of 33,333 stock options for proceeds of $33.
f) In April, 2008, the Company issued 42,105 shares of common stock pursuant
to the exercise of share purchase warrants for proceeds of $8,000.
g) In April, 2008, the Company issued 125,000 shares of common stock at a
fair value of $87,500 to settle debt.
h) In March 2008, the Company issued 291,667 shares of common stock at $0.60
per share for the conversion of debt of $175,000.
i) In March 2008, the Company issued 200,000 shares of common stock at $0.60
per share for proceeds of $120,000.
j) In January 2008, the Company issued 100,000 shares of common stock at a
fair value of $53,000 to settle debt.
10. STOCK-BASED COMPENSATION
Stock Bonus Plan
Under the Company's Stock Bonus Plan, employees, directors, officers,
consultants and advisors are eligible to receive a grant of the Company's
shares, provided that bona fide services are rendered by consultants or
advisors and such services must not be in connection with the offer or sale
of securities in a capital-raising transaction. On April 23, 2009, the
Company increased the number of shares issuable pursuant to this plan from
5,500,000 shares to 10,500,000 shares with 1,606,275 common shares available
for future issuance as of December 31, 2009.
F-28
BIOCUREX, INC.
(formerly, WHISPERING OAKS INTERNATIONAL, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
10. 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 April 23, 2009, the Company increased the number of shares issuable
pursuant to this plan from 12,500,000 shares to 17,500,000 shares with
3,870,666 common shares available for future issuance as of December 31,
2009.
A summary of the changes in the Company's stock options is presented below:
Weighted Weighted
Average Average Aggregate
Exercise Remaining Intrinsic
Number Price Contractual Value
of Shares $ Life (Years) $
-----------------------------------------------------------------------------
Outstanding, December 31, 2007 3,666,666 0.03
Granted 570,000 0.001
Exercised (33,333) 0.001
Expired (313,333) 0.367
-----------------------------------------------------------------------------
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
=============================================================================
Exercisable, December 31, 2009 4,533,157 0.001 1.00 494,114
=============================================================================
During the year ended December 31, 2009, the Company granted 3,717,057
stock options at a fair value of $364,988 to directors, employees and
consultants at a below market exercise price of $0.001 per share.
The fair value for stock options granted was estimated at the date of grant
using the Black-Scholes option-pricing model and the weighted average fair
value of stock options granted during the year ended December 31, 2009 and
2008 were $0.09 and $0.64 per share, respectively.
The weighted average assumptions used are as follows:
Year Ended
---------------------------
December 31, December 31,
2009 2008
Expected dividend yield 0% 0%
Risk-free interest rate 1.50% 1.97%
Expected volatility 123% 63%
Expected option life (in years) 2.78 2.0
F-29
BIOCUREX, INC.
(formerly, WHISPERING OAKS INTERNATIONAL, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
10. STOCK-BASED COMPENSATION (continued)
As at December 31, 2009, there was $46,915 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 five months. The
total fair value of shares vested during the year ended December 31, 2009 and
2008 were $324,650 and $364,252, respectively.
A summary of the status of the Company's non-vested options as of December
31, 2009, and changes during the period of December 31, 2009, is presented
below:
Weighted Average
Grant Date
Number of Fair Value
Options $
Non-vested shares
Non-vested at December 31, 2008 -- --
Granted 3,717,057 0.001
Vested (2,263,157) 0.001
------------------------------------------------------------------------
Non-vested at December 31,2009 1,453,900 0.001
========================================================================
11. SHARE PURCHASE WARRANTS
A summary of the changes in the Company's share purchase warrants is
presented below:
Weighted Average
Number Exercise Price
$
Balance, December 31, 2007 11,890,672 0.47
Issued 473,500 0.48
Exercised (84,210) 0.19
Expired (505,000) 0.81
-------------------------------------------------------------------------
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
=========================================================================
In January 2009, the Company extended the term of 2,455,000 share purchase
warrants by three months. All of the 2,455,000 shares purchase warrants
expired on May 1, 2009. In accordance with ASC 718, Compensation -Stock
Compensation, modifications to the terms of an award are treated as an
exchange of the original award for a new award. Incremental compensation cost
is measured as the excess, if any, of the fair value of the original award
immediately before its terms are modified, measured based on the share price
and other pertinent factors at that date. The Company recognized an
incremental compensation cost of $3,349 for these modified share purchase
warrants.
