UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-KSB
(Mark
One)
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the
fiscal year ended February 29, 2008
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the
transition period from
to
Commission
file number 000-23425
BURZYNSKI
RESEARCH INSTITUTE, INC.
(Name of small
business issuer in its charter)
Delaware
|
|
76-0136810
|
(State or other
jurisdiction of
|
|
(I.R.S. Employer
|
incorporation or
organization)
|
|
Identification
No.)
|
9432
Old Katy Road, Suite 200
|
|
|
Houston,
Texas
|
|
77055
|
(Address of
principal executive offices)
|
|
(Zip Code)
|
Issuers telephone
number:
(713)
335-5697
Securities
registered under Section 12(b) of the Exchange Act:
None
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, $.001 par value
Check whether the issuer (1) filed
all reports required to be filed by Section 13 or 15(d) of the
Exchange Act 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
o
Check if there is no
disclosure of delinquent filers in response to Item 405 of Regulation S-B
contained herein, and no disclosure will be contained, to the best of
Registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
x
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act.) Yes
o
No
x
State issuers revenues
for its most recent fiscal year: $0.
As of May 20, 2008
131,388,444 shares of the Registrants Common Stock were outstanding, and the
aggregate market value of the Common Stock held by non-affiliates was
approximately $1,520,626.51 based on the last reported sales price on May 20,
2008.
DOCUMENTS
INCORPORATED BY REFERENCE
Documents incorporated by
reference: None.
Transitional Small
Business Disclosure Format (Check One):
Yes
o
; No.
x
BURZYNSKI RESEARCH INSTITUTE, INC.
FORM 10-KSB
FISCAL YEAR ENDED FEBRUARY 29, 2008
TABLE OF CONTENTS
FORWARD LOOKING STATEMENTS
This report
contains forward-looking statements, including statements regarding future
financial performance and results and other statements that are not historical
facts. Such statements are included in Description of Business, Managements
Discussion and Analysis of Financial Condition and Results of Operations and
elsewhere in this report. When used in this report, words such as may, will,
should, could, anticipate, believe, expect, estimate, intend, plan,
predict, potential, continue and similar expressions are intended to
identify forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Although the Company believes that the
expectations reflected in these forward-looking statements are reasonable,
there can be no assurance that actual results or developments anticipated by
the Company will be realized or, even if realized, that they will have the
expected effects on its business or operations. Actual results could differ
materially from those contemplated by the forward-looking statements as a
result of certain factors beyond the Companys control including: the ability
to develop safe and efficacious drugs, the failure to achieve positive clinical
trials, the failure to successfully commercialize our products, competition and
technological change and existing and future regulations affecting our
business.
2
PART I
ITEM 1.
|
DESCRIPTION
OF BUSINESS
|
General
Burzynski Research
Institute, Inc. (the Company) was incorporated under the laws of the
State of Delaware in 1984 in order to engage in the research, production,
marketing, promotion and sale of certain medical chemical compounds composed of
growth-inhibiting peptides, amino acid derivatives and organic acids which are
known under the trade name Antineoplastons. The Company believes
Antineoplastons are useful in the treatment of human cancer and is currently
conducting Phase II clinical trials of Antineoplastons relating to the
treatment of cancer. Antineoplastons have not been approved for sale or use by
the Food and Drug Administration of the United States Department of Health and
Human Services (FDA) or anywhere in the world. In the event Antineoplastons
receive such approval and are registered in the United States, Canada, or
Mexico, of which there can be no assurance, the Company will commence
commercial operations, which shall include the production, marketing, promotion
and sale of Antineoplastons in the United States, Canada, or Mexico. In 2004,
the FDA approved the designation of Antineoplastons as an orphan drug under
the Orphan Drug Act of 1983. See Orphan Drug Designation below for a
detailed description of this designation and its meaning. The Company currently
provides Antineoplastons solely for the use of Stanislaw R. Burzynski, M.D.,
Ph.D. (Dr. Burzynski) in clinical research.
The Company has
not generated any significant operating revenue since its inception. The
Companys sole source of funding for its operations has been and continues to
be payments made by Dr. Burzynski from funds generated from Dr. Burzynskis
medical practice pursuant to various arrangements between the Company and Dr. Burzynski.
See
Certain Relationships and Related Transactions
. The Company
reports funds pursuant to such arrangements as additional paid-in capital.
See
Managements
Discussion and Analysis of Financial Condition and Results of Operations
.
The Company does not expect to generate significant operating revenue until
such time, if any, as Antineoplastons are approved for use and sale by the FDA.
However, the Company may seek additional funding for operations through the
sale of its securities.
Antineoplastons
Dr. Burzynski
commenced his cancer research in 1967 focusing on the isolation of various
biochemicals produced by the human body as part of the bodys possible defense
against cancer. In the course of his research, Dr. Burzynski identified
certain peptides, amino acid derivatives and organic acids in these
biochemicals which appear to inhibit the growth of cancer cells. These
derivatives were given the name Antineoplastons by Dr. Burzynski.
Antineoplastons
are found in the bodily fluids of humans and food and were initially isolated
by Dr. Burzynski from normal human blood and urine. Dr. Burzynski
believes these substances counteract the development of cancerous growth
through a biochemical process which does not inhibit the growth of normal
tissues. To date, Dr. Burzynski has developed six formulations of natural
Antineoplastons and six synthetic formulations of Antineoplastons. All of the
Phase II clinical trials currently sponsored by the Company involve the use of
four formulations of synthetic Antineoplastons known as A10 and AS2-1 in
capsules and injections. The Company is also conducting laboratory research
involving new generations of Antineoplastons A10 and AS2-1.
Orphan
Drug Designation
On September 7,
2004, the FDA granted orphan drug status to the Companys Antineoplastons
under the Orphan Drug Act of 1983. In enacting the Orphan Drug Act of 1983,
Congress sought to provide incentives to promote the development of drugs for
the treatment of rare diseases. A drug may be considered for orphan drug
designation if the drug is intended to treat a rare disease or condition
affecting fewer than 200,000 people in the United States or, even if the drug
treats a disease affecting more than 200,000 people in the United States, the
drug is not expected to be profitable from sales in the United States. Subject
to applicable laws and regulations, the first sponsor to obtain FDA marketing
approval for a drug with orphan drug designation for the designated disease or
condition receives limited marketing exclusivity for seven years; no other
sponsor may bring to market the same drug for the treatment of the same
disease or condition for a period of seven years from the date the application
is approved by the FDA. A drug with orphan drug designation must meet the same
criteria for safety and efficacy as a
3
drug without orphan drug
designation. Please see Government Regulation for a complete description of
the regulatory approval process with the FDA and other regulatory agencies.
Phase II
Clinical Trials
The Company began
Phase II clinical studies in 1994 with four studies. At that time, a number of
patients were also receiving Antineoplastons at Dr. Burzynskis clinic in
Houston, Texas (the Burzynski Clinic) outside these clinical trials. On February 23,
1996, the FDA requested that all then-current patients of the Burzynski Clinic
desiring to continue Antineoplaston treatment be admitted to a Phase II Study,
according to Protocol CAN-1. This action resulted in the formation of six
cohorts of patients in the CAN-1 study, with the largest group suffering from
primary brain tumors. New patients either were admitted to the CAN-1 study or
have been admitted to one of the other studies sponsored by the Company, as
appropriate.
The Company
currently sponsors 19 ongoing Phase II clinical trials, which are conducted
pursuant to investigational new drug applications (INDs) filed with the FDA
and approved by an Institutional Review Board (IRB) designated according to
federal regulations. All clinical trials are for the treatment of a wide
variety of cancers using only a combination of Antineoplastons A10 and
AS2-1. Most of the trials involve the
use of intravenous formulations of Antineoplastons; however, a few trials use
oral formulations. Dr. Burzynski acts as principal investigator for all
clinical trials pursuant to a Royalty Agreement between the Company and Dr. Burzynski.
See
Certain Relationships and Related
Transactions
. All of the clinical trials are conducted at the
Burzynski Clinic. Each trial provides for the admission of up to 40 patients,
except the CAN-1 study, in which 133 patients were enrolled, and the BT-34 and
BT-35 studies, in which up to 20 patients will be enrolled. Please see Active
Phase II Clinical Trials for a list of all of these clinical trials.
Prior to approving
a New Drug Application (NDA), the FDA requires that a drugs safety and
efficacy be demonstrated in well-controlled clinical trials. Several types of
controls are acceptable to the FDA. One of these is a Historic Control. Under
a Historic Control if the course of a disease is well-known, the response of
patients taking a drug can be compared to a historic group of patients with
that disease who have not had medical intervention. For example, it is known
that the tumors of patients suffering from primary malignant brain tumors (PMBT)
will continue to grow, eventually causing the patients death. If a drug is
administered to a patient with PMBT and the tumors of the patient disappear or
shrink significantly, an assumption is made that there has been a response to
the drug.
All of the Companys
clinical trials, except one, involve the use of Historic Controls. Further, all
trials except the CAN-1 study are prospective clinical trials (PCT). A PCT
is a clinical trial wherein patients are accrued into and follow the clinical
trial protocol from the very beginning of the trial. A retrospective trial is a
trial in which data from patients treated prior to the start of a clinical trial
is considered. Results of retrospective trials are, in most instances, not
acceptable to the FDA. In addition, there are no clinical trials being
conducted that involve double blind studies and all but one clinical trial
involve no randomization into multiple treatment groups.
The ultimate goal
of any treatment for cancer is patient survival. However, the FDA has
determined that requiring exhaustive data showing improved patient survival may
unnecessarily delay the approval of new cancer drugs. For that reason, the FDA
may grant marketing approval for a new drug product on the basis of adequate
and well-controlled clinical trials establishing that the drug has an effect on
a surrogate endpoint (Milestone) that is reasonably likely to predict clinical
benefit. Each of the Companys Phase II trials describes such Milestones which
are used to determine success or failure of the treatment employed. In most of
the trials, the Milestones are radiographic evidence of tumor shrinkage by
X-ray, computer aided tomography or magnetic resonance imaging. Where
appropriate, tumor markers such as Prostate Specific Antigen, blood counts, or
bone marrow biopsy are used in order to assess a tumors growth.
Where tumor size
is used as the Milestone, each clinical trial protocol describes a complete
response as a complete disappearance of all tumors with no reoccurrence of
tumors for at least four weeks. A partial response is described as at least a
50% reduction in total tumor size, with such reduction lasting at least four
weeks. An objective response is described as either a complete or partial
response for protocols BT-06, BT-09, BT-10, BT-12, BT-13, BT-14, BT-15, BT-17,
BT-18, BT-21, BT-22, BT-23, BT-35, ES-02, LY-06 and MA-02. Stable disease is
described as less than 50% reduction in size but no more than 50% increase in
size of the tumor mass, lasting for at least twelve weeks. An objective
response for protocols BT-07 and BT-20 is described as either
4
complete or partial
response or stable disease. An objective response for protocol BT-34 is no sign
of tumor recurrence. An objective response for protocol MM-02 is at least 75%
reduction in the production of serum myeloma protein, at least 95% reduction in
myeloma proteins in urine and less than 5% bone marrow myeloma cells. Progressive
disease is described as more than 50% increase in total tumor mass or
occurrence of new tumors.
The protocols of
the Companys clinical trials involve a two-stage design, wherein the first
stage proceeds until the Company admits twenty patients into the trial. After a
specified time period, if there are zero responses by the first twenty
patients, the trial will be discontinued and the drug declared to have less
than desired activity. If there is at least one response, the trial will be
continued until forty patients have been accrued. If the study continues, the
following conclusions according to protocols based on forty patients can be
made: If there are three or fewer responses, then there is less than desired
activity. If there are four or more responses, then there is sufficient
evidence to conclude that the Antineoplaston regimen used shows beneficial
activity.
As of May 22,
2008, twelve of the prospective clinical trials have reached a Milestone. These
are:
·
Protocol BT-07, involving the study of
Antineoplastons A10 and AS2-1 in patients with glioblastoma multiforme, not
treated with radiation therapy or chemotherapy. This study is already
completed.
·
Protocol BT-08, involving the study of
Antineoplastons A10 and AS2-1 in patients with anaplastic astrocytoma.
·
Protocol BT-09, involving the study of
Antineoplastons A10 and AS2-1 in patients with brain tumors.
·
Protocol BT-11, involving the study of
Antineoplastons A10 and AS2-1 in patients with brain stem glioma. This study is already completed.
·
Protocol BT-12, involving the study of
Antineoplastons A10 and AS2-1 in children with primitive neuroectodermal tumors
(PNET).
·
Protocol BT-13, involving the study of
Antineoplastons A10 and AS2-1 in children with low grade astrocytoma, a type of
PMBT.
·
Protocol BT-15, involving the study of
Antineoplastons A10 and AS2-1 in adult patients with anaplastic astrocytoma, a
type of PMBT.
