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, 2011
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: None
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,
2011, was approximately $4,463,194
As of March 31, 2012, the Registrant had 184,617,814 outstanding shares of
common stock.
Documents Incorporated by Reference: None
WHISPERING OAKS INTERNATIONAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(Expressed in US dollars)
ITEM 1. DESCRIPTION OF BUSINESS
We were incorporated in Texas in December 1997 under the name Whispering
Oaks International, Inc. Between March 2001 and October 2009 we did business
under the name Biocurex, Inc. In October 2009 our shareholders approved an
amendment to our Articles of Incorporation which officially changed our name to
Biocurex, Inc.
Overview
We are a development stage company focusing on developing and
commercializing products for the early detection, diagnosis and monitoring the
recurrence of cancer. We have developed a blood test that can detect the
presence of cancer in humans and animals using a new cancer marker named RECAF.
We developed and own, royalty-free, the proprietary technology related to the
RECAF marker, with patents granted in the United States, Europe and China and
pending in other major worldwide markets.
RECAF is a molecule found on most cancer cells, including breast, colon,
prostate and lung cancers, but not on normal cells. RECAF can be used in blood
tests to determine if a patient has cancer. The blood test can be formatted for
use on automated instrumentation typically found in large clinical and hospital
laboratories or manually. It can also be formatted as a point-of-care (POC)
single use rapid test for use in physicians' offices, urgent care facilities and
at the bedside. Once approved by the FDA, the tests could be used in general
screening or in high risk patients to determine if an individual has cancer. It
could also be used to detect recurrence of cancer in patients after therapy.
Unlike other cancer markers mentioned in the American Cancer Society
website () that only detect the presence of a specific cancer type (CEA for
colon cancer and PSA for prostate cancer), RECAF is found on most types of
cancer and, therefore, could have much broader use than most other cancer
markers in development or currently in use. Moreover, unlike these existing
cancer markers, RECAF has been shown to detect early stages of breast and
prostate cancers when the likelihood of cure is highest.
We have granted Abbott and Inverness, two large diagnostic equipment
manufacturers, semi-exclusive licenses to use the RECAF tests on blood samples
processed in automatic equipment typically found only in large clinical/hospital
laboratories and non-exclusive licenses for other test formats. Under the terms
of these licenses, we can grant one additional similar semi-exclusive license
for automated testing and we have retained rights for manual tests not processed
in automatic equipment, POC rapid tests for the physicians' office, including
all other single-format potential uses and all test formats used for veterinary
applications. The Abbott license has been amended to relieve them of research
and development responsibilities and, to our knowledge, they have not taken any
steps towards commercializing our technology. Inverness has been conducting
research and development trying to adapt our technology to their diagnostic
platform. However, to our knowledge, they have not yet reached the stage where
they are prepared to enter into clinical trials in order to obtain FDA approval
or to commercialize our technology or any related products.
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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:
- 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
- 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.
See "Business Strategy" below for information concerning our principal
objectives for the twelve months ending January 31, 2013.
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 1.5 million
new cancer diagnoses in the USA and roughly 570,000 million deaths during 2011.
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
over 5% to an estimated $60 billion in 2012, up from $38.5 billion in 2003. The
National Institutes of Health estimates that the overall costs of cancer in 2010
were estimated to be $$263.8 billion, composed of $102.8 billion for direct
medical costs (total of all health expenditures), $20.9 billion for indirect
morbidity costs (cost of lost productivity due to illness), and $140.1 billion
for indirect mortality costs (cost of lost productivity due to premature death).
Worldwide Cancer Diagnostics Market
As of 2010, the global in vitro diagnostics market for diagnostic tests
exceeded $46 billion annually Within the overall market the molecular diagnostic
testing market sector is growing by approximately 10% each year and forecast to
reach over $10.2 billion by 2012, with a forecast number of tests close to 550
million per annum. 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
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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%,
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
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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 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,
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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
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.
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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 $31
billion annually in medical research, of which an estimated $7-8 billion was
spent on cancer research. The National Cancer Institute's Budget alone for
fiscal year 2012, already approved by President Obama, is for $5.2 million and
additional resources are allocated to cancer research Additionally, R&D spending
is increasing in all regions of the world, with the total R&D spending by
biotechnology companies in 2006 estimated at 1.023 trillion, up from $977
billion in 2005 and $922 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
2010 U.S. healthcare expenditures totaled approximately $2.593 trillion, and are
forecasted to reach $2.75 trillion in 2012. For 2010, healthcare accounted for
17.9% of the gross domestic product in the United States up from 13.8% in the
year 2000. U.S. healthcare premiums increased by 131% between 1999 and 2009 or
13.9% per annum. Many policy experts believe new technologies and the spread of
existing ones account for a large portion of medical spending and its growth.
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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 type of 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 in use that
has the same universal presence with comparable sensitivity and specificity as
RECAF. Since RECAF detects cancer earlier and more accurately with less false
positives than other markers, we believe that RECAF could replace many currently
available cancer markers that are targeted to only one type of cancer, as well
as offer a useful diagnostic tool for cancers where there is not yet thought to
be an effective marker, such a lung and breast cancer.
RECAF is a molecule that is present on cancer cells but is not detected in
significant levels on healthy cells or benign tumor cells. This characteristic
enables RECAF to more accurately detect cancer than many current tumor markers,
as RECAF is less likely to report a false positive result.
However, since RECAF does not identify a specific type of cancer, a
positive test would be followed up with further testing using other diagnostic
tools to determine the location and type of cancer.
RECAF is a receptor for AFP (Alpha-fetoprotein), which is a marker for
liver and testicular cancer that was discovered in 1963 by Dr. Garri Abelev, a
member of our scientific advisory board. RECAF is present on the cell surface
and binds and takes up circulating AFP. Both AFP and RECAF first emerge in the
fetus, but disappear by birth. AFP binds small molecules, such as lipids, and
transports them into fetal cells when taken up by the receptor for AFP. Once a
fetal organ or tissue reaches its maturity, it no longer takes up AFP or
expresses RECAF. After birth, RECAF is only known to exist in a cancerous state,
where tissues re-express the ability to take up AFP via the RECAF receptor. The
expression of RECAF is related to rapid tissue growth, which is characteristic
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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%.
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
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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, used to monitor a patient's progress following
surgery, chemotherapy or other treatment, 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.
However, before laboratories in China can market and run the RECAF tests, the
Chinese equivalent of the FDA must approve the use of the RECAF tests.
To initiate this, we have formed a wholly owned subsidiary in China. The
subsidiary, named "Biocurex China Co., Ltd." will be used to assemble, market,
and distribute our RECAF tests in China. The critical reagents will be shipped
from North America for quality control purposes. Our first market is Shanghai,
where we are represented by a clinical oncologist who will collect the samples
and administer the tests in-house. Once we are operational in Shanghai, we will
expand to other large population centers in China such as Beijing and Tianjin.
If the model is successful, we then plan to replicate it in other countries in
Asia, Latin America and Eastern Europe.
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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 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 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
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.
12
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 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 Europe. 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.
Currently, our wholly owned subsidiary, OncoPet(TM) Diagnostics, Inc., has
entered into a further two non-exclusive distribution agreements with two
prominent US veterinary suppliers for the distribution of the OncoPet Sample
Collection Kit for canine cancer diagnosis.
13
Per the non-exclusive distribution agreement, the suppliers will purchase
vouchers for tests to be carried out in our facilities. The distributor then
sells the vouchers to veterinarians, veterinary practices, veterinary hospitals
and others within the United States and territories of the U.S. including Puerto
Rico, Guam as well as others. The voucher includes a sample collection kit which
the veterinarian will use to process the blood and ship the serum to our
laboratory for testing. OncoPet then emails the results directly to the
veterinarian.
License Agreements
We have licensed aspects of our RECAF technology on a semi-exclusive and on
a non-exclusive basis to Abbott, a worldwide leader in diagnostics, and
Inverness, a global supplier of in vitro diagnostic products.
Abbott License
In March 2005, we entered into a worldwide, semi-exclusive licensing
agreement with Abbott to commercialize Serum-RECAF. Manual and POC RECAF test
formats are licensed on a non-exclusive basis. Thus, we may commercialize and
license manual tests to as many licensees as we deem appropriate. Under the
license agreement, as amended, Abbott has the right, but not the obligation, to
commercialize or perform further research and development on the RECAF
technology. Abbott paid us an upfront licensing fee of $200,000 and will pay us
royalties on any RECAF products it sells during the term of the license. In
April 2008, Abbott and we amended the license agreement. The amendment relieved
Abbott of future obligations to perform further research and development with
respect to the RECAF technology as well as the obligation to pay annual minimum
royalties. At any time, at its option, Abbott may resume research and
development work and commercialize products incorporating the RECAF technology
in accordance with the license agreement. In consideration for this
modification, we will receive a more favorable royalty rate on any RECAF
products that may be sold by Abbott. We have the right to terminate the license
at any time, if following notice from us, Abbott and we do not agree within 90
days to new due diligence obligations for the commercialization of any products
using the RECAF technology. Since this agreement was amended, Abbott has not
conducted any research and development regarding RECAF technology or, to our
knowledge, taken any other steps toward commercializing our technology. Finally,
Abbott has the right to grant sublicenses to third parties.
