**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM10-KSB**

**(MarkOne)**

**ANNUALREPORT UNDER SECTION 13 OR 15(d)****OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the fiscal year ended February 28, 2007**

**TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d)****OF THE SECURITIES EXCHANGE ACT OF 1934**

**For thetransition period from                 to                 **

**Commission file number 000-23425**

**BURZYNSKIRESEARCH INSTITUTE, INC.**

(Name of small businessissuer 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)           |
|                                                            |
| Issuer’s 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 theExchange Act during the past 12 months (or for such shorter period that theregistrant was required to file such reports) and (2) has been subject tosuch filing requirements for the past 90 days. Yes x  No o

Check if there is nodisclosure of delinquent filers in response to Item 405 of Regulation S-Bcontained herein, and no disclosure will be contained, to the best ofRegistrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-KSB or any amendmentto this Form 10-KSB.  x

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).Yes o No x

State issuer’s revenues forits most recent fiscal year:  $0.

As of May 10, 2007131,388,444 shares of the Registrant’s Common Stock were outstanding, and theaggregate market value of the Common Stock held by non-affiliates wasapproximately $2,925,000 based on the last reported sales price on May 10,2007.

**DOCUMENTSINCORPORATED BY REFERENCE**

Documents incorporated by reference:  None.

TransitionalSmall Business Disclosure Format (Check One): Yes o;  No. x

 

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**BURZYNSKI RESEARCH INSTITUTE, INC.**

**FORM 10-KSB**

**FISCAL YEAR ENDED FEBRUARY 28, 2007**

**TABLE OF CONTENTS**
| **PART I**                                                                                 | ** ** | ** **                                                                                                        |
|--------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------|
|                                                                                       |       |                                                                                                              |   |   |
| ITEM 1.                                                                                    |       | DESCRIPTION OF  BUSINESS                                                                                          |   |   |
| ITEM 2.                                                                                    |       | DESCRIPTION OF  PROPERTY                                                                                          |   |   |
| ITEM 3.                                                                                    |       | LEGAL PROCEEDINGS                                                                                                 |   |   |
| ITEM 4.                                                                                    |       | SUBMISSION OF  MATTERS TO A VOTE OF SECURITY HOLDERS                                                              |   |   |
|                                                                                       |       |                                                                                                              |   |   |
| **PART II**                                                                                | ** ** | ** **                                                                                                        |
|                                                                                       |       |                                                                                                              |   |   |
| ITEM 5.                                                                                    |       | MARKET FOR  COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER  PURCHASES OF EQUITY SECURITIES  |   |   |
| ITEM 6.                                                                                    |       | MANAGEMENT’S  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION                                                   |   |   |
|                                                                                       |       |                                                                                                              |   |   |
| ***Fiscal Year  Ended February 28, 2007 Compared to Fiscal Year Ended February 28, 2006*** | ** ** | ** **                                                                                                        |
|                                                                                       |       |                                                                                                              |   |   |
| ITEM 7.                                                                                    |       | FINANCIAL STATEMENTS                                                                                              |   |   |
| ITEM 8.                                                                                    |       | CHANGES IN AND  DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                             |   |   |
| ITEM 8A.                                                                                   |       | CONTROLS AND  PROCEDURES                                                                                          |   |   |
| ITEM 8B.                                                                                   |       | OTHER INFORMATION                                                                                                 |   |   |
|                                                                                       |       |                                                                                                              |   |   |
| **PART III**                                                                               | ** ** | ** **                                                                                                        |
|                                                                                       |       |                                                                                                              |   |   |
| ITEM 9.                                                                                    |       | DIRECTORS,  EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION  16(a) OF THE EXCHANGE ACT |   |   |
| ITEM 10.                                                                                   |       | EXECUTIVE  COMPENSATION                                                                                           |   |   |
| ITEM 11.                                                                                   |       | SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER  MATTERS                  |   |   |
| ITEM 12.                                                                                   |       | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS                                                                   |   |   |
| ITEM  13.                                                                                  |       | EXHIBITS                                                                                                          |   |   |
| ITEM 14.                                                                                   |       | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                                                           |   |   |
|                                                                                            |            |                                                                                                                   |  |  |  |

 

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**FORWARD LOOKING STATEMENTS**

