Attached files
WHISPERING OAKS INTERNATIONAL, INC.
(DBA BIOCUREX, INC.)
(A Development Stage Company)
(Expressed in U.S. dollars)
NOTES TO THE FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2007 AND 2006
(unaudited)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2010
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _____ to _______
Commission File Number: 0-26947
BIOCUREX, INC.
-------------------------------
(Exact Name of Registrant as Specified in its Charter)
Texas 75-2742601
------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.
incorporation or organization)
7080 River Road, Suite 215
Richmond, British Columbia V6X 1X5
---------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code: (866) 884-8669
N/A
----------------------------------------------------------------
Former name, former address, and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Larger accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 166,430,674 shares outstanding
as of May 10, 2010.
BIOCUREX, INC.
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
March 31, 2010
INDEX
Consolidated Balance Sheets F-1
Consolidated Statements of Operations F-2
Consolidated Statements of Cash Flows F-3
Notes to the Consolidated Financial Statements F-4
BIOCUREX, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. dollars)
March 31, December 31,
2010 2009
$ $
(unaudited)
ASSETS
Current Assets
Cash 3,118,725 126,605
Prepaid expenses and other 29,316 8,380
------------ ------------
Total Current Assets 3,148,041 134,985
Debt issue Costs (Note 4 (b) and 6 (b)) 67,134 143,927
Deferred financing costs - 689,862
Patents (Note 3) 476,662 471,464
------------ ------------
Total Assets 3,691,837 1,440,238
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable 172,694 595,426
Accrued liabilities 363,054 462,159
Loans payable (Note 4 (a)) - 280,189
Due to related parties (Note 5) 444,585 594,107
Convertible notes payable (Note 6 (a)) 33,885 33,885
------------ ------------
1,014,218 1,965,766
------------ ------------
Loans payable (Note 4 (b)) 69,619 62,707
Convertible debt (Note 6 (b)) 462,550 1,411,801
------------ ------------
Total Liabilities 1,546,387 3,440,274
------------ ------------
Commitments and Contingencies (Notes 1 and 12)
Subsequent Event (Note 13)
Stockholders' Equity (Deficit)
Common stock
Authorized: 450,000,000 shares, par value $0.001
Issued and outstanding: 166,146,675
(December 31, 2009 - 73,062,205) 166,147 73,061
Additional paid-in capital 23,183,220 17,476,322
Common stock subscribed 284 -
Accumulated deficit (114,175) (114,175)
Deficit accumulated during the development stage (21,090,026) (19,435,244)
------------ ------------
Stockholders' Equity (Deficit) 2,145,450 (2,000,036)
------------ ------------
Total Liabilities and Stockholders'
Equity (Deficit) 3,691,837 1,440,238
============ ============
The accompanying notes are an integral part of these consolidated financial
statements
F-1
BIOCUREX, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. dollars)
(unaudited)
Accumulated During the
Three Months Ended Development Stage
March 31, January 1, 2001
2010 2009 to March 31, 2010
$ $ $
---- ---- ------------------
Revenue - - 1,464,456
------------- ------------- -------------
Operating Expenses
Amortization 10,691 9,822 235,231
General and administrative
(Notes 5(a) & 8) 944,505 295,909 7,041,981
Professional and consulting fees 101,569 59,259 5,251,086
Research and development (Note 5(a)) 116,253 128,637 4,361,086
------------- ------------- -------------
Total Operating Expenses 1,173,018 493,627 16,889,384
------------- ------------- -------------
Loss From Operations (1,173,018) (493,627) (15,424,928)
------------- ------------- -------------
Other Income (Expense)
Accretion of discounts on debt (414,172) (29,542) (3,680,055)
Amortization of debt issue costs (76,793) (53,608) (768,024)
Gain (loss) on extinguishments of
convertible debt - - 96,626
Gain (loss) sale of equity
investment securities - - 147,991
Gain on settlement of accounts
payable 44,655 - 102,937
Interest expense (21,958) (34,837) (1,768,408)
Interest income - - 383,679
Loss on impairment interest of
patent cost - - (67,620)
Loss on issuance of shares (13,496) (18,757) (112,224)
------------- ------------- -------------
Total Other Expense (481,764) (136,744) (5,665,098)
------------- ------------- -------------
Net Loss for the Period (1,654,782) (630,371) (21,090,026)
Other Comprehensive Loss
Unrealized loss on investment securities - (11,803) -
------------- ------------- -------------
Total Comprehensive Loss (1,654,782) (642,174) (21,090,026)
------------- ------------- -------------
Net Loss Per Share - Basic and Diluted (0.01) (0.01)
------------- -------------
Weighted Average Shares Outstanding 136,775,000 44,438,500
============= =============
The accompanying notes are an integral part of these consolidated financial
statements
F-2
BIOCUREX, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. dollars)
(unaudited)
Accumulated During
Three Months Ended The Development Stage
March 31, January 1, 2001
2010 2009 to March 31, 2010
-----------------------------------------------
$ $ $
Operating Activities:
Net loss for the period (1,654,782) (630,371) (21,090,026)
Adjustments to reconcile net loss to
net cash used in operating activities:
Accretion of discounts on debt 414,172 29,542 3,680,055
Allowance for uncollectible
notes receivable - - 98,129
Amortization 10,691 9,822 235,231
Amortization of debt issue costs 76,793 53,609 768,024
Loss (gain) on extinguishments
of debt - - (96,626)
Loss (gain) on sale of
investment securities - - (253,065)
Loss from impairment of patents - - 67,620
Gain on settlement of accounts
payable (44,655) - (44,655)
Loss on issuance of shares 13,496 18,757 112,224
Stock-based compensation 802,901 314,611 6,865,438
Changes in operating assets and liabilities:
Notes and interest receivable - - (6,296)
Prepaid expenses and other (20,936) 70,690 6,379
Accounts payable & accrued
liabilities (409,677) 83,772 1,702,025
(Decrease) in related party (149,522) - (41,545)
Deferred revenue - - (162,000)
Subscriptions receivable - - (100,682)
------------ ----------- -------------
Net Cash Used in Operating Activities (961,519) (49,568) (8,259,770)
------------ ----------- -------------
Investing Activities:
Net Proceeds from notes receivable - - 1,171
Patent costs (15,889) (10,005) (575,044)
Proceeds from sale of investment
securities - - 451,123
------------ ----------- -------------
Net Cash Used in Investing Activities (15,889) (10,005) (122,750)
------------ ----------- -------------
Financing Activities:
Due to related parties - - 552,281
Proceeds from loans payable - 50,000 575,000
Repayment on loans payable (450,000) - (450,000)
Proceeds from convertible debt - - 3,639,743
Repayment on convertible debt (1,186,700) - (2,400,951)
Deferred financing costs (94,850) - (769,486)
Debt issue costs - - (89,444)
Proceeds from shares issued of
common stock and share
subscriptions received 6,461,400 40,000 9,962,872
Proceeds from the exercise of
stock options and warrants 1,204 - 1,147,728
Share issuance costs (761,526) - (909,049)
------------ ----------- -------------
Net Cash Provided by Financing
Activities 3,969,528 90,000 11,258,694
------------ ----------- -------------
Net Increase in Cash 2,992,120 30,427 2,876,174
Cash - Beginning of period 126,605 45,625 242,551
------------ ----------- -------------
Cash - End of period 3,118,725 76,052 3,118,725
------------ ----------- -------------
Non-cash Investing and Financing
Activities:
Share issued to settle debt 81,000 43,070 1,063,681
Units issued as share issuance costs 939,771 - 939,771
------------ ----------- -------------
Note payable converted into
common shares - - 1,594,021
------------ ----------- -------------
Supplemental Disclosures:
Interest paid 21,880 - 663,467
Income taxes - - -
============ =========== =============
The accompanying notes are an integral part of these consolidated financial
statements
F-3
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(unaudited)
1. NATURE OF BUSINESS AND CONTINUANCE OF OPERATIONS
BioCurex, Inc. (the "Company") was incorporated on December 8, 1997, under
the laws of the State of Texas. During the first quarter of 2001, the Company
ceased its business activities relating to the acquisition and sale of
thoroughbred racehorses when a change of majority control occurred. On
February 21, 2001, the Company acquired intellectual properties and patents
relating to cancer diagnostics and therapeutics. The Company is now in the
business of developing, producing, marketing and licensing cancer diagnostic
kits and is currently considered a development stage enterprise as defined by
Financial Accounting Standards Board ("FASB") Accounting Standards
Codification ("ASC") 915, Development Stage Entities. On October 31, 2008,
the Company incorporated BioCurex China Co., Ltd. ("Biocurex China"), a
wholly-owned subsidiary in China.
