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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended February 28, 2009
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____ to _______
Commission File Number: 333-107179
CANCER DETECTION CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Nevada 98-0380519
(State or other jurisdiction of (I.R.S. Employer
10965 Elizabeth Drive, Conifer, Colorado 80433
----------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code: (303) 908-4900
N/A
- --------------------------------------------------------------------------------
Former name, former address, and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [_]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Larger accelerated filer [_] Accelerated filer [_]
Non-accelerated filer [_] Smaller reporting company [X]
Indicate by check mark whether registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes [_] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 16,653,124 shares of common
stock, par value $0.001, outstanding as of April 14, 2009.
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CANCER DETECTION CORPORATION
Index
Page
Item 1. Financial Statements
Consolidated Balance Sheets at February 28, 2009 (unaudited)
and May 31, 2008 1
Consolidated Statements of Operations for the three months
and nine months ended 2
Consolidated Statements of Cash Flow for the nine months ended
February 28, 2009 and February 29, 2008, and for the period
from inception to February 28, 2009 3
Notes to Consolidated Financial Statements (unaudited) 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Item 4. Controls and Procedures 13
Item 4T. Controls and Procedures 14
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits 15
SIGNATURES 16
i
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
CANCER DETECTION CORPORATION AND SUBSIDIARY
(formerly Xpention Genetics, Inc.)
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
February 28, May 31,
2009 2008
---------------- ----------------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 28 $ 50
Prepaid expenses 3,332 -
---------------- ----------------
Total assets $ 3,360 $ 50
================ ================
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities
Accounts payable and accrued expenses $ 2,438 $ 149,664
Accrued compensation 416,000 344,000
Accrued interest 2,580 17,344
Advances from related parties - 15,000
Notes payable, related party - 113,600
Convertible debt 15,000 30,000
---------------- ----------------
Total current liabilities 436,018 669,608
---------------- ----------------
Stockholders' (deficit)
Preferred stock, $0.001 par value, 10,000,000 shares authorized,
none issued or outstanding - -
Common stock, $0.001 par value, 100,000,000 shares authorized,
16,353,124 and 2,998,826 shares issued and outstanding
at February 28, 2009 and May 31, 2008, respectively 16,353 2,999
Additional paid-in capital 1,288,298 978,101
(Deficit) accumulated during the development stage (1,737,309) (1,650,658)
---------------- ----------------
Total stockholders' (deficit) (432,658) (669,558)
---------------- ----------------
Total liabilities and stockholders' (deficit) $ 3,360 $ 50
================ ================
The accompanying notes are an integral part of these financial statements.
1
CANCER DETECTION CORPORATION AND SUBSIDIARY
(Formerly Xpention Genetics, Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months and nine months ended February 28, 2009
and February 29, 2008, and for the period from Inception (October 13, 2004) to February 28, 2009
(Unaudited)
Three Months Ended Nine Months Ended October 13, 2004
February 28, February 29, February 28, February 29, (Inception) to
2009 2008 2009 2008 February 28, 2009
------------- ------------- ------------- ------------- -------------------
Revenues $ - $ - $ - $ - $ -
------------- ------------- ------------- ------------- -------------------
Expenses
Research and development 14,661 - 65,480 28,065 1,003,081
General and administrative 36,441 33,610 129,476 112,845 685,589
------------- ------------- ------------- ------------- -------------------
Total expenses 51,102 33,610 194,956 140,910 1,688,670
------------- ------------- ------------- ------------- -------------------
Operating (loss) (51,102) (33,610) (194,956) (140,910) (1,688,670)
------------- ------------- ------------- ------------- -------------------
Other income (expense)
Interest expense (299) (2,028) (1,695) (5,957) (24,039)
Amortization of debt discount - (2,071) - (126,200) (134,600)
Contract settlement 110,000 - 110,000 - 110,000
------------- ------------- ------------- ------------- -------------------
Total other income (expense) 109,701 (4,099) 108,305 (132,157) (48,639)
------------- ------------- ------------- ------------- -------------------
Net income (loss) $ 58,599 $ (37,709) $ (86,651) $ (273,067) $ (1,737,309)
============= ============= ============= ============= ===================
Net income (loss) per common share:
Basic and diluted $ 0.00 $ (0.01) $ (0.01) $ (0.09)
============= ============= ============= =============
Weighted average shares outstanding:
Basic and diluted 14,642,013 2,998,826 9,188,549 2,998,826
============= ============= ============= =============
The accompanying notes are an integral part of these financial statements.
