BZYR Burzynski Research Institute (PK)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-Q

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(Mark One)

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For the quarterly period ended August 31, 2021

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For the transition period from                  to                  

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Commission file number 000-23425

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Burzynski Research Institute, Inc.

(Exact name of Registrant as specified in its charter)

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9432 Katy Freeway, Suite 200, Houston, Texas 77055

(Address of principal executive offices)

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(713) 335-5697

(Registrant’s telephone number)

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(Former name, former address, and former fiscal year, if changed since last report)

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Indicate by check mark whether the registrant (1) has filed all reports required 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 ⌧  No ◻

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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧  No ◻

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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Large accelerated filer ◻

Accelerated filer ◻

Non-accelerated filer ⌧

Smaller reporting company ☒

Emerging growth company ☐

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ⌧

APPLICABLE ONLY TO CORPORATE ISSUERS:

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Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of October 1, 2021, 131,448,444 shares of the Registrant’s Common Stock were outstanding.

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BURZYNSKI RESEARCH INSTITUTE, INC.

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Form 10-Q

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See accompanying notes to financial statements.

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See accompanying notes to financial statements.

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See accompanying notes to financial statements

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BURZYNSKI RESEARCH INSTITUTE, INC.

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The Company is economically dependent on its funding through Dr. Burzynski’s medical practice. In the past, a portion of Dr. Burzynski’s patients have been admitted and treated as part of the clinical trial programs. The Company’s IND 43742 is currently under full clinical hold and the Company cannot enroll new patients into any clinical trials until the full clinical hold is removed by the FDA. The FDA imposes numerous regulations and requirements regarding these patients, and the Company is subject to inspection at any time by the FDA. These regulations are complex and subject to interpretation and though it is management’s intention to comply fully with all such regulations, there is the risk that the Company is not in compliance and is thus subject to sanctions imposed by the FDA. In addition, as with any medical practice, Dr. Burzynski is subject to potential claims by patients and other potential claimants commonly arising out of the operation of a medical practice. The risks associated with Dr. Burzynski’s medical practice directly affect his ability to fund the operations of the Company.

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At August 31, 2021, the Company had one stock-based employee compensation plan, which is described below.

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On September 14, 1996, the Company granted 600,000 stock options, with an exercise price of $0.35 per share, to an officer who is no longer with the Company. The options vested as follows:

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The options are valid in perpetuity. None of the options have been exercised as of August 31, 2021.

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The Company accounts for share-based payments to non-employees in accordance with the guidance provided by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718, Compensation – Stock Compensation to include share-based payments granted to non-employees in exchange for goods or services used or consumed in an entity’s own operations and supersedes the guidance in ASC 505-50.

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Effective July 5, 2012, the Company entered into a Marketing and Consulting Agreement (the “Marketing Agreement”) with Worldwide Medical Consultants, Inc. (“WMC”) and CARIGEN, LTD (“SRB”), an entity wholly-owned and controlled by Dr. Burzynski, pursuant to which WMC will (i) provide SRB with various marketing and consulting services to assist SRB in locating and developing cancer or health related centers in certain foreign markets and (ii) make payments to the Company equal to 10% of each consulting fee received by WMC for the aforementioned services provided to SRB, net of certain expenses incurred by WMC (“WMC Payment”). In consideration of the WMC Payment, the Company agreed to grant to WMC warrants to acquire an aggregate of 2,000,000 shares of the Company’s Common Stock, exercisable at $0.10 per share with a ten year exercise period, with 1,000,000 shares vesting upon execution of the agreement (the "Initial Warrants") and the remaining 1,000,000 shares to vest upon the first closing of a transaction by SRB as a result of the services provided by WMC under the Marketing Agreement. The fair market value of the vested warrants as of the date of grant was measured using the Black-Scholes option pricing model and totaled approximately $160,000 or $0.16 per warrant. The Marketing Agreement was terminated effective as of July 5, 2019 pursuant to its terms. The Initial Warrants are currently outstanding and can still be exercised. As of August 31, 2021, none of the aforementioned vested warrants have been exercised.

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The Company accounts for loss per share in accordance with FASB ASC 260, Earnings per Share. Basic loss per share amounts are calculated by dividing net loss by the weighted average number of common shares outstanding during each period. Diluted loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding for the periods, including the dilutive effect of all common stock equivalents. Dilutive options and warrants that are issued during a period or that expire or are canceled during a period are reflected in the computations for the time they were outstanding during the periods being reported. During the six months ended August 31, 2021 and 2020, 1,600,000 warrants and stock options were excluded from the calculation of diluted loss per share because their effect would be anti-dilutive.