Inverness License
In December 2007, we entered into a second semi-exclusive, worldwide
licensing agreement for our Serum-RECAF technology. This agreement allows
Inverness to commercialize products using the Serum-RECAF technology in exchange
for paying an upfront fee and periodic royalty payments. In addition, Inverness
is responsible for obtaining FDA approvals, and managing manufacturing,
marketing, and distribution for clinical laboratory testing. The manual and POC
rapid tests, as well as other applications of RECAF, are licensed on a
non-exclusive basis. Inverness paid us a $1 million up-front fee for RECAF
technology and material and assistance that would enable it to produce RECAF
material on its own. Inverness has been conducting research and development on
our technology and may have successfully adapted our technology to their
diagnostic platform. The agreement with Inverness provides for periodic
exchanges of information between the parties. Our policy is to tell them as much
14
as we can on the technical side. Inverness, on the other hand, has been
reluctant to share with us their intentions or progress on their general
business strategy including manufacturing, commercialization, regulatory
approval and marketing. Inverness has advised us of their intention to implement
the RECAF test in a particular format (called Triage), which is not based on
classic and widely known assay formats but rather on their proprietary platform.
We believe their reluctance is caused in large part on their concern to protect
the intellectual property relating to their proprietary diagnostic platform. Our
last communication with Inverness took place in June 2009 and, at the time, they
indicated that our assay was working in their facilities and generating results
consistent with ours. However, they did not share those results with us or
indicate what diagnostic platform they used. Inverness has also informed us that
they had become self-sufficient and independent in generating the critical
reagents necessary to produce the test. We do not know what Inverness intends to
do next. If they have been successful in adapting our technology to their
diagnostic platform, the logical next step for them would be to initiate
clinical trials for the purpose of obtaining regulatory approvals, whether in
the United States or elsewhere, but we have not had been able to confirm whether
that is the case. Our license agreement with Inverness does not provide for any
development or product milestones. Under the license agreement, the annual
minimum royalty of $150,000 began to accrue on December 4, 2009 and will
continue until December 4 following the first commercial sale by Inverness of a
product using RECAF technology to a third party. Thereafter, for the balance of
the annual minimum royalty term, which ends on the later of the expiration of
all the RECAF patents or when Inverness ceases to manufacture and distribute any
products based on RECAF technology, Inverness is obligated to pay a higher
minimum royalty. The Inverness license agreement does not provide when or how
the annual minimum will be paid. Presumably, that will be determined based on
subsequent discussions with Inverness.
Additional Licensing Opportunities
Under the license agreements with Abbott and Inverness we are free to grant
one additional semi-exclusive license regarding Serum-RECAF and pursue unlimited
licensing opportunities with respect to all other applications of our RECAF
technology and test formats, including manual and POC rapid tests and veterinary
applications. Further, our RECAF technology has additional applications that
could be licensed, including imaging functions and therapeutic uses. Ultimately,
we seek to license out specific aspects of our technology, striving to achieve a
significant market share by selecting licensees that can support this goal. We
believe that this licensing strategy will be the most effective way to expand
our market share.
Business Strategy
Our RECAF technology has possibilities in a wide variety of applications in
the fields of human and veterinary medicine. Our strategy is to continue to
focus on obtaining non-exclusive licensing agreements for various application of
RECAF technology while developing other applications ourselves. Specifically, 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;
15
o finish developing a POC rapid format test for the doctor's office and
bedside use;
o conduct clinical trials and seek FDA clearance for marketing of our
RECAF tests; and
o commercialize manual testing formats in China.
o We cannot assure you that we can successfully achieve any of these
objectives.
Our future objectives may change due to a number of factors, including:
o the amount of capital we are able to raise;
o our ability to accomplish the objectives listed above;
o our determination that a market does not exist for our products or
tests;
o new estimates of the time and capital required to accomplish an
objective are substantially greater than our original estimates.
o our assessment of potentially faster ways to begin generating revenue
using our RECAF technology; and
We have been attempting to earn revenue from our RECAF technology since
2001. We have abandoned earlier products and tests incorporating our RECAF
technology since we determined that a market did not exist for these products
and tests.
Licensing
To date our primary business strategy has been to license our Serum-RECAF
technology under semi-exclusive limited license agreements. With this strategy,
instead of having to allocate all of our funding in an attempt to commercialize
one product, we select licensees that have strategic advantages over us when it
comes to commercialization (e.g., our licenses with Abbott and Inverness). As
part of this strategy, we provide all the assistance that we can to our
licensees; however, the licensees are responsible for obtaining regulatory
approvals and bringing the products to market. Under our existing semi-exclusive
licenses with Abbott and Inverness, we are allowed to enter into one additional
semi-exclusive license for Serum-RECAF. These licenses only cover the automated
testing format for Serum-RECAF in a clinical and hospital laboratory settings.
They cover the use of Serum-RECAF in connection with other test formats and
other applications of our technology on a non-exclusive basis.
Market distribution channels for a diagnostic test kit typically entail
accessing the automated diagnostic platforms of one or more of the larger
diagnostic companies, such as Abbott, F. Hoffmann-La Roche or Bayer AG. These
companies provide automated diagnostic instruments that are capable of
processing a variety of laboratory tests. Some instruments can process 1,200
clinical chemistry and 200 immunoassay tests each hour. Through licensing, we
seek to place our cancer assays, such as Serum-RECAF, on the instrument menu of
these diagnostic platforms.
Point-of Care Rapid Tests
16
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.
In September 2007, we presented preliminary results with our prototype
rapid test to an international cancer congress. Data indicated solid
discrimination between cancer and healthy cells and correlated with results from
our Serum-RECAF. With the N.N. Blokhin Cancer Research Center in Moscow, Russia,
we studied RECAF as a rapid test for cancer detection. Results found that RECAF
could detect 80.4% of ovarian cancers in Stages I to III with an 88%
specificity. This study tested 64 normal, non-cancerous samples and 51 ovarian
cancer serum samples, which included 25 Stage I or II cancers and 26 Stage III
cancers. We believe that these results signify a potential breakthrough that
could simplify cancer detection. When applied to early stage ovarian cancer, our
prototype POC demonstrated better performance than a CA-125 blood test, a tumor
marker often found in higher-than-normal amounts in the blood of women with
ovarian cancer.
We believe that the POC tests will not cannibalize the clinical laboratory
markets since POC tests are routinely confirmed by the slightly more accurate
clinical laboratory tests. We believe that the widespread use of POC RECAF tests
will actually promote the use of the clinical laboratory RECAF tests.
We estimate that there are approximately 250,000 physicians in the United
States who would use these POC tests. One test per doctor per week would yield
13 million rapid tests per year. We expect final development, clinical testing,
FDA registration and Medicare approval to take approximately 18 months. We may
license this test for distribution, contract with a distribution network or use
a contract sales force for marketing and sales of this test.
Veterinary Applications
Basic research shows that RECAF is a highly conserved (common and
essentially identical) molecule in humans and animals. We confirmed in our
laboratory with samples provided from three different sources that our RECAF
test detects malignancy in dogs and cats. The test, which we call Pet- RECAF,
correctly detected 85% of the cancers at the standard specificity value of 95.
These figures are consistent with those obtained on human patients.
Initially our focus will be directed to dogs and cats. We believe we can
begin marketing this application quickly because it does not require government
or regulatory approvals and we have completed the developmental testing. We will
market this application under a separate brand name. We plan to pursue a
dual-channel revenue generation strategy. In some markets we will license our
technology to clinical labs who will conduct the testing and in other markets
PBRC will do the testing in our own contract laboratory. Our POC rapid test is
also being developed for the veterinary market and may be available for
commercialization before it is available for human use. We will market our
product directly to end users, such as veterinarians and animal protection
societies, and through distributors.
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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% 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.
18
An interesting statistic that supports the growth in dog and cat
populations is that Western European cat and dog food sales were US$14.47
billion in 2007, up from US$10.16 billion in 2002. Growth was projected at 7.6%
per annum, so by extrapolation the 2012 is estimated to be US$15.57 billion.
We have studied the market in British Columbia and, based on our findings,
we believe that the potential market for testing dogs and cats in British
Columbia may be $5.0 million per year. We found that in British Columbia at
least 120,000 routine blood-screening tests are carried out every year in dogs
and cats, at a cost of $35-$40 per test to the veterinarian. This does not
include tests conducted by veterinary hospitals that have their own in-house
laboratories. We believe that the addition of a screening test for cancer for
$50 is reasonable to both owners and veterinarians and may be incorporated in
routine annual checkups. In addition to screening, animals already diagnosed and
treated for cancer can be monitored for the disease with the Pet-RECAF test. We
estimate that each animal diagnosed with cancer could be tested 3-4 times over
its lifespan.
Market Strategy
Our marketing strategy for our Pet-RECAF test is based on the following
assumptions:
o There is no need for regulatory approval with respect to our Pet-RECAF
product and, therefore, we can begin marketing this product
immediately.
o The costs involved to commercialize Pet-RECAF are manageable.
We plan to begin in British Columbia where we can commercialize the
application ourselves and then expand into other markets as we establish
ourselves. In essence, the local market becomes a testing ground to trim and
assess the logistics related to this enterprise. Blotted blood samples collected
by veterinarians will be shipped to PBRC for testing. Our marketing efforts will
target both veterinarians, who have to recommend Pet-RECAF to the pet owners,
and the pet owners themselves. For marketing purposes, we have formed a wholly
owned subsidiary, OncoPet Diagnostics, Inc., and have reserved the Internet
domains: OncoPet.net, OncoPet.com, OncoPetDiagnostics.com and
OncoPetDiagnostics.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. Since October 2010 we have
entered into agreements with three veterinary product distributors for the
marketing of tests in the United States, Europe and Taiwan. The distributors for
the U.S. and Taiwan markets will purchase vouchers for tests to be carried out
19
in our facilities. The distributors will then sell the vouchers to
veterinarians, veterinary practices, veterinary hospitals and others within the
their territories. The voucher includes a sample collection kit which the
veterinarian will use to process the blood and ship the serum to our laboratory
for testing. We will then email the results directly to the veterinarian. The
distributor for Europe will purchase RECAF test kits from us and will perform
the tests at the distributor's facility in the Netherlands.