2
CANCER DETECTION CORPORATION AND SUBSIDIARY
(formerly Xpention Genetics, Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended February 28, 2009 and February 29, 2008,
and for the period from Inception (October 13, 2004) to February 28, 2009
(Unaudited)
October 13, 2004
Nine Months Ended (Inception) to
February 28, 2009 February 29, 2008 February 28, 2009
--------------- ---------------- ------------------
Cash flows from operating activities:
Net (loss) $ (86,651) $ (273,067) $ (1,737,309)
--------------- ---------------- ------------------
Adjustments to reconcile net (loss) to
net cash used in operating activities:
Contract settlement (110,000) - (110,000)
Stock based compensation 5,500 - 376,900
Amortization of debt discount - 126,200 134,600
Changes in operating assets and liabilities:
Prepaid expenses (3,332) (4,781) (3,332)
Accounts payable and accrued expenses 34,461 106,478 545,469
--------------- ---------------- ------------------
Total adjustments (73,371) 227,897 943,637
--------------- ---------------- ------------------
Cash flows (used in) operating activities (160,022) (45,170) (793,672)
--------------- ---------------- ------------------
Cash flows from investing activities:
--------------- ---------------- ------------------
Cash flows (used in) investing activities - - -
--------------- ---------------- ------------------
Cash flows from financing activities:
Proceeds from note payable - 5,600 113,600
Proceeds from convertible debt - - 30,000
Principal payments on convertible debt (15,000) - (15,000)
Advances from related parties 28,750 15,000 53,750
Repayment of advances from related parties (43,750) - (53,750)
Proceeds from issuance of common stock 190,000 - 665,100
--------------- ---------------- ------------------
Cash flows provided by financing activities 160,000 20,600 793,700
--------------- ---------------- ------------------
Net (decrease) increase in cash and equivalents (22) (24,570) 28
Cash and cash equivalents, beginning of period 50 24,707 -
--------------- ---------------- ------------------
Cash and cash equivalents, end of period $ 28 $ 137 $ 28
=============== ================ ==================
Supplemental cash flow information:
Income taxes paid $ - $ - $ -
=============== ================ ==================
Interest paid $ 2,009 $ - $ 7,009
=============== ================ ==================
Non-cash investing and financing activities:
Conversion of convertible debt and accrued
interest to common shares $ 128,051 $ - $ 128,051
=============== ================ ==================
The accompanying notes are an integral part of these financial statements.
3
CANCER DETECTION CORPORATION AND SUBSIDIARY
(Formerly Xpention Genetics, Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 2009
(Unaudited)
NOTE 1. ORGANIZATION, BASIS OF PRESENTATION, AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Interim Financial Information
The interim consolidated financial statements included herein have been
prepared by the Company, without audit, in accordance with the rules and
regulations of the Securities and Exchange Commission ("SEC") pursuant to Item
210 of Regulation S-X. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America ("US GAAP") have
been condensed or omitted pursuant to such SEC rules and regulations, although
the Company believes that the disclosures included are adequate to make the
information presented not misleading.
In management's opinion, the consolidated balance sheet as of February
28, 2009 (unaudited), the unaudited consolidated statements of operations for
the three month and nine month periods ended February 28, 2009 and February 29,
2008, and the unaudited consolidated statements of cash flows for the nine month
periods ended February 28, 2009 and February 29, 2008, contained herein, reflect
all adjustments, consisting solely of normal recurring items, which are
necessary for the fair presentation of our financial position, results of
operations, and cash flows on a basis consistent with that of our prior audited
consolidated financial statements. However, the results of operations for
interim periods may not be indicative of results to be expected for the full
fiscal year. Therefore, these financial statements should be read in conjunction
with the audited financial statements and notes thereto and summary of
significant accounting policies included in the Company's Form 10-KSB for the
year ended May 31, 2008.
Reverse Stock Split and Name Change
On September 10, 2008, the Board of Directors of the Company approved a
reverse stock split of the common stock in the ratio of 1 for 20 and the name
change from Xpention Genetics, Inc. to Cancer Detection Corporation. The
resolutions became effective September 17, 2008, when the State of Nevada issued
a Certificate of Amendment to the Company's Articles of Incorporation.
Stockholders holding a majority of outstanding shares approved the reverse split
and the name change amendment on July 25, 2008, by written consent in lieu of a
meeting of stockholders. As a result of the Company's name change, its trading
symbol on the Over-the-Counter Bulletin Board was changed to "CCDC."
All share and per share amounts presented herein have been restated to
reflect the effect of the 1 for 20 reverse stock split approved on September 10,
2008.