This report contains forward-looking statements,including statements regarding future financial performance and results andother statements that are not historical facts. Such statements are included in“Description of Business,” “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” and elsewhere in this report. When used inthis report, words such as “may,” “will,” “should,” “could,” “anticipate,” “believe,”“expect,” “estimate,” “intend,” “plan,” “predict,” “potential,” “continue” andsimilar expressions are intended to identify forward-looking statements withinthe meaning of Section 27A of the Securities Act of 1933, as amended, andSection 21E of the Securities Exchange Act of 1934, as amended. Although theCompany believes that the expectations reflected in these forward-lookingstatements are reasonable, there can be no assurance that actual results ordevelopments anticipated by the Company will be realized or, even if realized,that they will have the expected effects on its business or operations. Actualresults could differ materially from those contemplated by the forward-lookingstatements as a result of certain factors beyond the Company’s controlincluding: the ability to develop safe and efficacious drugs, the failure toachieve positive clinical trials, the failure to successfully commercialize ourproducts, competition and technological change and existing and futureregulations affecting our business.

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**PART I**

## **ITEM1.****          DESCRIPTION OFBUSINESS**

**General**

Burzynski Research Institute, Inc. (the “Company”) wasincorporated under the laws of the State of Delaware in 1984 in order to engagein the research, production, marketing, promotion and sale of certain medicalchemical compounds composed of growth-inhibiting peptides, amino acidderivatives and organic acids which are known under the trade name “Antineoplastons.” The Company believes Antineoplastons are useful in the treatment of humancancer and is currently conducting Phase II clinical trials of Antineoplastonsrelating to the treatment of cancer. Antineoplastons have not been approved forsale or use by the Food and Drug Administration of the United States Departmentof Health and Human Services (“FDA”) or anywhere in the world. In the eventAntineoplastons receive such approval and are registered in the United States,Canada, or Mexico, of which there can be no assurance, the Company willcommence 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 adetailed description of this designation and its meaning. The Company currentlyprovides Antineoplastons solely for the use of Stanislaw R. Burzynski, M.D.,Ph.D. (“Dr. Burzynski”) in clinical research.

The Company has not generated any significantoperating revenue since its inception. The Company’s sole source of funding forits operations has been and continues to be payments made by Dr. Burzynski fromfunds generated from Dr. Burzynski’s medical practice pursuant to variousarrangements between the Company and Dr. Burzynski. *See*“*CertainRelationships and Related Transactions*.”  The Company reportsfunds pursuant to such arrangements as additional paid-in capital. *See*“*Management’sDiscussion and Analysis of Financial Condition and Results of Operations*.” The Company does not expect to generate significant operating revenue untilsuch time, if any, as Antineoplastons are approved for use and sale by the FDA.However, the Company may seek additional funding for operations through thesale of its securities.

**Antineoplastons**

Dr. Burzynski commenced his cancer research in 1967focusing on the isolation of various biochemicals produced by the human body aspart of the body’s possible defense against cancer. In the course of hisresearch, Dr. Burzynski identified certain peptides, amino acid derivatives andorganic acids in these biochemicals which appear to inhibit the growth ofcancer cells. These derivatives were given the name “Antineoplastons” by Dr.Burzynski.

Antineoplastons are found in the bodily fluids ofhumans and food and were initially isolated by Dr. Burzynski from normal humanblood and urine. Dr. Burzynski believes these substances counteract thedevelopment of cancerous growth through a biochemical process which does notinhibit the growth of normal tissues. To date, Dr. Burzynski has developed sixformulations of natural Antineoplastons and six synthetic formulations ofAntineoplastons. All of the Phase II clinical trials currently sponsored by theCompany involve the use of four formulations of synthetic Antineoplastons knownas A10 and AS2-1 in capsules and injections. The Company is also conductinglaboratory 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 Company’s Antineoplastons under the Orphan Drug Act of 1983. Inenacting the Orphan Drug Act of 1983, Congress sought to provide incentives topromote the development of drugs for the treatment of rare diseases. A drug maybe considered for orphan drug designation if the drug is intended to treat arare disease or condition affecting fewer than 200,000 people in the UnitedStates or, even if the drug treats a disease affecting more than 200,000 peoplein the United States, the drug is not expected to be profitable from sales inthe United States. Subject to applicable laws and regulations, the firstsponsor to obtain FDA marketing approval for a drug with orphan drugdesignation for the designated disease or condition receives limited marketingexclusivity for seven years; no other sponsor may bring to market the “samedrug” for the treatment of the same disease or condition for a period of sevenyears from the date the application is approved by the FDA. A drug with orphandrug designation must meet the same criteria for safety and efficacy as a

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drug without orphan drug designation. Please see “—GovernmentRegulation” for a complete description of the regulatory approval process withthe FDA and other regulatory agencies.