·
Protocol BT-18, involving a study of
Antineoplastons A10 and AS2-1 in the treatment of mixed glioma, a type of
PMBT.
·
Protocol BT-20, involving the study of
Antineoplastons A10 and AS2-1 in patients with glioblastoma multiforme, which
recurred after standard radiation and/or chemotherapy. This study is already
completed.
·
Protocol BT-21, involving the study of
Antineoplastons A10 and AS2-1 in adults with primary malignant brain tumors.
·
Protocol BT-23, involving a study of
Antineoplastons A10 and AS2-1 in children with visual pathway glioma.
·
Protocol BT-34, involving the study of
maintenance treatment with Antineoplastons A10 and AS2-1 capsules for patients
with malignancies in complete response following initial intravenous treatment
with Antineoplastons A10 and AS2-1.
There can be no
assurance that the results of any of these trials can be repeated or that the
other clinical trials will result in the same or similar responses.
5
The results of
Protocols BT-07, BT-08, BT-09, BT-11, BT-12, BT-13, BT-15, BT-18, BT-20, BT-21,
BT-23 and BT-34 are set forth below (as of May 22, 2008).
Protocol
Number
|
|
Patients
Accrued
|
|
Evaluable
Patients
|
|
Number and
Percentage of
Patients Showing
Complete
Response
|
|
Number and
Percentage of
Patients Showing
Partial Response
|
|
Number and
Percentage of
Patients
Showing Stable
Disease
|
|
Number and
Percentage of
Patients
Showing
Progressive Disease
|
|
BT-07
|
|
40
|
|
24
|
|
2
|
|
8.3
|
%
|
1
|
|
4.2
|
%
|
3
|
|
12.5
|
%
|
18
|
|
75.0
|
%
|
BT-08
|
|
19
|
|
13
|
|
4
|
|
30.8
|
%
|
0
|
|
0.0
|
%
|
5
|
|
38.5
|
%
|
4
|
|
30.8
|
%
|
BT-09
|
|
37
|
|
26
|
|
4
|
|
15.4
|
%
|
6
|
|
23.1
|
%
|
11
|
|
42.3
|
%
|
5
|
|
19.2
|
%
|
BT-11
|
|
40
|
|
28
|
|
5
|
|
17.9
|
%
|
4
|
|
14.3
|
%
|
12
|
|
42.9
|
%
|
7
|
|
25.0
|
%
|
BT-12
|
|
13
|
|
11
|
|
3
|
|
27.3
|
%
|
1
|
|
9.1
|
%
|
3
|
|
27.3
|
%
|
4
|
|
36.4
|
%
|
BT-13
|
|
11
|
|
9
|
|
5
|
|
55.6
|
%
|
1
|
|
11.1
|
%
|
3
|
|
33.3
|
%
|
0
|
|
0.0
|
%
|
BT-15
|
|
27
|
|
20
|
|
3
|
|
15.0
|
%
|
2
|
|
10.0
|
%
|
9
|
|
45.0
|
%
|
6
|
|
30.0
|
%
|
BT-18
|
|
20
|
|
13
|
|
3
|
|
23.1
|
%
|
1
|
|
7.7
|
%
|
3
|
|
23.1
|
%
|
6
|
|
46.2
|
%
|
BT-20
|
|
40
|
|
22
|
|
1
|
|
4.5
|
%
|
1
|
|
4.5
|
%
|
12
|
|
54.5
|
%
|
8
|
|
36.4
|
%
|
BT-21
|
|
35
|
|
20
|
|
2
|
|
10.0
|
%
|
2
|
|
10.0
|
%
|
7
|
|
35.0
|
%
|
9
|
|
45.0
|
%
|
BT-23
|
|
12
|
|
8
|
|
3
|
|
37.5
|
%
|
1
|
|
12.5
|
%
|
3
|
|
37.5
|
%
|
1
|
|
12.5
|
%
|
BT-34
|
|
5
|
|
5
|
|
5
|
|
100.0
|
%
|
0
|
|
0.0
|
%
|
0
|
|
0.0
|
%
|
0
|
|
0.0
|
%
|
The Phase II Study
according to Protocol CAN-1 included 35 evaluable brain tumor patients.
Complete and partial responses were obtained in patients diagnosed with
glioblastoma multiforme, astrocytoma, oligodendroglioma, mixed glioma,
medulloblastoma, and malignant meningioma. The treatment with Antineoplastons
A10 and AS2-1 resulted in 48.6% cases of objective responses and 31.4% cases of
stable disease. The largest group of evaluable patients involved in the study
had glioblastoma multiforme. Six of the cases were classified as complete and
partial responses, four obtained stabilization and four developed progression
of the disease. One of the glioblastoma patients is now alive and completely
free from tumor for over twelve years after her pathology diagnosis.
Notwithstanding
the response results of the trials that have reached a Milestone, management
believes it is likely that the FDA may require additional clinical trials based
upon such protocols to be conducted by an institution not affiliated with the
Company or Dr. Burzynski before advising that an NDA filing is warranted.
In addition, the FDA has indicated it will not accept the efficacy data, but
will accept toxicity data generated by the Phase II study according to Protocol
CAN-1 because the trial was partially retrospective. At this time, the Company
cannot predict if and/or when it will submit an NDA to the FDA, nor can the
Company estimate the number or type of additional trials the FDA may require.
Further, there can be no assurance that an NDA for Antineoplastons, as a
treatment for cancer, will ever be approved by the FDA.
No assurance can
be given that any new IND for clinical tests on humans will be approved by the
FDA for human clinical trials on cancer or other diseases, that the results of
such human clinical trials will prove that Antineoplastons are safe or
effective in the treatment of cancer or other diseases, or that the FDA would
approve the sale of Antineoplastons in the United States.
Active
Phase II Clinical Trials
The following
table sets forth the title of each active Protocol, the subject of the Protocol
with dates submitted to the FDA and approved by the IRB and the number of
persons currently enrolled in each study. All of the following trials are Phase
II studies and, except as otherwise indicated, are of Antineoplastons A10 and
AS2-1 in patients with the conditions listed. For purposes of this table,
active means that the study is still under open enrollment. In addition, all of
the studies listed have a maximum of 40 patients who may ultimately participate
in the study, except for protocols BT-34 and BT-35, which have a maximum of 20
patients who may ultimately participate in the study. The information in this
table is updated as of May 22, 2008.
Title
of
Protocol
|
|
Subject of Protocol
|
|
Number of
Persons Enrolled
|
|
AD-02
|
|
Carcinoma of the Adrenal Gland
|
|
6
|
|
6
BT-06
|
|
Children with High Grade Glioma
|
|
9
|
|
BT-08
|
|
Anaplastic Astrocytoma
|
|
19
|
|
BT-09
|
|
Brain Tumors
|
|
37
|
|
BT-10
|
|
Children with Brain Tumors
|
|
19
|
|
BT-12
|
|
Children with Primitive Neuroectodermal (PNET)
|
|
13
|
|
BT-13
|
|
Children with Low Grade Astrocytoma
|
|
11
|
|
BT-14
|
|
Children with Rhabdoid Tumor of the Central Nervous
System
|
|
4
|
|
BT-15
|
|
Adult Patients with Anaplastic Astrocytoma
|
|
27
|
|
BT-17
|
|
Adult Patients with Oligodendroglioma
|
|
13
|
|
BT-18
|
|
Adult Patients with Mixed Glioma
|
|
20
|
|
BT-21
|
|
Adult Patients with Primary Malignant Brain Tumors
|
|
35
|
|
BT-22
|
|
Children with Primary Malignant Brain Tumors
|
|
7
|
|
BT-23
|
|
Children with Visual Pathway Glioma
|
|
12
|
|
BT-34
|
|
Maintenance Treatment with Antineoplastons A10 and
AS2-1 Capsules for Patients with Malignancies in Complete Response Following
Initial Intravenous Treatment with Antineoplastons A10 and AS2-1
|
|
5
|
|
BT-35
|
|
Maintenance Treatment with Antineoplastons A10 and
AS2-1 Capsules for Patients with Malignancies in Partial Response or Stable
Disease Following Initial Intravenous Treatment with Antineoplastons A10 and
AS2-1
|
|
2
|
|
ES-02
|
|
Adenocarcinoma of the Esophagus
|
|
8
|
|
LY-06
|
|
Non-Hodgkins Lymphoma, Low Grade
|
|
31
|
|
MA-02
|
|
Mesothelioma
|
|
8
|
|
Government
Regulation
The FDA imposes
substantial requirements upon, and conditions precedent to, the introduction of
therapeutic drug products through lengthy and detailed laboratory and clinical
testing procedures, sampling activities and other costly and time consuming
procedures. To obtain FDA approval for Antineoplastons, we must submit
extensive preclinical and clinical data and supporting information to the FDA
to establish the safety and efficacy of Antineoplastons. The approval process
takes many years, requires the expenditure of substantial resources and may
involve ongoing requirements for post-marketing studies. Additional government
regulation may be established that could prevent or delay regulatory approval
of Antineoplastons. Moreover, there can be no assurance that the Company can
satisfy FDA requirements to gain approval for Antineoplastons in the United
States or that FDA approval for the sale of Antineoplastons in the United
States will be obtained. If regulatory approval is granted, the approval may
include significant limitations on the indicated uses for which Antineoplastons
may be marketed.
The effect of the
FDA drug approval process for Antineoplastons may impose costly procedures upon
the Companys activities which may furnish a competitive advantage to the other
companies that compete with the Company in the field of cancer treatment drugs.
The extent of potentially adverse government regulations which might arise from
future legislation or administrative action cannot be predicted.
The
Investigational New Drug Application Process in the United States is governed
by regulations established by the FDA which strictly control the use and distribution
of investigational drugs in the United States. The guidelines require that an
IND, filed by a sponsor, contain sufficient information to justify
administering the drug to humans, that the application include relevant
information on the chemistry, pharmacology and toxicology of the drug derived
from chemical, laboratory and animal or in vitro testing, and that a protocol
be provided for the initial study of the new drug to be conducted on humans.
In order to
conduct a clinical trial of a new drug in humans, a sponsor must prepare and
submit to the FDA a comprehensive IND. Such application must contain an
investigators brochure, a description of the composition, manufacture and
control of the drug substance and the drug product, sufficient information to
assure the proper identification, quality, purity and strength of the
investigational drug, a description of the drug substance, including its
physical, chemical, and biological characteristics, the general method of
preparation of the drug substance, a list of all components including
interactive ingredients, adequate information about pharmacological and
toxicological studies of the drug involving laboratory animals or in vitro
tests on the basis of which the sponsor has concluded that it is reasonably
safe to conduct the proposed clinical investigation and a summary of any
previous human experience with the drug. Where there has been widespread use of
the drug outside of the United States or otherwise, it is
7
possible in some limited
circumstances to use well-documented clinical experience in place of some other
pre-clinical work.
The focal point of
the IND is on the general investigational plan and the protocols for specific
human studies. The plan is carried out in three phases: Phase I includes
the initial introduction of an investigational new drug into humans and may be
conducted in patients or normal volunteer subjects. The studies are closely
monitored to determine the metabolism and pharmacologic actions of the drug in
humans, the potential side effects and, if possible, to gain early evidence on
effectiveness. During Phase I testing, sufficient information about the drug is
gathered to design well-controlled, scientifically valid Phase II studies.
Phase II includes controlled clinical studies conducted to evaluate the
effectiveness of the drug for a particular indication in patients with the
disease or condition under study and to determine the common short-term side
effects and risks associated with the drug. Phase II studies are controlled,
closely monitored and conducted in a relatively small number of patients,
usually involving no more than several hundred subjects. Phase III includes
expanded controlled and uncontrolled trials and are intended to gather the
additional information about effectiveness and safety that is needed to
evaluate the overall benefit-risk relationship of the drug and to provide an
adequate basis for physician labeling. Phase III studies usually include
anywhere from several hundred to several thousand subjects.
An IND will
automatically become effective 30 days after receipt by the FDA, unless before
that time the FDA raises concerns about issues such as the conduct of the
trials as outlined in the IND. After the IND becomes effective, the
investigation is permitted to proceed, during which the sponsor must keep the
FDA informed of new studies, including animal studies, make progress reports on
the study or studies covered by the IND, and also be responsible for informing
FDA and clinical investigators immediately of unforeseen serious side effects
or injuries. There can be no assurance that Phase I, Phase II or Phase III
testing will be completed successfully by the Company within any specified
period of time, if at all. Furthermore, the Company or the FDA may suspend
clinical trials at any time on various grounds, including a finding that the
subjects or patients are being exposed to an unacceptable health risk.