The consolidated financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America
applicable to a going concern, which contemplates the realization of assets
and liquidation of liabilities in the normal course of business. The Company
does not have sufficient cash nor does it have an established source of
revenue to cover its ongoing costs of operations. As at March 31, 2010, the
Company has a working capital of $2,133,823 and has accumulated losses of
$21,090,026 since the inception of the development stage. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
These financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These consolidated financial statements are presented in accordance with
accounting principles generally accepted in the United States, and are
expressed in U.S. dollars. These consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiary, Biocurex China.
The Company's fiscal year-end is December 31.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the periods. The Company regularly evaluates estimates and assumptions
related to valuation of notes receivable, valuation of patent costs,
stock-based compensation, financial instrument valuations, and deferred
income tax asset valuation allowances. The Company bases its estimates and
assumptions on current facts, historical experience and various other factors
that it believes to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets
and liabilities
4
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates (continued)
and the accrual of costs and expenses that are not readily apparent from
other sources. The actual results experienced by the Company may differ
materially and adversely from the Company's estimates. To the extent there
are material differences between the estimates and the actual results, future
results of operations will be affected.
Interim Financial Statements
The interim unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States for
interim financial information and with the instructions for Securities and
Exchange Commission ("SEC") Form 10-Q.
They do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
Therefore, these financial statements should be read in conjunction with the
Company's audited financial statements and notes thereto for the year ended
December 31, 2009, included in the Company's Annual Report on Form 10-K filed
on April 1, 2010 with the SEC.
The financial statements included herein are unaudited; however, they contain
all normal recurring accruals and adjustments that, in the opinion of
management, are necessary to present fairly the Company's financial position
as at March 31, 2010, and the results of its operations and cash flows for
the three months ended March 31, 2010 and 2009. The results of operations for
the three months ended March 31, 2010 are not necessarily indicative of the
results to be expected for future quarters or the full year.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three
months or less at the time of issuance to be cash equivalents.
Registration Payment Arrangements
The Company accounts for registration rights arrangements and related
liquidated damages provisions under FASB ASC 815-40, Derivatives and Hedging
- Contracts in Entity's own Entity, which addresses an issuer's accounting
for registration payment arrangements. ASC 815-40 defines a registration
payment arrangement as an arrangement where the issuer i) will endeavor to
file a registration statement for the resale of financial instruments, have
the registration statement declared effective, or maintain its effectiveness
and ii) transfer consideration to the counterparty if the registration
statement is not declared effective or its effectiveness is not maintained.
5
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Registration Payment Arrangements (continued)
ASC 815-40 requires the contingent obligation to make future payments or
otherwise transfer consideration under a registration payment arrangement,
whether issued as a separate agreement or included as a provision of a
financial instrument or other agreement, to be separately recognized and
measured in accordance with ASC 450, Contingencies. As at March 31, 2010, the
Company has no liabilities related to its registration statement.
Research and Development Costs
Research and development costs are charged to operations as incurred.
Foreign Currency Translation
The Company's functional and reporting currency is the United States dollar.
Monetary assets and liabilities denominated in foreign currencies are
translated to United States dollars in accordance with ASC 830, Foreign
Currency Translation Matters using the exchange rate prevailing at the
balance sheet date. Gains and losses arising on translation or settlement of
foreign currency denominated transactions or balances are included in the
determination of income. Foreign currency transactions are primarily
undertaken in Canadian dollars and Chinese Renminbi.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 605 Revenue
Recognition, Revenue is recognized only when the price is fixed or
determinable, persuasive evidence of an arrangement exists, the service is
performed, and ~ollectability is reasonably assured. The Company's revenue
consists of license fees related to the licensing of its RECAF(TM)
technology.
Long-lived Assets
In accordance with ASC 360, Property Plant and Equipment , the Company tests
long-lived assets or asset groups for recoverability when events or changes
in circumstances indicate that their carrying amount may not be recoverable.
Circumstances which could trigger a review include, but are not limited to:
significant decreases in the market price of the asset; significant adverse
changes in the business climate or legal factors; accumulation of costs
significantly in excess of the amount originally expected for the acquisition
or construction of the asset; current period cash flow or operating losses
combined with a history of losses or a forecast of continuing losses
associated with the use of the asset; and current expectation that the asset
will more likely than not be sold or disposed significantly before the end of
its estimated useful life.
6
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Long-lived Assets (continued)
Recoverability is assessed based on the carrying amount of the asset and its
fair value which is generally determined based on the sum of the undiscounted
cash flows expected to result from the use and the eventual disposal of the
asset, as well as specific appraisal in certain instances. An impairment loss
is recognized when the carrying amount is not recoverable and exceeds fair
value.
Fair Value of Financial Instruments
The Company's financial instruments, which consist principally of cash,
accounts payable, loans payable, convertible notes payable, convertible debt
and amounts due to related parties, are valued in accordance with ASC 820,
Fair Value Measurements and Disclosures and ASC 825, Financial Instruments,
See Note 11.
Income Taxes
The Company accounts for income taxes using the asset and liability method in
accordance with ASC 740, Income Taxes. The asset and liability method
provides that deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the
financial reporting and tax bases of assets and liabilities, and for
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using the currently enacted tax rates and laws that
will be in effect when the differences are expected to reverse. The Company
records a valuation allowance to reduce deferred tax assets to the amount
that is believed more likely than not to be realized.
Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718,
Compensation - Stock Compensation, and ASC 505-50, Equity-Based Payments to
Non-Employees using the fair value method.
All transactions in which goods or services are the consideration received
for the issuance of equity instruments are accounted for based on the fair
value of the consideration received or the fair value of the equity
instrument issued, whichever is more reliably measurable.
7
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Basic and Diluted Net Loss per Share
The Company computes net loss per share in accordance with ASC 260 Earnings
Per Share which requires presentation of basic earnings per share and diluted
earnings per share. The computation of basic earnings per share is computed
by dividing income available to common stockholders by the weighted-average
number of outstanding common shares during the period. Diluted earnings per
share gives effect to all potentially dilutive common shares outstanding
during the period. The computation of diluted EPS does not assume conversion,
exercise or contingent exercise of securities that would have an
anti-dilutive effect on earnings. As of March 31, 2010 and 2009, the Company
had approximately 159,712,000 and 19,298,000 respectively, of potentially
dilutive securities, including options, warrants and equity instruments
related to convertible notes payable and convertible debt.
Recent Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in
effect. These pronouncements did not have any material impact on the
financial statements unless otherwise disclosed, and the Company does not
believe that there are any other new accounting pronouncements that have been
issued that might have a material impact on its financial position or results
of operations.
Reclassifications
Certain reclassifications have been made to the prior period's financial
statements to conform to the current period's presentation.
3. PATENTS
Patents relate to developing the method for diagnostic and treatment of
cancer using a new cancer marker called "RECAF." These patents are presently
registered in 23 countries with ongoing registrations currently being
conducted. Patents are recorded at cost and have a definite life. Once the
Company receives patent approval, amortization is calculated using the
straight-line method over the remaining life of the patents. As of March 31,
2010, the Company had received patent approvals from five countries.
Additions made after March 31, 2010 will have a remaining life of
approximately 5 years. The Company intends to apply for extensions in the
near future.
8
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(unaudited)
3. PATENTS (continued)
A schedule of the patents is as follows:
March 31, December 31,
2010 2009
-------- ------------
$ $
Patents 703,142 696,003
Less:
Accumulated amortization (226,480) (224,539)
----------------------------------------------------------------------------
Net Carrying Value 476,662 471,464
============================================================================
Amortization expense totaled $10,691 and $9,822 for the three months ended
March 31, 2010 and 2009, respectively.
The estimated future amortization expense is as follows:
$
2010 32,075
2011 42,765
2012 42,765
2013 42,765
2014 42,765
Thereafter 273,527
-----------
476,662
===========
4. LOANS PAYABLE
a) On September 10, 2009, the Company completed a private placement financing
in which it sold units consisting of 17 promissory notes in the aggregate
principal amount of $450,000 and 6,428,578 shares of its common stock for
an aggregate purchase price of $450,000.
The promissory notes bear interest at a rate of 10% per annum. Both
interest and principal are payable on August 31, 2010. However, if the
Company sells any capital stock and receives gross proceeds of at least $3
million from such sale prior to August 31, 2010, it must prepay the
principal under the notes from such proceeds.
The aggregate purchase price for the units was allocated equally between
the notes and shares contained in each Unit based on their relative fair
value. The relative fair value assigned to the shares totaled $225,000.
These amounts were recorded as a notes discount
9
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(unaudited)
4. LOANS PAYABLE (continued)
and will be amortized as interest expense over the term of the promissory
notes.
In February 2010, the Company repaid principal of $450,000 and interest of
$16,890. As of the period ended of March 31, 2010, the Company recorded
$169,811 (2008 - $Nil) of accretion expense related to these promissory
notes.
b) On September 21, 2009, the Company completed a private placement financing
in which it sold units consisting of three promissory notes in the
aggregate principal amount of $125,000 and 1,785,715 shares of its common
stock for an aggregate purchase price of $125,000.
The promissory notes bear interest at a rate of 10% per annum. Both
interest and principal are payable on January 31, 2013.
The aggregate purchase price for the units was allocated equally between
the notes and shares contained in each Unit based on their relative fair
value. The relative fair value assigned to the shares totaled $62,500.
These amounts were recorded as a notes discount and will be amortized as
interest expense over the term of the promissory notes.
During the three months ended of March 31, 2010, the Company paid interest
in the amount of $3,082 (2009 - $ nil) and recorded of $6,912 as the
accretion expense related to these promissory notes. As at March 31, 2010,
the carring value of these notes was $69,619 (December 31, 2009 -
$62,707).
The Company incurred $118,612 in debt issue costs for the promissory notes
described in Note 4(a) and (b). The debt issue costs are being expensed
over the term of the promissory notes.
During the three month ended March 31, 2010, the Company expensed $71,559
(2009 - $nil) of the debt issue costs related to these promissory notes,
the balance of debt issue costs was $8,641 (December 31, 2009 - $80,200).
5. RELATED PARTY BALANCE AND TRANSACTIONS
March 31, December 31,
2010 2009
-------- ------------
Due to Pacific BioSciences Research Centre Inc.
and Company's President (a) $415,655 $526,827
Due to Company's Chairman (b) 24,000 62,350
Due to former officer (c) 4,930 4,930
---------- ----------
$444,585 $594,107
========== ==========
10
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(unaudited)
5. RELATED PARTY BALANCE AND TRANSACTIONS (continued)
a) The Company's research and development is performed by Pacific BioSciences
Research Centre ("Pacific"). Pacific is 100% owned by the President of the
Company. During the three months ended March 31, 2010 and 2009, Pacific
performed research and development for the Company valued at $96,332 and
$128,437, respectively.
Pacific also provided administrative services during the three months
ended March 31, 2010 and 2009, valued at $53,457 and $41,541,
respectively. During the three months ended March 31, 2010, and 2009,
Pacific charged interest of $2,345 and $2,631, respectively, calculated at
bank prime rate on the monthly balance owed. As at March 31, 2010 and
December 31, 2009, the amount due to Pacific of $403,181 and $479,129,
respectively, is unsecured and due on demand.
On September 15, 2009, the Company made an agreement with the Company's
President to provide management services for a fee of $250,000 per annum.
During three months ended March 31, 2010, the Company incurred $62,500
(2009 - $nil) for the management services of which $12,474 remains unpaid
balance as of March 31, 2010 (2009 - $nil).
b) On September 15, 2009, the Company made an agreement with the Company's
Chairman to provide management services for a fee of $100,000 per annum
based on 40 hours per month. During the three months ended March 31, 2010,
the Company incurred $32,333 of which $24,000 remains unpaid as of March
31, 2010 (2009: $nil).
c) The balance includes $4,930 owing to a former officer which is unsecured,
non-interest bearing and due on demand.
d) During the three months ended March 31, 2010, the Company granted
28,500,000 (2009 - 2,263,157) stock options to five directors and one
officer at a market exercise price of $0.0714 per share (see note 8).
