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, 2010
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-26947
BIOCUREX, INC.
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(Name of Small Business Issuer in its charter)
Texas 75-2742601
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(State of incorporation) (IRS Employer Identification No.)
7080 River Road, Suite 215
Richmond, British Columbia V6X 1X5
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(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,
2010, was approximately $7,350,000.
As of March 31, 2011, the Registrant had 169,188,974 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, Australia,
Russia, Norway 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.
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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, 2011 are
as follows:
o grant one additional license for our cancer detection blood test;
o commercialize veterinary applications of RECAF testing technology through
our wholly-owned subsidiary, OncoPet Diagnostics;
o finish development for our rapid, point of care cancer test; and
o commercialize other test formats through our wholly-owned subsidiary in
China, BioCurex China Co., Ltd.
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.
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
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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.
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%,
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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
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
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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.
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
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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
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.
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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,
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
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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
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,
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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
cancers. Data suggest an average sensitivity for RECAF of 90% across all cancers
when the specificity is 95%.
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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.
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,
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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.
Recent Developments
In October 2010 we filed a new patent within the Patent Cooperation
Treaty, which presently includes 142 countries. The subject of this patent is a
synthetic peptide that recognizes RECAF(TM) and that can replace the antibodies
12
used in our RECAF test. The synthetic peptide also allows for many other
applications that cannot be performed with an antibody. Our patent application
contains over 50 claims covering different applications and uses of this
peptide.
An antibody is a biological reagent that requires production under sterile
conditions in large volumes of cell culture medium. The antibodies then need to
be extracted and purified from the medium. This process is expensive and
delicate. The synthetic peptide will allow our to replace the antibodies in the
RECAF test. A peptide is a short sequence of amino acids, much like a very small
protein. Peptides are produced with an automated peptide synthesizer. A well
known small peptide is aspartame, the synthetic sweetener used in Nutrasweet(R).
To make a peptide in a laboratory, its amino acids sequence is entered
into a computer and the rest of the process is automatically handled by special
computer software. Since the peptide is synthesized chemically rather than
biologically, the batch-to-batch variability is drastically reduced and the cost
reduction is significant. Being small molecules, peptides are also more stable
than antibodies, resulting in longer shelf life and related issues.
The most important advantage of peptides over antibodies is their
flexibility: Antibodies cannot be modified unless very expensive and complex
molecular engineering processes are used. To change the specificity of an
antibody, one has to develop a new one, which is a very labor intensive and
unpredictable process. On the other hand, to modify a peptide, all that is
required is to use a different amino acid sequence on the computer. This
tremendous flexibility opens many possibilities for us, some of which are listed
below:
1) Tailoring dog, cat and other animal RECAF tests for each species
rather than relying, on the cross reactivity exhibited by anti-human
RECAF antibodies against dog RECAF.
2) Tailor-tagging of the peptide for different uses such as cancer
targeted therapy, imaging or blood diagnostic tests.
3) Attaching the peptide to liposomes for cancer targeting. Liposomes are
artificially prepared vesicles that can be filled with anti-cancer
drugs, Interference RNA or other compounds and delivered to cancer
cells. Attaching the peptide to the surface of liposomes should
increase the delivery to cancer cells since our peptide recognizes
RECAF and RECAF is on the surface of cancer cells but not on healthy
cells. Liposomes are used for delivery of a variety of formulations
from medicine to cosmetics.
4) Incorporation of a DNA sequence that encodes the peptide into the DNA
or RNA of a virus which would then express the peptide on its surface.
Since the peptide recognizes RECAF which is on cancer cells but not on
normal cells, the virus would only infect and kill the cancer cells
thus becoming an oncolytic virus.
In October 2010 we entered into a non-exclusive distribution agreement
with VetRed B.V. from Naarden, the Netherlands. VetRed, a private company under
13
Dutch law, will represent our wholly owned subsidiary OncoPet Diagnostics to
distribute our OncoPet RECAF(TM) cancer test for dogs in Europe.
Through a network of its own companies, agents and distributors, VetRed
will market our OncoPet's RECAF(TM) test to the European Union member states.
Samples will be collected and grouped prior to their dispatch to our
laboratories Canada. Europe is second in the world for its number of cats and
dogs, according to a recent survey--there are approximately 78 million dogs and
94 million cats in placeEurope. The United States and Canada have the largest
dog and cat population, with an estimated 52 million dogs and 66 million cats.
VetRed made an entrance in the veterinary diagnostic market in 2009 with
the introduction of the Pandora(R) Slide Stainer, a tabletop fully automated
unit, which stains in fully reproducible samples prior to their evaluation under
the microscope. VetRed also markets chromogenic media for rapid determination of
fungi and bacteria.
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.
14
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
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
15
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;
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.
16
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
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
17
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.
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
18
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.
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
19
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.
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.
20
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.
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.
21
Under our existing license agreements, the licensees are responsible for
obtaining the necessary regulatory approvals. However, we cannot assure you that
any of our licensees will be successful in obtaining additional clearances or
approvals from any regulatory authority with respect to our cancer detection
kits or its serum screening assay. The lack of regulatory approval for our
products will prevent the sale of these products. Delays in obtaining regulatory
approval or the failure to obtain regulatory approval in one or more countries
will have a material adverse impact on our operations.
Employees
As of March 15, 2011, we had three employees, all of whom are in
administrative positions. All of our research and development and other
technical activities and administrative services are performed for us by Pacific
Bioscience Research Centre, which is owned by Dr. Moro-Vidal, our chief
executive officer and a member of our board of directors. All of our employees
are also employees of Pacific Bioscience Research Centre.
As of 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. (REMOVED AND RESERVED)
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."
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.
22
Quarter Ending High Low
3/31/09 $0.11 $0.10
6/30/09 $0.08 $0.08
9/30/09 $0.20 $0.18
12/31/09 $0.12 $0.11
3/31/10 $0.07 $0.07
6/30/10 $0.05 $0.05
9/30/10 $0.06 $0.06
12/31/10 $0.07 $0.06
As of March 31, 2011 there were approximately 140 record holders of our
common stock and over 2,000 shareholders who owned shares through brokerage
houses, banks and similar financial institutions.
Holders of common stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available and, in the
event of liquidation, to share pro rata in any distribution of 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 7 to the financial statements included as part of this report lists
the shares of our common stock which were issued during the year ended December
31, 2010. 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 7 during the year ended December 31, 2010.
During the year ended December 31, 2010 we did not purchase any shares of
its common stock from third parties in a private transaction or as a result of
any purchases in the open market. During the year ended December 31, 2010 none
of our officers or directors, nor any of its principal shareholders, purchased,
on our behalf, any shares of its common stock from third parties in a private
transaction or as a result of purchases in the open market.
As of March 31, 2011 we had 169,188,974 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:
Number of Note
Shares Reference
Shares issuable upon the exercise of warrants: 3,500,000 A
Shares issuable upon conversion of notes or as
payment of principal on the notes 4,333,077 A
23
Number of Note
Shares Reference
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. 4,594,757 C
Shares issuable upon exercise of warrants granted to
our officers, directors, employees, financial
consultants and private investors 6,859,970 D
Shares issuable upon conversion of notes 211,768 E
Shares issuable upon exercise of warrants issued to
note holders 3,372,564 E
Shares issuable upon warrants sold to public
investors 90,459,600 F
Shares issuable upon exercise of warrants issued to
underwriter 16,800,000 F
Shares issuable upon exercise of options granted to
officers and directors 28,500,000 G
A. In June 2007 we sold convertible notes, plus warrants, to private investors
for $3,000,000. The notes are due and payable on December 31, 2012 and are
secured by substantially all of our assets. At the holder's option the notes are
convertible into shares of our common stock at a conversion price of $0.13. Due
to principal payments and conversions, the outstanding principal balance of the
notes as of December 31, 2010 was $563,300.
The warrants were subsequently sold to Warrant Strategies Fund, LLC.
The warrants allow the holder to purchase up to 3,500,000 shares of our
common stock at a price of $0.135 per share at any time prior to June 29, 2012.
In the event the closing price of our common stock is $1.20 or greater for
ten consecutive trading days, the holders will be required to exercise the
3,500,000 warrants. Following the exercise of the warrants, we will issue to the
holders new warrants, which will entitle the holders to purchase 1,750,000
shares of our common stock. The new warrants will be exercisable at a price of
$1.20 per share at any time prior to the later of June 25, 2012 or three years
from the date the new warrants are issued.
At our election and under certain conditions, we may use shares of our
common stock to make interest or principal payments on the notes. The actual
24
number of shares which may be issued as payment of interest or principal may
increase if the price of our common stock is below the then applicable
conversion price of the notes.
To the extent we use our shares to make principal payments on the notes,
the number of shares which may be issued upon the conversion of the notes may be
less due to the reduction in the outstanding principal balance of the notes.
The actual number of shares which will ultimately be issued upon the
payment or conversion of the notes and the exercise of the warrants (if any)
will vary depending upon a number of factors, including the price at which we
sell any additional shares of our common stock prior to the date the notes are
paid or converted or the date the warrants are exercised or expire.
B. Pursuant to the terms of a consulting agreement with a sales agent, we issued
the sales agent warrants to purchase 937,500 shares of our common stock as
consideration for services the sales agent provided in connection with the sale
of our notes and warrants. Warrants to purchase 187,500 of the 937,500 shares
are exercisable at a price of $0.01 per share and warrants to purchase the
remaining 750,000 shares are exercisable at a price of $0.60 per share. These
warrants expire on June 30, 2012. The sales agent subsequently assigned 234,375
warrants each to two of its employees.
C. Options are exercisable at a price of $0.001 per share and expire 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 $0.05 and
$0.25 per share and expire between Feb 2011 and January 2015.
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
obligated to issue the holders of the notes warrants to purchase 211,768
additional shares of our common stock.
25
F. In January 2010 we sold 90,459,600 shares of our common stock at a price of
$0.0714 per share in a public offering. For each share sold the investor also
received one warrant. Each warrant entitles the holder to purchase one share of
our common stock at a price of $0.107 per share at any time on or before January
2015.
Paulson Investment Company, Inc., the underwriter of our public offering,
received a sales commission as well as warrants. The warrants entitle Paulson to
purchase 120,000 units at a price of $6.00 per unit. Each unit consists of 70
shares of our common stock and 70 warrants. Each warrant entitles Paulson to
purchase one additional share of our common stock at a price of $0.107 per share
at any time on or before January 2015.
G. These options, which were granted on January 22, 2010, were not granted
pursuant to our Non-Qualified Stock Option Plan. One-third of the options
granted became exercisable April 24, 2010, and additional one third of the
options became 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
PLAN OF OPERATION
We are a development stage biotechnology company developing products based
on patented and proprietary technology in the area of cancer diagnostics. The
technology identifies a universal cancer marker known as RECAF. Patents have
been granted in the United States, Europe, Australia, China, Norway and Russia
and are pending in other major worldwide markets.
RECAF is a molecule that is present on cancer cells but not detected in
significant levels on healthy cells or benign tumor cells. It is the receptor
for alpha-fetoprotein and is classified as an oncofetal antigen due to its
presence on both fetal and malignant tissues. This characteristic makes RECAF a
more accurate indicator of cancer than most current tumor markers.
We are commercializing our technology through licensing arrangements with
companies that develop and market diagnostic tests for the large automated
clinical laboratory setting, through development and marketing of non-automated
clinical laboratory tests, through development of rapid, point-of-care test
formats, and through marketing of our OncoPet RECAF test for cancer in companion
animals.
26
Our business model is to develop internally our RECAF cancer diagnostic
platform to the stage where individual applications can be partnered or licensed
in strategic relationships for regulatory approval and commercialization. Our
objective is to receive cash from licensing fees, milestone payments, and
royalties from such partnerships which support continued development of our
cancer diagnostic portfolio. We have signed licensing agreements for its cancer
detection blood tests with Abbott Laboratories and with Inverness Medical
Innovations. In the veterinarian market where there are no regulatory hurdles,
our objective is to commercialize our technology through our subsidiary, OncoPet
Diagnostics, and with distributors in North America, Europe and elsewhere.
Our success is dependent upon several factors, including, maintaining
sufficient levels of funding through pubic and/or private financing,
establishing the reliability of our RECAF cancer tests in screening, diagnosis,
and follow-up for cancer recurrence, securing and supporting strategic
partnerships, securing regulatory approvals where necessary, and commercializing
our technology. We may not be able to achieve these objectives by March 31,
2012, or at all.
Liquidity and Capital Resources
Since January 2003, we have been able to finance our operations primarily
from equity and debt financing, the proceeds from exercise of warrants and stock
options, interest income on funds held for investment, and license fees. We do
not have lines of credit with banks or other financial institutions.
Material changes in the line item of our balance sheet between December
31, 2010 and December 31, 2009 are discussed below
Increase (I)
Item Decrease (D) Reason
Cash I (1)
Deferred financing costs D (1)
Accounts payable D (1)
Derivative liability D (2)
Loans payable D (1)
Due to related parties D (1)
Convertible debt D (1)
(1) In January 2010 we sold 90,459,600 shares of our common stock, and
90,459,600 warrants, in a public offering. The proceeds to us from the sale
of the shares and warrants, net of underwriting commissions and offering
expenses, were approximately $4,800,000, resulting in the increase in cash.
Deferred financing costs at December 31, 2009, which pertained to our
public offering, were transferred to Additional Paid-In Capital/Share
Issuance Costs upon the completion of the offering. With proceeds from the
27
public offering we reduced our accounts payable, and made payments on
outstanding loans, amounts due to related parties, and convertible debt.
(2) Derivative Liability decreased as a result of a decrease in the volatility
of the price of our common stock. The volatility in the price of our common
stock is one component used in determining the amount of the derivative
liability.
Our sources and (uses) of cash during the years ended December 31, 2010
and 2009 were as follows:
Year Ended December 31,
2010 2009
Cash (used) in operations $(2,228,477) $(617,851)
Patent costs (130,198) (75,042)
Sale of investment securities -- 12,608
Loans from related parties -- 150,861
Loans from unrelated parties 32,549 575,000
Repayment of loans (450,000) --
Repayment of convertible debt (1,186,700) (36,251)
Deferred financing /debt issue costs (94,851) (231,580)
Proceeds from sale of common stock and
exercise of options and warrants, net of
issuance costs 5,701,266 303,235
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 $0.13.