Assuming
successful completion of the clinical studies, the results of the studies,
together with other detailed information, including, among other information,
details concerning the manufacture and composition of the drug, proposed
labeling, environmental impact and the scientific rationale for the drug, its
intended use and the potential benefits of the drug product, are submitted to
the FDA in the form of an NDA requesting approval to market the drug. If the
FDA finds the NDA submission and the manufacturing process to be acceptable,
the FDA will issue an approval letter. If the FDA does not find the NDA
submission or the manufacturing process to be sufficient, it will issue a not
approvable letter describing the deficiencies in the NDA and allowing the NDA
applicant to either amend the NDA, withdraw the NDA or request a hearing. Even
if the NDA is amended or a hearing is held, the FDA ultimately may decide that
the NDA does not satisfy the regulatory criteria for approval. In addition, as
a result of the Companys use of Milestones to predict the benefits of
Antineoplastons, the FDA may subject any such approval to the requirement that
the Company study the drug further, to verify and describe its clinical benefit
(Phase IV testing). Further, the FDA may also impose post-marketing
restrictions on Antineoplastons. The FDA may withdraw approval of any drug if
the Phase IV trials fail to verify clinical benefit, use of the drugs
demonstrates that post-marketing restrictions are inadequate to assure safe use
of the drug, the Company fails to adhere to the post-marketing restrictions
agreed upon, the promotional materials are false or misleading or other
evidence demonstrates that the drug is not shown to be safe or effective under
its conditions of use.
The testing and
approval process requires substantial time, effort and financial resources, and
there can be no assurance that any approval will be granted for any product or
that approval will be granted according to any schedule. Moreover, if
regulatory approval of a drug is granted, the approval will be limited to
specific indications. There can be no assurance that any of the Companys
product candidates will receive regulatory approvals for commercialization.
The FDA has
implemented an accelerated review process for pharmaceutical agents that treat
serious or life-threatening disease and conditions, subject to payment of user
fees. Approval may be conditioned on a requirement that, following product
launch, a company continue to study the drug to verify and describe its
clinical benefit. Under fast track procedures, the FDA may withdraw approval
on an expedited basis if the company fails to show due diligence in conducting
post-marketing clinical trials or if the post-approval clinical trials fail to
demonstrate that the product is safe or effective. When appropriate, the
Company intends to pursue opportunities for
8
accelerated review of its
products. The Company cannot predict the ultimate effect of this review process
on the timing or likelihood of FDA review of any of its products.
Please see Orphan
Drug Designation for a description of the FDAs orphan drug designation under
the Orphan Drug Act of 1983 as it applies to the Companys Antineoplastons.
Even if the
regulatory approvals for the Companys products are obtained, its products and
its manufacturing facility are subject to continuous review and periodic
inspection. The FDA will require post-marketing reporting to monitor the safety
of the Companys products. The Companys drug manufacturing facility must be
inspected and approved by the FDA and must comply with the FDAs current good
manufacturing practice regulations, which are strictly enforced. Full technical
compliance requires manufacturers to expend funds, time and effort in the area
of production and quality control. In addition, discovery of problems with a
product after approval or failure to comply with applicable FDA or other
applicable regulatory requirements may result in restrictions on a product,
manufacturer, or holder of an approved NDA, including restrictions on the
product, manufacturer or facility, including warning letters, suspension of
regulatory approvals, operating restrictions, delays in obtaining new product
approvals, withdrawal of the product from the market, product recalls, fines,
injunctions and criminal prosecution. New government requirements may be
established that could delay or prevent regulatory approval of the Companys
products under development.
The Companys
research and development involves the controlled use of hazardous materials,
chemicals and various radioactive compounds. Although the Company believes its
procedures for handling and disposing of those materials comply with state and
federal regulations, the risk of accidental contamination or injury from these
materials cannot be eliminated. If an accident of this type occurs, the Company
could be held liable for resulting damages, which could be material to its
financial condition and business. The Company is also subject to numerous
environmental, health and workplace safety laws and regulations, including
those governing laboratory procedures and the handling of biohazardous
materials. Additional federal, state and local laws and regulations affecting
the Company may be adopted in the future. Any violation of these laws and
regulations, and the cost of compliance, could materially and adversely affect
the Company. The Company spends approximately $100,000
per
year on environmental compliance matters and expects to spend approximately
$40,000 for repairs and upgrades during the fiscal year ending February 28,
2009.
Research
And Development
The Companys
principal research and development efforts currently focus on Antineoplastons.
The anticancer activity of these compounds has been documented in preclinical
studies employing the methods of cell culture, pharmacology, cell biology,
molecular biology, experimental therapeutics and animal models of cancer. At
the level of Phase II clinical studies, the Company believes the anticancer
activity of Antineoplastons is supported by preliminary results from ongoing,
FDA-authorized, Phase II clinical trials.
The cellular
mechanism underlying the anticancer effects of Antineoplastons continues to be
investigated in both the Companys own basic preclinical research program and
in independent laboratories around the world. A review of this work suggests
several mechanisms that may underlie the antineoplastic activity of
Antineoplastons. For example, it has been found, in cell culture experiments,
that Antineoplastons induce pathologically undifferentiated cancer cells to
assume a more normal state of differentiation. Cell culture experiments have
also shown that Antineoplaston components can kill some cancer cells by
activating the cells intrinsic suicide program. It must be noted that data
collected in cell culture experiments may or may not indicate the mechanism of
action of Antineoplastons in humans.
At a more
molecular or sub-cellular level, cell culture experiments have shown that
Antineoplastons can block biochemical pathways involving oncogenes required to
produce abnormal cell growth. In addition, cell culture experiments have shown
that Antineoplastons can increase the expression of anticancer tumor suppressor
genes. Although these experiments were conducted using human cancer cells, they
may or may not indicate the mechanism of Antineoplaston action in humans.
In addition to the
original family of Antineoplaston compounds (the Parental Generation), the
Company continues its development of a second generation of Antineoplastons. In
cell culture experiments, the second
9
generation
Antineoplastons, which were developed by the Company, have been shown to be
significantly more potent than the Parental Generation.
The Company is
also developing a third generation of structurally altered Antineoplastons that
the Company believes will exhibit markedly improved anticancer activity in
human cancer cell lines that have been resistant to the Parental Generation.
However, increases of antineoplastic activity in cell culture experiments may
or may not translate into increased efficacy in humans.
The Company is
also involved in ongoing studies examining the pharmacokinetics (absorption,
distribution, metabolism, and excretion) and pharmacodynamics (dose-response)
of Antineoplastons in patients with neoplastic disease.
The Company uses
various scientific reagents from several different suppliers to conduct its
research activities.
Total research and
development costs for the fiscal years ended February 29, 2008 and February 28,
2007 were approximately $4,365,000 and $4,133,000, respectively.
Intellectual
Property
Since 1984, eight
patents involving the formulation, preparation, manufacture, production, use, dosage
and treatment of cancer with Antineoplastons (the Patents) have been issued
to Dr. Burzynski by the United States Patent Office and the Patent Offices
of 34 other countries. The Patents for cancer treatment and diagnosis in the
United States and Canada are licensed to the Company pursuant to a 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 (collectively, the License Agreement). Pursuant to
the License Agreement, the Company holds an exclusive right in the United
States, Canada, and Mexico (the Territory) to use, manufacture, develop,
sell, distribute, sub-license and otherwise exploit all of Dr. Burzynskis
rights, title, and interests, including patent rights, in Antineoplastons in
the treatment and diagnosis of cancer. See
Certain
Relationships and Related Transactions.
The Company will not
be able to exploit such rights until such time as Antineoplastons are approved,
of which there can be no assurance, by the FDA for sale in the United States.
The License Agreement is to continue in effect until the expiration of the last
Patent that was licensed under the agreement or termination pursuant to certain
other provisions. The Company and Dr. Burzynski also entered into a
Royalty Agreement, dated March 25, 1997, and a First Amended Royalty
Agreement, dated September 29, 1997 (collectively, the Royalty Agreement),
pursuant to which Dr. Burzynski will receive a royalty interest from all
future sales, distribution, and manufacture of Antineoplastons by the Company.
The Company owns, pursuant to the License Agreement, exclusive rights to eight
issued United States Patents, three issued Canadian Patents and one issued Mexican
Patent. The Company has one patent application pending in Canada.
The five initial
United States Patents (the Initial Patents) relate to: (i) Determination
of Antineoplastons in body tissue or fluids as a testing procedure to aid in
the diagnosis of cancer; (ii) Processes for the preparation of purified
fractions of Antineoplastons from human urine; (iii) Processes for the
synthetic production of Antineoplastons and methods of treating neoplastic
disease (cancer); (iv) Administration of Antineoplastons to humans; and (v) Methods
of synthesizing A-10. The Initial Patents expire from September 11, 2001
to January 11, 2009, however the Company does not believe the expiration
of any of the Initial Patents will have a material adverse effect on the Company.
The sixth United
States Patent (the 2000 U.S. Patent) covers Liposomal Antineoplaston
therapies with markedly improved anti-cancer activity. The 2000 U.S. Patent
expires on May 14, 2017.
The seventh United
States Patent (the 2001 U.S. Patent) is for a treatment regimen for the
administration of phenylacetylglutamine, phenylacetylisoglutamine, and/or
phenylacetate. The 2001 U.S. Patent expires on July 23, 2018.
The eighth United
States Patent (the 2005 U.S. Patent) relates to a divisional application to
the 2001 U.S. Patent. The 2005 U.S. Patent issued in September 2005 and
will expire July 2018.
10
The three Canadian
Patents (the Canadian Patents) relate to: (i) Processes for the
preparation of purified fractions of Antineoplastons from human urine, (ii) Processes
for the synthetic production of Antineoplastons and methods of treating
neoplastic disease (cancer) and (iii) Liposomal Formulation of
Antineoplastons. The Canadian Patents expired or will expire on June 4,
2002, November 14, 2006 and May 14, 2017, respectively; however, the
Company does not believe the expiration of the Canadian Patents will have a
material adverse effect on the Company.
The Mexican Patent
relates to a treatment regimen for the administration of phenylacetylglutamine.
This patent will expire in the year 2019.
The pending patent
application in Canada relates to a treatment regimen for the administration of
phenylacetylglutamine. Should this patent be granted, of which there can be no
assurance, it would expire in the year 2019.
The Company also
depends upon unpatented proprietary technology, and may determine in appropriate
circumstances that its interest would be better served by reliance upon trade
secrets or confidentiality agreements rather than patents.
The Companys
success will depend in part on its ability to enforce patent protection for its
products, preserve its trade secrets, and operate without infringing on the
proprietary rights of third parties in the United States, Canada, and Mexico.
Because of the substantial length of time and expense associated with bringing
new products through development and regulatory approval to the marketplace,
the pharmaceutical and biotechnology industries place considerable importance
on obtaining and maintaining patent and trade secret protection for new
technologies, products and processes. There can be no assurance that the
Company will develop additional products and methods that are patentable or
that present or future patents will provide sufficient protection to the
Companys present or future technologies, products and processes. In addition,
there can be no assurance that others will not independently develop
substantially equivalent proprietary information, design around the Companys
patents or obtain access to the Companys know-how or that others will not
successfully challenge the validity of the Companys patents or be issued
patents which may prevent the sale of one or more of the Companys product
candidates, or require licensing and the payment of significant fees or
royalties by the Company to third parties in order to enable the Company to
conduct its business. Legal standards relating to the scope of claims and the
validity of patents in the fields in which the Company is pursuing research and
development are still evolving, are highly uncertain and involve complex legal
and factual issues. No assurance can be given as to the degree of protection or
competitive advantage any patents issued to the Company will afford, the
validity of any such patents or the Companys ability to avoid violating or
infringing any patents issued to others. Further, there can be no guarantee
that any patents issued to or licensed by the Company will not be infringed by
the products of others. Litigation and other proceedings involving the defense
and prosecution of patent claims can be expensive and time-consuming, even in
those instances in which the outcome is favorable to the Company, and can
result in the diversion of resources from the Companys other activities. An
adverse outcome could subject the Company to significant liabilities to third
parties, require the Company to obtain licenses from third parties or require
the Company to cease any related research and development activities or sales.
The Company
depends upon the knowledge, experience and skills (which are not patentable) of
its key scientific and technical personnel. To protect its rights to its
proprietary information, the Company requires all employees, consultants,
advisors and collaborators to enter into confidentiality agreements which
prohibit the disclosure of confidential information to anyone outside the Company
and require disclosure and assignment to the Company of their ideas,
developments, discoveries and inventions. There can be no assurance that these
agreements will effectively prevent the unauthorized use or disclosure of the
Companys confidential information.
Antineoplaston
agents is a trademark registered with the U.S. Patent and Trademark Office.
Competition
There are many
companies, universities, research teams and scientists, both private and
government-sponsored, that are engaged in research to produce cancer treatment
agents and that have greater financial resources and larger research staffs and
facilities than the Company. In addition, there are other companies and
entities, both private and government-sponsored, that are engaged in research
aimed at compounds similar or related to the
11
Companys
Antineoplastons. To the extent that the United States Government also conducts
research or supports other companies or individuals in their research, such
companies or individuals may have a competitive advantage over the Company.