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The Company follows the provisions of FASB ASC 740, Income Taxes. The Company is not aware of any material unrecognized tax uncertainties as a result of tax positions previously taken.

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The Company recognizes interest and penalties as interest expense when they are accrued or assessed.

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The federal income tax returns of the Company for 2020, 2019, and 2018 are subject to examination by the IRS, generally for three years after they are filed.

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The actual provision for income tax for the three and six months ended August 31, 2021 and 2020 differ from the amounts computed by applying the U.S. federal income tax rate of 21% to the pretax loss as a result of the following:

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At August 31, 2021, the Company had a net deferred tax asset of $0, which includes a valuation allowance of $168,582. The Company’s ability to utilize net operating loss ("NOL") carryforwards and alternative minimum tax credit carryforwards will depend on its ability to generate adequate future taxable income. The Company has no historical earnings on which to base an expectation of future taxable income. Accordingly, a full valuation allowance for deferred tax assets has been provided.

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As a result of the Tax Cuts and Jobs Act of 2017 (the "Act"), NOL carryforwards generated in years beginning after December 31, 2017 would carryforward indefinitely, and would apply to 80% of future taxable income. Under the Act, carrybacks of NOLs were disallowed. In March 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES") Act was enacted providing a five-year carryback for losses incurred in 2018, 2019, or 2020, which allows companies to modify tax returns up to five years prior to offset taxable income from those tax years. The CARES Act also suspended the NOL limit of 80% of taxable income, but the NOLs generated in 2018 and forward will still carryforward indefinitely.

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As of August 31, 2021, the Company has net operating loss carryforwards in the amount of $520,951 that will expire between 2023 and 2038, and $78,948 that will carryforward indefinitely.

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criteria for expanded access use. The FDA advised the Company that until it resolved the matter to the FDA’s satisfaction, the Company could not enroll new pediatric patients in any protocol under such IND. The Company later notified the FDA in a September 24, 2012 letter that it was closing pediatric protocol BT-10 (under IND 43,742) for enrollment effective September 25, 2012, and that it would also terminate the protocol once all active patients had completed the study. As of February 17, 2015, all patients discontinued treatment under protocol BT-10 and such protocol was closed as of March 10, 2015.

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In a teleconference on January 9, 2013 between the FDA and the Company, followed by a letter of the same date, the FDA notified the Company that the agency was placing IND 43,742 on partial clinical hold, due to a lack of a complete response to the issues raised by the FDA and what the FDA deemed a misleading, erroneous, and incomplete investigator brochure. The FDA cited 21 C.F.R. § 312.42(b)(2)(i) and 21 C.F.R. § 312.42(b)(1)(iii), as grounds for imposition of a clinical hold. The FDA further advised the Company that until it resolved the matter to the FDA’s satisfaction, that the Company could not enroll new adult or pediatric patients in any protocol under such IND. The FDA also placed protocol BT-52 on clinical hold due to what the FDA deemed to be an unreasonable and significant risk of illness or injury to human subjects. The FDA cited 21 C.F.R. § 312.42(b)(2)(i) and 21 C.F.R.§ 312.42(B)(1)(i), as grounds for imposition of a clinical hold. The FDA advised the Company that until it resolved the matter to the FDA’s satisfaction, the Company could not legally conduct the identified clinical study under such IND. In a teleconference with the FDA on September 16, 2013 and pursuant to the Company’s notification letter dated September 17, 2013, the Company notified the FDA that the proposed Phase III protocol BT-54 had been withdrawn from further consideration.

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After several amendments to the IND which were reviewed by the FDA, the FDA concluded that BT-52 can be initiated and the partial clinical hold was removed by the FDA on June 20, 2014.

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Additionally, the Company received IRB approval on February 4, 2015 for FDA reviewed protocol BT-55 open label, Phase II study of Antineoplaston A10 and AS2-1 in patients with a Diffuse Intrinsic Brainstem Glioma (DIPG) in five treatment groups based on patients age and prior treatment.

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On April 20, 2016, the Company received a full clinical hold letter from the FDA based on FDA’s inspection of S.R. Burzynski’s manufacturing facility in March 2015. On April 27, 2016, the Company requested to change the full clinical hold to partial clinical hold to allow patient #1 to continue the Antineoplaston treatment according to protocol BT-55, since the patient was enrolled before the full clinical hold was imposed. Based on the FDA’s position regarding the Company’s request on April 27, 2016 and the Company’s teleconference with the FDA on May 3, 2016, the Company removed patient #1 from the study.