Suppliers and Manufacturing/Production
For the Serum-RECAF products licensed on a semi-exclusive basis, our
licensees are responsible for manufacturing. We plan to contract with OEMs for
all of the products that are not covered by our license agreements.
Research and Development
Our research and development efforts are all related to improving our RECAF
technology for detection, diagnosis and follow-up of cancer. We continually
focus on improving our various RECAF test formats leading to filing of
additional patents to protect our technology. Since the basic research on our
RECAF cancer marker is complete, most of our continuing work will be in the
development area rather than in research. The clinical data from our studies,
which have been ongoing since 2004, and the validation from independent data
from our licensees, Abbott and Inverness, support our contention that we are in
the final development stages rather than at the research stage.
Patents
Our patents, currently registered in over 20 countries, cover over 40
claims and relate to methods for diagnosis and treatment of cancer using the
RECAF cancer marker. Our U.S. patent expires in 2014 and our patents in
Australia, Russia and China expire in 2015. Our U.S. patent ("Detection of
cancer using antibodies to the AFP receptor") includes 17 claims and protects
technologies using Serum-RECAF kits. The patent also entails in vitro
applications for diagnosis, screening, and follow-up of cancer and leukemia. At
present, we are working toward the submission of additional patent applications
related to RECAF that potentially could provide us with protection for an
additional 20 years.
In March 2008, the European Patent Office granted our patent claims for
cancer diagnostic serum tests based on the RECAF marker. These patents will also
expire in 2015. This development is particularly beneficial as granted patent
claims can generate a higher royalty than pending claims per our existing
license agreements. In addition, we believe that the European healthcare and
medical insurance systems are more familiar and supportive of cancer markers
than are other locales. As a result, we anticipate that regulatory approval for
diagnostic tests in Europe could be easier and faster than in the United States.
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
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 multiple claims covering different applications and uses of this
peptide.
An antibody is a biological reagent that requires production under sterile
20
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 and instrumentation. 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.
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.
21
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 currently in use can detect the range of cancers that
can be detected by RECAF with similar sensitivity and specificity. Potential
competitors in the veterinary market include Idexx and Abaxis but they are also
potential licensees.
At this point in time, we believe that our competitive position in the
cancer detection market is strong for a number of reasons including the
following:
o Inherent Advantages of the RECAF marker. As previously discussed, the
RECAF marker has several advantages over all other cancer markers
known to us, including its ability (i) to detect all of the major
cancers and likely the less ubiquitous ones as well, (ii) to detect
them in early stages, where 80-90% can be cured and (iii) to function
as a 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.
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o Funding. While many of our existing and potential competitors are
large pharmaceutical companies with large research and development
budgets and government-funded research facilities, the large capital
investment required to identify and prove the efficacy of a cancer
marker may act as a deterrent. On the other hand, most of the research
into verifying the RECAF marker has been completed.
Government Regulation
Drugs, pharmaceutical products, medical devices and other related products
are regulated in the United States under the Federal Food, Drug and Cosmetic
Act, the Public Health Service Act, and the laws of certain states. The FDA
exercises significant regulatory control over the clinical investigation,
manufacture and marketing of pharmaceutical and biological products.
Medical device regulation is based on classification of the device into
three classes, I, II or III. Class III medical devices are regulated much like
drugs, whereas Class I and II devices have less stringent data requirements than
drugs and do not require the rigorous clinical trials that the FDA requires for
drugs. Products submitted to the FDA for clearance as medical devices can refer
to the safety and effectiveness data of medical devices which perform similar
functions as other products and which the FDA has already cleared. As long as a
medical device submitted to the FDA has the same clinical use as a medical
device previously cleared by the FDA, the medical device submitted will normally
receive FDA clearance provided data proving substantial equivalence to the other
approved medical devices and verification of claims is provided to the FDA.
This type of FDA submission is referred to as a 510k submission and is
initially handled by the FDA within a 90-day timeframe but can be longer if
additional information is required. Based upon our review of the FDA's
classification of other cancer markers, we are of the opinion that our RECAF
tests used to monitor a patient's progress after surgery, chemotherapy or other
treatment, will be classified as Class II medical devices. If the FDA classifies
our RECAF tests as Class III medical devices, then a pre market approval (PMA)
would be required which typically requires more extensive clinical data . FDA
reviews PMA submissions in a 180-day timeline. If there are unaddressed
scientific issues, the FDA review scientists can ask for additional information
and put the submission temporarily on hold. If a product is a first of a kind,
or if it presents unusual issues of safety and effectiveness, it is generally
reviewed before it is approved by an advisory panel of outside experts. Approval
of a PMA requires review of the manufacturing processes, an inspection of the
manufacturing facility, a monitoring audit of clinical data sites, as well as
comprehensive review of the premarket data. The review process for a Class III
medical device can take up to 12 months, and in some cases longer.
In addition to regulations in the U.S., we may be subject to a variety of
foreign regulations governing clinical trials and commercial sales and
distribution of our products outside of the U.S. Whether or not we obtain FDA
approval for a product, we must obtain approval of a product by the comparable
regulatory authorities of foreign countries before we can commence clinical
trials or marketing of the product in those countries. The approval process
varies from country to country, and the time may be longer or shorter than that
required for FDA approval. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary greatly from country
to country.
23
Under our existing license agreements, the licensees are responsible for
obtaining the necessary regulatory approvals in the countries where they intent
to market our products. However, since our licensees have not yet sought FDA
clearance for our products, we plan to conduct clinical trials, if necessary,
and seek FDA approval on our own for marketing our RECAF tests.
We cannot assure you that we, or any of our licensees, will be successful
in obtaining clearances or approvals from any regulatory authority with respect
to our 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.
With respect to our Pet-RECAF test, devices for infectious disease
currently require U.S. Department of Agriculture approval whereas devices for
cancer detection currently do not. Cancer tests run in our laboratory, or in
clinical laboratories licensed by us, do not require USDA or Canadian approval
as a service, as opposed to a device is being marketed. Our Pet-RECAF test, as
well as the marketing of this test, does not require FDA approval in the Unites
States, Canada or China.
Employees
All of our research, development and other technical activities, as well as
all of our 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 January 31, 2012, Pacific
BioScience Research Centre had six full-time employees/consultants. Our
relationship with Pacific Bioscience Research Centre and with its employees is
good. See the section of this prospectus captioned "Management - Transactions
with Related Parties" for information concerning our Agreement with Pacific
Bioscience Research Centre.
24
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. MINE SAFETY DISCLOSURE
Not Applicable.
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.
Quarter Ending High Low
-------------- ---- ---
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
3/31/11 $0.07 $0.05
6/30/11 $0.05 $0.01
9/30/11 $0.05 $0.02
12/31/11 $0.03 $0.01
As of March 27, 2012 there were approximately 135 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.
25
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, 2011. 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, 2011.
During the year ended December 31, 2011 we did not purchase any shares of
our 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, 2011 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, 2012 we had 184,617,814 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 conversion of notes or as
payment of principal on the notes 4,188,154 A
Shares issuable upon exercise of warrants issued
to consultants 937,500 B
Shares issuable upon exercise of Non-Qualified Stock
Options granted to officers, directors, employees
and consultants. 1,631,600 C
Shares issuable upon exercise of warrants granted to
our officers, directors, employees, financial
consultants and private investors 3,000,000 D
Shares issuable upon exercise of warrants issued to
note holders 2,628,266 E
Shares issuable upon warrants sold to public
investors 90,459,600 F
Shares issuable upon exercise of warrants issued to
underwriter 8,400,000 F
Shares issuable upon exercise of options granted to
officers and directors 28,500,000 G
26
Shares issuable upon conversion of note 7,850,000 H
Shares issuable upon conversion of note 4,250,000 I
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 March 31, 2012 was $544,460.
The warrants were subsequently sold to Warrant Strategies Fund, LLC.
The warrants allow the holder to purchase up to 3,500,000 shares of our
common stock at a price of $0.135 per share at any time prior to June 29, 2012.
In the event the closing price of our common stock is $1.20 or greater for
ten consecutive trading days, the holders will be required to exercise the
3,500,000 warrants. Following the exercise of the warrants, we will issue to the
holders new warrants, which will entitle the holders to purchase 1,750,000
shares of our common stock. The new warrants will be exercisable at a price of
$1.20 per share at any time prior to the later of June 25, 2012 or three years
from the date the new warrants are issued.
At our election and under certain conditions, we may use shares of our
common stock to make interest or principal payments on the notes. The actual
number of shares which may be issued as payment of interest or principal may
increase if the price of our common stock is below the then applicable
conversion price of the notes.
To the extent we use our shares to make principal payments on the notes,
the number of shares which may be issued upon the conversion of the notes may be
less due to the reduction in the outstanding principal balance of the notes.
The actual number of shares which will ultimately be issued upon the
payment or conversion of the notes and the exercise of the warrants (if any)
will vary depending upon a number of factors, including the price at which we
sell any additional shares of our common stock prior to the date the notes are
paid or converted or the date the warrants are exercised or expire.
B. Pursuant to the terms of a consulting agreement with a sales agent, we issued
the sales agent warrants to purchase 937,500 shares of our common stock as
consideration for services the sales agent provided in connection with the sale
of our notes and warrants. Warrants to purchase 187,500 of the 937,500 shares
are exercisable at a price of $0.01 per share and warrants to purchase the
remaining 750,000 shares are exercisable at a price of $0.60 per share. These
warrants expire on June 30, 2012. The sales agent subsequently assigned 234,375
warrants each to two of its employees.
C. Options are exercisable at a price of $0.001 per share and expire on various
prior to March 2014.