**Phase II Clinical Trials**

The Company began Phase II clinical studies in 1994with four studies. At that time, a number of patients were also receivingAntineoplastons at Dr. Burzynski’s clinic in Houston, Texas (the “BurzynskiClinic”) outside these clinical trials. On February 23, 1996, the FDA requestedthat all then-current patients of the Burzynski Clinic desiring to continueAntineoplaston treatment be admitted to a Phase II Study, according to ProtocolCAN-1. This action resulted in the formation of six cohorts of patients in theCAN-1 study, with the largest group suffering from primary brain tumors. Newpatients either were admitted to the CAN-1 study or have been admitted to oneof the other studies sponsored by the Company, as appropriate.

The Company currently sponsors 24 ongoing Phase IIclinical trials, which are conducted pursuant to investigational new drugapplications (“INDs”) filed with the FDA and approved by an InstitutionalReview Board (“IRB”) designated according to federal regulations. All clinicaltrials are for the treatment of a wide variety of cancers using only acombination of Antineoplastons A10 and AS2-1. Most of the trials involve the use of intravenous formulations ofAntineoplastons; however, a few trials use oral formulations. Dr. Burzynskiacts as principal investigator for all clinical trials pursuant to a RoyaltyAgreement between the Company and Dr. Burzynski. See “*Certain Relationships and Related Transactions*.” All of the clinical trials are conducted at the Burzynski Clinic. Each trialprovides for the admission of up to 40 patients, except the CAN-1 study, inwhich 133 patients were enrolled, and the BT-34 and BT-35 studies, in which upto 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”), theFDA requires that a drug’s safety and efficacy be demonstrated in “well-controlled”clinical trials. Several types of controls are acceptable to the FDA. One ofthese is a “Historic Control.”  Under a “Historic Control” if the courseof a disease is well-known, the response of patients taking a drug can becompared to a historic group of patients with that disease who have not hadmedical intervention. For example, it is known that the tumors of patients sufferingfrom primary malignant brain tumors (“PMBT”) will continue to grow, eventuallycausing the patient’s death. If a drug is administered to a patient with PMBTand the tumors of the patient disappear or shrink significantly, an assumptionis made that there has been a response to the drug.

All of the Company’s clinical trials, except one,involve the use of Historic Controls. Further, all trials except the CAN-1study are “prospective clinical trials” (“PCT”). A PCT is a clinical trialwherein patients are accrued into and follow the clinical trial protocol fromthe very beginning of the trial. A retrospective trial is a trial in which datafrom patients treated prior to the start of a clinical trial is considered.Results of retrospective trials are, in most instances, not acceptable to theFDA. In addition, there are no clinical trials being conducted that involve “doubleblind” studies and all but one clinical trial involve no randomization intomultiple treatment groups.

The ultimate goal of any treatment for cancer ispatient survival. However, the FDA has determined that requiring exhaustivedata showing improved patient survival may unnecessarily delay the approval ofnew cancer drugs. For that reason, the FDA may grant marketing approval for anew drug product on the basis of adequate and well-controlled clinical trialsestablishing that the drug has an effect on a surrogate endpoint (“Milestone”)that is reasonably likely to predict clinical benefit. Each of the Company’sPhase II trials describes such Milestones which are used to determine successor failure of the treatment employed. In most of the trials, the Milestones areradiographic evidence of tumor shrinkage by X-ray, computer aided tomography ormagnetic resonance imaging. Where appropriate, tumor markers such as ProstateSpecific Antigen, blood counts, or bone marrow biopsy are used in order toassess a tumor’s growth.