Organization
Cancer Detection Corporation (the "Company") (formerly Xpention
Genetics, Inc.) is a Nevada corporation that resulted from the business
combination between Xpention, Inc. and Bayview Corporation that occurred in
March, 2005. For accounting purposes, the date of inception for the Company is
October 13, 2004, the date that Xpention, Inc. was incorporated. The Company has
been in the development stage since its formation and has not yet realized any
revenues from its planned operations. It is engaged in the biotechnology
4
industry to develop both immunological and molecular tests for cancer detection
in animals and humans as well as therapeutic vaccines and other treatment
methods for both canine and human cancers. The Company's fiscal year ends on May
31st.
Basis of Presentation
Cancer Detection Corporation represents the result of a merger between
Bayview Corporation ("Bayview"), a public company, and Xpention, Inc., a private
company. During March 2005, Bayview issued 715,000 shares of its common stock to
the sole shareholder of Xpention, Inc. in exchange for all of the issued and
outstanding common shares of Xpention, Inc. pursuant to an Agreement and Plan of
Reorganization (the "Merger"). In addition, concurrent with the exchange of
shares, Bayview changed its name to Xpention Genetics, Inc., whose name has
subsequently been changed to Cancer Detection Corporation as described above.
For accounting purposes, this acquisition of Xpention, Inc. by Bayview,
a non-operating entity, represents a reverse acquisition under which Xpention,
Inc. is recognized as the accounting acquirer. In substance, the Merger was
recorded as a capital transaction by the issuance of 2,127,159 shares of common
stock by the Company for all of the issued and outstanding common shares of
Bayview. No goodwill or other intangible assets were recorded and the historical
financial statements as of and prior to the acquisition date represent the
operations of Xpention, Inc.
Xpention, Inc. (a wholly-owned subsidiary of the Company) was incorp-
orated in the State of Colorado on October 13, 2004. Since its inception,
Xpention, Inc. has participated in the biotechnology industry to develop both
immunological and molecular tests for cancer detection in animals and humans as
well as therapeutic vaccines and other treatment methods for both canine and
human cancers.
Bayview was incorporated in the State of Nevada, on September 5, 2002.
From inception until February 28, 2005, Bayview was primarily engaged in the
acquisition and exploration of mining properties, but had ceased operations by
February 28, 2005. As of the date of the Merger, Bayview had no assets and no
operations and has been treated as the acquired company for accounting purposes.
Development Stage Company
The Company presents its financial statements in conformity with the
accounting principles generally accepted in the United States of America that
apply to enterprises that are establishing their operations. As a development
stage enterprise, the Company must utilize accounting principles consistent with
those required of an established enterprise, and, in addition, must disclose the
deficit accumulated during the development stage and the cumulative statements
of operations and cash flows from commencement of development stage to the
current balance sheet date.
Basis of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Xpention, Inc. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with US GAAP
requires management to make estimates and assumptions that affect the reported
amount 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 reporting period. Management routinely makes
judgments and estimates about the effects of matters that are inherently
5
uncertain. Management bases its estimates and judgments on historical experience
and on various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Estimates and assumptions are revised periodically and the
effects of revisions are reflected in the financial statements in the period it
is determined to be necessary. Actual results could differ from these estimates.
Per Share Amounts
SFAS 128, "Earnings Per Share," provides for the calculation of "Basic"
and "Diluted" earnings per share. Basic earnings per share includes no dilution
and is computed by dividing net income (or loss) by the weighted-average number
of shares outstanding during the period. Diluted earnings per share reflects the
potential dilution of securities that could share in the earnings of the
Company, assuming the issuance of an equivalent number of common shares pursuant
to options, warrants, or convertible debt arrangements. Diluted earnings per
share is not shown for periods in which the Company incurs a loss because it
would be anti-dilutive. Similarly, potential common stock equivalents are not
included in the calculation if the effect would be anti-dilutive.
All share and per share amounts presented herein have been restated to
reflect the effect of the 1 for 20 reverse stock split approved on September 10,
2008.
Recent Accounting Pronouncements
There were no accounting standards and interpretations issued recently
which are expected to a have a material impact on the Company's financial
position, operations or cash flows.
NOTE 2. GOING CONCERN
The accompanying consolidated financial statements have been prepared
in conformity with US GAAP, which contemplates continuation of the Company as a
going concern.
The Company is in its development stage and has not yet generated
revenues from operations. It has experienced losses from operations as a result
of its investment necessary to achieve its operating plan, which is long-range
in nature. During the nine months ended February 28, 2009, the Company incurred
a net loss of $86,651, and has incurred a cumulative net loss since inception of
$1,737,309. At February 28, 2009, the Company had a working capital deficit and
stockholders' deficit of $432,658 and has no revenue generating operations.
These conditions raise substantial doubt about the ability of the Company to
continue as a going concern.