27
D. Warrants in this category were not granted pursuant to our Non-Qualified
Stock Option Plan. The warrants are exercisable at prices between $0.05 and
$0.12 per share and expire on various dates prior to August 2014.
E. During 2003 we sold convertible notes in the principal amount of $529,813 to
six private investors. As of January 31, 2012, all notes, with the exception of
one note in the principal amount of $33,000, had either been repaid or converted
into shares of our common stock. For every share issued upon conversion, the
note holders received warrants to purchase one share of our common stock. The
warrants are exercisable at prices between $0.05 and $0.176 per share and expire
in 2014. As of January 31, 2012, warrants to purchase 2,204,730 shares remained
outstanding. The remaining note, which bears interest at 5% per year, can be
converted at any time into 211,768 shares of our common stock. If this note is
converted, the note holder will receive warrants to purchase 211,768 shares of
our common stock. These warrants, if issued, will be exercisable at a price of
$0.17 per share and will expire in five years after their issuance.
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. The options are exercisable at
a price of $0.0714 per share and expire on January 22, 2020.
H. In December 2011 we sold a convertible note in principal amount of $78,500 to
a private investor. The note bears interest at 8% per year and is payable on or
before February 5, 2013. At any time after June 15, 2012 the note can be
converted into shares of our common stock. The number of shares to be issued
upon any conversion will be determined by dividing the principal amount to be
converted by the conversion price. The conversion price is 58% of the average of
the lowest five Trading Prices for our common stock during the ten trading day
period ending on the trading day prior to the date the note is converted.
"Trading Price" means the closing bid price of our common stock on the
Over-the-Counter Bulletin Board. Based upon the closing prices of our common
stock, we would be required to issue 7,850,000 shares of our common stock if the
note was converted on March 31, 2012.
I. In February 2012 we sold a convertible note in principal amount of $42,500 to
the same private investor mentioned in Note H above. The note bears interest at
8% per year and is payable on or before February 19, 2013. At any time after
August 7, 2012 the note can be converted into shares of our common stock. The
number of shares to be issued upon any conversion will be determined by dividing
the principal amount to be converted by the conversion price. The conversion
price is 58% of the average of the lowest five Trading Prices for our common
stock during the ten trading day period ending on the trading day prior to the
date the note is converted. "Trading Price" means the closing bid price of our
common stock on the Over-the-Counter Bulletin Board. Based upon the closing
prices of our common stock, we would be required to issue 4,250,000 shares of
28
our common stock if the note was converted on February 20, 2012.
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.
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.
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
29
not have lines of credit with banks or other financial institutions.
Material changes in the line item of our balance sheet between December 31,
2011 and December 31, 2010 are discussed below.
Increase (I)
Item or Decrease (D) Reason
---- --------------- ------
Cash D (1)
Debt issue cost D (1)
Derivative liability D Derivative liability decreased as
a result of a decrease in the
price of our common stock. The
price of our common stock is one
component used in determining the
amount of the derivative liability.
Loans payable I Due to amortization of accretion
Due to related parties I Due to new related party fees to
new director.
Convertible debt I This is related to the new
convertible loan in December 2011.
(1) In January 2010 we sold 90,459,600 shares of our common stock, and
90,459,600 warrants, in a public offering. The proceeds to us from the
sale of the shares and warrants, net of underwriting commissions and
offering expenses, were approximately $4,800,000, resulting in the
increase in cash. Deferred financing costs at December 31, 2009, which
pertained to our public offering, were transferred to Additional
Paid-In Capital/Share Issuance Costs upon the completion of the
offering. With proceeds from the public offering we reduced our
accounts payable, and made payments on outstanding loans, amounts due
to related parties, and convertible debt.
30
Our sources and (uses) of cash during the years ended December 31, 2011and
2010 were as follows:
Year Ended December 31,
------------------------
2011 2010
---- ----
Cash (used) in operations $(1,554,571) $(2,228,477)
Patent costs (48,728) (130,198)
Proceeds from sale/purchase of equipment, (16,195) --
Repurchase of shares (20,000) --
Loans from unrelated parties -- 32,549
Proceeds from convertible debt 78,500 --
Repayment of loans -- (450,000)
Repayment of convertible debt (18,840) (1,186,700)
Deferred financing /debt issue costs (3,500) (94,851
Proceeds from sale of common stock and
exercise of options and warrants, net of
issuance costs 2,288 5,701,266
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. The Company repaid $18,840 to the note holders from the
proceeds of the Asher loan in December 2011. Due to principal payments and
conversions, the outstanding principal balance of the notes as of December 31,
2011 was $544,460.
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.
In December 2011 we sold a convertible note in principal amount of $78,500
to a private investor. The note bears interest at 8% per year and is payable on
or before February 5, 2013. At any time after June 15, 2012 the note can be
converted into shares of our common stock. The number of shares to be issued
upon any conversion will be determined by dividing the principal amount to be
converted by the conversion price. The conversion price is 58% of the average of
the lowest five Trading Prices for our common stock during the ten trading day
period ending on the trading day prior to the date the note is converted.
31
"Trading Price" means the closing bid price of our common stock on the
Over-the-Counter Bulletin Board. Based upon the closing prices of our common
stock, we would be required to issue 7,850,000 shares of our common stock if the
note was converted on March 31, 2012.
We anticipate that our capital requirements for the twelve-month period
ending March 31, 2013 will be as follows:
Research, development and production of our diagnostic
products $ 900,000
General and administrative expenses 700,000
Marketing and investor communications 150,000
Business development 50,000
Payment of interest on amended senior convertible
notes and unsecured promissory notes 100,000
Payment of outstanding liabilities 250,000
------------
$2,150,000
============
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, 2011, as compared to the same period in the prior year, are
discussed below:
Increase (I)
Item or Decrease (D) Reason
---- --------------- ------
General and administrative D The decrease was primarily
attributable to lower
stock-based compensation
expense.
Professional and Consulting I The Company entered into
Fees consulting agreements to
strengthen the overall
marketing strategies.
Research and Development I The increase was primarily
attributable to lab
materials, supplies and a new
scientist was retained.
32
Interest expenses D The repayment of a large
portion of the convertible
notes in January 2010
resulted in decreasing of
interest payment.
Accretion of discount on D The repayment of a large
convertible debt portion of the convertible
notes in January 2010 resulted
in the decrease in accretion
of discount on the convertible
debt during the year.
Amortization of debt issue D A large portion of the
costs convertible notes were repaid
in January 2010. As a result,
the debt issue costs were
less during the current
period.
Gain(loss) on derivative D Derivative liability decreased
liability is result from the decrease
in accretion on the
convertible debt.
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.
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.
33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Our Principal Executive Officer and our Principal Financial Officer 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 were effective.
Management's Report on Internal Control Over Financial Reporting
----------------------------------------------------------------
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting (as defined in Rule 13a-15(f) under
the Securities Exchange Act, as amended). Internal control over financial
reporting is a process designed under the supervision of the Chief Executive and
Financial Officer of Biocurex to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of our financial
statements for external purposes in accordance with U.S. GAAP.
While we believe that our existing internal control framework and
procedures over financial reporting have been effective in accomplishing its
objectives, we intend to continue the practice of reevaluating, refining, and
expanding its internal controls over financial reporting. Because of our
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with policies
or procedures may deteriorate.
Our management assessed the effectiveness of its internal control over
financial reporting as of December 31, 2011. 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 believes that, as of December
31, 2011, our internal control over financial reporting was effective based on
those criteria.
There were no changes in our internal controls over financial reporting
that occurred during the year ended December 31, 2011 that have materially
affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.
ITEM 9B. OTHER INFORMATION
Not Applicable
34
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Name Age Position
---- --- --------
Ricardo Moro, M.D. 58 Chief Executive Officer and Director
Dr. Paul D. Slowey 55 President and Director
Gladys Chan 37 Chief Financial Officer
Antonia Bold-de-Haughton 60 Secretary and Director
Denis Burger, Ph.D. 61 Executive Chairman and Director
Phil Gold, M.D. 71 Director
Jim Walsh, Ph.D. 52 Director
Trent Davis 43 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.
Dr. Paul Slowey has been our President and a Director since July 2011. Dr.
Slowey has been President and Chief Executive Officer of Oasis Diagnostics
Corporation since 2007 and Managing Member of Bamburgh Marrsh LLC since 2002.
Previously he held various diagnostic positions including; Director of
International Sales for OraSure (formerly Epitope), Chief Operating Officer for
Saliva Diagnostics, Director of International Sales for Incstar Corp. [now
DiaSorin]. He holds a B.S. (Honors) from Sheffield Polytechnic (England), a
Ph.D. in Organic Chemistry from the University of Newcastle-Upon-Tyne (England)
and Post-Doctoral Fellowships from University of Victoria and Memorial
University of Newfoundland (Canada).
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,
35
a cancer therapeutics company. Earlier in his career, he was a Professor of
Microbiology and Immunology, an Associate Professor of Surgery and the Director
of the Histocompatibility Testing Laboratory at Oregon Health Sciences
University. He holds a B.A. degree in Bacteriology and Immunology from the
University of California at Berkeley, a M.S. and Ph.D. in Microbiology and
Immunology from the University of Arizona, Tucson.
Gladys Chan joined us in July 2005 as comptroller and was promoted to chief
financial 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
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.
36
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.
Trent Davis has been a Director since July 2011. Mr. Davis has been with
Paulson Investment Company, Inc. since 1991 and has served as Paulson's
President and Chief Executive Officer since 2005. Prior to being appointed as
President and Chief Executive Officer, Mr. Davis served as Senior Vice President
of Paulson's Syndicate Department. From 2001 to 2005 Mr. Davis served as a board
member of the National Investment Banking Association and from 2003 to 2004 Mr.