6. CONVERTIBLE NOTES PAYABLE AND CONVERTIBLE DEBT
a) The Company received funds during 2003 from the issuance of ten
convertible notes totaling $529,743, bearing interest at 5% and due on
demand. Under the convertibility terms of the notes payable, the
principal, plus accrued interest, can be converted immediately, at the
option of the holder, either in whole, or in part, into fully paid common
shares of the Company. The conversion price per share is equal to the
lesser of the stated price (ranging between $0.05 and $0.23) or 75% of the
average closing bid prices for the five trading days ending on the trading
day immediately before the date of the conversion. In conjunction with the
issuance of the notes, the Company issued 2,434,088 warrants to the note
holders entitling them to purchase 2,434,088 shares of common stock at
exercise prices between $0.08 and $0.38. The warrants expired two years
after the issuance date.
11
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(unaudited)
6. CONVERTIBLE NOTES PAYABLE AND CONVERTIBLE DEBT (continued)
In accordance with ASC 470-20, Debt - Debt with Conversion and Other
Options, the proceeds were allocated between the debt and warrants based
on their relative fair values. The value assigned to the warrants totaled
$274,601 and was expensed immediately due to the notes being due on
demand. In addition to the shares to be received upon conversion, the note
holder will also receive an equal number of warrants to purchase shares at
110% of the conversion price amount.
The beneficial conversion feature was calculated under ASC 470-20, and
equaled $255,142. Due to the notes being due on demand, the discount was
expensed in fiscal 2003.
One of the notes payable in the amount of $53,000 was repaid in April
2003. A gain of $33,584 was recorded on the date of repurchase of the
convertible debenture as determined through the calculation of the
intrinsic value of the beneficial conversion feature on the date of
extinguishment.
Prior to December 31, 2006, notes in the amount of $281,915 were converted
into 2,123,634 units consisting of one share and one share purchase
warrant. In accordance with ASC 470-20, the Company recognized $132,989
for the intrinsic values of the embedded conversion options.
In August 2009, four notes in the amount of $160,945 were converted into
2,204,730 units, consisting of one common share at $0.073 per share and
one common share purchase warrant entitling the holder to acquire an
additional common share at an exercise price of $0.08 per share expiring
on August 26, 2014. In accordance with ASC 470-20, the Company recognized
$71,389 for the intrinsic value of the embedded conversion option.
At March 31, 2010, one $33,885 (December 31, 2009 - $33,885) convertible
note remains outstanding.
b) On July 7, 2007, the Company received proceeds of $3,000,000 from the
issuance of convertible notes (the "Notes"), plus share purchase warrants,
to two private investors. The share purchase warrants allow the holders to
purchase up to 3,500,000 shares of the Company's common stock at a price
of $0.60 per share expiring September 25, 2012. The Notes bear interest
annually at a rate of prime (as adjusted monthly on the first business day
of each month) plus 2.75% per year. The Notes are due and payable on June
25, 2010 and are secured by substantially all of the Company's assets.
Interest is payable monthly with the first interest payment due on August
1, 2007.
12
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(unaudited)
6. CONVERTIBLE NOTES PAYABLE AND CONVERTIBLE DEBT (continued)
Beginning on November 1, 2007, the Company was required to make monthly
payments of $100,000 towards the principal amount of the Notes. If the
Company fails to make any interest or principal payment when due, the
Notes will become immediately due and payable. At the holders' option the
Notes were convertible into shares of the Company's common stock at a
conversion price of $0.60 per share. The Company may elect to pay the
monthly redemption amounts and accrued interest with shares of its common
stock, which will be determined by dividing the amount to be paid by the
lesser of the conversion price then in effect or 80% of the weighted
average price of the Company's common stock for the ten trading days
preceding the payment date.
In order to make principal or interest payments with shares of its common
stock certain conditions must be met, including the condition that the
number of shares to be issued in payment of principal or interest cannot
exceed 25% of the total shares traded for the ten trading days prior to
the payment date. The Company agreed to file a Form SB-2 Registration
Statement ("SB-2") with the U.S. Securities and Exchange Commission in
order that the shares of common stock issuable upon the conversion of the
Notes or the exercise of the share purchase warrants may be resold in the
public market. The Company was required to file the SB-2 no later than
July 30, 2007 (filed), to cause the SB-2 to become effective by November
26, 2007, and to keep the SB-2 continuously effective until the shares
covered by the SB-2 have been sold or can be sold pursuant to Rule 144(k).
In the event the closing price of the Company's common stock is $1.20 or
greater for ten consecutive trading days, the holders will be required to
exercise the 3,500,000 share purchase warrants within ten days notice by
the Company. Following the exercise of the share purchase warrants, the
Company will issue to the holders 3,500,000 new share purchase warrants,
which will entitle the holders to purchase 1,750,000 shares of common
stock. Two share purchase warrants will be exercisable at a price of $1.20
per share at any time prior to the later of June 25, 2012 or three years
from the date the new share purchase warrants are issued.
In accordance with ASC 470-20, the proceeds were allocated between the
debt and warrants based on their relative fair values. The relative fair
value assigned to the share purchase warrants totaled $1,426,381 and was
determined using the Black-Scholes option pricing model using the
following weighted average assumptions: average risk-free interest rate of
4.76%; expected life of five years; expected volatility of 176%; and no
expected dividends. These amounts were recorded as a debt discount and
will be amortized as interest expense over the term of the convertible
debentures. The effective interest rate at December 31, 2008 is 406%. For
the year ended December 31, 2008, the Company recorded $976,064 (2007 -
$791,092) of accretion expense related to the convertible debt.
13
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(unaudited)
6. CONVERTIBLE NOTES PAYABLE AND CONVERTIBLE DEBT (continued)
On August 18, 2008, the Company agreed to re-price the 3,500,000 share
purchase warrants to an exercise price of $0.25 per share. In accordance
with ASC 718, modifications to the terms of an award are treated as an
exchange of the original award for a new award. Incremental interest
expense is measured as the excess, if any, of the fair value of the
original award immediately before its terms are modified, measured based
on the share price and other pertinent factors at that date. The Company
recognized an incremental interest expense of $192,264 for these modified
purchase warrants.
On November 26, 2008, the Company received notification from the note
holders which modified the terms of the Notes. Pursuant to the
notification the interest and principal payments payable in December 2008
and all subsequent principal and interest payments were deferred until May
1, 2009. In addition the principal amount outstanding was increased by
$255,000 to $1,955,000.
In accordance with ASC 470-60 Debt - Troubled Debt Restructurings by
Debtors the Company determined that the creditor did not grant a
concession even though the payments were deferred as the total amount
owing by the Company was increased. As at November 26, 2008, prior to the
modification of the convertible notes, the carrying value of the
convertible notes was $613,738. The remaining unaccredited discount of
$304,467 related to the convertible notes was charged to operations in the
year ended of 2008.