Management does not believe that the Company's current capital
resources will be sufficient to fund its operating activity and other capital
resource demands during fiscal year 2009 and is currently seeking additional
resources. The Company's ability to continue as a going concern is contingent
upon its ability to obtain capital through the sale of equity or issuance of
debt, joint venture or sale of its assets, and ultimately attaining profitable
operations. There is no assurance that the Company will be able to successfully
complete any one of these activities. Recent events in worldwide capital markets
may make it more difficult for the Company to obtain additional capital
resources.
The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.
6
NOTE 3. NOTES PAYABLE, RELATED PARTY
Effective June 30, 2008, The Regency Group, LLC ("Regency Group")
converted the outstanding principal of $113,600 and accrued interest of $14,451
into 1,829,298 (post-split) shares of common stock.
NOTE 4. CONVERTIBLE DEBT
Effective January 5, 2007, the Company issued convertible debentures in
the aggregate principal amount of $30,000 to two debt holders. The debentures
bear interest at 8% per annum and were originally due on January 5, 2008. The
due date was subsequently extended, as discussed below. The debenture holders
may convert the principal and accrued interest into the Company's common stock
at a rate of $0.20 per share. Regency Group holds $15,000 of the convertible
debt.
Both debt holders agreed to extend the due date of the convertible
debentures to April 30, 2008. During the nine months ended February 28, 2009,
the Company repaid one debt holder the principal balance of $15,000 plus accrued
interest of $2,009. Regency Group agreed to extend the due date of the $15,000
principal balance held by them to December 31, 2008, and subsequently to April
30, 2009.
NOTE 5. STOCKHOLDERS' (DEFICIT)
On September 10, 2008, the Board of Directors approved a resolution to
affect a 1 for 20 reverse stock split, which became effective September 17,
2008, when the State of Nevada issued a Certificate of Amendment to the
Company's Articles of Incorporation. One share of common stock was issued in
replacement of each 20 shares outstanding as of July 24, 2008, the record date,
and the number of authorized shares did not change. All of the financial
information in this report has been adjusted to reflect the effect of this 1 for
20 reverse stock split. As a result of the Company's name change, its trading
symbol on the Over-the-Counter Bulletin Board was changed to "CCDC".
Effective June 30, 2008, the Company issued 1,829,298 (post-split)
shares of common stock for the conversion of $113,600 in outstanding principal
of notes payable and the related accrued interest of $14,451.
Effective September 10, 2008, the Company recorded the issuance of
25,000 (post-split) shares of its common stock for investor relations services
performed in connection with the reverse stock split and the name change. The
services were valued at $5,500, an amount consistent with the quoted market
value of $0.22 per share on September 10, 2008.
In October 2008, the Company issued a total of 7,500,000 (post-split)
shares of its common stock in a private placement to two stockholders at $0.02
per share for cash proceeds of $150,000.
In January 2009, the Company issued a total of 4,000,000 (post-split)
shares of its common stock in a private placement to two stockholders at $0.01
per share for cash proceeds of $40,000.
NOTE 6. COMMITMENTS
Effective October 6, 2008, the Company entered into a revised Assay
Development Proposal with Future Focus, an independent testing organization. The
proposal is composed of 4 major phases with an estimated total cost of $82,000.
Phase I, which consists of testing with commercially available antibodies to
p65, was completed during December 2008. Work on Phase II has not commenced and
is contingent upon certain results from Phase IV. Phase III, which is the
preparation of recombinant monoclonal antibodies used in the research has been
completed. Phase IV consisting of assay formulation and canine serum sample
7
analysis has begun. The Company has expended $29,770 under the contract as of
February 28, 2009, and has a remaining commitment of approximately $52,000.
In September, 2008, the Company amended its Patent and Technology License
Agreement with the Board of Regents of The University of Texas System and The
University of Texas M. D. Anderson Cancer Center to extend the time frame for
commercialization of a veterinary product an additional two years and to extend
the time frame for commercialization of a human diagnostic product an additional
three years, among other changes. It is expected that these extensions will
allow the Company to complete its research and begin marketing activities within
the milestones established in the amended Agreement. The company paid a
non-refundable documentation fee of $25,000 and is required to pay an annual
maintenance fee of $25,000 within thirty days of the first anniversary of the
amendment effective date. The annual maintenance fee will increase by $25,000
per year and either party can terminate the agreement after two years.
NOTE 7. SEC ENFORCEMENT ACTION
During 2008, the Company was informed that the staff of the SEC
intended to recommend that a civil injunctive action be commenced against the
Company for alleged violations of the Securities Act of 1933. The alleged
violations are regarding the proceeds from the sales of the Company's stock in
2005. On January 30, 2009, the Company submitted an Offer of Settlement without
admitting or denying the SEC's findings. On March 9, 2009, the SEC accepted the
Offer of Settlement and imposed an order under which the Company agreed to cease
and desist from committing or causing any violations and any future violations
of Sections 5(a) and 5(c) of the Securities Act.