Davis served as Chairman of that association. Mr. Davis holds a B.S. in Business
and Economics from Linfield College and earned a Master's Degree in Business
Administration from the University of Portland.
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.
The basis for our conclusion that each current director should serve as a
director is listed below:
Name Reason
-----------
Dr. Ricardo Moro (1)
Dr. Paul Slowey (2)
Antonia Bold-De Haughton (1)
Dennis Burger (2)
Phil Gold (1)
Jim Walsh (2)
Trent Davis (3)
(1) Long standing relationship with us.
37
(2) Past experience with companies involved with the development of drugs
and diagnostic products.
(3) Investment banking experience.
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 Amex.
We have adopted a Code of Ethics which is applicable to our principal
executive, financial, and accounting officers and persons performing similar
functions. The Code of Ethics is available on our website located at
www.biocurex.com.
Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------
Our directors act as our compensation committee. During the year ended
December 31, 2011 each director participated in deliberations concerning
executive officer compensation.
During the year ended December 31, 2011, none of our officers were also a
member of the compensation committee or a director of another entity, which
other entity had one of its executive officers serving as one of our directors.
Employment Agreements
---------------------
As of September 15, 2009, we entered into an employment agreement with
Denis R. Burger, Ph.D., our executive chairman. The employment agreement expires
on December 31, 2013. If we do not renew the employment agreement, we must pay
Dr. Burger twelve months severance pay. Under the employment agreement, Dr.
Burger is responsible for performing such duties as assigned to him from time to
time by our board of directors. Dr. Burger is also required to devote his best
efforts to our service throughout the term of the agreement, including devoting
at least 40 hours per month to our affairs. In return for his services, Dr.
Burger will receive an initial annual base compensation of $100,000 and
reimbursement for all expenses reasonably incurred by him in discharging his
duties and is entitled to participate in any applicable benefit plans. Dr.
Burger may also receive a bonus at the discretion of the board of directors. Our
employment agreement with Dr. Burger may be terminated voluntarily by Dr. Burger
upon sixty days written notice. We may terminate the employment agreement upon
thirty days written notice, in which event we must pay Dr. Burger eighteen
months severance pay.
As of October 1, 2009, we entered into an employment agreement with Dr.
Ricardo Moro, our chief executive officer. The employment agreement expires on
December 31, 2013. If we do not renew the employment agreement, we must pay Dr.
Moro twelve months severance pay. Under the employment agreement, Dr. Moro is
responsible for performing such duties as assigned to him from time to time by
our board of directors. Dr. Moro is also required to devote his best efforts to
our service throughout the term of the agreement, on a full-time basis except to
the extent his services are required by Pacific Bioscience Research Centre. In
return for his services, Dr. Moro will receive an initial annual base
compensation of $250,000 and reimbursement for all expenses reasonably incurred
by him in discharging his duties and is entitled to participate in any
38
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
Executive Compensation
----------------------
The following table shows in summary form the compensation received by (i)
our Chief Executive Officer (ii) our President and (iii) by each other executive
officer who received total compensation in excess of $100,000 during the two
years ended December 31, 2011.
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 2011 $182,597 -- -- -- -- $182,597
Chief Executive Officer 2010 $148,407 -- -- $847,418 -- $995,825
Dr. Paul Slowey 2011 $35,000 -- -- -- -- $35,000
President (since
July, 2011)
Gladys Chan 2011 $69,500 -- -- -- -- $69,500
Principal Financial and 2010 $75,000 -- -- $28,247 -- $103,247
Accounting Officer (6)
Denis Burger 2011 $110,999 -- -- -- -- $110,999
Executive Chairman 2010 $104,333 -- -- $564,946 -- $669,279
(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 2011 and 2010, Dr. Moro received total
payments of $118,480 and $101,593, 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.
39
(5) All other compensation received that could not be properly reported in
any other column of the table.
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, 2011
-------------------------------------------------------------
The table below sets forth the compensation earned by our directors, other
than Dr. Moro, for the fiscal year ended December 31, 2011.
Paid Stock Option
in Awards Awards All other
Name Cash (1) (2) Compensation Total
--------------------------------------------------------------------------------
Phil Gold -- -- -- -- --
Jim Walsh -- -- -- -- --
Trent Davis -- -- -- -- --
Antonia Bold-de-Haughton $72,000 -- -- -- $72,000
(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
40
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.
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.
41
The following tables show the options granted to the persons named below
during the periods indicated. Except as indicated, all options were granted
pursuant to our Non-Qualified Stock Option Plan.
Options Granted
---------------
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 1,578,947
Dr. Phil Gold 3/17/09 684,210 $0.001 3/19/11 684,210
Dr. Ricardo Moro 1/25/06 225,000 $0.001 1/31/12 225,000
Dr. Ricardo Moro 1/25/06 450,000 $0.001 3/31/12 450,000
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
-----------------
The following table shows the value realized upon the exercise of options by our
officers and directors during the year ended December 31, 2011 and during the
month of January 2012.
Shares
Date of Acquired On Value
Name Exercise Exercise Realized
---- -------- -------- ---------
Dr. Ricardo Moro 3/11/11 1,578,947 $77,368
Dr. Phil Gold 3/11/11 709,210 $34,751
Dr.Ricardo Moro 1/20/12 675,000 $6,750
42
Value Realized is determined by the different between the option exercise
price and the market price of our common stock on the date the options were
exercised.
Shares underlying unexercised
options which are:
------------------------------ Exercise Expiration
Name Exercisable Unexercisable Price Date
---- ----------- ------------- -------- ----------
Dr. Ricardo Moro 650,000 0.001 3/31/14
Dr. Ricardo Moro 15,000,000 0.0714 1/22/20
Dr. Phil Gold 1,000,000 0.0714 1/22/20
Gladys Chan 500,000 0.0714 1/22/20
Antonia Bold-de-
Haughton 1,000,000 0.0714 1/22/20
Denis Burger 10,000,000 0.0714 1/22/20
Jim Walsh 1,000,000 0.0714 1/22/20
Gladys Chan 161,400 0.001 8/17/13
Antonia Bold-de-
Haughton 220,800 0.001 8/17/13
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, 2011. 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 1,631,600 $0.001 8,870,666
The following table shows the number of outstanding stock options and stock
bonuses granted by us pursuant to the Plans, as of March 31, 2012. 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 1,631,600 11,997,734 N/A 8,870,666
Option Plan
Stock Bonus Plan 40,000,000 N/A N/A 19,064,884 20,935,116
Stock Option
Agreements 28,500,000 28,500,000 -- N/A --
43
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.
The following table shows, as of March 31, 2012, information with respect
to the shareholdings of (i) each person owning beneficially 5% or more of our
common stock, (ii) each of our officers and directors, and (iii) all officers
and directors as a group. Unless otherwise indicated, each owner has sole voting
and investment powers over his shares of common stock.
Number of Percent of
Name and Address Shares (1) Class
---------------- ---------- ----------
Dr. Ricardo Moro 17,425,000 10.29%
7080 River Road, Suite 215
Richmond, British Columbia
Canada V6X 1X5
Dr. Paul Slowey -- --
7080 River Road, Suite 215
Richmond, British Columbia
Canada V6X 1X5
Gladys Chan 661,400 0.40%
7080 River Road, Suite 215
Richmond, British Columbia
Canada V6X 1X5
Antonia Bold-de-Haughton 1,220,800 0.73%
7080 River Road, Suite 215
Richmond, British Columbia
Canada V6X 1X5
Dennis Burger, Ph.D 12,257,286 6.91%
1534 SW Myrtle St.
Portland, OR 97201
Dr. Phil Gold 1,000,000 1.12%
3225 The Boulevard
Westmount, Quebec
Canada H3Y 1S4
Jim Walsh 1,714,286 1.02%
c/o Biocurex, Inc.
7080 River Road
Richmond, British Columbia
Canada V6X 1X5
44
Number of Percent of
Name and Address Shares (1) Class
---------------- ------------ ----------
Trent Davis -- --
811 S.W. Naito Pkwy, # 200
Portland, OR 97204-3332
All Officers and Directors
as a Group (8 persons) 34,278,772 20.47%
(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, 2012.
Shares Issuable
Upon Exercise of Exercise Expiration
Name Options or Warrants Price Date
---- ------------------- ------------ -----------
Dr. Ricardo Moro 15,650,000 .001 - .0714 3/14 - 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 1,000,000 .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
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.
45
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, 2011
and 2010
The following table shows the aggregate fees billed to us for the years
ended December 31, 2011 and 2010 by Manning Elliott.
2011 2010
---- ----
Audit Fees $55,000 $55,000
Audit Related Fees $15,000 34,250
All Other Fees -- --
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.
46
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)
23 Consent of Accountants
31 Rule 13a-14(a) Certifications __________________________________
32 Section 1350 Certifications __________________________________
Data Files The Financial statements in this amended 10-K are unchanged from
those contained in the 10-K report which was originally filed. As a
result, interactive data files are not included with the amended
10-K.
(1) Incorporated by reference to Exhibit 10.1 to our report on Form 8-K
which was filed on January 25, 2010.
(2) The original Articles of Incorporation are incorporated by reference
to Exhibit 3.1 of our registration statement on Form 10-SB, filed with
the SEC on August 5, 1999 and the amendment to the Articles of
Incorporation is incorporated by reference to Exhibit 3.1 to a Current
Report on Form 8-K filed on October 30, 2009.
(3) Incorporated by reference to Exhibit 3.2 of our registration statement
on Form 10-SB, filed with the SEC on August 5, 1999 and to Exhibit 3.1
to a Report on Form 8-K filed with the SEC on September 10, 2009.