In accordance with ASC 470-20, the Company determined there was no
beneficial conversion feature on the modified convertible notes. The
Company recorded a discount of $130,298 which was equal to the difference
of the face value of the new note and the present value of the revised
cash flows. The effective interest rate of the new notes was 6.56%.
The Company incurred $717,668 in debt issue costs for these convertible
notes. The debt issue costs will be expensed over the term of the
convertible notes. During the three month period ended March 31, 2010, the
Company expensed $42,233 (2009 - $53,608) of the debt issue costs related
to the convertible notes.
On May 1, 2009, as a result of the Company defaulting on paying interest
and principal repayment, the Company expensed the remaining discount of
$69,412 and deferred financing fees of $214,434 relating to the notes. On
June 4, 2009, the Company repaid $36,250 to the debt holders and the
amount was applied to the principal.
As a result of the default on repayment, the Company accrued a mandatory
prepayment amount of $479,688 at 25% of the outstanding principal,
interest in the amount of $232,324 at 18% retroactive from November 1,
2008 and late fee of $12,009 at 18% on the unpaid interest.
14
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(unaudited)
6. CONVERTIBLE NOTES PAYABLE AND CONVERTIBLE DEBT (continued)
PersonNameThe Company entered into a loan modification agreement, dated as
of August 31, 2009, with the debt holders. Pursuant to the agreement, the
mandatory prepayment amount and late interest were waived and the terms of
the notes were amended as follows:
- The maturity date of the notes was extended to December 31, 2012 and
no principal payments are due on the notes prior to the maturity date.
- All interest due on the notes through June 30, 2009 was added to the
outstanding principal balance and as a result the aggregate principal
amount of the notes at June 30, 2009 was $2,150,000.
- The interest rate on the notes remains at prime (as adjusted monthly)
plus 2.75% per annum and accrued from July 1, 2009 and is payable in
arrears on the first day of each month
- The conversion price was reset at $0.14 per share.
The present value of the cash flows under the terms of the July 1, 2009
debt instrument was greater than 10% different from the November 26, 2008
debt instrument. As a result, in accordance with ASC 470-50 Debt -
Modifications and Extinguishments, the Company deemed the terms of the
amendment to be substantially different and treated the November 26, 2008
convertible notes as extinguished and exchanged for new convertible notes.
The Company recorded a gain on extinguishment of debt of $969,538.
In accordance with ASC 470-20, the Company determined there was no
intrinsic value to the conversion feature and thus no beneficial
conversion feature. The Company recorded a discount of $476,757 which
equals to the difference of the face value of the new note and the present
value of the revised cash flows.
During the year ended December 31, 2009, the debt holders converted
$400,000 of note principal into 2,912,088 shares at $0.14 per share. The
Company recorded interest expense of $81,455 related to the amounts
converted which is included in accretion expense based on the modified
convertible loan agreement.
15
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(unaudited)
6. CONVERTIBLE NOTES PAYABLE AND CONVERTIBLE DEBT (continued)
For the year ended December 31, 2009, the Company recorded $129,642 (2008
- $976,064) of accretion expense related to the original convertible debt,
and $138,558 of accretion expense based on the modified convertible loan
agreement entered into on August 31, 2009. During the three months ended
March 31, 2010, the Company repaid $1,186,700 of the outstanding notes.
For the three months ended March 31, 2010, the Company recorded
$237,449(2009 - $29,542) of accretion expense related to the modified
convertible loan agreement entered into an August 31, 2009. The
unamortized discount as at March 31, 2010 is $100,750 (December 31, 2009 -
$338,212). The effective interest rate of remaining convertible notes at
March 31, 2010 is 7.21%
7. COMMON STOCK
For the three months ended March 31, 2010:
a) In January 2010, the Company entered into an Underwriting Agreement
with Paulson Investment Company ("Paulson"), as representative of the
two underwriters named therein. Pursuant to the terms of such
Underwriting Agreement, Paulson agreed to underwrite the offer and
sale by the Company of 1,200,000 units, each consisting of 70 shares
of the Company's common stock and 70 redeemable common stock purchase
warrants. Each warrant allows the holder to purchase one common share
of the Company for $0.107 per share for a term expiring on January 15,
2015. In addition, the Company issued the underwriters a 45-day option
to purchase an additional 92,280 units to cover over-allotments. The
underwriters agreed to offer the units to the public at $5.00 per
unit. As compensation for the services to be provided to the
underwriters in connection with the offering of the units, the Company
agreed to a 9% underwriting discount for $581,526 in cash. In
addition, the Company agreed to pay $180,000 to Paulson for the
non-accountable expense allowance, and issue "Representative's
Warrant", with an estimated fair value of $939,771 which allows the
underwriters to purchase up to 120,000 units at $6.00 per unit for a
term of five years from January 19, 2011 (see note 10). The offer and
sale of all of the units, including the units covered by the
over-allotment option and the Representative's Warrant, all of the
shares and warrants included in the units as well as the
Representative's Warrant are covered by a registration statement on
Form S-1 filed by the Company under the Securities Act of 1933, as
amended, which was declared effective by the Securities and Exchange
Commission on January 19, 2010. Pursuant to the Form S-1, the Company
issued a total of 90,459,600 shares and 90,459,600 warrants on January
28, 2010.
16
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(unaudited)
7. COMMON STOCK (continued)
b) In February 2010, the Company issued 800,000 shares of common stock
with a fair value of $56,000 for consulting services.
c) In February 2010, the Company issued 200,000 shares of common stock to
a vendor to settle $14,000 of services owed.
d) In February 2010, a total of 920,000 stock options were exercised at
$0.001 per share.
e) In February 2010, the Company issued 347,727 shares of common stock
pursuant to the cashless exercise of 1,275,000 warrants by a note
holder. This exercise was based on the cashless exercise provision of
the stock purchase warrant
f) In February 2010, the Company issued 357,143 shares of common stock
with a fair value of $25,000 for legal services provided.
g) In March 2010, the Company received $284 for share subscription from
284,000 stock options exercised at $0.001 per share.
8. STOCK-BASED COMPENSATION
Stock Bonus Plan
Under the Company's Stock Bonus Plan, employees, directors, officers,
consultants and advisors are eligible to receive a grant of the Company's
shares, provided that bona fide services are rendered by consultants or
advisors and such services must not be in connection with the offer or sale
of securities in a capital-raising transaction. On April 23, 2009, the
Company increased the number of shares issuable pursuant to this plan from
5,500,000 shares to 10,500,000 shares with 1,249,132 common shares available
for future issuance as of March 31, 2010.
Non-Qualified Stock Option Plan
The Company's Non-Qualified Stock Option Plan authorizes the issuance of
common shares to persons that exercise stock options granted. The Company's
employees, directors, officers, consultants and advisors are eligible to be
granted stock options pursuant to this plan, provided that bona fide services
are rendered by such consultants or advisors and such services must not be in
connection with the offer or sale of securities in a capital-raising
transaction. The stock option exercise price is determined by a committee and
cannot be less than $0.001.