NOTE 8. RELATED PARTY TRANSACTIONS
During the nine months ended February 28, 2009, the Company received
cash advances of $28,750 from stockholders of the Company. The advances did not
bear any interest and were due upon demand. All of the advances were repaid
prior to February 28, 2009.
NOTE 9. CONTRACT SETTLEMENT
Effective February 27, 2009, the Company reached agreement with a third
party research organization to reduce amounts payable to the research
organization by $110,000. The agreement was recorded during the period ended
February 28, 2009 as a contract settlement gain of $110,000.
NOTE 10. SUBSEQUENT EVENTS
Subsequent to February 28, 2009, the Company agreed to issue 300,000
shares of common stock in a private placement at $0.01 per share for cash
proceeds of $3,000.
Subsequent to February 28, 2009, the Regency Group agreed to further
extend the maturity date of its $15,000 convertible debt to April 30, 2009, in
exchange for a reduction in the conversion rate from $0.20 per share to $0.02
per share.
8
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
The following discussion should be read in conjunction with our
unaudited financial statements and notes thereto, which are included herein. In
connection with, and because we desire to take advantage of, the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, we caution
readers regarding certain forward looking statements in the following discussion
and elsewhere in this report and in any other statement made by, or on our
behalf, whether or not in future filings with the Securities and Exchange
Commission. Forward-looking statements are statements not based on historical
information and which relate to future operations, strategies, financial results
or other developments. Forward looking statements are necessarily based upon
estimates and assumptions that are inherently subject to significant business,
economic and competitive uncertainties and contingencies, many of which are
beyond our control and many of which, with respect to future business decisions,
are subject to change. These uncertainties and contingencies can affect actual
results and could cause actual results to differ materially from those expressed
in any forward looking statements made by, or on our behalf. We disclaim any
obligation to update forward-looking statements.
The independent registered public accounting firm's report on the
Company's financial statements as of May 31, 2008, and for each of the years in
the two-year period then ended, includes a "going concern" explanatory
paragraph, that describes substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to the factors
prompting the explanatory paragraph are discussed below and also in Note 2 to
the unaudited interim financial statements.
Plan of Operation
The Company, through Xpention, Inc, its wholly-owned subsidiary, holds
the exclusive worldwide license to a patented technology for the detection of
cancer based on a tumor marker known as "p65" which has been demonstrated to
have elevated levels in the blood of canine and human cancer conditions. The
tumor marker "p65" is believed to be a protein required in the early development
of numerous cancers and appears from early research to provide a strong
indication of tumor growth in both canines and humans. It also appears to have a
direct correlation to tumor size/mass making it a promising marker for both
early detection of malignant tumor formation as well as a useful tool for
monitoring therapy and remission. We plan to develop an immunological test as
well as a molecular assay for detection of cancer in canines. We also plan to
develop both immunological and molecular tests for detection of human cancers as
well as therapeutic treatments and vaccines.
In September, 2008, Xpention, Inc. amended its Patent and Technology
License Agreement with the Board of Regents of The University of Texas System
and The University of Texas M. D. Anderson Cancer Center ("UTMDACC") to extend
the time frame for commercialization of a veterinary product an additional two
years and to extend the time frame for commercialization of a human diagnostic
product an additional three years, among other changes. It is expected that
these extensions will allow the Company to complete its research and begin
marketing activities within the milestones established in the amended Agreement.
We contract with third party research organizations to conduct our
research activities. During June 2007, we entered into an Assay Revalidation /
Redevelopment Proposal with Future Focus, an independent testing organization.
The project calls for third party validation of the research results presented
in the final report from the University of Texas Health Science Center at San
Antonio ("UTHSCSA") and technology transfer of the current assay plus assay
reformatting and sample analysis. On August 15, 2007, we announced that the
researchers had been unable to replicate the results obtained at UTHSCSA.
9
On October 6, 2008, the Company entered into a revised Assay Develop-
ment Proposal with Future Focus, an independent testing organization. The
proposal is composed of 4 major phases. Phase I, which consists of testing with
commercially available antibodies to p65, was completed in December 2008. Work
on Phase II has not commenced and is contingent upon certain results from Phase
IV. Phase III, which is a commercial contract with AbD Serotec, a German
biotechnology company, for the preparation of recombinant monoclonal antibodies
used in the research has been completed as well. Future Focus has now begun work
on Phase IV, consisting of assay formulation and canine serum sample analysis.