(4) Incorporated by reference to the same exhibit filed with our
registration statement on Form S-1 (Commission File No. 333-162345).
(5) Incorporated by reference to Exhibit 4.1 of our registration statement
on Form S-8, filed with the SEC on April 23, 2009.
47
(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.
48
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)
BIOCUREX, INC.
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
December 31, 2011
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
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, 2011 and 2010, and the related
consolidated statements of operations, cash flows and stockholders' deficit for
the years then ended and accumulated for the period from January 1, 2001 to
December 31, 2011. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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, 2011 and 2010, 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, 2011, in conformity with
accounting principles generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has a working capital deficiency
and has incurred significant operating losses since inception. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also discussed in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Manning Elliott, LLP
Manning Elliott, LLP
CHARTERED ACCOUNTANTS
Vancouver, Canada
March 29, 2012
BIOCUREX, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. dollars)
December 31, December 31,
ASSETS 2011 2010
$ $
Current Assets
Cash 189,148 1,770,194
Prepaid expenses and other 19,371 4,623
--------------------------------
Total Current Assets 208,519 1,774,817
Debt Issue Costs (Notes 4 and 6) 28,084 48,851
Patents (Note 3) 438,540 498,500
Equipment (Note 2) 9,467 -
--------------------------------
Total Assets 684,610 2,322,168
--------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable 86,027 90,022
Derivative liability (Note 12) 15,862 145,159
Accrued liabilities 361,281 359,322
Loans payable (Note 4 (b) 33,884 32,550
Due to related parties (Note 5) 647,364 434,718
Convertible notes payable (Note 6 (a))
to related party 33,885 33,885
Convertible secured debt (Note 6 (b)) 477,640 -
--------------------------------
1,655,944 1,095,656
Loans payable (Note 4 (a)) 103,929 81,301
Convertible debt (Note 6 (b) and (c)) 78,500 437,735
--------------------------------
1,838,372 1,614,692
--------------------------------
Commitments and Contingencies (Notes 1 and 13)
Subsequent Events (Note 15)
Stockholders' Equity (Deficit)
Common stock
Authorized: 450,000,000 shares,
par value $0.001
Issued and outstanding: 180,423,597 and
179,025,264 (December 31, 2011 -
179,025,264 and 168,188,974),
respectively 179,025 168,189
Additional paid-in capital 25,173,736 24,474,411
Accumulated deficit (114,175) (114,175)
Deficit accumulated during the
development stage (26,392,348) (23,820,949)
--------------------------------
Stockholders' Equity (Deficit) (1,153,762) 707,476
--------------------------------
Total Liabilities and Stockholders'
Equity (Deficit) 684,610 2,322,168
--------------------------------
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,
2011 2010 2011
$ $ $
------------ ------------ ------------
Revenue 6,898 - 1,474,354
Operating Expenses
Amortization of patents (Note 3) 108,687 103,162 436,389
General and administrative (Note 5(a) &
8) 1,108,534 2,249,000 9,455,010
Impairment of patents - - 67,620
Professional and consulting fees 471,611 450,092 6,071,220
Research and development (Note 5(a)) 746,246 534,363 5,525,442
--------------------------------------------
Total Operating Expenses 2,435,078 3,336,617 21,555,681
--------------------------------------------
Loss From Operations (2,428,180) (3,336,617) (20,084,327)
--------------------------------------------
Other Income (Expense)
Accretion of discounts on debt (77,334) (613,841) (3,989,288)
Amortization of debt issue costs (24,267) (95,076) (786,307)
Gain (loss) on derivative liability 25,374 816,194 126,650
Loss on extinguishments of convertible
debt - - (452,243)
Gain (loss) sale of equity investment
securities - - 147,991
Gain on settlement of accounts payable - 44,655 102,937
Loss on sale of assets (5,679) - (5,679)
Interest expense (61,313) (65,044) (1,811,494)
Interest income - - 359,412
--------------------------------------------
Total Other Income (Expense) (143,219) 86,888 (6,308,021)
--------------------------------------------
Net Loss and Comprehensive Loss (2,571,399) (3,249,729) (26,392,348)
Net Loss Per Share - Basic and Diluted (0.01) (0.02)
----------------------------
Weighted Average Shares Outstanding 173,655,195 159,605,039
----------------------------
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
Year Ended Stage
December 31, January 1, 2001
to December 31,
2011 2010 2011
----------------------------------------------
$ $ $
Operating Activities:
Net loss (2,571,399) (3,249,729) (26,392,348)
Adjustments to reconcile net loss to net
cash used in operating activities:
Accretion of discounts on debt 82,708 613,841 4,010,683
Allowance for uncollectible notes
receivable - - 98,129
Amortization of patents & equipment 109,739 103,162 437,441
Amortization of debt issue costs 24,267 95,076 810,574
Gain on extinguishments of debt - - 374,909
Gain on sale of assets 5,674 5,674
Gain on write off accounts payable - (44,655) (102,937)
Loss (gain) on sale of investment
securities - - (253,065)
Loss from impairment of patents - - 67,620
Gain (loss) on derivative liability (25,373) (816,194) (126,649)
Stock-based compensation 516,577 1,680,221 8,259,336
Changes in operating assets and liabilities:
Notes and interest receivable - - (6,296)
Prepaid expenses and other (14,748) 3,757 16,324
Accounts payable & accrued liabilities 105,336 (454,567) 1,820,752
(Decrease) in related party 212,648 (159,389) 161,237
Deferred revenue - - (162,000)
Subscriptions receivable - - (100,683)
Unrealized foreign exchange gain
----------------------------------------------
Net Cash Used in Operating Activities (1,554,571) (2,228,477) (11,081,299)
----------------------------------------------
Investing Activities:
Net Proceeds from notes receivable - - 1,171
Patent costs (48,728) (130,198) (738,081)
Proceeds from sale of investment
securities - - 451,123
Proceeds from sale / purchase of
equipment, net (16,195) - (16,195)
----------------------------------------------
Net Cash Provided by (Used in) Investing (64,923) (130,198) (301,982)
Activities
----------------------------------------------
Financing Activities:
Due to related parties - - 552,281
Proceeds from loans payable - 32,549 607,549
Repurchase of shares (20,000) (20,000)
Repayment on loans payable - (450,000) (450,000)
Proceeds from convertible debt 78,500 - 3,718,243
Repayment on convertible debt (18,840) (1,186,700) (2,419,791)
Deferred financing costs - (94,851) (769,487)
Debt issue costs (3,500) - (92,944)
Proceeds from shares issued of common
stock - 6,461,400 9,962,872
Proceeds from the exercise of stock
options and warrants 2,288 1,392 1,150,204
Share issuance costs - (761,526) (909,049)
----------------------------------------------
Net Cash Provided by Financing Activities 38,448 4,002,264 11,329,878
----------------------------------------------
Net Increase (Decrease) in Cash (1,581,046) 1,643,589 (53,403)
Cash - Beginning of Year 1,770,194 126,605 242,551
----------------------------------------------
Cash - End of Year 189,148 1,770,194 189,148
----------------------------------------------
Non-cash Investing and Financing Activities:
Share issued to settle debt 174,796 127,200 1,284,677
Units issued as share issuance costs - 939,771 939,771
Treasury shares acquired for note
receivable 20,000 - 20,000
Note payable converted into common
shares - - 1,594,021
----------------------------------------------
Supplemental Disclosures:
Interest paid 55,311 63,700 760,598
Income taxes - - -
----------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements
F-3
BIOCUREX, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM JANUARY 1, 2001 (INCEPTION OF DEVELOPMENT STAGE) TO
DECEMBER 31, 2011
(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) (1,736,235) (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)
------ ------ ---------- ---------- ---------- --------- ------- ------- -------- ---------
# $ $ $ $ $ $ $ $ $
Balance,
December 31, 2008 43,713,399 43,713 15,178,205 40,050 - - (15,529) (114,175)(17,067,172) (1,934,908)
------------------------------------------------------------------------------------------------------------------------------------
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 - - 369,241 - - - 15,529 - - 15,529
Net loss of the year ended
December 31, 2009 - - - - - - - - (3,504,048) (3,504,048)
----------- --------- ---------- --------- ---------- --------- -------- ---------- ----------- -----------
Balance, December
31, 2009 restated 73,062,207 73,061 17,845,563 - - - - (114,175)(20,571,220) (2,766,771)
----------- --------- ---------- --------- ---------- --------- -------- ---------- ----------- -----------
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 73,062,205 73,061 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
------------------------------------------------------------------------------------------------------------------
F-13
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, 2010 168,188,975 168,189 24,474,411 - - - - (114,175) (23,820,949) 707,476
-----------------------------------------------------------------------------------------------------------------------------------
Issuance of common
stock for services:
Feb 2011 - $0.07 1,000,000 1,000 69,000 - - - - - - 70,000
per share
Apr 2011 - $0.05 150,000 150 7,350 - - - - - - 7,500
per share
Jun 2011 - $0.035 300,000 300 10,200 - - - - - - 10,500
per share
Jun 2011 - $0.04 2,500,000 2,500 97,500 - - - - - - 100,000
per share
Jul 2011 - $0.036 750,000 750 26,250 - - - - - - 27,000
per share
Sept 2011 - $ 833,333 833 21,667 - - - - - - 22,500
0.027 per share
Oct 2011- $0.032 833,333 833 25,833 - - - - - - 26,666
per share
Oct 2011 - $0.05 1,200,000 1,200 58,800 - - - - - - 60,000
per share
Nov 2011 - $0.02 166,666 167 3,167 - - - - - - 3,334
per share
Nov 2011- $0.02 814,800 815 15,482 16,297
per share
Nov 2011 - $ 0.020 833,334 833 15,833 - - - - - - 16,666
per share
Issuance of common
stock pursuant to
the exercise of
stock options:
Apr 2011 - $0.001 2,288,157 2,288 - - - - - - - 2,288
per share
Issuance of common
stock pursuant to
the exercise of
warrants for cash:
Fair value of 367,410 - - - - - - 367,410
options granted
Repurchase of
shares to settle (833,334) (833) (19,167) - - - - - - (20,000)
loan receivable
Net loss for the
year ended December
31, 2011 - - - - - - - - (2,571,399) (2,571,399)
----------------------------------------------------------------------------------------------------------
Balance, December 179,025,264 179,025 25,173,736 - - - - (114,175) (26,392,348) (1,153,763)
31, 2011
----------------------------------------------------------------------------------------------------------
F-14
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, 2011, the
Company has a working capital deficit of $(1,447,425) and accumulated losses of
$26,392,348 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.