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A temporary restraining order from the US District Court of Rhode Island allowed the resumption of patient #1’s Antineoplaston therapy on May 17, 2016. As a result of such temporary restraining order, a subsequent letter from the FDA dated May 26, 2016 informed the Company that the full clinical hold was replaced and a partial clinical hold was imposed. As a result, patient #1 restarted treatment under IND 43742.

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On June 14, 2016, the FDA issued a letter to the Company in connection with the FDA’s inspection of S.R. Burzynski’s manufacturing facility (the “SRB Manufacturing”) in March 2015. The SRB Manufacturing addressed the issues raised in the letter in a response letter submitted to the FDA on July 5, 2016 and in subsequent letters.

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On February 20, 2017, BRI informed the FDA of the death of patient #1 on February 19, 2017. No new patients can be enrolled to protocol BT-55 or BT-52 until the partial hold on IND 43742 is lifted. On August 24, 2017, the FDA imposed a full clinical hold on IND 43742 until deficiencies regarding the SRB Manufacturing are resolved.

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Complaint Filed by the Texas Medical Board Against Dr. Burzynski

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On March 3, 2017, the Texas Medical Board issued their final ruling regarding the complaint filed on December 11, 2013 and subsequently amended in July 2014 and November 2014, against Dr. Stanislaw R. Burzynski, who serves as our President and the Chairman of our Board of Directors. The Texas Medical Board made allegations that Dr. Burzynski had acted unprofessionally and failed to meet standards of care under the state’s Medical Practice Act. In the final ruling, the Texas Medical Board found that Dr. Burzynski was subject to sanction for various failures that included supervision of foreign medical graduates, untimely and insufficient informed consent, medical record support documentation, tumor measurement reporting inaccuracy, and lack of disclosure of ownership interest in a pharmacy. As a result, Dr. Burzynski was reprimanded. His Texas license was suspended for five years but that suspension was stayed and he was placed under probation under terms and conditions that include having billing practice monitored by a billing monitor for 12 consecutive monitoring cycles, enrolling and completing a physicians education program ethics course, following informed consent protocol, passing the Medical Jurisprudence Examination, and compliance with the Medical Practice Act and other statutes regulating Dr. Burzynski’s practice. As requested as part of the terms and conditions, Dr. Burzynski has completed payment of an administrative penalty and restitution, submission of all informed consent forms for review,  submission of an ownership interest disclosure form for review, and he has completed continuing medical education. The Company does not believe that the final order will have an adverse impact on current activities at the Burzynski clinic. However, if any outcomes or changes arise relating to similar matters or future allegations, this could result in substantial harm to the Company’s business and operations.

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Termination of License Agreement

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Pursuant to the terms of the License Agreement dated June 29, 1983, as superseded by an Amended License Agreement dated April 24, 1989 and a Second Amended License Agreement dated March 1, 1990 between the Company and Dr. Burzynski (collectively, the “License Agreement”), the License Agreement terminated on July 2, 2019 upon the expiration of the last patent licensed to the Company from Dr. Burzynski. As of July 2, 2019, all patents previously licensed by the Company under the License Agreement have expired.

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Results of Operations

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Three Months Ended August 31, 2021 Compared to Three Months Ended August 31, 2020

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Research and development costs were approximately $186,000 and $249,000 for the three months ended August 31, 2021 and 2020, respectively. The decrease of $63,000 or 25% was due to a decrease in materials costs of $1,000, personnel costs of $22,000, facility and equipment costs of $13,000, and consulting and quality control costs of $27,000, as a result of a reduction of requirements imposed by the Food and Drug Administration.

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General and administrative expenses were approximately $38,000 and $79,000 for the three months ended August 31, 2021 and 2020, respectively.  The decrease of $41,000 or 52% was due to a decrease in legal and other professional costs of $31,000 and other general and administrative expenses of $10,000 as a result of a reduction in requests from regulatory agencies.

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The Company had net losses of approximately $225,000 and $329,000 for the three months ended August 31, 2021 and 2020, respectively. The decrease in the net loss from 2020 to 2021 is primarily due to an overall decrease in research and development costs and general and administrative expenses of the Company as described above.