On April 23, 2009, the Company increased the number of shares issuable
pursuant to this plan from 12,500,000 shares to 17,500,000 shares with
3,870,666 common shares available for future issuance as of March 31, 2010.
17
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(unaudited)
8. STOCK-BASED COMPENSATION (continued)
Non-Qualified Stock Option Plan (continued)
During the three months ended March 31, 2010, there were no stock options
granted pursuant to this plan, for the period ended of March 31, 2009, the
Company granted 2,263,157 stock options from this plan at a fair value of
$212,822 to two directors at a below market exercise price of $0.001 per
share.
A summary of the changes in the Company's stock options is presented below:
Weighted Weighted
Average Average Aggregate
Exercise Remaining Intrinsic
Number of Price Contractual Value
Shares $ Life (Years) $
-----------------------------------------------------------------------------
Outstanding, December 31, 2008 3,890,000 0.001 2.99 774,110
Granted 3,717,057 0.001
Exercised (1,620,000) 0.001
-----------------------------------------------------------------------------
Outstanding, December 31, 2009 5,987,057 0.001 1.65 652,589
Granted 28,500,000 0.071
Exercised (1,204,000) 0.001
-----------------------------------------------------------------------------
Outstanding, March 31, 2010 33,283,057 0.061 8.71 349,627
-----------------------------------------------------------------------------
Exercisable, March 31, 2010 4,783,057 0.001 2.13 349,627
-----------------------------------------------------------------------------
During the three months ended March 31, 2010, the Company granted 28,500,000
stock options at a fair value of $1,994,903 to five directors and one officer
at a market exercise price of $0.0714 per share. Holders of the management
stock options may exercise the options by paying the exercise price to the
Company or on a cashless basis upon the approval of the Company's board of
directors. Should the options be exercised on a cashless basis, the Company
will issue common shares of the Company with a market value equal to the
intrinsic value of the options at the close of trading on the date of
exercise. The management stock options were not issued under the Company's
Non-Qualified Stock Option Plan and as at May 14, 2010, have not been
registered under the Securities Act of 1933. Accordingly, any shares issuable
upon the exercise of these options will be restricted securities unless the
shares are registered.
The fair value for stock options granted was estimated at the date of grant
using the Black-Scholes option-pricing model and the weighted average fair
value of stock options granted during the period ended March 31, 2010 and
2009 was $0.07 and $0.10 per share (under non-qualified stock options plan),
respectively.
18
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(unaudited)
8. STOCK-BASED COMPENSATION (continued)
The weighted average assumptions used are as follows:
Three Months Ended
March 31, March 31,
2010 2009
--------- ---------
Expected dividend yield 0% 0%
Risk-free interest rate 3.7% 1.05%
Expected volatility 255% 123%
Expected option life (in years) 10.00 2.00
As at March 31, 2010, there was $1,276,293 of unrecognized compensation costs
related to non-vested share-based compensation arrangements granted which are
expected to be recognized over a weighted-average period of two years. The
total fair value of shares vested during the period ended March 31, 2010 and
2009 were $765,525 and $212,822, respectively.
9.SHARE PURCHASE WARRANTS
A summary of the status of the Company's non-vested options as of March 31,
2010, and changes during the period of March 31, 2010, is presented below:
Weighted Average
Grant Date
Number of Fair Value
Non-vested shares Options $
Non-vested at December 31, 1,453,900 0.001
2009
Granted 28,500,000 0.0714
Vested (1,453,900) 0.001
------------------------------------------------------------------------
Non-vested at March 31, 2010 28,500,000 0.0714
------------------------------------------------------------------------
19
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(unaudited)
9.SHARE PURCHASE WARRANTS (continued)
A summary of the changes in the Company's share purchase warrants is
presented below:
Number Weighted Average
Exercise Price
$
-------------------------------------------------------------------------
Balance, December 31, 2008 11,774,962 0.35
Issued 7,812,422 0.10
Exercised (450,000) 0.001
Expired (2,184,573) 0.77
-------------------------------------------------------------------------
Balance, December 31, 2009 16,952,811 0.14
Issued 90,459,600 0.107
Exercised (1,275,000) 0.08
Expired (955,800) 0.17
-------------------------------------------------------------------------
Balance, March 31, 2010 105,181,611 0.14
-------------------------------------------------------------------------
In January 2010, the Company modified the exercise price of 3,500,000 shares
purchase warrants issued with the convertible debt described in Note 6 (b)
from $0.25 to $0.135, in accordance with the adjustment provisions contained
in the agreement. In accordance with ASC 718, modifications to the terms of
an award are treated as an exchange of the original award for a new award.
Incremental compensation cost is measured as the excess, if any, of the fair
value of the original award immediately before its terms are modified,
measured based on the share price and other pertinent factors at that date.
The Company recognized an incremental compensation cost of $23,376 for these
modified share purchase warrants.
As at March 31, 2010, the following share purchase warrants were outstanding:
Warrants Exercise Expiration Date
Price
$
--------------------------------------------
115,000 0.65 May 1, 2010
133,500 0.30 November 30, 2010
199,311 0.17 November 11, 2010
233,092 0.06 July 7, 2011
252,278 0.05 December 31, 2011 (1)
20
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(unaudited)
9.SHARE PURCHASE WARRANTS (continued)
307,692 0.17 February 2, 2011
343,833 0.20 July 7, 2011
400,000 0.11 August 18, 2011
500,000 0.11 August 17, 2011
500,000 0.11 September 3, 2011
541,666 0.12 October 31, 2010
590,909 0.12 July 19, 2011
900,000 0.11 April 5, 2011
1,000,000 0.11 June 15, 2011
1,000,000 0.25 April 30, 2012
2,000,000 0.11 April 1, 2012
2,204,730 0.08 August 26, 2014
3,500,000 0.135 June 27, 2012
90,459,600 0.107 January 19, 2015 (2)
------------
(1)The warrants can be exercised by either paying cash or on a cashless basis.
(2)The public warrants are exercisable at any time before January 19, 2015. The
Company may redeem some or all of the public warrants at a price of $0.003
per warrant by giving the holders not less than 30 days' notice at any time
the common stock closes, as quoted on the OTC Bulletin Board, at or above
0.143 per share for five consecutive trading days.
10. UNIT PURCHASE WARRANTS
On January 28, 2010, the Company issued a warrant in conjunction with the
Underwriting Agreement described in Note 7(a). The warrant had an estimated
fair value of $939,771 and it allows the underwriters to purchase up to
120,000 units at $6.00 per unit for a term of five years from January 19,
2015. Each unit consists of 70 shares of common stock and 70 warrants to
purchase shares of the Company's common stock at an exercise price of $0.107
per share.
21
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(unaudited)
11. FAIR VALUE MEASUREMENTS
ASC 825 defines fair value as the price that would be received from selling
an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. In determining fair value for
assets and liabilities required or permitted to be recorded at fair value,
the Company considers the principal or most advantageous market in which it
would transact and it considers assumptions that market participants would
use when pricing the asset or liability.