F-15
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 collectability
is reasonably assured. The Company's revenue since the inception of the
development stage consist of clinic test sales, diagnostic kit sales and license
fees related to the licensing and use of its RECAF(TM) technology.
F-16
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, 2011 and 2010, the Company had no items that
represent other comprehensive loss, and therefore has not included a schedule of
comprehensive loss in the financial statements.
F-17
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, 2011, the Company had approximately 151,382,620 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 the years
ended December 31, 2011 and 2010.
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 estimated remaining life of the patents.
Property and Equipment
Property and equipment are recorded at cost less amortization, whereby in the
year of acquisition only half a year of amortization is applied. Property and
equipment consist of lab equipment acquired during the year of $10,519 less
amortization of $1,052 (5 years straight-line), for an ending net book value of
$9,467.
Reclassifications
Certain reclassifications have been made to the prior period's financial
statements to conform to the current period's presentation.
Recent Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-06,
Improving Disclosures about Fair Value Measurements, which amends the ASC Topic
820, Fair Value Measures and Disclosures. ASU No. 2010-06 amends the ASC to
require disclosure of transfers into and out of Level 1 and Level 2 fair value
measurements, and also requires more detailed disclosure about the activity
within Level 3 fair value measurements. The new disclosures and clarifications
of existing disclosures were effective for interim and annual reporting periods
beginning after December 15, 2009, except for the disclosures concerning
purchases, sales, issuances, and settlements in the roll forward of activity in
Level 3 fair value measurements. Those disclosures were effective for fiscal
years beginning after December 15, 2010, and for interim periods within those
fiscal years. This guidance requires expanded disclosures only, and did not have
a material impact on the Company's financial statements.
The Company has implemented all new accounting pronouncements that are in
effect. These pronouncements did not have any material impact on the financial
statements unless otherwise disclosed, and the Company does not believe that
there are any other new accounting pronouncements that have been issued that
might have a material impact on its financial position or results of operations.
F-18
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, 2011, the Company had received patent approval from five
countries and the European patent office. Additions made after December 31, 2011
will have an estimated remaining life of approximately four years. The Company
intends to apply for extensions in the future.
A schedule of the patents is as follows:
December 31, December 31,
2011 2010
$ $
Patents 866,178 817,451
Less:
Accumulated amortization (427,638) (318,951)
----------------------------------------------------------------------------
Net Carrying Value 438,540 498,500
----------------------------------------------------------------------------
Amortization expense totaled $108,687 and $103,162 for the years ended December
31, 2011 and 2010, respectively.
The estimated future amortization expense is as follows:
$
2012 108,687
2013 108,687
2014 108,687
Thereafter 112,479
--------------
438,540
--------------
F-19
4. LOANS PAYABLE
a) On September 21, 2009, the Company completed a private placement in which
it sold three promissory notes in the aggregate principal amount of
$125,000 and 1,785,715 shares of its common stock for an aggregate purchase
price of $125,000.
The promissory notes bear interest at a rate of 10% per annum. Both
interest and principal are payable on January 31, 2013.
The aggregate purchase price for the units was allocated equally between
the notes and shares contained in each Unit based on their relative fair
value. The relative fair value assigned to the shares totaled $62,500.
These amounts were recorded as a notes discount and will be amortized as
interest expense over the term of the promissory notes.
During the year ended of December 31, 2011, the Company paid interest in
the amount of $12,500 (2010 - $ 12,466) and recorded $14,470 (2010 -
$15,538) as the accretion expense related to these promissory notes. As at
December 31, 2011, the carrying value of these notes was $103,929 (December
2010 - $81,301).
During year ended December 31, 2011, the Company expensed $3,044 (2010 -
$73,853) of the debt issue costs related to promissory notes, and at
December 31, 2011, the balance of debt issue costs was $3,303 (December
2010 - $6,347).
b) During the year ended December 31, 2011, the Company received a net advance
of 213,244 RMB (US $33,884) (December 31, 2010 - 207,325 RMB (US $32,530))
from BioCurex China's Agent. The advance is non-interest bearing, unsecured
and due on demand.
5. RELATED PARTY TRANSACTIONS AND BALANCES
December 31, December 31,
2011 2010
$ $
Due to Pacific BioSciences Research Centre Inc. 595,548 417,734
and Company's President (a)
Due to Company's Chairman (b) 29,386 12,054
Due to a former officer (c) 4,930 4,930
Due to Company's Director (d) 17,500 -
-----------------------------------------------------------------------------
647,364 434,718
-----------------------------------------------------------------------------
a) The Company's research and development is performed by Pacific BioSciences
Research Centre ("Pacific"). Pacific is 100% owned by the CEO of the
Company. During the year ended December 31, 2011 and 2010, Pacific
performed research and development for the Company valued at $667,959 and
$479,778, respectively.
Pacific also provided administrative services during the year ended
December 31, 2011 and 2010, valued at $239,682 and $198,230, respectively.
During the year ended December 31, 2011, and 2010, Pacific charged interest
of $8,495 and $8,904, respectively, calculated at the bank prime rate on
the monthly balance owed. In 2011, the Company issue 814,800 shares of
common stock to the employees of Pacific to settle $16,296 of the related
party balance owing to Pacific. As at December 31, 2011 and 2010, the
amount due to Pacific was $533,048 and $405,688, respectively, and is
unsecured and due on demand.
On September 15, 2009, the Company entered into an agreement with the
Company's CEO to provide management services for a fee of $250,000 per
annum. During year ended December 31,
F-20
5. RELATED PARTY TRANSACTIONS AND BALANCES (continued)
2011, the Company incurred $250,000 (2010 - $250,000) for the management
services of which $62,500 remains unpaid as of December 31, 2011(2009 -
$12,054).
b) On September 15, 2009, the Company entered into an agreement with the
Company's Chairman to provide management services for a fee of $100,000 per
annum based on 40 hours per month. During the year ended December 31, 2011,
the Company incurred $110,999 (2010 - $140,333) for management services. As
at December 31, 2011, the Company is indebted to the Company's Chairman for
$29,386 of management fees and miscellaneous expense (2010 - $12,054).
c) The balance represents $4,930 owing to a former officer which is unsecured,
non-interest bearing and due on demand (2010 - $4,930).
d) During 2011, Company incurred $17,500 in consulting fees to a director of
the Company, of which $17,500 was outstanding at year end (2010 - $nil).
6. CONVERTIBLE NOTES AND DEBT
a) As of September 30, 2011, one $33,885 (2010 - $33,885) convertible note is
outstanding which is payable to a related party. The note bears interest at
5% annum, is unsecured and due on demand.
Under the convertibility terms of the notes payable, the principal, 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 at $0.17 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.
b) As at December 31, 2011, the Company has convertible secured notes (the
"Notes") in the principal amount of $544,460. 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 $0.13 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;
F-21
6. CONVERTIBLE NOTES AND DEBT (continued)
vii. securities issued upon the conversion of the Notes or the
exercise of the Warrants;
viii. securities issued upon the conversion of notes or the exercise
of options or warrants issued and outstanding on June 25, 2007,
provided that the securities have not been amended to increase
the number of such securities or to decrease the exercise,
exchange or conversion price of the securities.
Due to this provision, the embedded conversion option qualifies for
derivative accounting under ASC 815-15 (See Note 12).
The following table summarizes the changes in the Notes during the year
ended December 31, 2011:
Carrying
Principal Discount Value
$ $ $
--------------------------------
Balance, December 31, 2009 1,750,000 (551,001) 1,198,999
Principal repayments (1,186,700) - (1,186,700)
Accretion of discount on convertible - 425,436 425,436
debt
--------------------------------
Balance, December 31, 2010 563,300 (125,565) 437,735
Principal repayments (18,840) - (18,840)
Accretion of discount on convertible - 58,745 58,745
debt
--------------------------------
Balance, December 31, 2011 544,460 (66,820)
--------------------------------
During the year ended December 31, 2011, the Company expensed $21,223 (2010
- $21,223) of the debt issue costs related to these convertible notes. The
balance of debt issue costs at December 31, 2011 is $21,281 (December 31,
2010 - $42,504).
c) On December 15, 2011 the Company sold a convertible note in a principal
amount of $78,500 to a private investor. The note bears interest at 8% per
year and is payable on or before March 19, 2013. At any time after June 15,
2012 the note can be converted into shares of our common stock. The number
of shares to be issued upon any conversion will be determined by dividing
the principal amount to be converted by the conversion price. The
conversion price is 58% of the average of the lowest five Trading Prices
for our common stock during the ten trading day period ending on the
trading day prior to the date the note is converted. "Trading Price" means
the closing bid price of the Company's common stock on the Over-the-Counter
Bulletin Board. The conversion feature hasn't been separated from the loan
because it does not provide for net settlement until convertible.