As a result of the revalidation results, we are reviewing our planned
research activities for the development of an immunological canine cancer
detection test. We also continue to evaluate various options for
commercialization of products; however, it is not anticipated that we will
generate any revenues from commercialization of our technology during the next
twelve months.
On September 10, 2008, the Board of Directors of the Company approved a
reverse stock split of the common stock in the ratio of 1 for 20 and the name
change from Xpention Genetics, Inc. to Cancer Detection Corporation. The
resolutions were effective September 17, 2008, when the State of Nevada issued a
Certificate of Amendment to the Company's Articles of Incorporation.
Stockholders holding a majority of theoutstanding shares approved the reverse
split and the name change amendment on July 25, 2008, by written consent in lieu
of a meeting of stockholders. As a result of the Company's name change, its
trading symbol on the Over-the-Counter Bulletin Board was changed to "CCDC."
During 2008, the Company was informed that the staff of the SEC
intended to recommend that a civil injunctive action be commenced against the
Company for alleged violations of the Securities Act of 1933. The alleged
violations were regarding proceeds from the sales of the Company's stock in
2005. On January 30, 2009, the Company submitted an Offer of Settlement without
admitting or denying the SEC findings. On March 9, 2009, the SEC accepted the
Offer of Settlement and imposed an order under which the Company agreed to cease
and desist from committing or causing any violations and any future violations
of Sections 5(a) and 5(c) of the Securities Act.
Liquidity and Capital Resources
As of February 28, 2009, our working capital deficit of $432,658 was
comprised of current assets of $3,360 and current liabilities of $436,018. This
represents an improvement in working capital of $236,900 compared to the deficit
of $669,558 at fiscal year end May 31, 2008. Our working capital position
improved primarily because (i) we received cash proceeds of $190,000 from the
private placement of 11,500,000 shares of common stock, (ii) a creditor
converted certain indebtedness into common stock, and (iii) a creditor agreed to
reduce amounts due under a research contract by $110,000.
Management does not believe that the Company's current capital
resources will be sufficient to fund its operating activity and other capital
resource demands for the next twelve months. Our ability to continue as a going
concern is contingent upon our ability to obtain capital through the sale of
equity or issuance of debt, joint venture or sale of assets, and ultimately
attaining profitable operations. There is no assurance that we will be able to
successfully complete any one of these activities. Recent events in worldwide
capital markets may make it more difficult for us to obtain additional capital
resources.
We are presently seeking additional financing to provide sufficient
funds for payment of amounts due under research contracts as well as accrued but
unpaid professional fees and administrative expenses and to fund ongoing
research and operations.
We have never received revenue from our operations. We have
historically relied on equity and debt financings to fund our capital resource
requirements. We have experienced net losses since inception. We do not believe
that we are a candidate for conventional debt financing and we have not made
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arrangements to borrow funds under a working capital line of credit. We will be
dependent on additional financing to continue our research and development
efforts.
All of our investment in research and development activities has been
expensed, and does not appear as an asset on our balance sheet. From inception
to February 28, 2009, we have spent $1,003,081 on our research and development
efforts to commercialize the "p65" technology.
All of our capital resources to date have been provided through the
sale of equity securities, proceeds from notes payable and convertible
debentures, and advances from related parties. From inception through February
28, 2009, we received $665,100 in cash through issuance of our common stock. In
addition, we received cash proceeds of $143,600 from various borrowing
arrangements. Since we have not generated any cash from operations, we have
relied on sale of equity and borrowings to fund all of our capital needs.
Our ability to pay accounts payable and accrued expenses and repay
borrowings is dependent upon receipt of new funding. Certain stockholders have
periodically advanced funds to us to meet our working capital needs. The related
parties are under no obligations to continue these advances. As of February 28,
2009, all advances received from related parties had been repaid and there were
no outstanding balances.
Net cash used in operating activities was $160,022, during the nine
months ended February 28, 2009, compared to $45,170, during the nine months
ended February 29, 2008, an increase of $114,852. Net cash used in operating
activities is closely correlated to cash provided by financing activities. We
used the proceeds from our financing activities to fund research and operating
expenses and reduce accounts payable.
During the nine months ended February 28, 2009 and 2008, the Company's
investment activities neither provided nor used any funds.
Net cash provided by financing activities during the nine months ended
February 28, 2009, was $160,000 compared to $20,600 during the nine months ended
February 29, 2008.
During the nine months ended February 28, 2009, we issued 7,500,000
shares of our common stock at $0.02 per share for cash proceeds of $150,000, and
we issued an additional 4,000,000 shares of our common stock at $0.01 per share
for cash proceeds of $40,000. We also received advances from related parties of
$28,750. We used cash in financing activities to repay advances to related
parties of $43,750 and retire convertible debt of $15,000.