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 December 31, 2010 was $563,300.
In September 2009, we sold promissory notes in the principal amount of
$575,000 to twenty accredited investors. As partial consideration for lending us
the $575,000 we issued 8,214,292 shares of our common stock to the investors.
With the proceeds from our January 2010 public offering we repaid $450,000 to
the investors. The remaining balance of $125,000 bears interest at 10%, is
unsecured, and is payable on or before January 31, 2013.
In January 2010 we sold 90,459,600 shares of our common stock at a price
of $0.0714 per share in a public offering. For each share sold the investors
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. The net cash provided from this financing after
repayment of loans and convertible debt was approximately $3,970,000.
We anticipate that our capital requirements for the twelve-month period
ending March 31, 2012 will be as follows:
28
Research, development and production of our diagnostic products $ 900,000
General and administrative expenses 700,000
Marketing and investor communications 150,000
Business development 50,000
Payment of interest on amended senior convertible notes and
unsecured promissory notes 100,000
Payment of outstanding liabilities 250,000
----------
$2,150,000
Our most significant capital requirements are research and development and
general 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 the scope of the programs that we undertake. As we
move further through the development process our research activities become more
mature and less capital intensive. New development projects may have additional
capital requirements which we balance with capital available for such programs.
We may not be successful in obtaining additional capital in the future. If
we are unable to raise the capital we need, our research and development
activities will be curtailed or delayed and our operations will be reduced to a
level which can be funded with the capital available to us.
Material changes of items in our Statement of Operations for the year
ended December 31, 2010, as compared to the same period in the prior year, are
discussed below:
Increase
(I)
or
Decrease
Item (D) Reason
General and administrative I The increase was primarily
attributable to higher
stock-based compensation
expense and an increase in
management fees for two
directors.
Professional and Consulting Fees I Increase
was the result of a new
consulting agreement signed in
February 2010. The Company
paid additional $72,000 a
year.
Accretion of discount on I The repayment of a large
convertible debt portion of the convertible
notes in January 2010 resulted
in the increase in accretion
of discount on the convertible
debt during the year.
29
Amortization of debt issue costs D A large
portion of the convertible
notes were repaid in January
2010. As a result the debt
issue costs were less during
the current period.
Gain on extinguishments of D On August 31, 2009, the
convertible debt Company entered into a loan
modification agreement with
the holders of our
convertible notes. The
Company 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 $498,003 in
2009, but nothing in 2010.
Interest expense D The repayment of a large
portion of the convertible
notes in January 2010
resulted in a decrease in
interest expense.
Gain on derivative instruments I First, this is a result of a
large portion of the
convertible notes were repaid
in January 2010.
Secondarily, the volatility
used to compute the present
value to resulting in a
lower present value of
derivative instruments.
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.
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, 2010. 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, 2010, 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. 58 President, Chief Executive Officer and
Director
Gladys Chan 37 Chief Financial and Accounting Officer
Antonia Bold-de-Haughton 60 Secretary and Director
Denis Burger, Ph.D. 67 Chairman of the Board of Directors
Phil Gold, M.D. 71 Director
Jim Walsh, Ph.D. 52 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. In March 2011, the executive chairman position was eliminated
and Mr. Burger became the chairman of our Board of Directors. 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
32
Microbiology and Immunology, an Associate Professor of Surgery and the Director
of the Histocompatibility Testing Laboratory at Oregon Health Sciences
University. He holds a B.A. degree in Bacteriology and Immunology from the
University of California at Berkeley, a M.S. and Ph.D. in Microbiology and
Immunology from the University of Arizona, Tucson.
Gladys Chan joined us in July 2005 as comptroller and was promoted to
chief financial and accounting 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
33
of the Executive, and Chair of the Burroughs Wellcome Fund. In 2006, the Phil
Gold Chair in Medicine was inaugurated at McGill University and the first
incumbent was selected in 2009. Dr. Gold received a B. Sc. in 1957 and a M.Sc.
in 1961 in Physiology from McGill University. He received his MDCM in 1961 and
his Ph.D. in 1965 from McGill University as well.
Jim Walsh, Ph.D. was appointed a director in September 2009. Dr. Walsh has
been the chief executive officer of Biosensia Ltd., a point of care diagnostics
company, since 2008 and Interim Chief Executive Officer of Stokes Bio Ltd., a
company specializing in the area of molecular diagnostics, since 2006. Dr. Walsh
has also been a non-executive director of Trinity Biotech Plc (NASDAQ: TRIB), an
Irish diagnostics company, since 1996 and a non-executive director of PuriCore
Plc. (LSE: PURI), a U.S.-based healthcare company, since 2006. Dr. Walsh has
also been investment advisor to Bank of Ireland Kernel Capital Partners since
2007. From 1990 to 1995, Dr. Walsh was managing director of Cambridge
Diagnostics Ltd., a wholly owned subsidiary of Inverness Medical Innovations
Inc. (AMEX: IMA). From 1988 to 1990, Dr. Walsh worked with Fleming GmbH as R&D
Manager. Dr. Walsh is a graduate of the National University of Ireland and holds
a Doctorate in Inorganic Chemistry and Post Doctorate qualifications in
Immunochemistry.
We 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.
We believe all of our directors are qualified to act as such due to their
prior involvement with us.
Compensation Committee Interlocks and Insider Participation
Our directors act as our compensation committee. During the year ended
December 31, 2010 each director participated in deliberations concerning
executive officer compensation.
During the year ended December 31, 2010, 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 then 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,
34
Dr. Burger is responsible for performing such duties as assigned to him from
time to time by our board of directors. Dr. Burger is also required to devote
his best efforts to our service throughout the term of the agreement, including
devoting at least 40 hours per month to our affairs. In return for his services,
Dr. Burger will receive an initial annual base compensation of $100,000 and
reimbursement for all expenses reasonably incurred by him in discharging his
duties and is entitled to participate in any applicable benefit plans. Dr.
Burger may also receive a bonus at the discretion of the board of directors. Our
employment agreement with Dr. Burger may be terminated voluntarily by Dr. Burger
upon sixty days written notice. We may terminate the employment agreement upon
thirty days written notice, in which event we must pay Dr. Burger eighteen
months severance pay.
As of October 1, 2009, we entered into an employment agreement with Dr.
Ricardo Moro, our chief executive officer. The employment agreement expires on
December 31, 2013. If we do not renew the employment agreement, we must pay Dr.
Moro twelve months severance pay. Under the employment agreement, Dr. Moro is
responsible for performing such duties as assigned to him from time to time by
our board of directors. Dr. Moro is also required to devote his best efforts to
our service throughout the term of the agreement, on a full-time basis except to
the extent his services are required by Pacific Bioscience Research Centre. In
return for his services, Dr. Moro will receive an initial annual base
compensation of $250,000 and reimbursement for all expenses reasonably incurred
by him in discharging his duties and is entitled to participate in any
applicable benefit plans. We will receive a credit against Dr. Moro's annual
base compensation for any "profit" paid to Pacific Bioscience Research Centre
under our services agreement with Pacific Bioscience Research Centre. Dr. Moro
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, 2010.
35
All
Other
Annual
Restric- Com-
Name and ted Stock Option pensa-
Principal Fiscal Salary Bonus Awards Awards tion
Position Year (1) (2) (3) (4) (5) Total
------------ ------ ------- ----- -------- ------- ------- -------
Dr. Ricardo Moro 2010 $148,407 -- -- $847,418 -- $995,825
Chief Executive Officer 2009 -- -- -- $148,480 -- $148,480
Gladys Chan 2010 $75,000 -- -- $28,247 -- $103,247
Principal Financial and 2009 -- -- -- -- -- --
Accounting Officer (6)
Denis Burger 2010 $104,333 -- -- $564,946 -- $669,279
Executive Chairman 2009 -- -- -- -- -- --
(1) The dollar value of base salary (cash and non-cash) earned. During 2009 Dr.
Moro did not receive any cash compensation from us directly. We paid
Pacific BioScience Research Centre, a company owned by Dr. Moro, to conduct
all research on our behalf, and Dr. Moro received compensation from PBRC.
In 2010 and 2009, Dr. Moro received total payments of $101,593 and $71,340,
respectively, from PBRC.
(2) The dollar value of bonus (cash and non-cash) earned.
(3) During the periods covered by the table, the value of the shares of
restricted stock issued as compensation for services to the persons listed
in the table.
(4) The value of all stock options granted during the periods covered by the
table.
(5) All other compensation received that could not be properly reported in any
other column of the table.
(6) Ms. Chan became our Principal Financial and Accounting Officer on in
October 2009.
We do not have a compensation committee. Our directors approve their own
compensation since decisions regarding compensation to be paid to our officers
and directors are made by the directors. We do not have any policy which
prohibits or limits the power of directors to approve their own compensation.
Compensation of Directors During Year Ended December 31, 2010
The table below sets forth the compensation earned by our directors, other
than Dr. Moro, for the fiscal year ended December 31, 2010.
36
Paid Stock Option
in Awards Awards All other
Name Cash (1) (2) Compensation Total
--------------- ------- -------- ------- ------------ -----
Phil Gold -- -- $56,495 -- $56,495
Jim Walsh -- -- $56,495 -- $56,495
Antonia Bold-de-Haughton $78,000 -- $56,495 -- $134,495
(1) The fair value of stock issued for services computed in accordance with ASC
718 on the date of grant.
(2) The fair value of options granted computed in accordance with ASC 718 on
the date of grant.
Long-Term Incentive Plans - Awards in Last Fiscal Year
None.
Employee Pension, Profit Sharing or Other Retirement Plans
None.
Stock Option and Bonus Plans
We have a Non-Qualified Stock Option Plan 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, 2010.
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, 2011. 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 10,000,000 5,000,000 (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 666,667 333,333 (1) 0.074 1/22/10
Gladys Chan 333,333 166,667 (1) 0.074 1/22/10
Antonia Bold-de-Haughton 666,667 333,333 (1) 0.074 1/22/10
Denis Burger 6,666,667 3,333,333 (1) 0.074 1/22/10
Jim Walsh 666,667 333,333 (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 became exercisable April 24, 2010, and additional one third of the
options became exercisable on January 22, 2011. 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, 2010. 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
Stock Bonus Plan
40
The following table shows the number of outstanding stock options and
stock bonuses granted by us pursuant to the Plans, as of March 31, 2011. Each
option represents the right to purchase one share of our common stock.
Total Shares Shares Remaining
Reserved Options Options Issued As Options/Shares
Name of Plan Under Plans Outstanding Exercised Stock Bonus Under Plans
------------ ------------ ----------- --------- ----------- --------------
Non-Qualified Stock 22,500,000 4,594,757 9,034,577 N/A 8,870,666
Option Plan
Stock Bonus Plan 20,000,000 N/A N/A 10,020,868 9,979,132
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The following table shows, as of March 31, 2011, information with respect
to the shareholdings of (i) each person owning beneficially 5% or more of our
common stock, (ii) each of our officers and directors, and (iii) all officers
and directors as a group. Unless otherwise indicated, each owner has sole voting
and investment powers over his shares of common stock.
Number of Percent of
Name and Address Shares (1) Class
Dr. Ricardo Moro 19,003,947 11.23%
7080 River Road, Suite 215
Richmond, British Columbia
country-regionplaceCanada V6X 1X5
Gladys Chan 661,400 0.39%
7080 River Road, Suite 215
Richmond, British Columbia
country-regionplaceCanada V6X 1X5
Antonia Bold-de-Haughton 1,220,800 0.72%
7080 River Road, Suite 215
Richmond, British Columbia
country-regionplaceCanada V6X 1X5
Dennis Burger, Ph.D 12,257,286 7.24%
1534 SW Myrtle St.
Portland, OR 97201
41
Number of Percent of
Name and Address Shares (1) Class
Dr. Phil Gold 1,884,210 1.11%
3225 The Boulevard
Westmount, Quebec
Canada H3Y 1S4
Jim Walsh 1,714,286 1.01%
c/o Biocurex, Inc.
7080 River Road
Richmond, British Columbia
Canada V6X 1X5
All Officers and Directors 36,741,929 21.72%
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, 2011.
Shares Issuable
Upon Exercise of Exercise Expiration
Name Options or Warrants Price Date
---- ------------------- ------------ -----------
Dr. Ricardo Moro 17,903,947 .001 - .0714 3/11 - 1/20
Gladys Chan 661,400 .001 - .0714 8/13 - 1/20
Antonia Bold-de-Haughton 1,220,800 .001 - .0714 8/13 - 1/20
Denis Burger 10,000,000 .0714 - .107 1/15 - 1/20
Dr. Phil Gold 1,709,210 .001 - .0714 3/11 - 1/20
Jim Walsh 1,000,000 .0714 1/20
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
42
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.
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, 2010
and 2009.
The following table shows the aggregate fees billed to us for the years
ended December 31, 2010 and 2009 by Manning Elliott.
43
2010 2009
---- ----
Audit Fees $55,000 $45,588
Audit Related Fees 34,250 --
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
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-Exclusive License Agreement (7)
10.4 License Agreement with Inverness Medical Switzerland GmbH (portions
of Exhibit 10.4 have been omitted pursuant to a request for
confidential treatment) (4)
10.5 Agreement with Pacific BioScience Research Centre (4)
10.6 Employment Agreement with Dr. Ricardo Moro-Vidal (4)
10.7 Employment Agreement with Denis Burger, Ph.D. (4)
21.1 Subsidiaries (4)
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.
44
(3) Incorporated by reference to Exhibit 3.2 of our registration statement on
Form 10-SB, filed with the SEC on August 5, 1999 and to Exhibit 3.1 to a
Report on Form 8-K filed with the SEC on September 10, 2009.
(4) Incorporated by reference to the same exhibit filed with our registration
statement on Form S-1 (Commission File No. 333-162345).
(5) Incorporated by reference to Exhibit 4.1 of our registration statement on
Form S-8, filed with the SEC on April 23, 2009.