Employees
As of May 20,
2008, the Company had three employees, all of whom were full-time employees.
None of the Companys employees is a party to a collective bargaining
agreement. The Company considers the relations with its employees to be good.
ITEM 2.
|
DESCRIPTION
OF PROPERTY
|
The Company does
not own or invest in real estate, interests in real estate, real estate
mortgages or securities of or interests in persons primarily engaged in real
estate activities.
The Company
conducts its business in premises owned by Dr. Burzynski and his wife, Dr. Barbara
Burzynski (the Burzynskis). Pursuant to arrangements with the Burzynskis (see
Certain Relationships and Related
TransactionsResearch Funding Arrangements
), the Company occupies (i) 675
square feet at 12707 Trinity Drive, Stafford, Texas for office, laboratory and
medical research purposes and (ii) 540 square feet at 9432 Old Katy Road, Suite 200
for its executive offices. Management of the Company believes that each of
these properties is adequately covered by insurance.
On November 26,
2005, the Company completed the sale of selected equipment to Dr. Burzynski,
the Companys President and Chief Executive Officer, in an arms-length
transaction approved by both of the Companys disinterested directors. The
equipment sold to Dr. Burzynski is not necessary for the Companys ongoing
operations and was sold for a purchase price of $95,000. The amount of the
purchase price was based on an independent third party appraisal received by
the Companys disinterested directors to assist them in approving the sale of
the equipment to Dr. Burzynski. This sale of equipment will not affect the
Companys operations in any significant way.
ITEM 3.
|
LEGAL
PROCEEDINGS
|
The Companys
activities are subject to regulation by various governmental agencies,
including the FDA, which regularly monitor the Companys operations and often
impose requirements on the conduct of its clinical trials and other aspects of
the Companys business operations. The Companys policy is to comply with all
such regulatory requirements. From time to time, the Company is also subject to
potential claims by patients and other potential claimants commonly arising out
of the operation of a medical practice. The Company seeks to minimize its
exposure to claims of this type wherever possible.
Currently, the
Company is not a party to any material pending legal proceedings. Moreover, the
Company is not aware of any such legal proceedings that are contemplated by
governmental authorities with respect to the Company or any of its properties.
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
No matter was
submitted to a vote of security holders during the fourth quarter of the fiscal
year ended February 29, 2008.
PART II
ITEM 5.
|
MARKET
FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER
PURCHASES OF EQUITY SECURITIES
|
Since October 15,
2001, the Companys Common Stock has remained in good standing for trading on
the OTCBB. Nevertheless, a public trading market having the characteristics of
depth, liquidity and orderliness depends upon the existence of market makers as
well as the presence of willing buyers and sellers, which are circumstances
over which the Company does not have control. There can be no assurance that
the market will provide significant
12
liquidity for the Companys
Common Stock. As a result, an investment in the Companys Common Stock may be
highly illiquid. Investors may not be able to sell their shares readily or at
all when the investor needs or desires to sell.
The following
table sets forth closing high and low bid prices of the shares of Common Stock
of the Company for the periods indicated (as reported by Pink Sheets LLC).
|
|
Price Range
|
|
|
|
High
|
|
Low
|
|
Fiscal year ended
February 28, 2007
|
|
|
|
|
|
First Quarter
|
|
$
|
0.22
|
|
$
|
0.10
|
|
Second Quarter
|
|
0.12
|
|
0.08
|
|
Third Quarter
|
|
0.16
|
|
0.08
|
|
Fourth Quarter
|
|
0.15
|
|
0.10
|
|
|
|
|
|
|
|
Fiscal year ended
February 29, 2008
|
|
|
|
|
|
First Quarter
|
|
$
|
0.13
|
|
$
|
0.06
|
|
Second Quarter
|
|
0.10
|
|
0.08
|
|
Third Quarter
|
|
0.10
|
|
0.06
|
|
Fourth Quarter
|
|
0.07
|
|
0.05
|
|
The quotations set
forth above reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions.
As of May 20,
2008, there were approximately 2,027 holders of record of the Companys Common
Stock, as shown on the records of the Transfer Agent and Registrar of the
Common Stock. Since many shares may be held by investors in nominee names, such
as the name of their broker or their brokers nominee, the number of record
holders often bears little relationship to the number of beneficial owners of
the Common Stock.
The Company has
never paid cash dividends on its Common Stock and the Board of Directors
intends to retain all of its earnings, if any, to finance the development and
expansion of its business. However, there can be no assurance that the Company
can successfully expand its operations, or that such expansion will prove
profitable. Future dividend policy will depend upon the Companys earnings,
capital requirements, financial condition and other factors considered relevant
by the Companys Board of Directors.
ITEM 6.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
|
The following is a
discussion of the financial condition of the Company as of February 29,
2008 and February 28, 2007 and the results of operations for the fiscal
years ended February 29, 2008 and February 28, 2007. It should be
read in conjunction with the financial statements and the notes thereto
included elsewhere in this report. The following discussion contains
forward-looking statements.
Introduction
The Company has
generated no significant revenue since its inception, and does not expect to
generate any operating revenues until such time, if any, as Antineoplastons are
approved for use and sale by the FDA. The Companys sole source of funding is Dr. Burzynski,
who funds the Companys operations from his medical practice pursuant to
certain agreements between Dr. Burzynski and the Company
. See
Certain
Relationships and Related Transactions
. Funds received by the
Company from Dr. Burzynski are reported as additional paid-in capital to
the Company.
The Company is
primarily engaged as a research and development facility of Antineoplaston
drugs currently being tested for use in the treatment of cancer, and provides
consulting services. The Company is currently conducting 19 FDA-approved
clinical trials. The Company holds the exclusive right in the United States,
Canada and Mexico to use, manufacture, develop, sell, distribute, sublicense
and otherwise exploit all the rights, titles and interest in Antineoplaston
drugs used in the treatment of cancer, once the drugs are approved for sale by
the FDA
. See
Certain Relationships and Related Transactions.
13
Results
Of Operations
Fiscal Year Ended February 29, 2008
Compared to Fiscal Year Ended February 28, 2007
Research and development costs
were approximately $4,365,000 and $4,133,000
for
the fiscal years ended February 29, 2008 and February 28, 2007,
respectively. The increase of $232,000 or 6%
was
due to an increase in personnel cost of $96,000, an increase in material costs
of $396,000 and an increase in facility and equipment costs of $34,000, offset
by a decrease in consulting and quality control costs of $283,000, and a
decrease in other research and development costs of $11,000.
General and administrative expenses were approximately $155,000 and
$169,000 for the fiscal years ended February 29, 2008 and February 28,
2007, respectively. The decrease of $14,000 or 8% was due to a decrease in
legal and professional fees of $2,000, and a decrease in other general and
administrative expenses of $12,000.
The Company had net losses of
approximately $4,522,000 and $4,303,000 for the fiscal years ended February 29,
2008 and February 28, 2007, respectively. The increase in the net loss
from 2007 to 2008 was primarily due to an overall increase in research and
development cost, offset by a decrease in general and administrative expenses
of the Company described above. As of February 29, 2008, the Company had
total stockholders deficit of $(58,246).
Liquidity
and Capital Resources
The Companys
operations have been funded entirely by Dr. Burzynski with funds generated
from Dr. Burzynskis 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 Companys 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 Companys research
expenses, including expenses to conduct the clinical trials. Dr. Burzynski
also provides the Company laboratory and research space as needed to conduct
the Companys 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
Companys monthly and annual budget of expenses for the operation of the
Company, together with other unanticipated but necessary expenses which the
Company incurs. In the event the research results in the approval of any
additional patents for the treatment of cancer, Dr. Burzynski shall own
all such patents, but shall license to the Company the patents based on the
same terms, conditions and limitations as are in the current license between Dr. Burzynski
and the Company. Dr. Burzynski has unlimited and free access to all
equipment which the Company owns, so long as such use does not conflict with
the Companys use of such equipment, including without limitation, all
equipment used in the manufacturing of Antineoplastons used in the clinical
trials. 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.
The Company
entered into a third amendment to the Research Funding Agreement, effective March 1,
2007, whereby the Company and Dr. Burzynski extended the term thereof
until February 28, 2008, with an automatic renewal for an additional
one-year term, unless one party notifies the other party at least thirty days
prior to the expiration of the term of the agreement of its intention not to
renew the agreement. Subject to the
foregoing, the term of the Research Funding Agreement has renewed and extended
until February 28, 2009.
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.
14
The Company
estimates that it will spend approximately $4.6 million in the fiscal year
ending February 28, 2009. The Company estimates that ninety-five percent (95%)
of this amount will be spent on research and development and the continuance of
FDA-approved clinical trials. While the Company anticipates that Dr. Burzynski
will continue to fund the Companys research and FDA-related costs, there is no
assurance that Dr. Burzynski will be able to continue to fund the Companys
operations pursuant to the Research Funding Agreement or otherwise. However,
because the net assets available to Dr. Burzynski from his personal assets
and the assets of his medical practice currently exceed the Companys projected
twelve-month funding requirements, the Company believes Dr. Burzynski will
be financially able to fund the Companys operations at least through the
fiscal year ending February 28, 2009. In addition, Dr. Burzynskis medical
practice has successfully funded the Companys research activities over the
last 22 years and, in 1997, his medical practice was expanded to include
traditional cancer treatment options such as chemotherapy, immunotherapy and
hormonal therapy in response to FDA requirements that cancer patients utilize
more traditional cancer treatment options in order to be eligible to
participate in the Companys Antineoplaston clinical trials. As a result of the
expansion of Dr. Burzynskis medical practice, the financial condition of
the medical practice has improved Dr. Burzynskis ability to fund the
Companys operations.
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 Companys 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. Burzynskis 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 Companys 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.
ITEM 7.
|
FINANCIAL
STATEMENTS
|
The Companys
Annual Financial Statements, Notes to Financial Statements and the report of
Fitts, Roberts & Co., P.C., independent registered public accounting
firm, with respect thereto, referred to in the Table of Contents to the
Financial Statements, appear elsewhere in this report beginning on Page F-1.
ITEM 8.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
None.
ITEM
8A.
|
CONTROLS
AND PROCEDURES
|
(a)
Evaluation of Disclosure Controls and Procedures.
Within the
90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Companys
management, including the Companys principal executive officer (who is also
the Companys principal financial officer), of the effectiveness of the Companys
disclosure controls and procedures pursuant to Rule 13a-14 under the
Securities Exchange Act of 1934, as amended. Based upon that evaluation, the
Companys principal executive officer (who is also the Companys principal
financial officer) concluded that the Companys disclosure controls and
procedures are effective in timely alerting them to material information
required to be included in periodic Securities and Exchange Commission filings.
A controls system cannot provide absolute assurance, however, that the
objectives of the controls system are met, and no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within a company have been detected.
Managements
Annual Report on Internal Control over Financial Reporting.
The Companys management is responsible
for establishing and maintaining adequate internal control over financial
reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes of accounting
principles generally accepted in the United States.
15
Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Therefore, even those systems determined to be
effective can provide only reasonable assurance of achieving their control
objectives.
The Companys
management, with the participation of the Companys principal executive officer
(who is also the Companys principal financial officer), evaluated the
effectiveness of the Companys internal control over financial reporting as of February 29,
2008. In making this assessment, the Companys management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control Integrated Framework. Based on this evaluation,
the Companys management, with the participation of the principal executive
officer (who is also the Companys principal financial officer), concluded
that, as of February 29, 2008, the Companys internal control over
financial reporting was effective.
This annual report
does not include an attestation report of the Companys registered public
accounting firm regarding internal control over financial reporting. Managements
report was not subject to attestation by the Companys registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit the company to provide only managements report in this
annual report.
(b)
Changes in Internal Control Over Financial Reporting
. There
were no significant changes in the Companys internal controls or in other
factors that could significantly affect internal controls subsequent to the
date of the evaluation above.
ITEM
8B.
|
OTHER
INFORMATION
|
None.
PART III
ITEM 9.
|
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT
|
Set forth below
are the names, ages and positions of the Companys directors and executive
officers:
Name
|
|
Age
|
|
Office
|
Stanislaw R. Burzynski,
M.D., Ph.D.
|
|
65
|
|
Director, President,
Secretary, and Treasurer
|
Barbara Burzynski, M.D.
|
|
67
|
|
Director
|
Michael H. Driscoll, J.D.
|
|
61
|
|
Director
|
Carlton Hazlewood,
Ph.D.
|
|
71
|
|
Director
|
STANISLAW R.
BURZYNSKI, M.D., PH.D., has been the President and Chairman of the Board of
Directors of the Company since its inception in 1984. He also serves as the
Companys Secretary and Treasurer. Dr. Burzynski is a physician in private
practice in Houston, Texas specializing in the treatment of cancer. Dr. Burzynski
is the husband of Barbara Burzynski, M.D., who is a director of the Company.