Fair Value Hierarchy
ASC 825 establishes a fair value hierarchy that requires an entity to
maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. A financial instrument's categorization
within the fair value hierarchy is based upon the lowest level of input that
is significant to the fair value measurement. ASC 825 establishes three
levels of inputs that may be used to measure fair value.
Level 1
Level 1 applies to assets and liabilities for which there are quoted
prices in active markets for identical assets or liabilities. Valuations
are based on quoted prices that are readily and regularly available in an
active market and do not entail a significant degree of judgment.
Level 2
Level 2 applies to assets and liabilities for which there are other than
Level 1 observable inputs such as quoted prices for similar assets or
liabilities in active markets, quoted prices for identical assets or
liabilities in markets with insufficient volume or infrequent transactions
(less active markets), or model-derived valuations in which significant
inputs are observable or can be derived principally from, or corroborated
by, observable market data.
Level 2 instruments require more management judgment and subjectivity as
compared to Level 1 instruments. For instance:
Determining which instruments are most similar to the instrument being
priced requires management to identify a sample of similar securities
based on the coupon rates, maturity, issuer, credit rating and instrument
type, and subjectively select an individual security or multiple
securities that are deemed most similar to the security being priced.
Determining whether a market is considered active requires management
judgment.
22
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(unaudited)
11. FAIR VALUE MEASUREMENTS (continued)
Level 3
Level 3 applies to assets and liabilities for which there are unobservable
inputs to the valuation methodology that are significant to the
measurement of the fair value of the assets or liabilities. The
determination of fair value for Level 3 instruments requires the most
management judgment and subjectivity.
Pursuant to ASC 825, the fair value of the cash is determined based on "Level
1" inputs. Loans payable, convertible notes payable and convertible debt are
valued based on "Level 2" inputs, using model in which significant inputs are
observable or can be derived principally from, or collaborated by observable
market data.
Assets and liabilities measured at fair value on a recurring basis were
presented on the Company's consolidated balance sheet as of March 31, 2010 as
follows:
Fair Value Measurements Using
----------------------------------------------------------------
Quoted Prices in Significant
Active Markets Other Significant
For Identical Observable Unobservable Balance as of
Instruments Inputs Inputs March 31,
(Level 1) (Level 2) (Level 3) 2010
----------------------------------------------------------------
Assets:
Cash $ 3,118,725 $ - $ - $ 3,118,725
----------------------------------------------------------------
Total assets measured at
fair value $ 3,118,725 $ - $ - $ 3,118,725
----------------------------------------------------------------
Liabilities:
Loans payable $ - $ 69,619 $ - $ 69,619
Convertible notes payable - 33,885 - 33,885
Convertible notes - 462,550 - 462,550
----------------------------------------------------------------
Total liabilities measured
at fair value $ - $ 566,054 $ - $ 566,054
----------------------------------------------------------------
23
BIOCUREX, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(unaudited)
12. COMMITMENTS AND CONTINGENCIES
a) On April 4, 2006, the Company entered into a consulting agreement with a
term of nine months for consideration of 75,000 common shares. As of March
31, 2010, the Company has issued 37,500 common shares and 37,500 common
shares are still owed to the consultant.
b) On April 10, 2006, the Company entered into a consulting agreement with a
term of one year for consideration of 75,000 common shares. As of March
31, 2010, the Company has issued 37,500 common shares and 37,500 common
shares are still owed to the consultant.
13. SUBSEQUENT EVENT
On April 20, 2010, the Company issued 284,000 shares of common stock pursuant
to stock options exercised at $0.001 per share for common shares
subscriptions totaling $284 received in March 2010.
24
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
We are a development stage company focusing on developing and
commercializing products for the early detection, diagnosis and monitoring the
recurrence of cancer. We have developed and evaluated, using clinical blood
samples, a blood test that can detect the presence of cancer in humans and
animals using a new cancer marker named RECAF. We developed and own, royalty
free, the proprietary technology related to the RECAF marker, with patents
granted in the United States, Europe and China and pending in other major
worldwide markets. As of April 30, 2010 we had not generated any revenue from
the sale of any product.
Our principal objectives for the twelve-month period ending March 31, 2011
are as follows:
o grant one additional semi-exclusive license for testing blood samples
using automated testing equipment;
o commercialize veterinary applications of RECAF testing technology not
requiring regulatory approvals;
o finish developing a POC rapid format test for the doctor's office,
bedside and veterinary use;
o conduct clinical trials and seek FDA approval for marketing of the POC
rapid format test; and
o commercialize manual testing formats, principally large cities in
foreign countries where further regulatory clearance is not required.
We cannot assure you that we can successfully achieve any of these
objectives.
Liquidity and Capital Resources
We do not have any lines of credit with banks or other financial
institutions or any other traditional financing arrangements. We will need
additional capital until we are able to generate significant revenues to cover
our expenditures.
Since January 2003, we have been able to finance our operations through the
private sale of securities and from borrowings from private lenders.
1
Our sources and (uses) of cash during the three months ended March 31, 2010
and 2009 were as follows:
Three Months Ended March 31,
2010 2009
---- ----
Cash used in operations (961,519) (49,568)
Patent costs (15,889) (10,005)
Sale of investment securities --
Repayment of loans from related parties (149,522) --
Repayment of convertible debt (1,186,700) --
Proceeds from sale of common stock and
exercise of options and warrants, net of
issuance costs 6,461,400 40,000
In June 2007, we sold convertible notes, plus warrants, to private
investors for $3,000,000. The notes are due and payable on December 31, 2012 and
are secured by substantially all of our assets. At the holder's option the notes
are convertible into shares of our common stock at a conversion price of $0.14.
From the proceeds of our January 2010 public offering we repaid $1,186,700 to
the note holders. Due to principal payments and conversions, the outstanding
principal balance of the notes as of March 30, 2010 was $563,300.
In September 2009, we sold promissory notes in the principal amount of
$575,000 to twenty accredited investors. As partial consideration for lending us
the $575,000 we issued 8,214,292 shares of our common stock to the investors.
With the proceeds from our January 2010 public offering we repaid $450,000 to
the investors. The remaining balance of $125,000 bears interest at 10%, is
unsecured, and is payable on or before January 31, 2013.
In January 2010 we sold 90,459,600 shares of our common stock at a price of
$0.0714 per share in a public offering. For each share sold the investor also
received one warrant. Each warrant entitles the holder to purchase one share of
our common stock at a price of $0.107 per share at any time on or before January
2015. The net proceeds to us from the sale of the shares and warrants, after
deducting underwriting commissions and offering costs, were approximately
$5,700,000.