(6) Incorporated by reference to Exhibit 4.2 of our registration statement on
Form S-8, filed with the SEC on April 23, 2009.
(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.
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
December 31, 2010
INDEX
Consolidated Balance Sheets F-1
Consolidated Statements of Operations F-2
Consolidated Statements of Cash Flows F-3
Consolidated Statements of Stockholders' Equity (Deficit) F-4
Notes to the Consolidated Financial Statements F-14
Report of Independent Registered Public Accounting Firm
To the Directors and Stockholders of
BioCurex, Inc.
(A Development Stage Company)
We have audited the accompanying consolidated balance sheets of BioCurex, Inc.
(A Development Stage Company) as of December 31, 2010 and 2009, and the related
statements of operations, cash flows and stockholders' equity (deficit) for the
years then ended and accumulated for the period from January 1, 2001 to December
31, 2010. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting.
An audit includes consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of internal control over financial reporting. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of BioCurex, Inc. (A
Development Stage Company) as of December 31, 2010 and 2009, and the results of
its operations and its cash flows for the years then ended and accumulated for
the period from January 1, 2001 to December 31, 2010, in conformity with
accounting principles generally accepted in the United States.
As discussed in Note 16 to the consolidated financial statements, the 2009
consolidated financial statements have been restated to correct a misstatement.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has a working capital deficiency and has incurred
significant operating losses since inception. These factors raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also discussed in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Manning Elliot LLP
CHARTERED ACCOUNTANTS
Vancouver, Canada
March 29, 2011
BIOCUREX, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. dollars)
December 31, December 31,
ASSETS 2010 2009
$ $
(Restated -
Note 16)
Current Assets
Cash 1,770,194 126,605
Prepaid expenses 4,623 8,380
----------- ---------
Total Current Assets 1,774,817 134,985
Debt issue costs (Notes 4 (b) and 6 (b)) 48,851 143,927
Deferred financing costs - 689,862
Patents (Note 3) 498,500 471,464
----------- ---------
Total Assets 2,322,168 1,440,238
----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable 90,022 555,460
Derivative liability (Note 12) 145,159 1,019,503
Accrued liabilities 359,322 462,159
Loans payable (Note 4 (a) and (c)) 32,550 280,189
Due to related parties (Note 5) 434,718 594,107
Convertible note payable to a
related party (Note 6 (a)) 33,885 33,885
----------- ---------
1,095,656 2,945,303
Loans payable (Note 4 (b)) 81,301 62,707
Convertible debt (Note 6 (b)) 437,735 1,198,999
----------- ---------
1,614,692 4,207,009
Commitments and Contingencies (Notes 1 and 13)
Stockholders' Equity (Deficit)
Common stock
Authorized: 450,000,000 shares, par value $0.001
Issued and outstanding: 168,188,974 (December
31, 2009 - 73,062,205) 168,189 73,061
Additional paid-in capital 24,474,411 17,845,563
Accumulated deficit (114,175) (114,175)
Deficit accumulated during the development
stage (23,820,949) (20,571,220)
----------- ---------
Stockholders' Equity (Deficit) 707,476 (2,766,771)
----------- ---------
Total Liabilities and Stockholders'
Equity (Deficit) 2,322,168 1,440,238
----------- ---------
The accompanying notes are an integral part of these consolidated financial
statements
F-1
BIOCUREX, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. dollars)
Accumulated
During the
Development Stage
Year Ended January 1, 2001
December 31, to December 31,
2010 2009 2010
$ $ $
(Restated - (Restated -
note 16) note 16)
------------ ------------ ------------
Revenue - - 1,464,456
------------ ------------ ------------
Operating Expenses
Amortization of patents 103,162 50,524 327,702
General and administrative (Notes 5(a)
and 8) 2,249,000 881,767 8,346,476
Impairment of patents - - 67,620
Professional and consulting fees 450,092 352,063 5,599,609
Research and development (Note 5(a)) 534,363 504,996 4,779,196
------------ ------------ ------------
Total Operating Expenses 3,336,617 1,789,350 19,120,603
------------ ------------ ------------
Loss From Operations (3,336,617) (1,789,350) (17,656,147)
------------ ------------ ------------
Other Income (Expense)
Accretion of discounts on debt (613,841) (372,978) (3,927,975)
Amortization of debt issue costs (95,076) (369,581) (786,307)
Gain (loss) on derivative 816,194 (635,250) 101,276
Gain (loss) on extinguishments of
convertible debt - 498,003 (374,909)
Gain (loss) sale of equity investment
securities - (20,935) 147,991
Gain on settlement of accounts payable 44,655 58,282 102,937
Interest expense (65,044) (872,239) (1,811,494)
Interest income - - 383,679
------------ ------------ ------------
Total Other Expense 86,888 (1,714,698) (6,164,802)
------------ ------------ ------------
Net Loss (3,249,729) (3,504,048) (23,820,949)
Other Comprehensive Income
Unrealized gain on investment securities - 15,529 -
------------ ------------ ------------
Total Comprehensive Loss (3,249,729) (3,488,519) (23,820,949)
------------ ------------ ------------
Net Loss Per Share - Basic and Diluted (0.02) (0.06)
------------ ------------
Weighted Average Shares Outstanding 159,605,039 56,579,000
------------ ------------
The accompanying notes are an integral part of these consolidated financial
statements
F-2
BIOCUREX, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. dollars)
Accumulated
During the
Development Stage
Year Ended January 1, 2001
December 31, to December 31,
2010 2009 2010
$ $ $
(Restated - (Restated -
note 16) note 16)
------------ ------------ ------------
Operating Activities:
Net loss (3,249,729) (3,504,048) (23,820,949)
Adjustments to reconcile net loss to net cash
used in operating activities:
Accretion of discounts on debt 613,841 372,978 3,927,975
Allowance for uncollectible notes
receivable - - 98,129
Amortization of patents 103,162 50,524 327,702
Amortization of debt issue costs 95,076 369,581 786,307
Gain on extinguishments of debt - (498,003) 374,909
Gain on write off accounts payable (44,655) (58,282)
Loss (gain) on sale of investment
securities - 20,935 (253,065)
Loss from impairment of patents - - 67,620
Change in fair value of derivative
liability (816,194) 635,250 (101,276)
Stock-based compensation 1,680,221 1,176,076 7,742,759
Changes in operating assets and liabilities:
Notes and interest receivable - (8,380) (6,296)
Prepaid expenses and other 3,757 100,000 31,072
Accounts payable and accrued liabilities (454,567) 725,518 1,715,416
(Decrease) in related party (159,389) - (51,412)
Deferred revenue - - (162,000)
Subscriptions receivable - - (100,682)
------------ ------------ ------------
Net Cash Used in Operating Activities (2,228,477) (617,851) (9,526,728)
--------------------------------------------
Investing Activities:
Net proceeds from notes receivable - - 1,171
Patent costs (130,198) (75,042) (689,353)
Proceeds from sale of investment
securities - 12,608 451,123
------------ ------------ ------------
Net Cash Used in Investing Activities (130,198) (62,434) (237,059)
------------ ------------ ------------
Financing Activities:
Due to related parties - 150,861 552,281
Proceeds from loans payable 32,549 575,000 607,549
Repayment on loans payable (450,000) - (450,000)
Proceeds from convertible debt - - 3,639,743
Repayment on convertible debt (1,186,700) (36,251) (2,400,951)
Deferred financing costs (94,851) (142,136) (769,487)
Debt issue costs - (89,444) (89,444)
Proceeds from shares issued of common
stock 6,461,400 315,000 9,962,872
Proceeds from the exercise of stock
options and warrants 1,392 2,070 1,147,916
Share issuance costs (761,526) (13,835) (909,049)
------------ ------------ ------------
Net Cash Provided by Financing Activities 4,002,264 761,265 11,291,430
------------ ------------ ------------
Net Increase in Cash 1,643,589 80,980 1,527,643
Cash - Beginning of Period 126,605 45,625 242,551
------------ ------------ ------------
Cash - End of Period 1,770,194 126,605 1,770,194
------------ ------------ ------------
Non-cash Investing and Financing Activities:
Shares issued to settle accounts payable 127,200 164,334 1,109,881
Units issued as share issuance costs 939,771 - 939,771
Note payable converted into common shares - 560,945 1,594,021
------------ ------------ ------------
Supplemental Disclosures:
Interest paid 63,700 76,222 705,287
Income taxes - - -
------------ ------------ ------------
The accompanying notes are an integral part of these consolidated financial
statements
F-3
BIOCUREX, INC.
(formerly, WHISPERING OAKS INTERNATIONAL, INC.)
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM JANUARY 1, 2001 (INCEPTION OF DEVELOPMENT STAGE) TO
DECEMBER 31, 2009
(Expressed in U.S. dollars)
Deficit
Accumu-
lated
Other during
Compre- the Stock-
Common Stock Additional Common Stock Sub- Deferred hensive Accumu- Develop- holders'
Paid-in Stock scriptions Compen- Income lated ment Equity
Shares Amount Capital Subscribed Receivable sation (Loss) Deficit Stage (Deficit)
------ ------ ---------- ---------- ---------- --------- ------- ------- -------- ---------
# $ $ $ $ $ $ $ $ $
Balance at
January 1, 2001 8,225,022 8,225 46,775 - - - - (114,175) - (59,175)
Capital contributed
relating to the
forgiveness of
advances payable
(February 2001) - - 59,175 - - - - - - 59,175
Issuance of common
stock at $2.00 per
share for patents
and intellectual
properties
(February 2001) 1,950,000 1,950 (1,950) - - - - - - -
Issuance of common
stock at $1.51 per
share in settlement
of convertible
notes payable
(May 2001) 1,544,404 1,545 464,616 - - - - - - 466,161
Issuance of common
stock for cash:
October 2001 - $1.25
per share 52,000 52 65,000 - - - - - - 65,052
December 2001 - $0.97
per share 32,260 32 31,406 - - - - - - 31,438
Issuance of common
stock at $2.00 per
share for services
rendered (December
2001) 11,000 11 21,989 - - - - - - 22,000
Issuance of warrants - - 175,000 - - - - - - 175,000
Cumulative foreign
currency translation
adjustment - - - - - - 28,213 - - 28,213
Net loss for the year - - - - - - - - (1,089,464) (1,089,464)
----------- --------- ---------- --------- ---------- --------- -------- ---------- ----------- -----------
Balance at December
31, 2001 11,814,686 11,815 862,011 - - - 28,213 (114,175) (1,089,464) (301,600)
Issuance of common
stock at $0.75 per
share (January 2002) 105,313 105 78,880 - - - - - - 78,985
Issuance of common
stock at $0.10 per
share to settle
convertible notes
payable
(December 2002) 1,100,000 1,100 108,900 - - - - - - 110,000
Issuance of common
stock for services
rendered
April 2002 - $0.64
per share 77,149 77 49,062 - - - - - - 49,139
July 2002 - $1.25
per share 7,400 8 9,207 - - - - - - 9,215
Issuance of common
stock for consulting
services at $0.05
per share (November
2002) 2,300,000 2,300 112,700 - - (115,000) - - - -
Issuance of common
stock to settle
accounts payable at
$0.08 per share
(December 2002) 929,244 929 74,181 - - - - - - 75,110
Fair value of stock
options granted - - 21,042 - - - - - - 21,042
Fair value of
warrants issued - - 207,188 - - - - - - 207,188
Reclassification
of warrants and
options to liability - - (529,785) - - - - - - (529,785)
Reclassification of
warrant liability to
equity - - 71,675 - - - - - - 71,675
Beneficial conversion
feature of convertible
debt - - 99,800 - - - - - - 99,800
Cumulative foreign
currency translation
adjustment - - - - - - (28,213) - - (28,213)
Net loss for the year - - - - - - - - (646,771) (646,771)
----------- --------- ---------- --------- ---------- --------- -------- ---------- ----------- -----------
Balance - December
31, 2002 16,333,792 16,334 1,164,861 - - (115,000) - (114,175)(1,736,23(784,215)
----------- --------- ---------- --------- ---------- --------- -------- ---------- ----------- -----------
F-4
Deficit
Accumu-
lated
Other during
Compre- the Stock-
Common Stock Additional Common Stock Sub- Deferred hensive Accumu- Develop- holders'
Paid-in Stock scriptions Compen- Income lated ment Equity
Shares Amount Capital Subscribed Receivable sation (Loss) Deficit Stage (Deficit)
------ ------ ---------- ---------- ---------- --------- ------- ------- -------- ---------
# $ $ $ $ $ $ $ $ $
Balance - December
31, 2002 16,333,792 16,334 1,164,861 - - (115,000) - (114,175) (1,736,235) (784,215)
Issuance of common
stock for cash:
January 2003 -
$0.07 per share 900,543 900 62,137 - - - - - - 63,037
November 2003 -
$0.21 per share 288,095 288 60,195 - - - - - - 60,483
Issuance of common
stock pursuant to
exercise of stock
options:
March 2003 - $0.07
per share 1,560,000 1,560 107,640 - - - - - - 109,200
May 2003 - $0.16
per share 1,000,000 1,000 159,000 - - - - - - 160,000
June 2003 - $0.17
per share 305,822 306 51,594 - - - - - - 51,900
November 2003 -
$0.001 per share 450,000 450 - - - - - - - 450
March 2003 - $0.07
per share 135,000 135 9,315 - - - - - - 9,450
June 2003 - $0.17
per share 294,118 294 49,706 - - - - - - 50,000
October 2003 -
$0.18 per share 277,777 278 49,722 - - - - - - 50,000
November 2003 -
$0.24 per share 104,167 104 24,896 - - - - - - 25,000
Issuance of common
stock for services:
March 2003 - $0.40
per share 156,250 156 62,344 - - - - - - 62,500
October 2003 -