In April 2009, the Company extended the term of 1,000,000 shares purchase
warrants by two years and modified the exercising price from $0.90 to $0.11.
In accordance with ASC 718, modifications to the terms of an award are
treated as an exchange of the original award for a new award. Incremental
compensation cost is measured as the excess, if any, of the fair value of the
original award immediately before its terms are modified, measured based on
the share price and other pertinent factors at that date. The Company
recognized an incremental compensation cost of $63,074 for these modified
share purchase warrants.
F-30
BIOCUREX, INC.
(formerly, WHISPERING OAKS INTERNATIONAL, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
11. SHARE PURCHASE WARRANTS (continued)
As at December 31, 2009, the following share purchase warrants were
outstanding:
Exercise Expiration
Warrants Price $ Date
-------------------------------------------
1,275,000 0.08 January 15, 2010
955,800 0.17 March 09, 2010
115,000 0.65 May 01, 2010
541,666 0.12 October 31, 2010
199,311 0.17 November 11, 2010
133,500 0.30 November 30, 2010
307,692 0.17 February 02, 2011
900,000 0.11 April 5, 2011
1,000,000 0.11 June 15, 2011
233,092 0.06 July 07, 2011
343,833 0.20 July 07, 2011
590,909 0.12 July 19, 2011
500,000 0.11 August 17, 2011
400,000 0.11 August 18, 2011
500,000 0.11 September 3, 2011
252,278 0.05 December 31, 2011
2,000,000 0.11 April 1, 2012
1,000,000 0.25 April 30, 2012
3,500,000 0.25 June 27, 2012
2,204,730 0.08 August 26, 2014
-------------------------------------------
16,952,811
==========
12. FAIR VALUE MEASUREMENTS
ASC 825 defines fair value as the price that would be received from selling
an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. In determining fair value for
assets and liabilities required or permitted to be recorded at fair value,
the Company considers the principal or most advantageous market in which it
would transact and it considers assumptions that market participants would
use when pricing the asset or liability.
Fair Value Hierarchy
ASC 825 establishes a fair value hierarchy that requires an entity to
maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. A financial instrument's categorization
within the fair value hierarchy is based upon the lowest level of input that
is significant to the fair value measurement. ASC 825 establishes three
levels of inputs that may be used to measure fair value.
Level 1 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.
F-31
BIOCUREX, INC.
(formerly, WHISPERING OAKS INTERNATIONAL, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
12. FAIR VALUE MEASUREMENTS (continued)
Level 2
Level 2 applies to assets and liabilities for which there are other than
Level 1 observable inputs such as quoted prices for similar assets or
liabilities in active markets, quoted prices for identical assets or
liabilities in markets with insufficient volume or infrequent transactions
(less active markets), or model-derived valuations in which significant
inputs are observable or can be derived principally from, or corroborated
by, observable market data.
Level 2 instruments require more management judgment and subjectivity as
compared to Level 1 instruments. For instance:
Determining which instruments are most similar to the instrument being
priced requires management to identify a sample of similar securities
based on the coupon rates, maturity, issuer, credit rating and instrument
type, and subjectively select an individual security or multiple
securities that are deemed most similar to the security being priced; and
Determining whether a market is considered active requires management
judgment.
Level 3
Level 3 applies to assets and liabilities for which there are unobservable
inputs to the valuation methodology that are significant to the
measurement of the fair value of the assets or liabilities. The
determination of fair value for Level 3 instruments requires the most
management judgment and subjectivity.
Pursuant to ASC 825, the fair values of the cash equivalents and investment
securities are determined based on "Level 1" inputs, which consist of quoted
prices in active markets for identical assets. Loan payable, convertible
notes payable and convertible debt are valued based on "Level 2" inputs,
consisting of quoted prices in less active markets. The Company believes that
the recorded values of all of the other financial instruments approximate
their current fair values because of their nature and respective relatively
short maturity dates or durations.