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Six Months Ended August 31, 2021 Compared to Six Months Ended August 31, 2020

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Research and development costs were approximately $418,000 and $589,000 for the six months ended August 31, 2021 and 2020, respectively.  The decrease of $171,000 or 29% was due to a decrease in material costs of $10,000, consulting and quality control costs of $50,000, other research and development costs of $3,000, personnel costs of $57,000, and facility and equipment costs of $51,000, as a reduction of requirements imposed by the Food and Drug Administration.

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General and administrative expenses were approximately $123,000 and $197,000 for the six months ended August 31, 2021 and 2020, respectively.  The decrease of $75,000 or 38% was due to a decrease in other general and administrative expenses of $25,000 and legal and professional fees of $50,000, as a result of a reduction of requests from regulatory agencies.

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The Company had net losses of approximately $541,000 and $787,000 for the six months ended August 31, 2021 and 2020, respectively.  The decrease in the net loss from 2020 to 2021 is primarily due to an overall decrease in research and development costs and general and administrative expenses of the Company as described above.

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Liquidity and Capital Resources

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The Company’s operations have been funded entirely by contributions from Dr. Burzynski and from funds generated from Dr. Burzynski’s medical practice. Effective March 1, 1997, the Company entered into a Research Funding Agreement with Dr. Burzynski (the “Research Funding Agreement”), pursuant to which the Company agreed to undertake all scientific research in connection with the development of new or improved Antineoplastons for the treatment of cancer and Dr. Burzynski agreed to fund the Company’s Antineoplaston research for that purpose. Under the Research Funding Agreement, the Company hires such personnel as is required to conduct Antineoplaston research, and Dr. Burzynski funds the Company’s research expenses, including expenses to conduct the clinical trials. Dr. Burzynski also provides the Company laboratory and research space as needed to conduct the Company’s research activities. The Research Funding Agreement also provides that Dr. Burzynski may fulfill his funding obligations in part by providing the Company such administrative support as is necessary for the Company to manage its business. Dr. Burzynski pays the full amount of the Company’s monthly and annual budget of expenses for the operation of the Company, together with other unanticipated but necessary expenses which the Company incurs.

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The amounts which Dr. Burzynski is obligated to pay under the agreement shall be reduced dollar for dollar by the following: (1) any income which the Company receives for services provided to other companies for research and/or development of other products, less such identifiable marginal or additional expenses necessary to produce such income, or (2) the net proceeds of any stock offering or private placement which the Company receives during the term of the agreement up to a maximum of $1,000,000 in a given Company fiscal year.

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The Research Funding Agreement, as amended, contains an annual automatic renewal provision providing for an additional one-year term, unless one party notifies the other party at least thirty days prior to the expiration of the then current term of the agreement of its intention not to renew the agreement. Subject to the foregoing, the term of the Research Funding Agreement was renewed and extended until February 28, 2022. It is expected that the Research Funding Agreement will continue to renew each year prospectively unless terminated under the provisions of the agreement.

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The Research Funding Agreement automatically terminates in the event that Dr. Burzynski owns less than fifty percent of the outstanding shares of the Company, or is removed as President and/or Chairman of the Board of the Company, unless Dr. Burzynski notifies the Company in writing of his intention to continue the agreement notwithstanding this automatic termination provision.

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The Company estimates that it will spend approximately $600,000 during the remaining two quarters of the fiscal year ending February 28, 2022. While the Company anticipates that Dr. Burzynski will continue to fund the Company’s research and FDA- related costs, there is no assurance that Dr. Burzynski will be able to continue to fund the Company’s operations pursuant to the Research Funding Agreement or otherwise. In addition, Dr. Burzynski’s medical practice has successfully funded the Company’s research activities over the last 25 years and, in 1997, his medical practice was expanded to include traditional cancer treatment options such as chemotherapy, gene-targeted therapy, immunotherapy and hormonal therapy.

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Because the Company currently is entirely dependent upon the contributions for research provided by Dr. Burzynski under the Research Funding Agreement, the Company would not be able to continue conducting its clinical trials if Dr. Burzynski ceased funding the Company’s research. In such event, the Company would be required to find immediate funding which may not be available on acceptable terms or at all. If this were to occur and the Company were not able to find adequate sources of funding, the Company would be required to cease operations. Even with Dr. Burzynski’s continued contributions under the Research Funding Agreement, the Company may be required to seek additional capital through equity or debt financing or the sale of assets until the Company’s operating revenues are sufficient to cover operating costs and provide positive cash flow; however, there can be no assurance that the Company will be able to raise such additional capital on acceptable terms to the Company. In addition, there can be no assurance that the Company will ever achieve positive operating cash flow.

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