$0.16 per share 1,000,000 1,000 159,000 - - (160,000) - - - -
Fair value of stock
options granted - - 841,349 - - - - - - 841,349
Amortization of
deferred compensation - - - - - 141,667 - - - 141,667
Fair value of
warrants issued - - 274,601 - - - - - - 274,601
Fair value of
beneficial conversion
feature related to
convertible notes - - 255,142 - - - - - - 255,142
Fair value of warrants
issued for loan provided - - 99,778 - - - - - - 99,778
Reacquisition value of
beneficial conversion
feature - - (33,584) - - - - - - (33,584)
Unrealized gain on
investment securities - - - - - - 48,000 - - 48,000
Net loss for the year - - - - - - - - (2,618,955) (2,618,955)
----------- --------- ---------- --------- ---------- --------- -------- ---------- ----------- -----------
Balance - December
31, 2003 24,983,564 24,983 3,741,470 - - (133,333) 48,000 (114,175) (4,355,190) (788,245)
Issuance of common
stock for cash:
January 2004 -
$0.19 per share 100,000 100 18,900 - - - - - - 19,000
March 2004 -
$0.15 per share 633,334 633 94,367 - - - - - - 95,000
March 2004 -
$0.19 per share 315,790 316 59,684 - - - - - - 60,000
July 2004 -
$0.50 per share 500,000 500 249,500 - - - - - - 250,000
F-5
Deficit
Accumu-
lated
Other during
Compre- the Stock-
Common Stock Additional Common Stock Sub- Deferred hensive Accumu- Develop- holders'
Paid-in Stock scriptions Compen- Income lated ment Equity
Shares Amount Capital Subscribed Receivable sation (Loss) Deficit Stage (Deficit)
------ ------ ---------- ---------- ---------- --------- ------- ------- -------- ---------
# $ $ $ $ $ $ $ $ $
July 2004 - $0.60
per share 33,333 33 19,967 - - - - - - 20,000
Dec 2004 - $0.47
per share 320,600 321 150,361 - (150,682) - - - - -
Issuance of common
stock for services:
February 2004 -
$0.22 per share 142,928 143 31,301 - - - - - - 31,444
March 2004 -
$0.23 per share 25,000 25 5,725 - - - - - - 5,750
July 2004 - $0.91
per share 200,000 200 181,800 - - - - - - 182,000
October 2004 -
$0.72 per share 60,000 60 43,140 - - - - - - 43,200
December 2004 -
$0.63 per share 79,616 80 50,078 - - - - - - 50,158
Issuance of common
stock pursuant to the
exercise of stock
options for cash:
March 2004 - $0.14
per share 40,000 40 5,560 - - - - - - 5,600
March 2004 - $0.22
per share 200,000 200 43,800 - - - - - - 44,000
April 2004 - $0.14
per share 65,000 65 9,035 - - - - - - 9,100
April 2004 - $0.001
per share 150,000 150 - - - - - - - 150
July 2004 - $0.14
per share 125,000 125 17,375 - - - - - - 17,500
July 2004 - $0.07
per share 25,000 25 1,725 - - - - - - 1,725
July 2004 - $0.001
per share 200,000 200 - - - - - - 200
September 2004 -
$0.07 per share 20,000 20 1,380 - - - - - - 1,400
October 2004 -
$0.73 per share 128,000 128 93,312 - - - - - - 93,440
Fair value of stock
options granted - - 419,204 - - - - - - 419,204
Issuance of common
stock pursuant to
the exercise of
warrants for cash:
June 2004 - $0.07
per share 628,571 629 43,371 - - - - - - 44,000
June 2004 - $0.19
per share 105,263 105 19,895 - - - - - - 20,000
July 2004 - $0.05
per share 30,000 30 1,470 - - - - - - 1,500
July 2004 - $0.30
per share 153,945 154 46,030 - - - - - - 46,184
August 2004 - $0.21
per share 338,095 338 70,662 - - - - - - 71,000
September 2004 -
$0.07 per share 271,972 272 18,766 - - - - - - 19,038
September 2004 -
$0.001 per share 200,000 200 - - - - - - - 200
Issuance of common
stock pursuant to the
exercise of warrants
for cash:
December 2004 -
$0.08 per share 145,683 146 11,509 - - - - - - 11,655
F-6
Deficit
Accumu-
lated
Other during
Compre- the Stock-
Common Stock Additional Common Stock Sub- Deferred hensive Accumu- Develop- holders'
Paid-in Stock scriptions Compen- Income lated ment Equity
Shares Amount Capital Subscribed Receivable sation (Loss) Deficit Stage (Deficit)
------ ------ ---------- ---------- ---------- --------- ------- ------- -------- ---------
# $ $ $ $ $ $ $ $ $
December 2004 -
$0.05 per share 337,313 337 16,528 - - - - - - 16,865
December 2004 -
$0.30 per share 206,300 206 61,684 - - - - - - 61,890
Amortization of
deferred
compensation - - - - - 106,499 - - - 106,499
Unrealized gain
on investment
securities - - - - - - 174,000 - - 174,000
Net loss for the year - - - - - - - - (1,406,455) (1,406,455)
----------- --------- ---------- --------- ---------- --------- -------- ---------- ----------- -----------
Balance - December
31, 2004 30,764,307 30,764 5,527,599 - (150,682) (26,834) 222,000 (114,175) (5,761,645) (272,973)
Issuance of common
stock for services:
February 2005 -
$0.71 per share 15,492 15 10,985 - - - - - - 11,000
March 2005 - $0.90
per share 30,000 30 26,970 - - - - - - 27,000
May 2005 - $1.26
per share 15,000 15 18,885 - - - - - - 18,900
July 2005 - $1.00
per share 70,000 70 72,930 - - - - - - 73,000
December 2005 -
$0.89 per share 25,000 25 22,225 - - - - - - 22,250
Issuance of common
stock for cash:
May 2005 - $1.00
per share 25,000 25 24,975 - - - - - - 25,000
June 2005 - $1.00
per share 135,000 135 134,865 - - - - - - 135,000
June 2005 - $1.10
per share 4,545 5 4,995 - - - - - - 5,000
Issuance of common
stock pursuant to the
exercise of stock options
for notes receivable:
February 2005 -
$0.60 per share 209,000 209 125,191 - - - - - - 125,400
April 2005 - $0.60
per share 5,000 5 7,495 - - - - - - 7,500
Fair value of stock
options granted - - 384,500 - - - - - - 384,500
Issuance of common
stock pursuant to the
exercise of stock
options for cash:
March 2005 - $0.001
per share 1,750,000 1,750 - - - - - - - 1,750
March 2005 - $0.07
per share 25,000 25 1,725 - - - - - - 1,750
December 2005 -
$0.001 per share
(cancellation) (1,750,000) (1,750) - - - - - - - (1,750)
Issuance of common
stock pursuant to the
exercise of warrants
for cash:
January 2005 -
$0.30 per share 26,305 26 7,865 - - - - - - 7,891
January 2005 -
$0.38 per share 65,789 66 24,934 - - - - - - 25,000
F-7
Deficit
Accumu-
lated
Other during
Compre- the Stock-
Common Stock Additional Common Stock Sub- Deferred hensive Accumu- Develop- holders'
Paid-in Stock scriptions Compen- Income lated ment Equity
Shares Amount Capital Subscribed Receivable sation (Loss) Deficit Stage (Deficit)
------ ------ ---------- ---------- ---------- --------- ------- ------- -------- ---------
# $ $ $ $ $ $ $ $ $
March 2005 - $0.21
per share 50,000 50 10,450 - - - - - - 10,500
March 2005 - $0.001
per share 450,000 450 - - - - - - - 450
June 2005 - $0.21
per share 682,714 683 142,687 - - - - - - 143,370
Issuance of common
stock pursuant to the
exercise of warrants
for cash:
June 2005 - $0.10
per share 600,000 600 59,400 - - - - - - 60,000
August 2005 - $0.75
per share 77,266 77 57,873 - - - - - - 57,950
December 2005 -
$0.001 per share
(cancellation) (450,000) (450) - - - - - - - (450)
Issuance of common
stock pursuant to the
cashless exercise of
warrants:
February 2005
(139,474 warrants) 70,643 71 (71) - - - - - - -
March 2005 (272,903
warrants) 213,576 213 (213) - - - - - - -
Issuance of common
stock pursuant to the
conversion of notes
payable (February
2005) 955,800 956 142,414 - - - - - - 143,370
February 2005, fair
value of warrants
issued on conversion
of note payable - - 67,829 - - - - - - 67,829
December 2005, fair
value of warrants
issued for services - - 222,587 - - - - - - 222,587
Proceeds from stock
subscriptions receivable - - - - 150,682 - - - - 150,682
Proceeds from common
shares subscribed
pursuant to warrants
exercised - - - 85,962 - - - - - 85,962
Amortization of
deferred compensation - - - - - 26,834 - - - 26,834
Unrealized loss on investment
securities - - - - - - (18,000) - - (18,000)
Net loss for the year - - - - - - - - (1,755,930) (1,755,930)
----------- --------- ---------- --------- ---------- --------- -------- ---------- ----------- -----------
Balance - December
31, 2005 34,065,437 34,065 7,099,095 85,962 - - 204,000 (114,175) (7,517,575) (208,628)
Issuance of common
stock for services:
June 2006 - $1.50
per share 25,000 25 37,475 - - - - - - 37,500
July 2006 - $0.72
per share 37,500 38 26,962 - - - - - - 27,000
July 2006 - $0.77
per share 37,500 38 28,837 - - - - - - 28,875
September 2006 -
$0.80 per share 100,000 100 79,900 - - - - - - 80,000
October 2006 -
$0.75 per share 225,000 225 168,525 - - - - - - 168,750
F-8
Deficit
Accumu-
lated
Other during
Compre- the Stock-
Common Stock Additional Common Stock Sub- Deferred hensive Accumu- Develop- holders'
Paid-in Stock scriptions Compen- Income lated ment Equity
Shares Amount Capital Subscribed Receivable sation (Loss) Deficit Stage (Deficit)
------ ------ ---------- ---------- ---------- --------- ------- ------- -------- ---------
# $ $ $ $ $ $ $ $ $
November 2006 -
$0.86 per share 50,000 50 42,950 - - - - - - 43,000
Issuance of common
stock for debt
settlement:
January 2006 -
$0.78 per share 200,000 200 155,800 - - - - - - 156,000
January 2006 -
$0.83 per share 6,250 6 5,181 - - - - - - 5,187
February 2006 -
$0.73 per share 6,850 6 4,994 - - - - - - 5,000
June 2006 -
$0.95 per share 90,000 90 85,410 - - - - - - 85,500
September 2006 -
$0.55 per share 15,000 15 8,235 - - - - - - 8,250
September 2006 -
$0.80 per share 200,000 200 159,800 - - - - - - 160,000
October 2006 -
$0.72 per share 90,000 90 64,710 - - - - - - 64,800
Issuance of common
stock for cash:
April 2006 - $0.50
per share 150,000 150 74,850 - - - - - - 75,000
July 2006 - $0.50
per share 150,000 150 74,850 - - - - - - 75,000
July 2006 - $0.70
per share 110,000 110 76,890 - - - - - - 77,000
September 2006 -
$0.50 per share 460,000 460 229,540 - - - - - - 230,000
October 2006 -
$0.50 per share 1,995,000 1,995 995,505 - - - - - - 997,500
Share issuance costs - - (122,500) - - - - - - (122,500)
Issuance of common
stock pursuant to
the exercise of
stock options
(December 2006) 25,000 25 - - - - - - - 25
Fair value of stock
options granted - - 375,457 - - - - - - 375,457
Fair value of stock
options modified - - 68,067 - - - - - - 68,067
Issuance of common
stock pursuant to
the exercise of
warrants for cash:
January 2006 -
$0.10 per share 500,000 500 49,500 (50,000) - - - - - -
January 2006 -
$0.05 per share 719,244 719 35,243 (35,962) - - - - - -
Issuance of common
stock pursuant to
the conversion of
notes payable
(September 2006) 1,167,834 1,168 137,377 - - - - - - 138,545
September 2006, fair
value of warrants
issued on conversion
of note payable - - 65,160 - - - - - - 65,160
Unrealized loss on
investment securities - - - - - - (131,128) - - (131,128)
Net loss for the year - - - - - - - - (2,081,293) (2,081,293)
----------- --------- ---------- --------- ---------- --------- -------- ---------- ----------- -----------
Balance, December
31, 2006 40,425,615 40,425 10,027,813 - - - 72,872 (114,175) (9,598,868) 428,067
----------- --------- ---------- --------- ---------- --------- -------- ---------- ----------- -----------
F-9
Deficit
Accumu-
lated
Other during
Compre- the Stock-
Common Stock Additional Common Stock Sub- Deferred hensive Accumu- Develop- holders'
Paid-in Stock scriptions Compen- Income lated ment Equity
Shares Amount Capital Subscribed Receivable sation (Loss) Deficit Stage (Deficit)
------ ------ ---------- ---------- ---------- --------- ------- ------- -------- ---------
# $ $ $ $ $ $ $ $ $
Balance,
December 31, 2006 40,425,615 40,425 10,027,813 - - - 72,872 (114,175) (9,598,868) 428,067
Issuance of common
stock for services:
January 2007 -
$0.62 per share 135,000 135 83,565 - - - - - - 83,700
August 2007 -
$0.63 per share 15,873 16 9,984 - - - - - - 10,000
August 2007 -
$0.56 per share 17,857 18 9,982 - - - - - - 10,000
December 2007 -
$0.72 per share 57,142 57 41,085 - - - - - - 41,142
December 2007 -
$0.62 per share 10,488 10 6,492 - - - - - - 6,502
December 2007 -
$0.53 per share 223,000 223 117,967 - - - - - - 118,190
Issuance of common
stock for debt
settlement:
May 2007 -
$0.65 per share 100,000 100 55,900 - - - - - - 56,000
Jul 2007 -
$0.62 per share 100,000 100 61,900 - - - - - - 62,000
Issuance of common
stock for cash:
June 2007 -
$0.45 per share 220,000 220 98,780 - - - - - - 99,000
May 2007 -
$0.43 per share 23,256 23 9,977 - - - - - - 10,000
April 2007 -
$0.45 per share 35,000 35 15,715 - - - - - - 15,750
Share issuance costs - - (11,188) - - - - - - (11,188)
Fair value of stock
options granted - - 412,545 - - - - - - 412,545
Issuance of common
stock pursuant to
the exercise of
warrants for cash:
March 2007 -
$0.15 per share 266,667 267 39,733 - - - - - - 40,000
March 2007 -
$0.17 per share 266,667 267 45,067 - - - - - - 45,334
Fair value of
warrants issued - - 22,106 - - - - - - 22,106
Issuance of common
stock pursuant to
the cashless
exercise of
warrants
(December 2007) 246,710 247 (247) - - - - - - -
Fair value of
warrants issued
with convertible
debt - 1,426,381 - - - - - - - 1,426,381
Intrinsic value
of beneficial
conversion feature
on convertible debt - - 1,426,381 - - - - - - 1,426,381
Unrealized loss on
investment securities - - - - - - (115,061) - - (115,061)
Net loss for the year - - - - - - - - (3,354,319) (3,354,319)
----------- -------- ---------- ---------- ---------- --------- ------- ---------- ----------- -----------
Balance,
December 31, 2007 42,143,275 42,143 13,899,938 - - - (42,189) (114,175)(12,953,187) 832,530
=========== ======== =========== ========== ========== ========= ======== ========= =========== ===========
F-10
Deficit
Accumu-
lated
Other during
Compre- the Stock-
Common Stock Additional Common Stock Sub- Deferred hensive Accumu- Develop- holders'
Paid-in Stock scriptions Compen- Income lated ment Equity