On the issuance of the convertible note, the Company incurred $3,500 in
debt issuance costs. These costs were capitalized and will be amortized
over the life of the note.
F-22
7. COMMON STOCK
For the year ended December 31, 2011:
a) In February 2011, the Company issued 500,000 shares of common stock to a
vendor of $35,000.
b) In February 2011, the Company entered into a consulting agreement for
investor relation consulting services ending May 31, 2011. The Company
issued 500,000 restricted common shares with an estimated fair value of
$35,000.
c) In April 2011, the Company issued 2,288,157 shares of common stock pursuant
to stock options exercised at $0.001 per share.
d) In April 2011, the Company issued 150,000 shares of common stock to a
scientist with an estimated fair value of $7,500 for consulting services.
e) In June 2011, the Company issued 300,000 shares of common stock to a
scientist with an estimated fair value of $10,500 for consulting services.
f) In June 2011, the Company issued 2,500,000 shares of common stock to a
vendor to settle a $87,500 retainer owing for consulting services.
g) In July, 2011, the Company issued 750,000 shares of common stock to a
vendor with an estimated fair value of $27,000 for consulting services.
h) In September, 2011, the Company issued 833,333 shares of common stock to a
vendor with an estimated fair value of $22,500 for consulting services.
i) In October, 2011, the Company issued 833,333 shares of common stock to a
vendor with an estimated fair value of $26,667 for consulting services.
j) In October, 2011, the Company issued 1,200,000 shares of common stock to a
vendor to settle a $36,000 retainer owing for consulting services.
k) In November, 2011, the Company issued 833,334 shares of common stock to a
vendor with an estimated fair value of $16,667 for consulting services.
l) In November, 2011, the Company issued 814,800 shares of common stock to
three employees of a related party, in order to settle $16,296 of a related
party loan.
m) In November, 2011, the Company repurchased 833,334 shares of their common
stock from a scientist in order to settle a $20,000 note receivable per a
loan agreement entered into with the scientist in September 2011.
n) In November, 2011, the Company issued 166,666 shares of common stock to a
scientist with an estimated fair value of $3,334 for consulting services.
F-23
7. COMMON STOCK (continued)
For the year ended December 31, 2010: (continued)
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 unit 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.
a) In February 2010, the Company issued 800,000 shares of common stock to a
vendor to settle account payable of $56,000.
b) In February 2010, the Company issued 200,000 shares of common stock to a
vendor for $14,000 of services.
c) In February 2010, a total of 920,000 stock options were exercised at $0.001
per share.
d) 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.
e) In February 2010, the Company issued 357,143 shares of common stock to a
vendor to settle account payable of $25,000.
f) In April 2010, a total of 284,000 stock options were exercised at $0.001
per share.
g) In June 2010, the Company issued 420,000 shares of common stock to a vendor
to settle $25,200 of accounts payable.
h) In September 2010, a total of 188,300 stock options were exercised at
$0.001 per share.
i) In September 2010, the Company issued 350,000 shares of common stock to a
vendor to settle $21,000 of accounts payable.
j) 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.
F-24
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 4,347,666 common shares available for future issuance as
of December 31, 2011.
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, 2011.
Management Stock Options
In 2010, the Company granted 28,500,000 stock options to five directors and one
officer at an exercise price of $0.0714 per share. The stock options expire on
December 31, 2020. 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.
F-25
8. STOCK-BASED COMPENSATION (continued)
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, 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
Exercised (2,288,157) 0.001
-----------------------------------------------------------------------------
Outstanding, December 31, 2011 30,806,600 0.066 7.56 20,759
-----------------------------------------------------------------------------
Exercisable, December 31, 2011 21,306,600 0.064 7.33 20,759
-----------------------------------------------------------------------------
As at December 31, 2011, there was $16,856 of unrecognized compensation costs
related to non-vested share-based compensation arrangements granted which are
expected to be recognized within a year. The compensation cost of shares vested
was $367,410 and $1,610,095 for the years ended December 31, 2011 and 2010,
respectively. Compensation cost has been included in general and administration
expense in the statement of operations.
A summary of the status of the Company's non-vested options as of December 31,
2011, and changes during the year end of December 31, 2011, 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
Vested during period (9,500,000) 0.0714
---------------------------------------------------------------------------
Non-vested at December 31, 2011 9,500,000 0.0714
===========================================================================
9. SHARE PURCHASE WARRANTS
A summary of the changes in the Company's share purchase warrants is
presented below:
Weighted Average
Number of shares Exercise Price
-------------------------------------------------------------------------
Balance, December 31, 2009 16,952,811 0.14
Issued 90,459,600 0.107
Exercised (1,275,000) 0.08(1)
Expired (1,945,277) 0.19
-------------------------------------------------------------------------
Balance, December 31, 2010 0.134
Expired (5,027,804) 0.12
-------------------------------------------------------------------------
Balance, December 31, 2011 99,164,330 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)
F-26
9. SHARE PURCHASE WARRANTS (continued)
As at December 31, 2011, the following share purchase warrants were
outstanding:
Warrants Exercise Price Expiration Date
-------- -------------- ---------------
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(1)
----------------------
99,164,330
----------------------
(1) 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, 2011, the 120,000 unit purchase warrants were outstanding.
11. FAIR VALUE MEASUREMENTS
ASC 825 defines fair value as the price that would be received from selling an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. In determining fair value for assets and
liabilities required or permitted to be recorded at fair value, the Company
considers the principal or most advantageous market in which it would transact
and it considers assumptions that market participants would use when pricing the
asset or liability.
Fair Value Hierarchy
ASC 825 establishes a fair value hierarchy that requires an entity to maximize
the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. 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.
F-27
11. FAIR VALUE MEASUREMENTS (continued)
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.
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 and liabilities measured at fair value on a recurring basis were
presented on the Company's consolidated balance sheet as of December 31, 2011 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 $ 189,148 $ - $ - $ 189,148
-----------------------------------------------------------------------------
Total assets measured at $ 189,148 $ - $ - $ 189,148
fair value
-----------------------------------------------------------------------------
Liabilities:
Derivative liability $ - $ - $ 15,862 $ 15,862
-----------------------------------------------------------------------------
Total liabilities $ - $ - $ 15,862 $ 15,862
measured at fair value
-----------------------------------------------------------------------------
F-28
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, 2011 and 2010:
$
-----------------------------------------------------------------------------
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
-----------------------------------------------------------------------------
Settlement of derivative liabilities (103,923)
Change in fair value of derivative liabilities (25,374)
-----------------------------------------------------------------------------
Derivative liabilities at December 31, 2011 15,862
-----------------------------------------------------------------------------
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 99% - 175%; risk-free interest rates ranging from 0.16%
- 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, 2011, the Company had issued 37,500 common shares and 37,500
common shares are still owed to the consultant.
b) On April 10, 2006, the Company entered into a consulting agreement with a
term of one year for consideration of 75,000 common shares. As of December
31, 2011, the Company had issued 37,500 common shares and 37,500 common
shares are still owed to the consultant.
c) BioCurex China has entered into a lease agreement with a third party with a
term from February 15, 2009 to February 1, 2012 in consideration of 78,200
RMB (approximately $11,885 USD) to be paid annually.
F-29
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 $16,515,585 which, if
unutilized, will expire through to 2031. 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
2011 2,080,287 2031
-----------
$ 16,515,585
-----------
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,
2011 2010
$ $
Income tax recovery at statutory rate 899,990 1,137,405
Accretion of discount on debt (27,067) (214,844)
Derivative gain/loss 8,880 285,668
Stock based compensation (128,593) (567,778)
Financing costs (8,493) (33,277)
Other - 15,630
Expiry of losses - (31,483)
Valuation allowance change (744,717) (591,321)
----------------------------------------------------------------------------
Provision for income taxes - -
F-30
14. INCOME TAXES (continued)
The significant components of deferred income tax assets and liabilities as at
December 31, 2011 and 2010 are as follows:
December 31, December 31,
2011 2010
$ $
------------------------------
Net operating loss carryforward 5,780,455 5,052,354
Intangible assets 68,629 52,012
Valuation allowance (5,849,084) (5,104,366)
-----------------------------------------------------------------------------
Net deferred income tax asset - -
-----------------------------------------------------------------------------
15. SUBSEQUENT EVENTS
a) In February 2012, the Company issued 675,000 shares of common stock
pursuant to stock options exercised at $0.001 per share.
b) In February 2012, the Company issued 1,500,000 shares of common stock to a
vendor with an estimated fair value of $15,000 for consulting services.
c) In February 2012, the Company issued 1,141,700 shares of common stock to
three employees of a related party with an estimated fair value of $11,417
to settle a related party loan.
d) In February 2012, the Company sold a convertible note in a principal amount
of $42,500 to a private investor. The note bears interest at 8% per year
and is payable on or before February 19, 2013. At any time after August 7,
2012 the note can be converted into shares of our common stock.
e) In March 2012, the Company issued 1,500,000 shares of common stock to a
vendor with an estimated fair value of $15,000 for consulting services.
f) In March 2012, the Company issued 770,850 shares of common stock to three
employees of a related party with an estimated fair value of $15,417 to
settle a related party loan.
F-31
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 28th day of August, 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 August 28, 2012
Dr. Ricardo Moro Officer and a Director
/s/ Paul Slowey
---------------------- President and Director August 28, 2012
Paul Slowey
/s/ Gladys Chan
---------------------------- Principal Finanical and August 28, 2012
Gladys Chan Accounting Officer
/s/ Denis Burger
---------------------- Executive Chairman and August 28, 2012
Denis Burger, Ph.D. a Director
/s/ Phil Gold
---------------------- Director August 28, 2012
Dr. Phil Gold
BIOCUREX, INC.
FORM 10-K
EXHIBITS