We anticipate that our capital requirements for the twelve-month period
ending April 30, 2011 will be as follows:
Research, development and production of our
diagnostic products $1,000,000
General and administrative expenses 750,000
Marketing and investor
communications 150,000
Business development 200,000
Payment of interest on amended senior convertible
notes and unsecured promissory notes 150,000
Payment of outstanding liabilities 250,000
------------
$2,500,000
============
2
Our most significant capital requirements are general research and
development and administrative expenses. General and administrative expenses,
exclusive of depreciation, amortization and other expenses not requiring the use
of cash (such as the costs associated with issuing stock and options for
services), average approximately $60,000 per month. Our research and development
expenses vary, depending upon available capital. When more capital is available
to us, research and development expenses increase. Conversely, research and
development expenses decline when less capital is available.
We may not be successful in obtaining additional capital in the future. If
we are unable to raise the capital we need, our research and development
activities will be curtailed or delayed and our operations will be reduced to a
level which can be funded with the capital available to us.
Material changes of items in our Statement of Operations for the three
months ended March 31, 2010, as compared to the same period in the prior year,
are discussed below:
Increase (I)
or
Decrease
Item (D) Reason
---- ------------ ------
The increase was primarily
attributable to higher
stock-based compensation
General and administrative expense, and an increase in
I management fees for two
directors.
In 2010 we incurred
professional fees in
connection with documentation
of the repayment of the
convertible debt and general
Professional and Consulting Fees securities filings. In
addition, the Company entered
I into consulting agreements to
strength the overall
marketing strategies.
A large portion of the
convertible notes were repaid
Accretion of discounts on in January 2010, the
convertible debt accretion of discount on the
I convertible debt was
amortized accordingly.
The debt issue costs were
amortized correspondingly
Amortization of debt issue costs I when a large portion of
convertible notes were paid.
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Increase (I)
or
Decrease
Item (D) Reason
---- ------------ ------
The Company entered into
negotiations with two service
Gain on settlement of accounts providers regarding their
payable fees. Negotiations were
amicably concluded, resulting
I in favorable terms to the
Company.
The decrease of interest
expense was primarily due to
Interest expense D a large portion of
convertible notes having been
repaid in January 2010.
Recent Accounting Pronouncements
--------------------------------
See Note 2 to the financial statements which are included as part of this
report.
Critical Accounting Policies
----------------------------
Our significant accounting policies are more fully described in Note 2 to
the financial statements included as a part of this report. However, certain
accounting policies are particularly important to the portrayal of our financial
position and results of operations and require the application of significant
judgments by management. As a result, the consolidated financial statements are
subject to an inherent degree of uncertainty. In applying those policies,
management uses its judgment to determine the appropriate assumptions to be used
in the determination of certain estimates. These estimates are based on our
historical experience, terms of existing contracts, observance of trends in the
industry and information available from outside sources, as appropriate. Our
significant accounting policies include:
Registration Payment Arrangements. We account for registration rights
arrangements and related liquidated damages provisions under FASB ASC 815-40,
Derivatives and Hedging - Contracts in Entity's own Entity, which addresses an
issuer's accounting for registration payment arrangements. ASC 815-40 defines a
registration payment arrangement as an arrangement where the issuer i) will
endeavor to file a registration statement for the resale of financial
instruments, have the registration statement declared effective, or maintain its
effectiveness and ii) transfer consideration to the counterparty if the
registration statement is not declared effective or its effectiveness is not
maintained.
ASC 815-40 requires the contingent obligation to make future payments or
otherwise transfer consideration under a registration payment arrangement,
whether issued as a separate agreement or included as a provision of a financial
instrument or other agreement, to be separately recognized and measured in
accordance with ASC 450, Contingencies. As at March 31, 2010, we did not have
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any liability relating to our registration statement which was declared
effective by the SEC in January 2010.
Long-lived Assets. In accordance with ASC 360, Property Plant and
Equipment , we test long-lived assets or asset groups for recoverability when
events or changes in circumstances indicate that their carrying amount may not
be recoverable. Circumstances which could trigger a review include, but are not
limited to: significant decreases in the market price of the asset; significant
adverse changes in the business climate or legal factors; accumulation of costs
significantly in excess of the amount originally expected for the acquisition or
construction of the asset; current period cash flow or operating losses combined
with a history of losses or a forecast of continuing losses associated with the
use of the asset; and current expectation that the asset will more likely than
not be sold or disposed significantly before the end of its estimated useful
life.
Recoverability is assessed based on the carrying amount of the asset and
its fair value which is generally determined based on the sum of the
undiscounted cash flows expected to result from the use and the eventual
disposal of the asset, as well as specific appraisal in certain instances. An
impairment loss is recognized when the carrying amount is not recoverable and
exceeds fair value.
Stock-based Compensation. We record stock-based compensation in accordance
with ASC 718, Compensation - Stock Compensation, and ASC 505-50, Equity-Based
Payments to Non-Employees using the fair value method. All transactions in which
goods or services are the consideration received for the issuance of equity
instruments are accounted for based on the fair value of the consideration
received or the fair value of the equity instrument issued, whichever is more
reliably measurable.
Revenue Recognition. We recognize revenue in accordance with ASC 605
Revenue Recognition, Revenue is recognized only when the price is fixed or
determinable, persuasive evidence of an arrangement exists, the service is
performed, and collectibility is reasonably assured. Our revenue consists of
license fees related to the licensing of our RECAF(TM) technology.
Patents relate to developing the method for diagnostic and treatment of
cancer using a new cancer marker called "RECAF." These patents are presently
registered in 23 countries with ongoing registrations currently being conducted.
Patents are stated at cost and have a definite life. Once we receive patent
approval, amortization is calculated using the straight-line method over the
remaining life of the patents. As of March 31, 2010, we had received patent
approvals from five countries. Additions made after March 31, 2010 will have a
remaining life of approximately 5 years. We intend to apply for extensions in
the near future.
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Item 4T. Controls and Procedures
Our Principal Executive and Financial Accounting Officers have evaluated
the effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) of the Securities Exchange Act of 1934), as of the end of the period
covered by this report, and in their opinion our disclosure controls and
procedures are effective.
There were no changes in the Company's internal controls over financial
reporting that occurred during the fiscal quarter ended March 31, 2010 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting as discussed above.
PART II
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds.
In February 2010 we issued 200,000 shares of common stock for services
provided.
In February 2010 we issued 347,727 shares of our common stock as a result
of the exercise of a warrant.
We relied upon the exemption provided by Section 4(2) of the
Securities Act of 1933 with respect to the issuance of the securities referenced
above. The persons who acquired these securities were sophisticated investors
and were provided full information regarding the Company. There was no general
solicitation in connection with the offer or sale of these securities. The
persons who acquired these securities acquired them for their own accounts. The
certificates representing the securities bear a restricted legend providing that
they cannot be sold except pursuant to an effective registration statement or an
exemption from registration.
Item 6. Exhibits
Exhibits
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIOCUREX, INC.
May 13, 2010 By: /s/ Dr. Ricardo Moro
-------------------------------------
Dr. Ricardo Moro - President,
Principal Executive Officer
May 13, 2010 By: /s Gladys Chan
-------------------------------------
Gladys Chan - Principal Financial and
Accounting Officer
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