Shares Amount Capital Subscribed Receivable sation (Loss) Deficit Stage (Deficit)
------ ------ ---------- ---------- ---------- --------- ------- ------- -------- ---------
# $ $ $ $ $ $ $ $ $
Balance,
December 31, 2007 42,143,275 42,143 13,899,938 - - - (42,189) (114,175)(12,953,187) 832,530
Issuance of common
stock for services:
December 2008 -
$0.17 per share 36,000 36 6,084 - - - - - - 6,120
December 2008 -
$0.15 per share 469,914 470 70,017 - - - - - - 70,487
Issuance of common
stock for debt
settlement:
January 2008 -
$0.53 per share 100,000 100 52,900 - - - - - - 53,000
April 2008 -
$0.70 per share 125,000 125 87,375 - - - - - - 87,500
Issuance of common
stock for cash:
March 2008 -
$0.60 per share 200,000 200 119,800 - - - - - - 120,000
June 2008 -
$0.43 per share 230,000 230 98,670 - - - - - - 98,900
Exercise of stock
options at $0.001
per share 33,333 33 - - - - - - - 33
Fair value of
stock options
granted - - 372,848 - - - - - - 372,848
July 2008, fair
value of warrants
issued for services - - 27,150 - - - - - - 27,150
Exercise of warrants
at $0.19 per share 84,210 84 15,916 - - - - - - 16,000
Fair value of
warrants/options
modified - - 252,799 - - - - - - 252,799
Notes payable
converted into
common shares at
$0.60 per share 291,667 292 174,708 - - - - - - 175,000
Common stock
subscribed - $0.15
per share - - - 40,050 - - - - - 40,050
Unrealized loss
on investment
securities - - - - - - 26,660 - - 26,660
Net loss for the year - - - - - - - - (4,113,985) (4,113,985)
----------- -------- ---------- ---------- ---------- --------- ------- ---------- ----------- -----------
Balance,
December 31, 2008 43,713,399 43,713 15,178,205 40,050 - - (15,529) (114,175)(17,067,172) (1,934,908)
=========== ======== =========== ========== ========== ========= ======== ========= =========== ===========
F-11
Deficit
Accumu-
lated
Other during
Compre- the Stock-
Common Stock Additional Common Stock Sub- Deferred hensive Accumu- Develop- holders'
Paid-in Stock scriptions Compen- Income lated ment Equity
Shares Amount Capital Subscribed Receivable sation (Loss) Deficit Stage (Deficit)
------ ------ ---------- ---------- ---------- --------- ------- ------- -------- ---------
# $ $ $ $ $ $ $ $ $
Issuance of common
stock for Services:
Jan 2009 - $0.16
per share 56,000 56 8,904 - - - - - - 8,960
Feb 2009 - $0.14
per share 639,142 639 88,841 - - - - - - 89,480
Apr 2009 - $0.08
per share 418,060 418 33,445 - - - - - - 33,863
May 2009 - $0.05 -
$0.08 per share 819,480 819 58,739 - - - - - - 59,558
Jun 2009 - $0.06 -
$0.09 per share 1,116,932 1,117 70,514 - - - - - - 71,631
Jul 2009 - $0.082
per share 379,452 380 30,735 - - - - - - 31,115
Sep 2009 - $0.06 -
$0.082 per share 3,070,820 3,070 211,263 - - - - - - 214,333
Issuance of common
stock for Debt
Settlement:
Jan 2009 - $0.16 -
$0.24 per share 181,250 181 40,819 - - - - - - 41,000
Feb 2009 - $0.08
per share (33,333) (33) (2,633) - - - - - - (2,666)
Apr 2009 - $0.09
per share 250,000 250 22,250 - - - - - - 22,500
May 2009 - $0.08
per share 125,000 125 9,875 - - - - - - 10,000
Jul 2009 - $0.075 -
$0.08 per share 750,000 750 56,750 - - - - - - 57,500
Dec 2009 - $0.12
per share 300,000 300 35,700 - - - - - - 36,000
Issuance of common
stock for Cash:
Jan 2009 - $0.60
per share 267,000 267 39,783 (40,050) - - - - - -
Jan 2009 - $0.13
per share 307,892 308 39,692 - - - - - - 40,000
Apr 2009 - $0.05
per share 2,900,000 2,900 142,100 - - - - - - 145,000
Aug 2009 - $0.05
per share 1,000,000 1,000 49,000 - - - - - - 50,000
Sep 2009 - $0.05
per share 400,000 400 19,600 - - - - - - 20,000
Sep 2009 - $0.05
per share 500,000 500 24,500 - - - - - - 25,000
Sep 2009 - $0.07
per share 500,000 500 34,500 - - - - - 35,000
Finder fees on
financing - - (12,500) - - - - - - (12,500)
Issuance of common
stock pursuant to
the exercise of
stock options:
Fair Value of
options granted - - 324,650 - - - - - - 324,650
Issuance of common
stock pursuant to
the exercise of
stock options and
warrants 2,070,000 2,070 - - - - - - - 2,070
Fair value of
warrants granted - - 71,389 - - - - - - 71,389
Fair value of
warrants modified - - 66,423 - - - - - - 66,423
Issuance of common
stock pursuant to
the conversion of
notes payable
Sep 2009 - $0.014
per share - $0.073
per share 5,116,818 5,117 555,827 - - - - - - 560,944
Issuance of common
stock of Bridge loan 8,214,293 8,214 279,286 - - - - - - 287,500
Share issue cost of
Bridge loan - - (1,335) - - - - - - (1,335)
Comprehensive income -
unrealized gain - - - - - - 15,529 - - 15,529
Net loss of the year ended
December 31, 2009 - - - - - - - - (2,368,072) (2,368,072)
----------- --------- ---------- --------- ---------- --------- -------- ---------- ----------- -----------
Balance, December
31, 2009 73,062,207 3,061 17,476,322 - - - - (114,175)(19,435,244) (2,000,036)
----------- --------- ---------- --------- ---------- --------- -------- ---------- ----------- -----------
F-12
Deficit
Accumu-
lated
Other during
Compre- the Stock-
Common Stock Additional Common Stock Sub- Deferred hensive Accumu- Develop- holders'
Paid-in Stock scriptions Compen- Income lated ment Equity
Shares Amount Capital Subscribed Receivable sation (Loss) Deficit Stage (Deficit)
------ ------ ---------- ---------- ---------- --------- ------- ------- -------- ---------
# $ $ $ $ $ $ $ $ $
Balance, December
31, 2009,
restated 73,062,207 3,061 17,845,563 - - - - (114,175) (20,571,220) (2,766,771)
------------------------------------------------------------------------------------------------------------------------------------
Issuance of common
stock for services:
Feb 2010 - $0.07
per share 200,000 200 13,800 - - - - - - 14,000
Nov 2010 - $0.05
per share 800,000 800 43,200 - - - - - - 44,000
Issuance of common
stock for debt
settlement:
Feb 2010 - $0.07
per share 1,157,143 1,157 79,843 - - - - - - 81,000
Jun 2010 - $0.06
per share 420,000 420 24,780 - - - - - - 25,200
Sep 2010 - $0.06
per share 350,000 350 20,650 - - - - - - 21,000
Issuance of common
stock for cash:
Jan 2010 - $0.0714
per share 90,459,600 90,460 6,370,940 - - - - - - 6,461,400
Finder fees &
Shares issue costs
on financing - - (1,546,238) - - - - - - (1,546,238)
Issuance of common
stock pursuant to
the exercise of
stock options:
Feb 2010 - $0.001
per share 920,000 920 - - - - - - - 920
Apr 2010 - $0.001
per share 284,000 284 - - - - - - - 284
Sep 2010 - $0.001
per share 188,300 189 - - - - - - - 189
Fair value of options
granted - - 1,598,845 - - - - - - 1,598,845
Issuance of common
stock pursuant to
the exercise of
warrants for cash:
Warrants exercised
with cashless 347,727 348 (348) - - - - - - -
feature
Fair value of
warrants modified - - 23,376 - - - - - - 23,376
Net loss for the
year ended
December 31, 2010 - - - - - - - - (3,249,729) (3,249,729)
------------------------------------------------------------------------------------------------------------------
Balance, December
31, 2010 168,188,916 168,189 24,474,411 - - - - (114,175) (23,820,949) 707,476
------------------------------------------------------------------------------------------------------------------
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
1. NATURE OF BUSINESS AND CONTINUANCE OF OPERATIONS
BioCurex, Inc. (the "Company") was incorporated on December 8, 1997, under
the laws of the State of Texas. During the first quarter of 2001,
the Company ceased its business activities relating to the acquisition and
sale of thoroughbred racehorses when a change of majority control occurred.
On February 21, 2001, the Company acquired intellectual properties and
patents relating to cancer diagnostics and therapeutics. The Company is now
in the business of developing, producing, marketing and licensing products
based on patented and proprietary technology in the area of cancer
diagnostics. The Company is considered a development stage enterprise as
defined by Financial Accounting Standards Board ("FASB") Accounting
Standards Codification ("ASC") 915, Development Stage Entities. On October
31, 2008, the Company incorporated BioCurex China Co., Ltd. ("Biocurex
China"), a wholly-owned subsidiary in China. On December 8, 2009, the
Company incorporated OncoPet Diagnostics Inc., a wholly-owned subsidiary
under the laws of the State of Colorado.
The consolidated financial statements are prepared in conformity with
accounting principles generally accepted in the United States of
America applicable to a going concern, which contemplates the realization
of assets and liquidation of liabilities in the normal course of business.
The Company does not have sufficient cash nor does it have an established
source of revenue to cover its ongoing costs of operations for the next
twelve months. Management plans to obtain additional funds through the sale
of its securities. However there is no assurance of additional funding
being available. As at December 31, 2010, the Company has has accumulated
losses of $23,820,949 since the inception of the development stage. These
factors raise substantial doubt about the Company's ability to continue as
a going concern. These financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These consolidated financial statements and related notes are presented in
accordance with accounting principles generally accepted in the United
States, and are expressed in U.S. dollars. These consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries, Biocurex China, and OncoPet Diagnostics Inc. The Company's
fiscal year-end is December 31.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the periods. The Company regularly
evaluates estimates and assumptions related to valuation of patent costs,
stock-based compensation, financial instrument valuations, and deferred
income tax asset valuation allowances. The Company bases its estimates and
assumptions on current facts, historical experience and various other
factors that it believes to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying
values of assets and liabilities and the accrual of costs and expenses that
are not readily apparent from other sources. The actual results experienced
by the Company may differ materially and adversely from the Company's
estimates. To the extent there are material differences between the
estimates and the actual results, future results of operations will be
affected.
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three
months or less at the time of issuance to be cash equivalents.
Registration Payment Arrangements
The Company accounts for registration rights arrangements and related
liquidated damages provisions under FASB ASC 815-40, Derivatives and
Hedging - Contracts in Entity's own Entity, which addresses an issuer's
accounting for registration payment arrangements. ASC 815-40 defines a
registration payment arrangement as an arrangement where the issuer i) will
endeavor to file a registration statement for the resale of financial
instruments, have the registration statement declared effective, or
maintain its effectiveness and ii) transfer consideration to the
counterparty if the registration statement is not declared effective or its
effectiveness is not maintained.
ASC 815-40 requires the contingent obligation to make future payments or
otherwise transfer consideration under a registration payment arrangement,
whether issued as a separate agreement or included as a provision of a
financial instrument or other agreement, to be separately recognized and
measured in accordance with ASC 450, Contingencies.
Research and Development Costs
Research and development costs are charged to operations as incurred.
Foreign Currency Translation
The Company's functional and reporting currency is the United
States dollar. Monetary assets and liabilities denominated in foreign
currencies are translated to United States dollars in accordance
with ASC 830, Foreign Currency Translation Matters using the exchange rate
prevailing at the balance sheet date. Gains and losses arising on
translation or settlement of foreign currency denominated transactions or
balances are included in the determination of income. Foreign currency
transactions are primarily undertaken in Canadian dollars and Chinese
Renminbi.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 605 Revenue
Recognition, Revenue is recognized only when the price is fixed or
determinable, persuasive evidence of an arrangement exists, the service is
performed, and collectibility is reasonably assured. The Company's revenue
since the inception of the development stage consisted of license fees
related to the licensing of its RECAF(TM) technology.
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Long-lived Assets
In accordance with ASC 360, Property Plant and Equipment, the Company tests
long-lived assets or asset groups for recoverability when events or changes
in circumstances indicate that their carrying amount may not be
recoverable. Circumstances which could trigger a review include, but are
not limited to: significant decreases in the market price of the asset;
significant adverse changes in the business climate or legal factors;
accumulation of costs significantly in excess of the amount originally
expected for the acquisition or construction of the asset; current period
cash flow or operating losses combined with a history of losses or a
forecast of continuing losses associated with the use of the asset; and
current expectation that the asset will more likely than not be sold or
disposed significantly before the end of its estimated useful life.