Currently listed
in Whos Who In The World and a member in good standing with both the American
and World Medical Associations, Dr. Burzynski is an internationally
recognized physician and scientist who has pioneered the development and use of
biologically active peptides in diagnosing, preventing, and treating cancer
since 1967. In 1967, Dr. Burzynski graduated with distinction with an M.D.
degree from the Medical Academy in Lublin, Poland, finishing first in his class
of 250, and he subsequently earned his Ph.D. in Biochemistry.
From 1970 to 1977,
he was a researcher and Assistant Professor at Baylor College of Medicine in
Houston. At Baylor, Dr. Burzynskis research was sponsored and partially
funded by the National Cancer Institute. Also at Baylor, he authored and
co-authored sixteen publications, including five concerning his research on
peptides and their effect on human cancer. Four of these publications were also
co-authored by other doctors associated with M.D. Anderson Hospital and Tumor
Institute and Baylor College of Medicine. In May 1977, Dr. Burzynski
received a Certificate of Appreciation from Baylor College of Medicine and in
that same year founded the Company.
16
Dr. Burzynski
is a member of the American Medical Association, American Association for
Cancer Research, Harris County Medical Society, New York Academy of Sciences,
Society for Neuroscience, Texas Medical Association, the Society of Sigma Xi, and
the Society of Neuro-oncology. He is the author of 220 scientific publications,
presenter of scientific papers at major international conventions, and has been
awarded 222 patents covering 42 countries for his Antineoplaston treatment and
other inventions. Other groups are working in conjunction with him, including
researchers at the University of Kurume Medical School in Japan.
BARBARA BURZYNSKI,
M.D., a Director since 1984 and the wife of Dr. Burzynski, has been the
Chairman of the Department of Pharmacy of the Burzynski Clinic since 1977. From
January 1976 to July 1977, she was a Research Assistant in the
Department of Pediatrics at Baylor College of Medicine. She was a physician at
the Medical Academy, Lublin, Poland, from 1970 to 1975. Dr. Barbara Burzynski
graduated with an M.D. in 1966 from the Medical Academy, Lublin, Poland, and
has published six publications on studies with Antineoplastons.
MICHAEL H.
DRISCOLL, J.D. has been a Director of the Company since 1984. Mr. Driscoll
was formerly a judge and served as the County Attorney of Harris County, Texas
from 1981 until he retired in 1997.
CARLTON HAZLEWOOD,
PH.D. has been a Director of the Company since 1997. He also serves as Chairman
of the IRB, an independent review board for the Companys clinical trials
designated according to federal regulations. Dr. Hazlewood currently
operates his own consulting company, Research Consultants International, and
is president of Petroclean, L.L.C. In addition, Dr. Hazlewood was employed
in various capacities by the Baylor College of Medicine from 1965 until December 31,
1997, where he was a professor of Molecular Biology and Biophysics. Dr. Hazlewood
received his Ph.D. in Medical Physiology from the University of Tennessee. Dr. Hazlewood
is a prolific writer on medical topics and has been recognized for his research
with numerous awards, honors and research grants.
Audit
Committee Financial Expert
The Company has
not established an Audit Committee. Therefore, the Board of Directors has not
designated any of its members as an audit committee financial expert as
defined by the rules and regulations of the Securities and Exchange
Commission.
Section 16(a) Beneficial
Ownership Reporting Compliance
Based solely upon
a review of Forms 3 and 4 and amendments thereto furnished to the Company under
Rule 16a-3(e) during the fiscal year ended February 29, 2008 and
Form 5 and amendments thereto furnished to the Company with respect to
such period, the Company is not aware of any director, officer, or beneficial
owner of more than 10% of any class of equity securities of the Company
registered pursuant to Section 12 of the Securities Exchange Act of 1934
(the Exchange Act) that has failed to file on a timely basis, as disclosed in
the above forms, reports required by Section 16(a) of the Exchange
Act during the Companys most recent fiscal year.
Code of
Ethics
The Company has
adopted a code of ethics that applies to our chief executive officer, chief
financial officer, chief accounting officer and all persons performing similar
functions. The Company hereby undertakes to provide a copy of this code of
ethics to any person, without charge upon request made in writing to: Investor
Relations, 9432 Old Katy Road, Suite 200, Houston, Texas 77055.
17
ITEM
10.
|
EXECUTIVE
COMPENSATION
|
SUMMARY COMPENSATION TABLE
|
|
Annual Compensation
|
|
Long-Term Compensation
|
|
Name
and Principle Position
|
|
Fiscal
Year
Ending
|
|
Salary($)
|
|
Bonus
($)
|
|
Other Annual
Compensation
($)
|
|
Restricted
Stock
Awards($)
|
|
Securities
Underlying
Options/SARs($)
|
|
LTIP
Payouts
($)
|
|
All Other
Compensation
($)
|
|
Stanislaw R. Burzynski,
|
|
2006
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
M.D., Ph.D., President,
|
|
2007
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
Secretary and Treasurer(1)
|
|
2008
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
(1)
In May of 2000, Dr. Burzynski
began drawing his entire salary through his medical practice and is not
currently compensated by the Company for his services.
Directors do not
receive any compensation for serving as directors; however, directors are
reimbursed for all ordinary and necessary expenses incurred in attending
meetings of the Board of Directors or otherwise incurred in their capacity as
directors. In addition, any director also serving as a director of the IRB, the
independent review board for the Companys clinical trials designated according
to federal regulations, is compensated by the IRB approximately $1,600
annually for serving as a director of the
IRB.
ITEM
11.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
|
The following table sets forth, as of May 20, 2008,
the number of outstanding shares of Common Stock (the Companys only class of
voting securities) owned by (i) each person known by the Company to
beneficially own more than 5% of its outstanding Common Stock, (ii) each
director, (iii) each named executive officer, and (iv) all officers and
directors as a group. The address for all of the beneficial owners listed below
is the Companys address.
Name
of
beneficial owner
|
|
Amount and nature of
beneficial ownership
|
|
Percent of class (1)
|
|
Stanislaw R. Burzynski,
M.D., Ph.D.
|
|
106,444,190
|
|
81.0
|
%
|
Barbara Burzynski, M.D.
|
|
106,444,190
|
(2)
|
81.0
|
%
|
Michael H. Driscoll
|
|
570,000
|
|
|
*
|
Carlton Hazlewood
|
|
0
|
|
|
*
|
All Current Directors
and Executive Officers as a group (4 persons)
|
|
107,014,190
|
|
81.45
|
%
|
*
Less than one percent.
(1)
Percentages shown are based upon
131,388,444 shares of Common Stock outstanding as of May 20, 2008. Certain
shares are deemed beneficially owned by more than one person listed in the
table.
(2)
All of the shares listed above for Dr. Barbara
Burzynski are included in the total number of shares for Dr. Burzynski,
her husband.
ITEM
12.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
Dr. Burzynski
is the President, Secretary, Treasurer and Chairman of the Board of the
Company, as well as the beneficial owner of 81.0% of the Companys outstanding
Common Stock. Since 1983, Dr. Burzynski has personally funded and
supported the Companys operations out of funds generated from his medical
practice pursuant to various agreements with the Company.
License
Agreement
The Company
entered into the License Agreement with Dr. Burzynski which gives the
Company the exclusive right in the Territory (composed of the United States, Canada
and Mexico) to use, manufacture, develop, sell, distribute, sublicense and
otherwise exploit all of his rights, title and interests in Antineoplastons in
the treatment and diagnosis of cancer, including but not limited to any patent
rights which may be granted in these countries. The License Agreement will
terminate upon the earlier of the expiration of the last patent licensed to the
Company, or termination by Dr. Burzynski, at his option, if he is removed
as a director or officer of the Company without his consent, if the Company
files for bankruptcy or is the subject of any proceeding under applicable
18
bankruptcy laws where
such proceeding is not dismissed within 90 days from the date a petition is
filed, or if any shareholder or group of shareholders acting in concert becomes
the beneficial owner of the Companys securities having voting power equal to
or greater than the voting power of the securities Dr. Burzynski holds.
Amendments to the License Agreement on April 24, 1984 and on March 1,
1990 granted Dr. Burzynski the limited right to manufacture, use, and
exploit Antineoplastons in the Companys exclusive territory solely for the
purpose of enabling Dr. Burzynski to treat patients in his medical
practice until such date that the FDA may approve the sale of Antineoplastons
for the treatment of cancer in the United States.
Research
Funding Arrangements
Effective March 1,
1997, the Company entered into the Research Funding Agreement with Dr. Burzynski
and terminated all of the prior funding agreements between the Company and Dr. Burzynski.
Pursuant to the Research Funding Agreement:
·
The Company agreed to undertake all
scientific research in connection with the development of new or improved Antineoplastons
for the treatment of cancer and other diseases. The Company will hire such
personnel as is required to fulfill its obligations under the agreement;
·
Dr. Burzynski agreed to fund in its
entirety all basic research which the Company undertakes in connection with the
development of other Antineoplastons or refinements to existing Antineoplastons
for the treatment of cancer and other diseases;
·
Dr. Burzynski agreed to pay the
expenses to conduct the clinical trials for the Company;
·
Dr. Burzynski agreed to provide the
Company such laboratory, research space and office space as the Company needs
at no charge to the Company;
·
The parties agreed that Dr. Burzynski
may fulfill his obligations in part by providing such administrative staff as is
necessary for the Company to manage its business, at no cost to the Company;
·
Dr. Burzynski agreed to pay the full
amount of the monthly and annual budget of expenses for the operation of the
Company, together with such other unanticipated but necessary expenses which
the Company incurs. Payments from Dr. Burzynski to the Company of the
monthly budget shall be made in two equal installments on the first and
fifteenth of each month;
·
In the event the research described in
the agreement results in the approval of any additional patents, Dr. Burzynski
shall own all such patents, but shall license to the Company the patents based
on the same terms, conditions and limitations as provided by the License
Agreement;
·
Dr. Burzynski shall have unlimited
and free access to all equipment which the Company owns, so long as such use is
not in conflict with the Companys use of such equipment, including without
limitation to all equipment used in manufacturing of Antineoplastons used in
the clinical trials;
·
The amounts which Dr. Burzynski is
obligated to pay under the agreement shall be reduced dollar for dollar by the
following:
·
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 (such as the purchase of chemicals, products or equipment
solely necessary to engage in such other research and development activity);
and
19
·
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.
Effective March 1,
2007, the Company entered into a third amendment to the Research Funding
Agreement, whereby the Company and Dr. Burzynski extended the term thereof
until February 28, 2008, with an automatic renewal for an additional
one-year term, unless one party notifies the other party at least thirty days
prior to the expiration of the term of the agreement of its intention not to
renew the agreement. In addition to the
foregoing termination provisions, the 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. Subject to the foregoing, the term of the Research
Funding Agreement has renewed and extended until February 28, 2009.
Royalty
Agreement
The Company and Dr. Burzynski
entered into the Royalty Agreement, pursuant to which Dr. Burzynski agreed
to act as the principal clinical investigator of the clinical trials necessary
for obtaining FDA approval for interstate marketing of Antineoplastons. The
Company and Dr. Burzynski agreed that in the event the Company receives
FDA approval for interstate marketing and distribution, of which there can be
no assurance, the Company shall pay Dr. Burzynski a royalty of 10% (ten
percent) of the Companys gross income, which royalty shall be paid on all
gross receipts from all future sales, distributions and manufacture of
Antineoplastons.
Pursuant to the
Royalty Agreement, Dr. Burzynski retains the right to either (i) produce
Antineoplaston products for use in his medical practice to treat up to 1,000
patients, at any one time, without paying any fees to the Company or (ii) purchase
from the Company Antineoplaston products to treat up to 1,000 patients, at any
one time, at a price equal to cost plus 10% (ten percent). Dr. Burzynski
has the right to lease or purchase all the manufacturing equipment located at
12707 Trinity Drive, Stafford, Texas at a fair market price. The Royalty
Agreement further provides that the Company will have the right, when and if
Antineoplastons are approved for use and sale by the FDA, (i) to produce
all Antineoplaston products to be sold or distributed in the United States,
Canada and Mexico for the treatment of cancer and (ii) to lease from Dr. Burzynski
the entire premises located at 12707 Trinity Drive, Stafford, Texas at terms
and rates competitive with those available in the real estate market at that time,
provided that Dr. Burzynski does not need the facility for his use.
Sale of
Assets
Certain items of
equipment previously owned by the Company were sold to Dr. Burzynski in September 2005.
Item 2 of Part I of this Form 10-KSB includes a description of such
sale.
Other
Transactions
Since Tadeusz
Burzynskis death on June 13, 1998, the Company has paid his widow, Zofia
Burzynski, $1,000 per month as death benefit payments. Tadeusz Burzynski was
formerly an officer and a director of the Company and the brother of Dr. Burzynski.