Assets and liabilities measured at fair value on a recurring basis were
presented on the Company's consolidated balance sheet as of December 31, 2009
as follows:
Fair Value Measurements Using
Quoted -----------------------------
Prices in
Active
Markets Significant
For Other Significant
Identical Observable Unobservable Balance as of
Instruments Inputs Inputs December 31,
(Level 1) (Level 2) (Level 3) 2009
------------------------------------------------------------
Assets:
Cash equivalents $ 126,605 $ - $ - $ 126,605
Total assets measured at
fair value $ 126,605 $ - $ - $ 126,605
Liabilities:
Loans payable $ - $ 342,896 $ - $ 342,896
Convertible notes payable - 33,885 33,885
Convertible notes - 1,411,801 - 1,411,801
----------- ---------- ---------- ----------
Total liabilities measured
at fair value $ - $1,788,582 $ - $1,788,582
============ ========== ========== ==========
F-32
BIOCUREX, INC.
(formerly, WHISPERING OAKS INTERNATIONAL, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
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, 2009, the Company has issued 37,500 common shares and 37,500
common shares are still owed to the consultant.
b) On April 10, 2006, the Company entered into a consulting agreement with a
term of one year for consideration of 75,000 common shares. As of December
31, 2009, the Company has issued 37,500 common shares and 37,500 common
shares are still owed to the consultant.
14. INCOME TAXES
The Company has adopted the provisions of SFAS 109, "Accounting for Income
Taxes". Pursuant to SFAS 109 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 $12,806,666 which,
if unutilized, will expire through to 2029. 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.
Net Expiration
Loss Date
1999 $ 89,948 2019
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 2,234,402 2029
----------
$12,806,666
===========
F-33
BIOCUREX, INC.
(formerly, WHISPERING OAKS INTERNATIONAL, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
14. INCOME TAXES (continued)
The Company is subject to United States federal and state income taxes at an
approximate rate of 35%. The reconciliation of the recovery for income taxes
at the United States federal statutory rate compared to the Company's income
tax recovery as reported is as follows:
Year Ended Year Ended
December 31, December 31,
2009 2008
$ $
Income tax recovery at statutory rate 828,825 1,439,895
Stock based compensation (144,400) (255,291)
Accretion of discount on debts (113,655) (448,186)
Financing costs (129,746) -
Gain (loss) on extinguishment of
convertible debt 339,339 (317,274)
Other 4,653 (19,255)
Change in tax rates - 95,219
Valuation allowance change (785,016) (495,108)
----------------------------------------------------------------------------
Income tax recovery - -
============================================================================
The significant components of deferred income tax assets and liabilities as
at December 31, 2009 and 2008 are as follows:
December 31, December 31,
2009 2008
$ $
-----------------------------
-----------------------------
Net operating loss carryforward 4,482,333 3,700,292
Intangible assets 35,243 32,268
Valuation allowance (4,517,576) (3,732,560)
-----------------------------------------------------------------------------
Net deferred income tax asset - -
============================================================================
F-34
BIOCUREX, INC.
(formerly, WHISPERING OAKS INTERNATIONAL, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
15. SUBSEQUENT EVENTS
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. In addition, the
Company issued the underwriters a 45-day option to purchase an additional
92,280 units to cover over-allotments. The underwriters agreed to offer
the units to the public at $5.00 per unit. As compensation for the
services to be provided to the underwriters in connection with the
offering of the units, the Company agreed to a 9% underwriting discount
for $581,526 in cash. In addition, the Company agreed to pay $180,000 to
Paulson for the non-accountable expense allowance, and issue
"Representative's Warrant", which allows the underwriters to purchase up
to 120,000 units at $6.00 per unit for a term of five years. 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 subsequent to year end.
b) In February 2010, the Company issued 800,000 restricted common shares for
consulting services.
c) In February 2010, the Company issued 200,000 shares to a vendor to settle
payment for services of $14,000.
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 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 to a legal counsel for
services provided.
F-35
SIGNATURES
In accordance with Section 13 or 15(a) of the Exchange Act, the Registrant
has caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized on the 3rd day of July 2012.
BIOCUREX, INC.
By:/s/ Ricardo Moro
-------------------------------------
Dr. Ricardo Moro - Principal Executive
Officer
Pursuant to the requirements of the Securities Act of l934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Ricardo Moro Director July 3, 2012
----------------------
Dr. Ricardo Moro
/s/ Gladys Chan Principal Financial July 3, 2012
---------------------------- and Accounting
Gladys Chan Officer
/s/ Paul Slowey President and July 4, 2012
---------------------- Director
Paul Slowey
----------------------- Director
Dr. Denis Burger
BIOCUREX, INC.
FORM 10-K
EXHIBITS