Recoverability is assessed based on the carrying amount of the asset and
its fair value which is generally determined based on the sum of the
undiscounted cash flows expected to result from the use and the eventual
disposal of the asset, as well as specific appraisal in certain instances.
An impairment loss is recognized when the carrying amount is not
recoverable and exceeds fair value.
Fair Value of Financial Instruments
The Company's financial instruments consist principally of cash, accounts
payable, derivative liability, loans payable, convertible notes payable,
convertible debt and amounts due to related parties. These financial
instruments are valued in accordance with ASC 820, Fair Value Measurements
and Disclosures and ASC 825, Financial Instruments. See Note 11.
Income Taxes
The Company accounts for income taxes using the asset and liability method
in accordance with ASC 740, Income Taxes. The asset and liability method
provides that deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the
financial reporting and tax bases of assets and liabilities, and for
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using the currently enacted tax rates and laws
that will be in effect when the differences are expected to reverse. The
Company records a valuation allowance to reduce deferred tax assets to the
amount that is believed more likely than not to be realized.
Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718,
Compensation - Stock Compensation, and ASC 505-50, Equity-Based Payments to
Non-Employees using the fair value method. All transactions in which goods
or services are the consideration received for the issuance of equity
instruments are accounted for based on the fair value of the consideration
received or the fair value of the equity instrument issued, whichever is
more reliably measurable.
Comprehensive Income
ASC 220, Comprehensive Income establishes standards for the reporting and
display of comprehensive income and its components in the financial
statements. During the year ended December 31, 2009, the Company's only
component of other comprehensive income was unrealized holding gains on
available-for-sale investment securities.
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Basic and Diluted Net Loss per Share
The Company computes net loss per share in accordance with ASC 260 Earnings
Per Share which requires presentation of basic earnings per share and
diluted earnings per share. The computation of basic earnings per share is
computed by dividing income available to common stockholders by the
weighted-average number of outstanding common shares during the period.
Diluted earnings per share gives effect to all potentially dilutive common
shares outstanding during the period. The computation of diluted EPS does
not assume conversion, exercise or contingent exercise of securities that
would have an anti-dilutive effect on earnings. As of December 31, 2010,
the Company had approximately 158,843,504 of potentially dilutive
securities, including options, warrants and equity instruments related to
convertible notes payable and convertible debt, all of which were
anti-dilutive since the Company incurred losses during these periods.
Patents
Patents are stated at cost and have a definite life. Once the Company
receives patent approval, amortization is calculated using the
straight-line method over the remaining life of the patents.
Reclassifications
Certain reclassifications have been made to the prior period's financial
statements to conform to the current period's presentation.
Recent Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards Update (ASU) No.
2010-06, Improving Disclosures about Fair Value Measurements, which amends
the ASC Topic 820, Fair Value Measures and Disclosures. ASU No. 2010-06
amends the ASC to require disclosure of transfers into and out of Level 1
and Level 2 fair value measurements, and also requires more detailed
disclosure about the activity within Level 3 fair value measurements. The
new disclosures and clarifications of existing disclosures are effective
for interim and annual reporting periods beginning after December 15, 2009,
except for the disclosures concerning purchases, sales, issuances, and
settlements in the roll forward of activity in Level 3 fair value
measurements. Those disclosures are effective for fiscal years beginning
after December 15, 2010, and for interim periods within those fiscal years.
This guidance requires expanded disclosures only, and is not expected to
have a material impact on the Company's financial statements.
The Company has implemented all new accounting pronouncements that are in
effect. These pronouncements did not have any material impact on the
financial statements unless otherwise disclosed, and the Company does not
believe that there are any other new accounting pronouncements that have
been issued that might have a material impact on its financial position or
results of operations.
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
3. PATENTS
Patents relate to developing the method for diagnostic and treatment of
cancer using a new cancer marker called "RECAF." The Company has filed
patent applications in 23 countries with ongoing applications currently
being prepared. As of December 31, 2010, the Company had received patent
approval from five countries and the European patent office. Additions made
after December 31, 2010 will have a remaining life of approximately four
years. The Company intends to apply for extensions in the near future.
A schedule of the patents is as follows:
December 31, December 31,
2010 2009
$ $
Patents 817,451 696,003
Less:
Accumulated amortization (318,951) (224,539)
---------------------------------------------------------------------------
Net Carrying Value 498,500 471,646
---------------------------------------------------------------------------
Amortization expense totaled $103,162 and $50,524 for the year ended
December 31, 2010 and 2009, respectively.
The estimated future amortization expense is as follows:
$
2011 103,162
2012 103,162
2013 103,162
2014 103,162
Thereafter 85,852
--------------
498,500
--------------
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
4. LOANS PAYABLE
a) On September 10, 2009, the Company completed a private placement
financing in which it sold 17 promissory notes in the aggregate principal
amount of $450,000 and 6,428,578 shares of its common stock for an
aggregate purchase price of $450,000.
The promissory notes bear interest at a rate of 10% per annum. Both
interest and principal were payable on August 31, 2010. The aggregate
purchase price for the units was allocated equally between the notes and
shares contained in each Unit based on their relative fair value. The
relative fair value assigned to the shares totaled $225,000. These amounts
were recorded as a notes discount and will be amortized as interest expense
over the term of the promissory notes.
In February 2010, the Company repaid principal of $450,000 and interest of
$16,890. For the year ended December 31, 2010, the Company recorded
$169,811 (2009 - $55,190) of accretion expense related to these promissory
notes.
b) On September 21, 2009, the Company completed a private placement in
which it sold three promissory notes in the aggregate principal amount of
$125,000 and 1,785,715 shares of its common stock for an aggregate purchase
price of $125,000.
The promissory notes bear interest at a rate of 10% per annum. Both
interest and principal are payable on January 31, 2013.
The aggregate purchase price for the units was allocated equally between
the notes and shares contained in each Unit based on their relative fair
value. The relative fair value assigned to the shares totaled $62,500.
These amounts were recorded as a notes discount and will be amortized as
interest expense over the term of the promissory notes.
During the year ended of December 31, 2010, the Company paid interest in
the amount of $12,466 (2009 - $ 3,493) and recorded $15,130 (2009 - $207)
as the accretion expense related to these promissory notes. As at December
31, 2010, the carrying value of these notes was $81,301(2009 - $62,707).
The Company incurred $118,612 in debt issue costs for the promissory notes
described above. The debt issue costs are being expensed over the term of
the promissory notes.
During the year ended December 31, 2010, the Company expensed $73,853 (2009
- $32,722) of the debt issue costs related to promissory note, and at
December 31, 2010, the balance of debt issue costs was $6,347 (December 31,
2009 - $80,021).
c) During the year ended December 31, 2010, the Company received a net
advance of 207,325 RMB (US$32,530) from BioCurex China's Agent.
The advance is non interest bearing, unsecured and due on demand.
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
5. RELATED PARTY TRANSACTIONS AND BALANCES
December 31, December 31,
2009 2009
$ $
Due to Pacific BioSciences Research Centre Inc. &
Company's President (a) 417,734 526,827
Due to Company's Chairman (b) 12,054 62,350
Due to a former officers (c) 4,930 4,930
-----------------------------------------------------------------------------
434,718 594,107
-----------------------------------------------------------------------------
a) The Company's research and development is performed by Pacific
BioSciences Research Centre ("Pacific"). Pacific is 100% owned by the
President of the Company. During the year ended December 31, 2010 and 2009,
Pacific performed research and development for the Company valued at
$479,778 and $514,225, respectively.
Pacific also provided administrative services during the year ended
December 31, 2010 and 2009, valued at $198,230 and $216,522, respectively.
During the year ended December 31, 2010, and 2009, Pacific charged interest
of $8,904 and $10,669, respectively, calculated at the bank prime rate on
the monthly balance owed. As at December 31, 2010 and 2009, the amount due
to Pacific of $405,688 and $479,129, respectively, is unsecured and due on
demand.
On September 15, 2009, the Company has an agreement with the Company's
President to provide management services for a fee of $250,000 per annum.
During year ended December 31, 2010, the Company incurred $250,000 (2009 -
$44,049) for the management services of which $12,054 remains unpaid as of
December 31, 2010 (2009 - $36,049).
b) On September 15, 2009, the Company has an agreement with the Company's
Chairman to provide management services for a fee of $100,000 per annum
based on 40 hours per month. During the year ended December 31, 2010, the
Company incurred $140,333 (2009 - $29,167) for management services. As at
December 31, 2010, the Company is indebted to the Company's Chairman for
$12,054 of December management fees and miscellaneous expense (2009 -
$33,183).
c) The balance represents $4,930 owing to a former officer which is
unsecured, non-interest bearing and due on demand.
6. CONVERTIBLE NOTES AND DEBT
a) The Company received funds during 2003 relating to ten convertible notes
payable totaling $529,743, bearing interest at 5% and due on demand. Under
the convertibility terms of the notes payable, the principal, plus accrued
interest, can be converted immediately, at the option of the holder, either
in whole, or in part, into fully paid common shares of the Company. The
conversion price per share is equal to the lesser of the stated price
(ranging between $0.05 and $0.23) or 75% of the average closing bid prices
for the five trading days ending on the trading day immediately before the
date of the conversion. In conjunction with the issuance of the notes, the
Company issued 2,434,088 warrants to the note holders entitling them to
purchase 2,434,088 shares of common stock at exercise prices between $0.08
and $0.38. The warrants expired two years after the issuance date.
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
6. CONVERTIBLE NOTES AND DEBT (continued)
In accordance with ASC 470-20, Debt - Debt with Conversion and Other
Options, the proceeds were allocated between the debt and warrants based on
their relative fair values. The value assigned to the warrants totaled
$274,601 and was expensed immediately due to the notes being due on demand.
In addition to the shares to be received upon conversion, the note holder
will also receive an equal number of warrants to purchase shares at 110% of
the conversion price amount.
The beneficial conversion feature was calculated under ASC 470-20, and
equaled $255,142. Due to the notes being due on demand, the discount was
expensed in fiscal 2003.
As of December 31, 2010, one $33,885 (2009 - $33,885) convertible note
remained outstanding which is payable to a related party.
b) Convertible Notes (the "Notes") bear interest at an annual rate of prime
(as adjusted monthly on the first business day of each month) plus 2.75%
per year, payable in arrears on the first day of each month. The Notes are
due and payable on December 31, 2012 and are secured by substantially all
of the Company's assets. At the holders' option, the Notes are convertible
into shares of the Company's common stock at a conversion price of $0.14
per share. The embedded conversion option contains a reset provision that
can cause an adjustment to the conversion price if the Company issues an
equity instrument that does not qualify as an Exempt Issuance at a price
lower than the initial conversion price. An Exempt Issuance is defined as:
i. shares or options issued to employees of Biocurex for services
rendered pursuant to any stock or option plan adopted by the Directors
of Biocurex, not to exceed 500,000 shares or options in any year;
ii. options issued to officers or directors of Biocurex, provided that
the number of options issued during any twelve-month period may not
exceed 500,000;
iii. shares or options issued at fair market value for services
rendered to independent consultants, limited to 500,000 shares or
options in any year;
iv. restricted equity securities sold for cash, provided that no more
than 500,000 restricted equity securities can be sold in any year, the
restricted equity securities cannot be registered for public sale, and
the restricted equity securities, and the exercise price of any
warrants, cannot be less than 75% of the market price of Biocurex's
common stock;
v. shares issued to any note holder in payment of principal or
interest;
vi. shares sold to any note holder;
vii. securities issued upon the conversion of the Notes or the
exercise of the Warrants;
viii. securities issued upon the conversion of notes or the exercise
of options or warrants issued and outstanding on June 25, 2007,
provided that the securities have not been amended to increase the
number of such securities or to decrease the exercise, exchange or
conversion price of the securities.
Due to this provision, the embedded conversion option qualifies for
derivative accounting under ASC 815-15 (See Note 16 below). This fair value
of the derivative liability at issuance of $732,588 was discounted from the
note payable.
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
6. CONVERTIBLE NOTES AND DEBT (continued)
During the year ended December 31, 2010, the Company modified the
conversion price on outstanding convertible debt with a principal amount of
$563,300 from $0.14 to $0.13, in accordance with the contingent adjustment
provisions contained in the modified convertible loan agreement.
The following table summarizes the changes in the Notes during the years
ended December 31, 2010 and 2009:
Carrying
Principal Discount Value
$ $ $
--------------------------------
Balance, December 31, 2008 1,955,000 (129,642)
Penalty of default 231,250 - 231,250
Principal repayments (36,250) - (36,250)
Modification of principal - (608,168) (608,168)
Conversion of debt (400,000) - (400,000)
Accretion of discount on convertible
debt - 186,809 186,809
--------------------------------
Balance, December 31, 2009 1,750,000 (551,001) 1,198,999
Accretion of discount on convertible
debt - 425,436 425,436
Principal repayments (1,186,700) - (1,186,700)
--------------------------------
Balance, December 31, 2010 563,300 (125,565) 437,735
================================
During the year ended December 31, 2010, the Company expensed $21,223 (2009
- $10,640) of the debt issue costs related to these convertible notes. The
balance of debt issue costs at December 31, 2010 is $42,504 (December 31,
2009 - $63,727).