EXHIBIT NO.
|
|
EXHIBIT NAME
|
3.1
|
|
Certificate of Incorporation of the Company, as amended (incorporated
by reference from Exhibit 3(i) (iii) to Form 10-SB
filed with the Securities and Exchange Commission on November 25, 1997
(File No. 000-23425)).
|
|
|
|
3.2
|
|
Amended Bylaws of the Company (incorporated by reference from Exhibit (3)(iv) to
Form 10-SB filed with the Securities and Exchange Commission on November 25,
1997 (File No. 000-23425)).
|
20
4.1
|
|
Form of Certificate Representing Common Stock (incorporated by
reference from Exhibit 4.1 to Form 10-KSB filed with the Securities
and Exchange Commission on May 2, 2001 (File No. 000-23425)).
|
|
|
|
10.1
|
|
License Agreement, effective as of June 29, 1983, by and between
the Company and Dr. Stanislaw R. Burzynski (incorporated by reference
from Exhibit 10(1) to Form 10-SB filed with the Securities and
Exchange Commission on November 25, 1997 ( File No. 000-23425)).
|
|
|
|
10.2
|
|
Amended License Agreement, dated April 2, 1984, by and between the
Company and Dr. Stanislaw R. Burzynski (incorporated by referenced from Exhibit 10(2) to
Form 10-SB filed with the Securities and Exchange Commission on November 25,
1997 (File No. 000-23425)).
|
|
|
|
10.3
|
|
Second Amended License Agreement, dated March 1, 1990, by and
between the Company and Dr. Stanislaw R. Burzynski (incorporated by
reference from Exhibit 10(3) to Form 10-SB filed with the
Securities and Exchange Commission on November 25, 1997 (File No. 000-23425)).
|
|
|
|
10.4
|
|
Research Funding Agreement, effective as of March 1, 1997, by and
between the Company and Dr. Stanislaw R. Burzynski (incorporated by
reference from Exhibit 10(4) to Form 10-SB filed with the
Securities and Exchange Commission on November 25, 1997 (File No. 000-23425)).
|
|
|
|
10.5
|
|
First Amendment to Research Funding Agreement, effective as of March 1,
2001, by and between the Company and Dr. Stanislaw R. Burzynski
(incorporated by reference from Exhibit 10.5 to Form 10-KSB filed
with the Securities and Exchange Commission on May 2, 2001 (File No. 000-23425)).
|
|
|
|
10.6
|
|
Second Amendment to the Research Funding Agreement, effective as of February 29,
2004, by and between the Company and Dr. Stanislaw R. Burzynski
(incorporated by reference from Exhibit 10.6 to Form 10-KSB filed
with the Securities and Exchange Commission on June 1, 2004 (File No. 000-23425)).
|
|
|
|
10.7
|
|
Royalty Agreement, dated March 25, 1997, by and between the
Company and Dr. Stanislaw R. Burzynski (incorporated by reference from Exhibit 10(5) to
Form 10-SB filed with the Securities and Exchange Commission on November 25,
1997 (File No. 000-23425)).
|
|
|
|
10.8
|
|
First Amended Royalty Agreement, dated September 29, 1997, by and
between the Company and Dr. Stanislaw R. Burzynski (incorporated by
reference from Exhibit 10(6) to Form 10-SB filed with the
Securities and Exchange Commission on November 25, 1997 (File No. 000-23425)).
|
|
|
|
10.9
|
|
Third Amendment to Research Funding Agreement, effective as of March 1,
2007, by and between the Company and Dr. Stanislaw R. Burzynski (incorporated
by reference from Exhibit 10.9 to Form 10-KSB filed with the Securities and
Exchange Commission on May 29, 2007 (File No. 000-23425)).
|
|
|
|
24
|
|
Power of Attorney (Included with the Signature Page).
|
|
|
|
31.1
|
|
Certification pursuant to Rules 13a-14 and 15d-14 of the
Securities Exchange Act of 1934, as amended, filed herewith (Chief Executive
Officer and Principal Financial Officer).
|
|
|
|
32.1
|
|
Certification furnished pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief
Executive Officer and Principal Financial Officer).
|
21
ITEM 14.
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
The following table sets forth the aggregate fees billed to the Company
by its principal accounting firm, Fitts, Roberts & Co., P.C., for
fiscal years ended February 29, 2008 and February 28, 2007,
respectively:
|
|
2008
|
|
2007
|
|
Audit Fees (1)
|
|
$
|
32,700
|
|
$
|
31,800
|
|
Audit-Related Fees
|
|
$
|
0
|
|
$
|
0
|
|
Tax Fees
|
|
$
|
0
|
|
$
|
0
|
|
All Other Fees
|
|
$
|
0
|
|
$
|
0
|
|
Total
|
|
$
|
32,700
|
|
$
|
31,800
|
|
(1) The
2008 amount includes estimated fees of $16,000 to complete the audit.
Audit Fees
were for professional services rendered for the audit
of BRIs consolidated financial statements and review of the interim
consolidated financial statements included in quarterly reports and services
that are normally provided by Fitts,
Roberts & Co., P.C. in connection with statutory and regulatory
filings or engagements.
Audit-Related Fees
are for assurance and related services that are
reasonably related to the performance of the audit or review of BRIs
consolidated financial statements and are not reported under Audit Fees. There were no Audit-Related Fees incurred in
fiscal years 2008 or 2007.
Tax Fees
were for professional services for federal and state
tax compliance, tax advice and tax planning.
There were no Tax Fees incurred in fiscal years 2008 or 2007.
All Other Fees
were for services other than the services reported
above. There were no Other Fees incurred
in fiscal years 2008 or 2007.
Audit Committees Pre-Approval Policies and
Procedures
. As disclosed above in Item 9, the Company
does not have an Audit Committee. The
Board of Directors has not adopted any pre-approval policies or procedures.
22
SIGNATURES
In accordance with Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
BURZYNSKI RESEARCH INSTITUTE, INC.
|
|
|
|
By:
|
/s/ Stanislaw R. Burzynski
|
|
|
Stanislaw R. Burzynski, President,
|
|
|
Secretary, Treasurer and Chairman of the
|
|
|
Board of Directors
|
Date: May 28, 2008
23
Each person whose
signature appears below constitutes and appoints Dr. Stanislaw R.
Burzynski his/her true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, severally, for him/her in his/her name,
place and stead, in any and all capacities, to sign any and all amendments to
this report, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he/she might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue
hereof.
Pursuant to the
requirements of the Securities Act of 1934, this report has been signed below
by the following persons in the capacities and on the dates indicated.
/s/ Stanislaw R. Burzynski
|
|
|
Stanislaw R. Burzynski
|
|
Date: May 28, 2008
|
President, Secretary, Treasurer and
|
|
|
Chairman of the Board of Directors
|
|
|
|
|
|
/s/ Barbara Burzynski
|
|
|
Barbara Burzynski
|
|
Date: May 28, 2008
|
Director
|
|
|
|
|
|
/s/ Michael H. Driscoll
|
|
|
Michael H. Driscoll
|
|
Date: May 28, 2008
|
Director
|
|
|
|
|
|
/s/ Carlton Hazlewood
|
|
|
Carlton Hazlewood
|
|
Date: May 28, 2008
|
Director
|
|
|
24
Burzynski Research Institute, Inc.
Financial Statements
For the years ended
February 29, 2008 and February 28, 2007
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors
and Stockholders
of Burzynski Research Institute, Inc.
We have audited the accompanying balance sheets of Burzynski Research
Institute, Inc. as of February 29, 2008 and February 28, 2007,
and the related statements of operations, stockholders deficit, and cash flows
for the years then ended. These
financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. 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
financial statements referred to above present fairly, in all material
respects, the financial position of Burzynski Research Institute, Inc. as
of February 29, 2008 and February 28, 2007 and the results of their
operations and their cash flows for the years then ended, in conformity with
U.S. generally accepted accounting principles.
We were not engaged to examine managements assertion
about the effectiveness of Burzynski Research Institute, Inc.s internal
control over financial reporting as of February 29, 2008 included as Item
8A in the accompanying 10-KSB, and accordingly, we do not express an opinion
thereon.
/s/ Fitts, Roberts & Co., P.C.
May 28, 2008
Houston, Texas
F-3
BURZYNSKI RESEARCH INSTITUTE, INC.
BALANCE
SHEETS
February 29,
2008 and February 28, 2007
|
|
2008
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (Note 1)
|
|
$
|
3,161
|
|
$
|
10,650
|
|
|
|
|
|
|
|
Total current assets
|
|
3,161
|
|
10,650
|
|
|
|
|
|
|
|
Property and equipment, net of accumulated
depreciation (Notes 1 and 3)
|
|
7,150
|
|
2,276
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
10,311
|
|
$
|
12,926
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
33,430
|
|
$
|
44,224
|
|
Accrued liabilities
|
|
35,127
|
|
21,878
|
|
|
|
|
|
|
|
Total current liabilities
|
|
68,557
|
|
66,102
|
|
|
|
|
|
|
|
Total liabilities
|
|
68,557
|
|
66,102
|
|
|
|
|
|
|
|
Commitments,
contingencies and related parties (Notes 2, 5 and 8)
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders deficit
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value; 200,000,000 shares
authorized, 131,388,444 shares issued and outstanding
|
|
131,389
|
|
131,389
|
|
Additional paid-in capital
|
|
79,264,295
|
|
74,747,268
|
|
Discount on common stock
|
|
(100
|
)
|
(100
|
)
|
Retained deficit
|
|
(79,453,830
|
)
|
(74,931,733
|
)
|
|
|
|
|
|
|
Total stockholders deficit
|
|
(58,246
|
)
|
(53,176
|
)
|
|
|
|
|
|
|
Total liabilities and stockholders deficit
|
|
$
|
10,311
|
|
$
|
12,926
|
|
The accompanying notes are an integral part of these
financial statements.
F-4
BURZYNSKI RESEARCH INSTITUTE, INC.
STATEMENTS
OF OPERATIONS
For the
Years Ended February 29, 2008 and February 28, 2007
|
|
2008
|
|
2007
|
|
Operating expenses
|
|
|
|
|
|
Research and development (Notes 1 and 2)
|
|
$
|
4,365,074
|
|
$
|
4,132,689
|
|
General and administrative
|
|
155,059
|
|
168,673
|
|
Depreciation (Notes 1 and 3)
|
|
1,964
|
|
1,344
|
|
|
|
|
|
|
|
Total operating expenses
|
|
4,522,097
|
|
4,302,706
|
|
|
|
|
|
|
|
Net loss before provision for taxes
|
|
(4,522,097
|
)
|
(4,302,706
|
)
|
|
|
|
|
|
|
Provision for income
tax (Notes 1 and 6)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,522,097
|
)
|
$
|
(4,302,706
|
)
|
|
|
|
|
|
|
Earnings per share
information:
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
|
Loss per common share
|
|
$
|
(0.03
|
)
|
$
|
(0.03
|
)
|
The accompanying notes are an integral part of these
financial statements.
F-5
BURZYNSKI
RESEARCH INSTITUTE, INC.
STATEMENT
OF STOCKHOLDERS DEFICIT
For
the Years Ended February 29, 2008 and February 28, 2007
|
|
Common
Stock
|
|
Additional
Paid-in
Capital
|
|
Discount on
Common
Stock
|
|
Retained
Deficit
|
|
Balance
February 28, 2006
|
|
$
|
131,389
|
|
$
|
70,469,459
|
|
$
|
(100
|
)
|
$
|
(70,629,027
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash contributed by S.R. Burzynski M.D., Ph.D.
|
|
|
|
597,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FDA clinical trial expenses paid directly by S.R.
Burzynski M.D., Ph. D.
|
|
|
|
3,680,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
(4,302,706
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance
February 28, 2007
|
|
131,389
|
|
74,747,268
|
|
(100
|
)
|
(74,931,733
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash contributed by S.R. Burzynski M.D., Ph.D.
|
|
|
|
368,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FDA clinical trial expenses paid directly by S.R.
Burzynski M.D., Ph. D.
|
|
|
|
4,149,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
(4,522,097
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance
February 29, 2008
|
|
$
|
131,389
|
|
$
|
79,264,295
|
|
$
|
(100
|
)
|
$
|
(79,453,830
|
)
|
The accompanying notes are an integral part of these financial
statements.
F-6
BURZYNSKI RESEARCH INSTITUTE, INC.
STATEMENTS
OF CASH FLOWS
For the
Years Ended February 29, 2008 and February 28, 2007
|
|
2008
|
|
2007
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES
|
|
|
|
|
|
Net loss
|
|
$
|
(4,522,097
|
)
|
$
|
(4,302,706
|
)
|
Adjustments to reconcile net loss to net cash used
by operating activities:
|
|
|
|
|
|
Depreciation
|
|
1,964
|
|
1,344
|
|
FDA clinical trial expenses paid directly by S.R.