Our financing activities during the nine months ended February 29,
2008, provided proceeds from a note payable of $5,600 and advances from a
related party of $15,000.
In a non-cash transaction effective June 30, 2008, The Regency Group
LLC (Regency Group) converted $113,600 of outstanding principal on notes payable
and $14,451 of related accrued interest into 1,829,298 shares of our common
stock. During the nine months ended February 28, 2009, the due date of $15,000
convertible debt payable to Regency Group was extended to December 31, 2008.
Subsequent to February 28, 2009, Regency Group agreed to further extend the
maturity date to April 30, 2009, in exchange for a reduction in the conversion
rate from $0.20 per share to $0.02 per share.
In another non-cash transaction effective February 28, 2009, a third
party research organization agreed to reduce the amounts due to it under a
research contract by $110,000.
11
Results of Operations
For the Three Months Ended February 28, 2009 Compared to Three Months Ended
February 29, 2008
We are considered a development stage company for accounting purposes,
since we have not received any revenues from operations. We are unable to
predict with any degree of accuracy when that situation will change. We expect
to incur losses until such time, if ever, as we begin generating revenue from
operations.
For the three months ended February 28, 2009, we recorded net income of
$58,599, or $0 per share, compared to a net loss of $(37,709) or $(0.01) per
share for the three months ended February 29, 2008, a difference of $96,308. The
three months ended February 28, 2009 included a contract settlement gain of
$110,000. Absent the gain, the reported net loss for the three months ended
February 28, 2009, would have been $(51,401), or $(0) per share.
During the three months ended February 28, 2009 and 2008, we did not
recognize any revenues from our operational activities.
Research and development costs were $14,661 for the three months ended
February 28, 2009. During the three months ended February 28, 2009, we did not
incur any research and development costs. Our use of third party research and
testing partners may result in significant variations in the expenses reported
in each period. The costs incurred during the three months ended February 28,
2009 represented amounts paid to third party testing organizations.
General and administrative expense increased to $36,441 for the three
months ended February 28, 2009, compared to $33,610 during the same period of
2008. The increase of $2,831 includes an increase of investor relations expense
of $1,565 and an increase in legal and accounting costs of $1,769. Increased
investor relations and legal and accounting expenses were incurred in connection
with the Company's name change and reverse stock split and increase in research
activity. The primary components of general and administrative expense are costs
accrued for compensation, professional fees associated with our status as a
public company, and the premium costs of D&O insurance. Directors & Officers
(D&O) insurance decreased by $1,450, or 30%, as a result of obtaining a less
costly policy.
Interest expense was $299 for the three months ended February 28, 2009,
compared to $4,099 for the three months ended February 29, 2008, a decrease of
$3,800 or 93%. Included in interest expense in 2008 is the amortization of debt
discount in the amount of $2,071 related to the beneficial conversion feature of
the convertible debentures issued during 2007. The remainder of the decrease in
interest expense is attributable to a reduction in outstanding principal
balances of notes payable.
For the Nine Months Ended February 28, 2009 Compared to the Nine Months Ended
February 29, 2008
For the nine months ended February 28, 2009, we recorded a net loss of
$(86,651) or $(0.01) per share, compared to a net loss for the nine months ended
February 29, 2008 of $(273,067) or $(0.09) per share, a difference of $186,416.
The 2009 period included a contract settlement gain of $110,000. Absent the
gain, the reported net loss for the nine months ended February 28, 2009 would
have been $(196,651), or $(0.02) per share.
During the nine months ended February 28, 2009 and 2008 we did not
recognize any revenues from our operational activities.
Research and development costs increased to $65,480 during the nine
months ended February 28, 2009, compared to $28,065 incurred during the nine
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months ended February 29, 2008. The increase of $37,415 includes $25,000 paid to
UTMDACC in connection with the amendment to the License Agreement discussed in
the Plan of Operations. The remaining amounts during both periods were for third
party testing costs incurred to validate the results of the research report from
UTHSCSA. Our use of third party research and testing partners can result in
significant variations in the expenses reported in each period.
General and administrative expenses increased to $129,476 for the nine
months ended February 28, 2009, compared to $112,845 during the corresponding
period of 2008. The overall increase of $16,631 includes increased investor
relations expense of $9,851 and stock compensation costs of $5,500. During the
nine months ended February 28, 2009, we agreed to issue 25,000 shares of common
stock to an investor relations consultant valued at $5,500. The increased
expenses were a result of the Company's name change, reverse stock split, and
increased efforts to communicate with its investors. The primary components of
general and administrative expense are costs accrued for compensation,
professional fees associated with our status as a public company, and the
premium costs of D&O insurance.