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
7. COMMON STOCK
For the year ended December 31, 2010:
a) In January 2010, the Company entered into an Underwriting Agreement with
Paulson Investment Company ("Paulson"), as representative of the two
underwriters named therein. Pursuant to the terms of such Underwriting
Agreement, Paulson agreed to underwrite the offer and sale by the Company
of 1,200,000 units, each consisting of 70 shares of the Company's common
stock and 70 redeemable common stock purchase warrants. Each warrant allows
the holder to purchase one common share of the Company for $0.107 per share
for a term expiring on January 19, 2015. In addition, the Company issued
the underwriters a 45-day option to purchase an additional 92,280 units to
cover over-allotments. The underwriters agreed to offer the units to the
public at $5.00 per unit. As compensation for the services to be provided
to the underwriters in connection with the offering of the units, the
Company agreed to a 9% underwriting commission for $581,526 in cash. In
addition, the Company agreed to pay $180,000 to Paulson for a
non-accountable expense allowance, and issue "Representative's Warrant",
with an estimated fair value of $939,771 which allows the underwriters to
purchase up to 120,000 units at $6.00 per unit for a term of five years
expiring January 19, 2015 (see note 10). The offer and sale of all of the
units, including the units covered by the over-allotment option and the
Representative's Warrant, all of the shares and warrants included in the
units as well as the Representative's Warrant are covered by a registration
statement on Form S-1 filed by the Company under the Securities Act of
1933, as amended, which was declared effective by the Securities and
Exchange Commission on January 19, 2010. Pursuant to the Form S-1, the
Company issued a total of 90,459,600 shares and 90,459,600 warrants on
January 28, 2010.
b) In February 2010, the Company issued 800,000 shares of common stock to a
vendor to settle account payable of $56,000.
c) In February 2010, the Company issued 200,000 shares of common stock to a
vendor for $14,000 of services.
d) In February 2010, a total of 920,000 stock options were exercised at
$0.001 per share.
e) In February 2010, the Company issued 347,727 shares of common stock
pursuant to the cashless exercise of 1,275,000 warrants by a note holder.
This exercise was based on the cashless exercise provision of the stock
purchase warrant.
f) In February 2010, the Company issued 357,143 shares of common stock to a
vendor to settle account payable of $25,000.
g) In April 2010, a total of 284,000 stock options were exercised at $0.001
per share.
h) In June 2010, the Company issued 420,000 shares of common stock to a
vendor to settle $25,200 of accounts payable.
i) In September 2010, a total of 188,300 stock options were exercised at
$0.001 per share.
j) In September 2010, the Company issued 350,000 shares of common stock to
a vendor to settle $21,000 of accounts payable.
k) In November 2010, the Company issued 800,000 shares of common stock to
an investor relations company for their consulting services at a fair value
of $44,000.
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
7. COMMON STOCK (continued)
For the year ended December 31, 2009: (continued)
a) In January 2009, the Company issued 150,000 shares of common stock at a
fair value of $36,000 to settle debt.
b) In January 2009, the Company issued 267,000 units at $0.15 per unit for
common share subscriptions totaling $40,050 received in December 2008. Each
unit consisted of one share of common stock and one half share purchase
warrant entitling the holder to purchase one share of common stock at an
exercise price of $0.30 per share expiring on November 30, 2010.
c) In January 2009, the Company issued 31,250 shares of common stock at a
fair value of $5,000 to settle debt.
d) In January 2009, the Company issued 56,000 shares of common stock at a
fair value of $8,960 to an employee for services rendered in December 2008
and January 2009.
e) In February 2009, the Company issued 639,142 shares of common stock at a
fair value of $89,480 to eight employees and one consultant for services
provided from February to March 2009.
f) In March 2009, an employee returned 33,333 shares with a fair value of
$2,666, to settle $20,000 amount owing to the Company. The Company recorded
$17,333 of bad debt expense in the fiscal year ended December 31, 2008.
g) In April 2009, the Company issued 900,000 units at $0.05 per unit for
common share for proceeds of $45,000. Each unit consisted of one share of
common stock and one purchase warrant entitling the holder to purchase one
share of common stock at an exercise price of $0.11 per share expiring on
April 5, 2011.
h) In April 2009, the Company issued 125,000 shares of common stock at a
fair value of $10,000 to settle debt.
i) In April 2009, the Company issued 2,070,000 shares of common stock to a
former director for the exercise of 1,620,000 options and 450,000 warrants
at $0.001 per share. A total of $2,070 was reduced from the outstanding
balance of amounts owing to related parties. See note 7(b).
j) In April 2009, the Company issued 418,060 shares of common stock at a
fair value of $33,863 to eight employees and one consultant for services
provided in April 2009.
k) In April 2009, the Company issued 307,892 units at $0.13 per unit for
common share subscriptions totaling $40,000 received in January 2009. Each
unit consisted of one share of common stock and one purchase warrant
entitling the holder to purchase one share of common stock at an exercise
price of $0.17 per share expiring on January 2, 2011.
l) In April 2009, the Company issued 250,000 shares of common stock at a
fair value of $22,500 to settle debt.
m) In May 2009, the Company issued 200,000 shares of common stock to an
investor relations company for consulting services at a fair value of
$10,000.
n) In May 2009, the Company issued 350,750 shares of common stock at a fair
value of $28,060 to six employees for services provided in May 2009.
o) In May 2009, the Company issued 2,000,000 shares of common stock at
$0.05 per share for proceeds of $100,000. Each unit consisted of one share
of common stock and purchase warrant entitling the holder to purchase one
share of common stock at an exercise price of $0.11 per share expiring on
April 1, 2012. The Company paid a commission of $10,000 in connection with
this private placement.
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
7. COMMON STOCK (continued)
For the year ended December 31, 2009: (continued)
p) In May 2009, the Company issued 268,730 shares of common stock at a fair
value of $21,498 to five employees as bonus.
q) In June 2009, the Company issued 300,000 shares of common stock to an
investor relations company for their consulting services at a fair value of
$26,700.
r) In June 2009, the Company issued 816,932 shares of common stock at a
fair value of $44,931 to five employees for services provided in June 2009.
s) In July 2009, the Company issued 125,000 shares of common stock at a
fair value of $10,000 to settle debt.
t) In July 2009, the Company issued 500,000 shares of common stock at a
fair value of $37,500 to settle debt.
u) In August 2009, the Company issued 379,452 shares of common stock at a
fair value of $31,115 to five employees for services provided in August
2009.
v) In August 2009, the Company issued 125,000 shares of common stock at a
fair value of $10,000 for settle debt.
w) In August 2009, the Company issued 1,000,000 units at $0.05 per unit for
common shares subscriptions totaling $50,000 received in June 2009. Each
unit consisted of one share of common stock and purchase warrant entitling
the holder to purchase one share of common stock at an exercise price of
$0.11 per share expiring on June 15, 2011. The Company recorded a
commission of $2,500 that was paid in July 2009 in connection with this
private placement.
x) In September 2009, the Company issued 300,000 shares of common stock to
an investor relations company for consulting services at a fair value of
$24,600.
y) In September 2009, the Company issued 143,000 shares of common stock to
a director for management services at a fair value of $10,000.
z) In September 2009, four notes in the amount of $160,945 were converted
into 2,204,730 units, consisting of one common share at $0.073 per share
and one common share purchase warrant entitling the holder to acquire an
additional common share at an exercise price of $0.08 per share expiring on
August 26, 2014.
aa) In September 2009, the Company issued 3,648,947 shares of common stock
to a director for the exercise of 3,648,947 options at $0.001 per share for
gross proceeds of $3,649.
bb) In September 2009, the Company issued 2,000,000 shares of common stock
at a fair value of $70,000 to a legal firm for legal services.
cc) In September 2009, the Company issued 92,500 shares of common stock at
a fair value of $3,332 to settle debt.
dd) In September 2009, the Company issued 535,320 shares of common stock at
a fair value of $36,402 to five employees for services provided in
September 2009.
ee) In September 2009, the Company issued 6,428,578 shares pursuant to the
promissory notes described in Note 6. The aggregate purchase price of
$450,000 for the units was allocated equally between the notes and shares
contained in each unit. The relative fair value assigned to the shares
totaled $225,000.
ff) In September 2009, the Company issued 1,428,572 shares to a convertible
debt holder for the debt conversion of $200,000.
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
7. COMMON STOCK (continued)
For the year ended December 31, 2009: (continued)
gg) In September 2009, the Company issued 400,000 units at $0.05 per unit
for proceeds of $20,000. Each unit consisted of one share of common stock
and purchase warrant entitling the holder to purchase one share of common
stock at an exercise price of $0.11 per share expiring on August 18, 2011.
hh) In October 2009, the Company issued 500,000 shares of common stock at
$0.05 per share for common share subscriptions totaling $25,000 received in
August 2009. Each unit consisted of one share of common stock and purchase
warrant entitling the holder to purchase one share of common stock at an
exercise price of $0.11 per share expiring on August 17, 2011.
ii) In October 2009, the convertible debt holders elected to convert
$100,000 of the principal amount of those notes into 714,286 shares of
common stock. See Note 8(b).
jj) On November, 2009, the Company issued an aggregate of 1,785,715 shares
of common stock to three investors. These shares were sold in September
2009. See Note 6(b).
kk) In December 2009, the Company issued 500,000 shares of common stock at
$0.07 per share for common share subscriptions totaling $35,000 received in
September 2009. Each unit consisted of one share of common stock and
purchase warrant entitling the holder to purchase one share of common stock
at an exercise price of $0.11 per share expiring on September 3, 2011.
ll) In December 2009, the convertible debt holders elected to convert
$100,000 of the principal amount of those notes into 769,230 shares of
common stock. See Note 8(b).
mm) In December 2009, the Company issued 300,000 shares of common stock at
a fair value of $36,000 for settle debt.
nn) In December 2009, the President of the Company returned 3,648,947
shares of common stock to for his stock options exercised in September 2009
and total of $3,649 was charged back to related party's account.
8. STOCK-BASED COMPENSATION
Stock Bonus Plan
Under the Company's Stock Bonus Plan, employees, directors, officers,
consultants and advisors are eligible to receive a grant of the Company's
shares, provided that bona fide services are rendered by consultants or
advisors and such services must not be in connection with the offer or sale
of securities in a capital-raising transaction. On November 30, 2010, the
Company increased the number of shares issuable pursuant to this plan from
10,500,000 shares to 20,000,000 shares with 9,979,132 common shares
available for future issuance as of December 31, 2010.
Non-Qualified Stock Option Plan
The Company's Non-Qualified Stock Option Plan authorizes the issuance of
common shares to persons that exercise stock options granted. The Company's
employees, directors, officers, consultants and advisors are eligible to be
granted stock options pursuant to this plan, provided that bona fide
services are rendered by such consultants or advisors and such services
must not be in connection with the offer or sale of securities in a
capital-raising transaction. The stock option exercise price is determined
by a committee and cannot be less than $0.001.
On November 30, 2010, the Company increased the number of shares issuable
pursuant to this plan from 17,500,000 shares to 22,500,000 shares with
8,870,666 common shares available for future issuance as of December 31,
2010.
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
8. STOCK-BASED COMPENSATION (continued)
During the year ended December 31, 2010, there were no stock options
granted pursuant to this plan. During the year ended December 31, 2009 the
Company granted 2,263,157 stock options from this plan at a fair value of
$212,822 to two directors at a below market exercise price of $0.001 per
share.
Management stock options
During the year ended December 31, 2010, the Company granted 28,500,000
stock options with a grant date value of $1,994,903 to five directors and
one officer at an exercise price of $0.0714 per share. The Stock options
expire on December 31, 2020. These options were revalued at December 31,
2010 to be $1,994,346. Holders of the management stock options may exercise
the options by paying the exercise price to the Company or on a cashless
basis upon the approval of the Company's board of directors. Should the
options be exercised on a cashless basis, the Company will issue common
shares of the Company with a market value equal to the intrinsic value of
the options at the close of trading on the date of exercise. The management
stock options were not issued under the Company's Non-Qualified Stock
Option Plan and as at July 1, 2010, the Company filed a registration
statement under the Securities Act of 1933 to register the underlying
shares. Accordingly, any shares issuable upon the exercise of these options
will be free trading securities.
The fair value for stock options granted was estimated at the date of grant
and revalued on December 31, 2010 using the Black-Scholes option-pricing
model and the weighted average fair value of stock options granted during
the year ended December 31, 2010 and 2009 was $0.07 and $0.09 per share,
respectively.
The weighted average assumptions used are as follows:
Year Ended December 31
2010 2009
---- ----
Expected dividend yield 0% 0%
Risk-free interest rate 3.28% 1.50%
Expected volatility 239% 123%
Expected option life (in years) 8.93 2.78
A summary of the changes in the Company's stock options is presented below:
Weighted
Weighted Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Number of Price Life Value
Shares $ (Years) $
---------------------------------------------------------------------------
Outstanding, December 31,
2008 3,890,000 0.001 2.99 774,110
Granted 3,717,057 0.001
Exercised (1,620,000) 0.001
---------------------------------------------------------------------------
Outstanding, December 31,
2009 5,987,057 0.001 1.65 652,589
Granted 28,500,000 0.0714
Exercised (1,392,300) 0.001
---------------------------------------------------------------------------
Outstanding, December 31,
2010 33,094,757 0.062 7.98 294,064
---------------------------------------------------------------------------
Exercisable, December 31,
2010 14,094,757 0.048 6.54 310,085
---------------------------------------------------------------------------
As at December 31, 2010, there was $384,251 of unrecognized compensation
costs related to non-vested share-based compensation arrangements granted
which are expected to be recognized over a weighted-average period of two
years. The total compensation cost of shares vested during the year ended
December 31, 2010 and 2009 were $1,610,095 and $324,650, respectively.
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
8.STOCK-BASED COMPENSATION (continued)
A summary of the status of the Company's non-vested options as of December
31, 2010, and changes during the year end of December 31, 2010, is
presented below:
Number of Weighted Average
Non-vested Options Exercise Price
----------- ------- --------------
Non-vested at December 31, 2009 1,453,900 0.0010
Granted 28,500,000 0.0714
Vested (10,953,900) 0.0621
--------------------------------------------------------------------------
Non-vested at December 31, 2010 19,000,000 0.0714
==========================================================================
9. SHARE PURCHASE WARRANTS
A summary of the changes in the Company's share purchase warrants is
presented below:
Weighted Average
Number of shares Exercise Price
---------------- --------------
Balance, December 31, 2008 11,774,962 0.35
Issued 7,812,422 0.10
Exercised (450,000) 0.001
Expired (2,184,573) 0.77
-------------------------------------------------------------------------
Balance, December 31, 2009 16,952,811 0.14
Issued 90,459,600 0.107
Exercised (1,275,000) 0.08(1)
Expired (1,945,277) 0.19
-------------------------------------------------------------------------
Balance, December 31, 2010 0.134
-------------------------------------------------------------------------
(1) In February 2010, the Company issued 347,727 shares of common
stock pursuant to the cashless exercise of 1,275,000 warrants by a
prior director of the Company. This exercise is in accordance with the
cashless exercise provision of the stock purchase warrant. (see note
7(e) and note 8)
In January 2010, the Company modified the exercise price of 3,500,000
shares purchase warrants issued with the convertible debt described in Note
6 (b) from $0.25 to $0.135, in accordance with the adjustment provisions
contained in the warrant agreement. In accordance with ASC 718,
modifications to the terms of an award (i.e. a warrant) are treated as an
exchange of the original award for a new award. Incremental compensation
cost is measured as the excess, if any, of the fair value of the original
award immediately before its terms are modified, measured based on the
share price and other pertinent factors at that date. During the year ended
December 31, 2010, the Company recognized an incremental compensation cost
of $23,376 for these modified share purchase warrants.