Burzynski M.D., Ph. D.
|
|
4,149,027
|
|
3,680,809
|
|
Increase (decrease) in
|
|
|
|
|
|
Accounts payable
|
|
(10,794
|
)
|
30,178
|
|
Accrued liabilities
|
|
13,249
|
|
(13,772
|
)
|
|
|
|
|
|
|
NET CASH (USED) IN OPERATING ACTIVITIES
|
|
(368,651
|
)
|
(604,147
|
)
|
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES
|
|
|
|
|
|
Purchase of property and equipment
|
|
(6,838
|
)
|
|
|
|
|
|
|
|
|
NET CASH (USED) BY INVESTING ACTIVITIES
|
|
(6,838
|
)
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES
|
|
|
|
|
|
Additional paid-in capital
|
|
368,000
|
|
597,000
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
368,000
|
|
597,000
|
|
|
|
|
|
|
|
NET (DECREASE) IN CASH
|
|
(7,489
|
)
|
(7,147
|
)
|
|
|
|
|
|
|
CASH AT BEGINNING OF
YEAR
|
|
10,650
|
|
17,797
|
|
|
|
|
|
|
|
CASH AT END OF YEAR
|
|
$
|
3,161
|
|
$
|
10,650
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW
DISCLOSURES:
|
|
|
|
|
|
Cash Paid During the Year For:
|
|
|
|
|
|
Interest
|
|
$
|
101,422
|
|
$
|
85,984
|
|
The accompanying notes are an integral part of these
financial statements.
F-7
BURZYNSKI RESEARCH INSTITUTE, INC.
NOTES
TO FINANCIAL STATEMENTS
1.
Background, Basis of
Presentation, Economic Dependency and Significant Accounting Policies:
Background
and Basis of Presentation
The financial statements
of Burzynski Research Institute, Inc. (BRI or the Company), a Delaware
corporation, include expenses incurred related to clinical trials, which were
sanctioned by the U.S. Food and Drug Administration (FDA) in 1993, for
antineoplaston drugs used in the treatment of cancer. These expenses incurred directly by S.R.
Burzynski, M.D., Ph.D. (Dr. Burzynski) have been reported as research and
development costs and as additional paid-in capital. Other funds received from Dr. Burzynski
have also been reported as additional paid-in capital. Expenses related to Dr. Burzynskis
medical practice (unrelated to the clinical trials) have not been included in
these financial statements. Dr. Burzynski
is the President, Chairman of the Board and owner of over 80% of the
outstanding stock of Burzynski Research Institute, Inc., and also is the
inventor and original patent holder of certain drug products knows as antineoplastons,
which he has licensed to the Company.
The Company and Dr. Burzynski
have entered various agreements, as further described in Note 2, which provide
the Company the exclusive right in the United States, Canada and Mexico to use,
manufacture, develop, sell, distribute, sublicense and otherwise exploit all
the rights, titles and interest in antineoplaston drugs used in the treatment
of cancer, once the drug is approved for sale by the FDA.
BRIs administrative
offices are located in Houston, Texas; its research and production facilities
are in Stafford, Texas. The Company operates primarily as a research and
development facility of antineoplaston drugs currently being tested for the use
in the treatment of cancer, and provides consulting services. Segment information is not presented since
all of the Companys operations are attributed to a single reportable
segment. The Company has had no
significant revenue from external sources.
BRI is currently conducting clinical trials on various antineoplastons
in accordance with FDA regulations, however, at this time none of the
antineoplaston drugs have received FDA approval; further, there can be no
assurance FDA approval will be granted.
Economic Dependency
BRI has generated no significant revenues since its inception. As of February 29, 2008, the Company had
a working capital deficit of approximately $65,000 and accumulated deficit of
approximately $79,000,000. For the years
ended February 29, 2008 and February 28, 2007 the Company incurred
losses of approximately $4,522,000 and $4,303,000, respectively.
F-8
BURZYNSKI RESEARCH INSTITUTE, INC.
NOTES
TO FINANCIAL STATEMENTS - continued
1.
Background, Basis of
Presentation, Economic Dependency and Significant Accounting Policies:
(continued)
Dr. Burzynski has
funded the capital and operational needs of the Company since its inception
from revenues generated through his medical practice pursuant to various
agreements as described in Note 2.
BRI is
economically dependent on its funding from Dr. Burzynski through his
medical practice. Management estimates
that approximately one-tenth of Dr. Burzynskis patients are admitted and
treated as part of the clinical trial programs which the FDA regulates. 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
managements 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. Burzynskis medical practice directly
affect his ability to fund the operations of BRI.
It is
the intention of the directors and management to seek additional capital
through the sale of securities. The
proceeds from such sales will be used to fund BRIs operating deficit until it
achieves positive operating cash flow.
However, there can be no assurance that the Company will be able to
raise such additional capital.
Significant Accounting Policies
Cash
and Cash Equivalents
The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
Property
and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets, which range
from 5 to 10 years. Expenditures for
major renewals and betterments that extend the useful lives of property and
equipment are capitalized; maintenance and repairs are charged against earnings
as incurred. Upon disposal of assets,
the related cost and accumulated depreciation are removed from the accounts and
any resulting gain or loss is recognized currently.
F-9
BURZYNSKI
RESEARCH INSTITUTE, INC.
NOTES
TO FINANCIAL STATEMENTS - continued
1.
Background, Basis of
Presentation, Economic Dependency and Significant Accounting Policies:
(continued)
Income
Taxes
The Company uses the liability method of accounting for income taxes,
under which deferred income taxes are recognized for the tax consequences of
temporary differences by applying the enacted statutory tax rate applicable to
future years to differences between financial statement carrying amounts and
the tax basis of existing assets and liabilities. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be
realized. Income tax expense is the tax
payable or refundable for the period plus or minus the change during the period
in deferred tax assets and liabilities.
The costs incurred related to the conduct of FDA approved clinical
trials incurred directly by Dr. Burzynski within his medical practice are
taxed directly to Dr. Burzynski and are not included in the Companys tax
provision. The portion of the Texas
franchise tax that is based on income is treated as income taxes and included
in the income tax provision.
Loss Per Common
Share
Basic
and diluted loss per common share information for all periods is presented
under the requirements of FASB Statement No. 128, Earnings per share. Basic loss per common share has been computed
using the weighted average number of common shares outstanding during the
period. Potentially dilutive securities
have been excluded from the computation of diluted loss per common share, as
their inclusion would be antidilutive.
Management
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect reported amounts of assets and liabilities at the dates of the
financial statements and the reported amounts of revenues and expenses during
the reported periods. The significant
estimates are the allocation of payroll and other expenses between the clinical
trial expenses reported with Burzynski Research Institute, Inc. expenses
and Dr. Burzynskis medical practice expenses. Department managers review at least quarterly
the duties of each employee in their department and estimate the percentage of
time each employee spends between clinical trials and the medical
practice. Payroll costs are allocated
between clinical trials and the medical practice based on these
percentages. Other expenses are
allocated based on the percentage of payroll allocated to either clinical
trials or the medical practice.
Management believes that the estimates and allocations are
reasonable. Actual results could differ
from these estimates.
F-10
BURZYNSKI
RESEARCH INSTITUTE, INC.
NOTES
TO FINANCIAL STATEMENTS - continued
1.
Background, Basis of
Presentation, Economic Dependency and Significant Accounting Policies:
(continued)
Stock Options
Effective
March 1, 2006, the company adopted the fair value recognition provisions
of FASB Statement No. 123(R),
Share-Based Payment,
using the modified-prospective-transition method. Under that transition method, compensation
cost recognized after March 1, 2006 includes: (a) compensation cost
for all share-based payments granted prior to , but not yet vested as of March 1,
2006, based on the grant date fair value estimated in accordance with the
original provisions of Statement 123, and (b) compensation cost for all
share-based payments granted subsequent to March 1, 2006, based on the
grant-date fair value estimated in accordance with the provisions of Statement
123(R). Results for prior periods have
not been restated.
The
company did not grant any options and no options previously granted vested in
any of the periods presented in these financial statements. Due to this fact there was no effect on net
income and earnings per share regarding the provisions of Statement 123(R) in
any of the periods presented.
Research and Development
Research and development cost are charged to operations in the period
incurred. Equipment used in research and
development activities, which have alternative uses, is capitalized.
Fair Value of Financial Instruments
The
carrying value of cash, receivables and accounts payables approximates fair
value due to the short maturity of these instruments. None of the financial instruments are held
for trading purposes.
F-11
BURZYNSKI RESEARCH
INSTITUTE, INC.
NOTES TO FINANCIAL STATEMENTS - continued
2. Agreements With, and Other Related
Party Transactions:
The Company has
agreements with its majority shareholder and President Dr. Burzynski as
further described below:
License Agreement
Dr. Burzynski is the
owner of patents involving the formulation, preparation, manufacture,
production, use, dosage and treatment with antineoplastons. The United States Patent Office and Patent
Offices and Patent Officers of thirty-four other countries have issued the
patents. The Patents for cancer
treatment and diagnosis in the United States and Canada are licensed to the
Company pursuant to a License Agreement.
The License Agreement
grants to the Company the exclusive right, in the United States, Canada, and
Mexico, to use, manufacture, develop, sell, distribute, sub-license and
otherwise exploit all of Dr. Burzynskis rights, title, and interests,
including patent rights, in antineoplaston drugs in the treatment and diagnosis
of cancer. The Company will not be able
to exploit such rights until such time as antineoplastons are approved, of which
there can be no assurance, by the FDA for sale in the United States and the
appropriate authority in Canada and Mexico.
The Agreement gives Dr. Burzynski
the right to distribute, use and otherwise exploit antineoplastons in
connection with treatment of patients in his medical practice until such time
as the FDA approves them for sale.
The License Agreement
will terminate upon the earlier of the expiration of the last patent licensed
to the Company, or termination by Dr. Burzynski, at his option, if he is
removed as a director or officer of the Company without his consent, if the
Company files for bankruptcy or if any shareholder or group of shareholders
acting in concert becomes the beneficial owner of the Companys securities
having voting power equal to or greater than the voting power of the securities
Dr. Burzynski holds.
Under the License
Agreement, the Company currently owns exclusive rights to eight (8) issued
United States Patents, three (3) issued Canadian Patents and one (1) issued
Mexican Patent. The Company has one
patent application pending in Canada.
F-12
BURZYNSKI
RESEARCH INSTITUTE, INC.
NOTES
TO FINANCIAL STATEMENTS continued
2. Agreements With, and Other Related
Party Transactions: (continued)
The five initial United States Patents (the Initial Patents) relate
to: (i) Determination of Antineoplastons in body tissue or fluids as a
testing procedure to aid in the diagnosis of cancer; (ii) Processes for
the preparation of purified fractions of Antineoplastons from human urine; (iii) Processes
for the synthetic production of Antineoplastons and methods of treating
neoplastic disease (cancer); (iv) Administration of Antineoplastons to
humans; and (v) Methods of synthesizing A-10. All but one of these Initial Patents have expired
as of February 29, 2008, the one remaining expires January 11, 2009.
The Company does not believe the expiration of any of the Initial Patents will
have a material adverse effect on the Company.
The sixth United States Patent (the 2000 U.S. Patent)
covers Liposomal Antineoplaston therapies with markedly improved anti-cancer
activity. The 2000 U.S. Patent expires May 14,
2017.
The seventh United States Patent (the 2001 U.S.
Patent) is for a treatment regimen for the administration of phenylacetylglutamine,
phenylacetylisoglutamine, and/or phenylacetate.
The 2001 U.S. Patent expires on July 23, 2018.
The eighth United States Patent (the 2005 U.S. Patent)
relates to a divisional application to the 2001 U.S. Patent. The 2005 U.S. Patent was issued in September 2005
and will expire July 2018.
F-13
BURZYNSKI RESEARCH INSTITUTE, INC.
NOTES TO FINANCIAL
STATEMENTS continued
2. Agreements With, and Other Related
Party Transactions: (continued)
The three Canadian Patents (the Canadian
Patents) relate to: (i) Processes for the preparation of purified
fractions of Antineoplastons from human urine, (ii) Processes for the
synthetic production of Antineoplastons and methods of treating neoplastic
disease (cancer) and (iii) Liposomal Formulation of Antineoplastons. The Canadian Patents expired or will expire
on November 14, 2006, June 4, 2002 and May 14, 2017,
respectively; however, the Company does not believe the Canadian Patents that
expired in 2002 or in 2006 will have a material adverse effect on the Company.
The Mexican Patent relates to a treatment regimen for
the administration of phenylacetylglutamine.
This patent will expire January 14, 2019.
The pending patent application in Canada relates to a
treatment regimen for the administration of phenylacetylglutamine. Should this patent be granted, of which there
can be no assurance, it would expire in the year 2019.
Research Funding Agreement
Effective March 1, 1997, Dr. Burzynski restructured his
funding arrangement with the Company and entered into a Research Funding
Agreement. Under this agreement the two
parties agreed to the following:
1.
BRI agrees to undertake all scientific
research in connection with the development of new or improved antineoplastons
for the treatment of cancer. BRI will
hire such personnel as is required to fulfill its obligations under the
agreement.