Interest expense, including the amortization of debt discount,
decreased to $1,695 for the nine months ended February 28, 2009 compared to
$132,157 for the nine months ended February 29, 2008, a decrease of $130,462.
Interest expense reported during the 2008 period included the amortization of
debt discount of $126,200, related to the beneficial conversion feature of the
convertible indebtedness. The costs were not repeated during 2009. As the
amortization costs are a non-cash item, they do not impact our liquidity.
The remainder of the decrease in interest expense is attributable to a
reduction in outstanding principal balances of notes payable.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a "smaller reporting company" as defined by Item 10 of Regulation
S-K, the Company is not required to provide information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We have adopted and maintain disclosure controls and procedures (as
such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to
ensure that information required to be disclosed in our reports under the
Exchange Act, is recorded, processed, summarized and reported within the time
periods required under the SEC's rules and forms and that the information is
gathered and communicated to our management, including our Chief Executive
Officer (Principal Executive Officer) and Chief Financial Officer (Principal
Financial Officer), as appropriate, to allow for timely decisions regarding
required disclosure.
As required by SEC Rule 15d-15(b), our Chief Executive Officer
("CEO") and Chief Financial Officer ("CFO") carried out an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 15d-14 as of the end of the period
covered by this report. As a result of this evaluation, we concluded that our
disclosure controls and procedures were not effective at May 31, 2008.
Our disclosure controls and procedures failed to detect the omission
of a required report in our filing as of May 31, 2008. On April 15, 2009, we
filed an amended Form 10-KSB to correct this omission.
During the nine months ended February 28, 2009, we have implemented
steps to strengthen our disclosure controls and procedures, to evaluate and to
remedy deficiencies, and to test the controls and procedures on a periodic
basis. Such steps included our CEO and CFO modifying his review process to
capture recent and pending changes in disclosure requirements. The Company's
small size renders it impractical to assign disclosure control duties to a staff
person. As a compensating control, we will increase our use of outside advisors
to improve the effectiveness of our disclosure controls and procedures. At
February 28, 2009, we have concluded that our disclosure controls are effective.
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ITEM 4T. Controls and Procedures
Management's Quarterly Report on Internal Control over Financial Reporting.
Management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in the
Securities Exchange Act of 1934 Rule 13a-15(f). Our Chief Executive
Officer/Acting Chief Financial Officer conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the
framework in Internal Control - Integrated Framework, issued by the Committee of
Sponsoring Organizations of the Treadway Commission ("COSO Framework").
Management's assessment of the effectiveness of the small business
issuer's internal control over financial reporting is as of the quarter ended
February 28, 2009. We believe that internal control over financial reporting is
effective. We have not identified any, current material weaknesses considering
the nature and extent of our current operations and any risks or errors in
financial reporting under current operations.
Because of its 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 the policies or procedures may deteriorate.
This quarterly report does not include an attestation report of the
Company's registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to attestation by the
Company's registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management's report in this annual report.
There was no change in our internal control over financial reporting
that occurred during the fiscal quarter ended February 28, 2009, that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
No legal proceedings are pending or threatened to the best of our
knowledge.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On January 3, 2009, we sold 2,000,000 shares of common stock to a
private investment firm for cash proceeds of $20,000.
On January 12, 2009, we sold 2,000,000 shares of common stock to a
private investor for cash proceeds of $20,000.
Exemption From Registration Claimed
All of the sales by the Company of its unregistered securities were
made by the Company in reliance upon Section 4(2) of the Securities Act of 1933,
as amended (the "1933 Act"). All of the individuals and/or entities listed above
that purchased the unregistered securities were all known to the Company and its
management, through pre-existing business relationships. All purchasers were
provided access to all material information, which they requested, and all
information necessary to verify such information and were afforded access to
management of the Company in connection with their purchases. All purchasers of
the unregistered securities acquired such securities for investment and not with
a view toward distribution, acknowledging such intent to the Company. All
certificates or agreements representing such securities that were issued
contained restrictive legends, prohibiting further transfer of the certificates
or agreements representing such securities, without such securities either being
first registered or otherwise exempt from registration in any further resale or
disposition.
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Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS
The following is a complete list of exhibits filed as part of this Form
10-Q. Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601
of Regulation S-K.
31 Certification of Principal Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32 Certification of Principal Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
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SIGNATURES
In accordance with the requirements of Section 12 of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CANCER DETECTION CORPORATION
/s/ David Kittrell
------------------------------
Dated: April 16, 2009 By: David Kittrell,
President, Principal Executive
Officer, & Principal Financial
Officer
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