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
9. SHARE PURCHASE WARRANTS (continued)
As at December 31, 2010, the following share purchase warrants were
outstanding:
Warrants Exercise Price Expiration Date
-------- -------------- ---------------
233,092 $0.06 7-Jul-2011
252,278 $0.05 31-Dec 2011(1)
307,692 $0.17 2-Feb-2011
343,833 $0.20 7-Jul-2011
400,000 $0.11 18-Aug-2011
500,000 $0.11 17-Aug-2011
500,000 $0.11 3-Sep-2011
590,909 $0.12 19-Jul-2011
900,000 $0.11 5-Apr-2011
1,000,000 $0.11 15-Jun-2011
1,000,000 $0.25 30-Apr-2012
2,000,000 $0.11 1-Apr-2012
2,204,730 $0.08 26-Aug-2014
3,500,000 $0.14 27-Jun-2012
90,459,600 $0.11 19-Jan-2015(2)
-----------
104,192,134
-----------
(1) The warrants can be exercised by paying in cash or on a cashless
basis. (see note 7).
(2)The public warrants are exercisable at any time before January 19,
2015. The Company may redeem some or all of the public warrants at a
price of $0.003 per warrant by giving the holders not less than 30
days' notice at any time the common stock closes, as quoted on the
Bulletin Board, at or above $0.143 per share for five consecutive
trading days.
10. UNIT PURCHASE WARRANTS
On January 28, 2010, the Company issued a warrant in conjunction with the
Underwriting Agreement described in Note 7(a). The warrant had an estimated
fair value of $939,771 and it allows the underwriters to purchase up to
120,000 units at $6.00 per unit for a term of five years from January 19,
2015. Each unit consists of 70 shares of common stock and 70 warrants to
purchase shares of the Company's common stock at an exercise price of
$0.107 per share. As at December 31, 2010, the 120,000 unit purchase
warrants were outstanding.
11. FAIR VALUE MEASUREMENTS
ASC 825 defines fair value as the price that would be received from selling
an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. In determining fair value for
assets and liabilities required or permitted to be recorded at fair value,
the Company considers the principal or most advantageous market in which it
would transact and it considers assumptions that market participants would
use when pricing the asset or liability.
Fair Value Hierarchy
ASC 825 establishes a fair value hierarchy that requires an entity to
maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. A financial instrument's categorization
within the fair value hierarchy is based upon the lowest level of input
that is significant to the fair value measurement. ASC 825 establishes
three levels of inputs that may be used to measure fair value.
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
11. FAIR VALUE MEASUREMENTS (continued)
Level 1
Level 1 applies to assets and liabilities for which there are quoted
prices in active markets for identical assets or liabilities.
Valuations are based on quoted prices that are readily and regularly
available in an active market and do not entail a significant degree
of judgment.
Level 2
Level 2 applies to assets and liabilities for which there are other
than Level 1 observable inputs such as quoted prices for similar
assets or liabilities in active markets, quoted prices for identical
assets or liabilities in markets with insufficient volume or
infrequent transactions (less active markets), or model-derived
valuations in which significant inputs are observable or can be
derived principally from, or corroborated by, observable market data.
Level 2 instruments require more management judgment and subjectivity
as compared to Level 1 instruments.
Level 3
Level 3 applies to assets and liabilities for which there are
unobservable inputs to the valuation methodology that are significant
to the measurement of the fair value of the assets or liabilities. The
determination of fair value for Level 3 instruments requires the most
management judgment and subjectivity.
Assets measured at fair value on a recurring basis were presented on the
Company's consolidated balance sheet as of December 31, 2010 as follows:
Fair Value Measurements Using
Quoted
Prices in
Active Significant
Markets For Other Significant
Identical Observable Unobservable Balance as of
Instruments Inputs Inputs December 31,
(Level 1) (Level 2) (Level 3) 2010
-------------------------------------------------
Assets:
Cash equivalents $ 1,770,194 $ - $ - $ 1,770,194
-----------------------------------------------------------------------------
Total assets measured at $ 1,770,194 $ - $ - $ 1,770,194
fair value
-----------------------------------------------------------------------------
Liabilities:
Derivative liabilities $ - $ 145,159 $ - $ 145,159
-----------------------------------------------------------------------------
Total liabilities
measured at fair value $ - $ 145,159 $ - $ 145,159
-----------------------------------------------------------------------------
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
12. DERIVATIVE LIABILITIES
The embedded conversion option in the Company's note described in Note 6(b)
contains a reset provision that can cause an adjustment to the conversion
price if the Company issues certain equity instruments at a price lower
than the initial conversion price. The fair value of these liabilities will
be re-measured at the end of every reporting period and the change in fair
value will be reported in our consolidated statement of operations as a
gain or loss on derivative financial instruments.
The following table summarizes the change in derivative liabilities for the
year ended December 31, 2010 and 2009:
$
Derivative Liabilities at December 31, 2008 -
Addition of new derivative liabilities 753,494
Conversion of derivative liabilities (369,241)
Change in fair value of derivative liabilities 635,250
---------------------------------------------------------------------------
Derivative Liabilities at December 31, 2009 1,019,503
Settlement of derivative liabilities (58,150)
Change in fair value of derivative liabilities (816,194)
---------------------------------------------------------------------------
Derivative Liabilities at December 31, 2010 145,159
---------------------------------------------------------------------------
The Company used the Black-Scholes option pricing model to value the
embedded conversion feature using the following assumptions: number of
options as set forth in the convertible note agreements; no expected
dividend yield; expected volatility ranging from 182% - 228%; risk-free
interest rates ranging from 0.42% - 1.98% and expected terms based on the
contractual term.
13. COMMITMENTS AND CONTINGENCIES
a) On April 4, 2006, the Company entered into a consulting agreement with a
term of nine months for consideration of 75,000 common shares. As of
December 31, 2010, the Company had issued 37,500 common shares and 37,500
common shares are still owed to the consultant.
b) On April 10, 2006, the Company entered into a consulting agreement with
a term of one year for consideration of 75,000 common shares. As of
December 31, 2010, the Company had issued 37,500 common shares and 37,500
common shares are still owed to the consultant.
c) During the year ended December 31, 2010, BioCurex China
entered into a lease agreement with a third party with a term from February
15, 2009 to February 1, 2012 in consideration of $78,200 RMB (approximately
$11,885 USD) at December 31, 2010 to paid annually.
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
14. INCOME TAXES
The Company has adopted the provisions of ASC 740, "Accounting for Income
Taxes". Pursuant to ASC 740 the Company is required to compute tax asset
benefits for net operating losses carried forward. The potential benefit of
net operating losses have not been recognized in the consolidated financial
statements because the Company cannot be assured that it is more likely
than not that it will utilize the net operating losses carried forward in
future years.
The Company has incurred operating losses of approximately $14,435,298
which, if unutilized, will expire through to 2030. Future tax benefits,
which may arise as a result of these losses, have not been recognized in
these consolidated financial statements, and have been offset by a
valuation allowance. The following table lists the fiscal year in which the
loss was incurred and the expiration date of the loss.
Year Net Expiration
Incurred Loss Date
-------- ---- ----
2000 $ 24,052 2020
2001 793,976 2021
2002 231,928 2022
2003 1,120,379 2023
2004 1,400,412 2024
2005 1,645,391 2025
2006 1,888,080 2026
2007 2,327,750 2027
2008 1,050,348 2028
2009 2,221,456 2029
2010 1,731,526 2030
-----------
$14,435,298
-----------
The Company is subject to United States federal and state income
taxes at an approximate rate of 35%. The reconciliation of the provision
for income taxes at the United States federal statutory rate
compared to the Company's income tax expense as reported is as follows:
Year Ended Year Ended
December 31, December 31,
2010 2009
$ $
Income tax recovery at statutory rate 1,137,405 1,226,417
Accretion of discount on debt (214,844) (130,542)
Derivative gain/loss 285,668 (222,338)
Loss on convertible debt modification - 174,301
Stock based compensation (567,778) (144,400)
Financing costs (33,277) (129,353)
Other 15,630 6,400
Expiry of losses (31,483) -
Valuation allowance change (591,321) (780,485)
--------------------------------------------------------------------------
Provision for income taxes - -
--------------------------------------------------------------------------
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
14. INCOME TAXES (continued)
The significant components of deferred income tax assets and liabilities as
at December 31, 2010 and 2009 are as follows:
December 31, December 31,
2010 2009
$ $
------------------------------
Net operating loss carryforward 5,052,354 4,477,802
Intangible assets 52,012 35,243
Valuation allowance (5,104,366) (4,513,045)
---------------------------------------------------------------------------
Net deferred income tax asset - -
---------------------------------------------------------------------------
15. SUBSEQUENT EVENTS
a) In January 2011, the Company issued 500,000 shares of common stock to a
vendor to settle accounts payable of $35,000.
b) In January 2011, the Company entered into a consulting agreement for
investor relation consulting services ending May 31, 2011. The Company
agreed to issue 500,000 restricted common shares on the agreement date and
issue up to 4,500,000 restricted shares which will be held in custody by
the Company subject to certain performance conditions. The Company has the
option to issue cash rather than shares based on a formula specified in the
agreement.
16. RESTATEMENT
The Company has restated the December 31, 2009 financial statements due to
an error in the accounting for the conversion feature embedded in the
convertible note described in Note 6(b). The Company entered into a loan
modification agreement, dated as of August 31, 2009, with the debt holders.
The present value of the cash flows under the terms of the July 1, 2009
debt instrument was greater than 10% different from the November 26, 2008
debt instrument. As a result, in accordance with ASC 470-50 Debt -
Modifications and Extinguishments, the Company deemed the terms of the
amendment to be substantially different and treated the November 26, 2008
convertible notes extinguished and exchanged for new convertible notes. The
fair value of the July 1, 2009 Notes was recorded at July 1, 2009. In
accordance with ASC 470-20, the Company determined there was no intrinsic
value to the conversion feature and thus no beneficial conversion feature
and the Company recorded a discount equal to the difference of the face
value of the new note and the present value of the revised cash flows.
After further review, the Company has determined that the conversion
feature should have been classified as derivative liability. The Company
has recorded the fair value of the derivative liability on the date of
issuance and the change in fair value of the derivative liability for each
subsequent balance sheet date.
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
16. RESTATEMENT (continued)
The following tables reflect the adjustment and restated amounts:
December 31, 2009
As Previously December 31, 2009
Reported Adjustment As Restated
$ $ $
----------------- ---------- ----------------
Consolidated Balance Sheets
Current Liabilities
Derivative liabilities 39,966 732,588 (a)
616,190 (b)
(369,241) (d) 1,019,503
Long Term Liabilities
Convertible debt 1,411,801 48,251 (c)
(261,053) (e) 1,198,999
Stockholders' Equity
Additional Paid-in Capital 17,476,322 369,241 (d) 17,845,563
Retained Earnings (19,435,244) (1,135,976) (20,571,220)
Period from
January 1, 2001 Period from
(Date of January 1, 2001
Inception) to (Date of
December 31, Inception) to
2009 December 31,
As Previously 2009
Reported Adjustment As Restated
$ $ $
Consolidated Statements of
Operations and Other
Comprehensive Loss
Accretion of discounts on
debt (3,265,883) (48,251) (c) (3,314,134)
Loss on derivative 616,190)
financial instruments (98,728) (471,535) (b) (714,918)
Gain (loss) on
extinguishments of
convertible debt 96,626 (471,535) (e) (374,909)
Net Loss (19,435,244) (616,190) (b)
(48,251) (c)
(471,535) (e) (20,571,220)
Total Comprehensive Loss (19,435,244) (616,190) (b)
(48,251) (c)
(471,535) (e) (20,571,220)
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
16. RESTATEMENT (continued)
Year Ended
December 31,
2009 Year Ended
As Previously December 31, 2009
Reported Adjustment As Restated
$ $ $
Consolidated Statements of
Operations and Other
Comprehensive Loss
Accretion of discounts on
debt (324,727) (48,251) (c) (372,978)
Loss on derivative 616,190)
financial instruments (19,060) (471,535) (b) (635,250)
Gain (loss) on
extinguishments of
convertible debt 969,538 (471,535) (e) 498,003
Net Loss (2,368,072) (616,190) (b)
(48,251) (c)
(471,535) (e) (3,504,048)
Total Comprehensive Loss (2,352,543) (616,190) (b)
(48,251) (c)
(471,535) (e) (3,488,519)
(a) To record fair value of derivative liabilities upon issuance of
convertible notes.
(b) To record change in fair value of the derivative liabilities.
(c) To adjust the discount and accretion on the convertible note.
(d) To record conversion of derivative liability upon conversion of debt.
(e) To revise accounting for modification of convertible debt for
derivative included in modified convertible debt.
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
---------------------- Principal Executive July 3, 2012
Dr. Ricardo Moro Officer and a Director
/s/ Gladys Chan
---------------------- Principal Financial July 3, 2012
Gladys Chan and Accounting Officer
/s/ Paul Slowey
---------------------------- President and a Director July 4, 2012
Paul Slowey
/s/ Denis Burger
---------------------- Director
Denis Burger
BIOCUREX, INC.
FORM 10-K
EXHIBITS