2.
Dr. Burzynski agrees to fund in its
entirety all basic research, which BRI undertakes in connection with the development
of other antineoplastons or refinements to existing antineoplastons for the
treatment of cancer.
3.
As FDA approval of antineoplastons will
benefit both parties, Dr. Burzynski agrees to pay the expenses to conduct
the clinical trials for BRI.
4.
Dr. Burzynski agrees to provide BRI
such laboratory and research space as BRI needs at the Trinity Drive facility
in Stafford, Texas, and such office space as is necessary at Trinity Drive and
at his medical facility.
F-14
BURZYNSKI RESEARCH INSTITUTE, INC.
NOTES TO FINANCIAL STATEMENTS continued
2.
Agreements With, and
Other Related Party Transactions: (continued)
5.
In the event the research described in
the agreement results in the approval of any additional patents for the
treatment of cancer, Dr. Burzynski shall own all such patents, but shall
license to BRI the patents based on the same terms, conditions and limitations
as is in the current license between the parties.
6.
Dr. Burzynski shall have unlimited
and free access to all equipment which BRI owns, so long as such use is not in
conflict with BRIs use of such equipment, including without limitation to all
equipment used in manufacturing of antineoplastons used in the clinical trials.
7.
The amounts, which Dr. Burzynski is
obligated to pay under the agreement, shall be reduced dollar for dollar by the
following:
a.
Any income which BRI 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 (such as the purchase of chemicals, products or equipment
solely necessary to engage in such other research and development activity).
b.
The net proceeds of any stock offering or
private placement, which BRI receives during the term of the engagement up to a
maximum of $1,000,000 in a given BRI fiscal year.
8.
Effective March 1,
2007, the term of the Research Funding Agreement was extended to February 29,
2008, and is automatically renewable for an additional one-year term
thereafter, unless one party notifies the other party at least thirty days
prior to the expiration of the term of the agreement of its intention not to
renew the agreement. In addition to the
foregoing termination provisions, the 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.
F-15
BURZYNSKI RESEARCH
INSTITUTE, INC.
NOTES
TO FINANCIAL STATEMENTS - continued
2.
Agreements With, and
Other Related Party Transactions: (continued)
Royalty Agreement
The Company entered into a royalty agreement with Dr. Burzynski
whereby upon receiving FDA approval for interstate marketing and distribution,
the Company agrees to pay Dr. Burzynski a royalty interest equivalent to
10% of the Companys gross income, which royalty interest shall include gross
receipts from all future sales, distributions and manufacture of
antineoplastons. Dr. Burzynski will
have the right to either produce antineoplaston products for use in his medical
practice to treat up to 1,000 patients without paying any fees to the Company,
or purchase from the Company antineoplaston products for use in his medical
practice to treat up to 1,000 patients at a price of the Companys cost to
produce the antineoplaston products plus 10%.
Dr. Burzynski will also have the right to either lease or purchase
all the manufacturing equipment located at 12707 Trinity Drive, Stafford, Texas
at a fair market price. The Company will
also have the right to lease from Dr. Burzynski the entire premise located
at 12707 Trinity Drive, Stafford, Texas at arms-length terms at rates
competitive with those available in the market at that time, provided that Dr. Burzynski
does not need the facility for his use.
The term of this agreement is indefinite and will continue until such
time as both parties agree it is not in their mutual interest to continue.
Other Related Party Transactions
Since Tadeusz Burzynskis death on June 13, 1998, the Company has
paid his widow $1,000 per month as death benefit payments. Tadeusz Burzynski was formerly an officer and
a director of the Company and the brother of Dr. Burzynski.
Dr. Burzynski owns the production facility located at Trinity
Drive. There is no formal lease
agreement between Dr. Burzynski and BRI; however, the Research Funding
Agreement described above provides that Dr. Burzynski will allow the
Company the use of the building. In
addition, the Royalty Agreement states that after FDA approval is granted
(though approval is not assured) the Company may rent the facility at
competitive rates if Dr. Burzynski does not need the facility for his
use. The actual facility costs are
included in the financial statements as set forth in note 5. In addition, Dr. Burzynskis medical
clinic performs certain administrative functions such as accounting, and allows
BRI the use of some office space at no charge to the Company. Since May of 2000, Dr. Burzynskis
entire salary is paid through his medical practice and he is not compensated by
BRI for his services.
F-16
BURZYNSKI RESEARCH
INSTITUTE, INC.
NOTES
TO FINANCIAL STATEMENTS - continued
2.
Agreements With, and
Other Related Party Transactions: (continued)
The Company has received all significant funding from Dr. Burzynski
through either cash contributed to BRI or the payment of the cost to conduct
FDA approved clinical trials through his medical practice, as disclosed in Note
1. Following is a summary of the capital
contributed and clinical trial costs paid by Dr. Burzynski.
|
|
2008
|
|
2007
|
|
Capital contributed
|
|
$
|
368,000
|
|
$
|
597,000
|
|
Clinical trial costs
paid direct
|
|
$
|
4,149,027
|
|
$
|
3,680,809
|
|
3.
Property and Equipment:
Property and equipment consists of the following as of
February 29
th
and February 28
th
:
|
|
Estimated
|
|
|
|
|
|
|
|
Useful Lives
|
|
2008
|
|
2007
|
|
Furniture and equipment
|
|
5 - 10 years
|
|
$
|
22,415
|
|
$
|
15,577
|
|
Total property and
equipment
|
|
|
|
22,415
|
|
15,577
|
|
Accumulated
depreciation
|
|
|
|
(15,265
|
)
|
(13,301
|
)
|
|
|
|
|
$
|
7,150
|
|
$
|
2,276
|
|
Depreciation
expense for the years ended February 29, 2008, and February 28, 2007
was $1,964 and $1,344, respectively.
4.
Employee Benefits:
The Company has a self-funded employee benefit plan
providing health care benefits for all its employees. It also provides for them
group dental insurance, short-term and long-term disability insurance, and life
insurance. Employees pay pre-tax
premiums from $40 to $400 per month depending upon the insurance coverage
selected by the employee. Employees can
select from two coverage plans, which have a $200 or $300 deductible, varying
out-of-pocket maximums, and a maximum lifetime benefit of $1,000,000 per
covered participant.
F-17
BURZYNSKI
RESEARCH INSTITUTE, INC.
NOTES
TO FINANCIAL STATEMENTS - continued
4.
Employee Benefits:
(continued)
Due to stop-loss insurance, benefits payable by the
Company are limited to $25,000 per person during the policy year. The Company charged to operations a provision
of $274,899 for 2008 and $221,294 for
2007, which represents the sum of actual claims paid and an estimate of
liabilities relating to claims, both asserted and unasserted, resulting from
incidents that occurred during the year.
These amounts include costs related to employees of the medical clinic
that have been allocated to the Company.
The Company has a qualified 401(k) plan which
covers substantially all employees meeting certain eligibility
requirements. Participants may
contribute a portion of their compensation to the plan, up to the maximum
amount permitted under Section 401(k) of the Internal Revenue
Code. At the Companys discretion, it
can match a portion of the participants contributions. The Companys matching contribution was $346
and $560 for the years ended February 29, 2008 and February 28, 2007,
respectively.
5.
Lease commitments:
Dr. Burzynski leases certain equipment used in
the clinical trials under leases maturing in one to four years. Rent expense incurred under these leases was
approximately $59,645 and $71,354 for the years ended February 29, 2008,
and February 28, 2007, respectively.
Future minimum lease payments are as follows:
|
|
2008
|
|
$
|
82,064
|
|
|
|
2009
|
|
77,040
|
|
|
|
2010
|
|
77,040
|
|
|
|
2011
|
|
32,100
|
|
|
|
|
|
$
|
268,244
|
|
In addition, as explained in Note 2, Dr. Burzynski owns the
facility used by the Company to perform research and produce its drug
products. There is currently no lease
agreement; however, the facilitys costs are included in the accompanying financial
statements. Those costs include not only
utilities and expenses normally incurred by a tenant but also mortgage
interest, insurance, property taxes and building depreciation. Interest, insurance, property taxes and
building depreciation totaled $194,219 and $194,452 for 2008 and 2007,
respectively.
F-18
BURZYNSKI
RESEARCH INSTITUTE, INC.
NOTES
TO FINANCIAL STATEMENTS - continued
6.
Income Taxes:
The costs incurred related to the conduct of FDA approved
clinical trials incurred directly by Dr. Burzynski within his medical
practice are deducted by Dr. Burzynski and are not included in the Companys
tax provision.
The actual income tax benefit attributable to the Companys losses for
the years ended February 29, 2008 and February, 28, 2007 differ from the
amounts computed by applying the U.S. federal income tax rate of 34% to the
pretax loss as a result of the following:
|
|
2008
|
|
2007
|
|
Expected benefit
|
|
$
|
(1,537,513
|
)
|
$
|
(1,462,920
|
)
|
Taxed directly to Dr. Burzynski
|
|
1,537,513
|
|
1,462,920
|
|
Other adjustments
|
|
1,717
|
|
8,465
|
|
Change in valuation allowance
|
|
(1,717
|
)
|
(8,465
|
)
|
Texas franchise tax, based on income
|
|
|
|
|
|
Income tax expense
|
|
$
|
|
|
$
|
|
|
The components of the Companys deferred income tax
assets as of February 29, 2008 and February 28, 2007 are as follows:
|
|
2008
|
|
2007
|
|
Deferred tax assets:
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
407,614
|
|
$
|
407,368
|
|
Excess book (tax) depreciation
|
|
(397
|
)
|
(638
|
)
|
Accrued expenses
|
|
4,483
|
|
3,253
|
|
Alternative minimum tax credit carryforwards
|
|
42,603
|
|
42,603
|
|
Total deferred tax assets
|
|
454,303
|
|
452,586
|
|
Less valuation allowance
|
|
(454,303
|
)
|
(452,586
|
)
|
Net deferred tax assets
|
|
$
|
|
|
$
|
|
|
F-19
BURZYNSKI RESEARCH
INSTITUTE, INC.
NOTES
TO FINANCIAL STATEMENTS - continued
6.
Income Taxes: (continued)
The Companys ability to utilize net operating loss
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 valuation allowance for the
total deferred tax assets has been provided.
The Company has net operating loss carryforwards
available to offset future income in the amount of $1,198,864 as of February 29,
2008. The net operating loss
carryforwards expire as follows:
Year ending
February 28, or 29,
|
|
|
|
2013
|
|
$
|
303,069
|
|
2016
|
|
$
|
11,818
|
|
2017
|
|
$
|
511,871
|
|
2018
|
|
$
|
50,786
|
|
2020
|
|
$
|
49,976
|
|
2021
|
|
$
|
24,117
|
|
2022
|
|
$
|
19,315
|
|
2023
|
|
$
|
75,450
|
|
2024
|
|
$
|
59,706
|
|
2025
|
|
$
|
13,732
|
|
2026
|
|
$
|
47,083
|
|
2027
|
|
$
|
31,219
|
|
2028
|
|
$
|
722
|
|
In addition, the Company has alternative minimum tax
credit carryforwards of $42,603.
7.
Stock Options:
On September 14, 1996 the Company granted 600,000 stock options,
with an exercise price of $.35 per share, to an officer who is no longer with
the Company. The options vested as
follows:
400,000 options
|
|
September 14, 1996
|
|
100,000 options
|
|
June 1, 1997
|
|
100,000 options
|
|
June 1, 1998
|
|
F-20
BURZYNSKI
RESEARCH INSTITUTE, INC.
NOTES
TO FINANCIAL STATEMENTS - continued
7.
Stock Options:
(continued)
The options are valid in perpetuity. In addition, for a period of 10 years from
the grant date, they increase in the same percentage of any new shares of stock
issued; however, no additional shares have been issued since September 14,
1996. None of the options have been
exercised as of February 29, 2008.
8.
Commitments and
Contingencies and Supply Source:
As described in Note 2, the Company entered a Royalty Agreement with Dr. Burzynski. Under that agreement, upon FDA approval, the
Company is obligated to provide Dr. Burzynski the right to produce
antineoplaston products to treat up to 1,000 patients without paying any fees
to the Company or the right to purchase antineoplaston products to treat up to
1,000 patients at cost plus 10%.
The Company produced antineoplaston products to treat approximately 85
to 100 patients during the years ended February 29, 2008 and February 28,
2007. Management estimates the current
production facilities have the capacity to produce product to treat
approximately 1,500 patients. There is
space available at the current site to expand the facility for increased
capacity if necessary.
The Company received approximately forty-nine percent, fifteen percent
and eleven percent of the chemicals used in producing antineoplastons from
suppliers A, B, and C, respectively during the year ended February 29,
2008 and twenty-four percent and nineteen percent from suppliers D and C,
respectively during the year ended February 28, 2007. The Company has established additional
vendors to supply these chemicals.
F-21
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