Where tumor size is used as the Milestone, eachclinical trial protocol describes a “complete response” as a complete disappearanceof all tumors with no reoccurrence of tumors for at least four weeks. A “partialresponse” is described as at least a 50% reduction in total tumor size, withsuch reduction lasting at least four weeks. An “objective response” isdescribed as either a complete or partial response for protocols AD-02, BL-02,BR-10, BR-14, BT-06, BT-09, BT-10, BT-11, BT-12, BT-13, BT-14, BT-15, BT-17,BT-18, BT-21, BT-22, BT-23, BT-24, BT-35, CO-03, ES-02, LA-04, LY-03, LY-06,LY-09, LY-12, MA-02, NE-02, PA-02, PR-06 and UP-02. “Stable disease” isdescribed as less than 50% reduction in size but no more than 50% increase insize of the tumor mass,

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lasting for at least twelve weeks. An objectiveresponse for protocols BT-07 and BT-20 is described as either complete orpartial response or stable disease. An objective response for protocol BT-34 isno sign of tumor recurrence. An objective response for protocol MM-02 is atleast 75% reduction in the production of serum myeloma protein, at least 95%reduction in myeloma proteins in urine and less than 5% bone marrow myelomacells. “Progressive disease” is described as more than 50% increase in totaltumor mass or occurrence of new tumors.

The protocols of the Company’s clinical trials involvea two-stage design, wherein the first stage proceeds until the Company admitstwenty patients into the trial. After a specified time period, if there arezero responses by the first twenty patients, the trial will be discontinued andthe drug declared to have less than desired activity. If there is at least oneresponse, the trial will be continued until forty patients have been accrued.If the study continues, the following conclusions according to protocols basedon forty patients can be made:  If there are three or fewer responses, thenthere is less than desired activity. If there are four or more responses, thenthere is sufficient evidence to conclude that the Antineoplaston regimen usedshows beneficial activity.

As of May 23, 2007, eleven of the prospective clinicaltrials have reached a Milestone. These are: 

·                  Protocol BT-07, involving the study of AntineoplastonsA10 and AS2-1 in patients with glioblastoma multiforme, not treated withradiation therapy or chemotherapy. This study is already completed.

·                  Protocol BT-09, involving the study of AntineoplastonsA10 and AS2-1 in patients with brain tumors.

·                  Protocol BT-11, involving the study of AntineoplastonsA10 and AS2-1 in patients with brain stem glioma.

·                  Protocol BT-12, involving the study of AntineoplastonsA10 and AS2-1 in children with primitive neuroectodermal tumors (PNET).

·                  Protocol BT-13, involving the study of AntineoplastonsA10 and AS2-1 in children with low grade astrocytoma, a type of PMBT.

·                  Protocol BT-15, involving the study of AntineoplastonsA10 and AS2-1 in adult patients with anaplastic astrocytoma, a type of PMBT.

·                  Protocol BT-18, involving a study of AntineoplastonsA10 and AS2-1 in the treatment of “mixed glioma,” a type of PMBT.

·                  Protocol BT-20, involving the study of AntineoplastonsA10 and AS2-1 in patients with glioblastoma multiforme, which recurred afterstandard radiation and/or chemotherapy. This study is already completed.

·                  Protocol BT-21, involving the study of AntineoplastonsA10 and AS2-1 in adults with primary malignant brain tumors.

·                  Protocol BT-23, involving a study of AntineoplastonsA10 and AS2-1 in children with visual pathway glioma.

·                  Protocol BT-34, involving the study of maintenancetreatment with Antineoplastons A10 and AS2-1 capsules for patients withmalignancies in complete response following initial intravenous treatment withAntineoplastons A10 and AS2-1.

There can be no assurance that the results of any ofthese trials can be repeated or that the other clinical trials will result inthe same or similar responses.

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The results of Protocols BT-07, 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 ofMay 23, 2007). 
| ** **   | ** ** | ** **   | ** ** | ** **    | ** ** | **Number and**       | ** ** | ** **                | ** ** | **Number and**     | ** ** | **Number and**          | ** ** |
|--------------|------------|--------------|------------|---------------|------------|---------------------------|------------|---------------------------|------------|-------------------------|------------|------------------------------|------------|
| ** **   | ** ** | ** **   | ** ** | ** **    | ** ** | **Percentage of**    | ** ** | **Number and**       | ** ** | **Percentage of**  | ** ** | **Percentage of**       | ** ** |
| ** **   | ** ** | ** **   | ** ** | ** **    | ** ** | **Patients Showing** | ** ** | **Percentage of**    | ** ** | **Patients**            | ** ** | **Patients**                 | ** ** |
| **Protocol** | ** ** | **Patients** | ** ** | **Evaluable** | ** ** | **Complete**              | ** ** | **Patients Showing** | ** ** | **Showing Stable** | ** ** | **Showing**                  | ** ** |
| **Number**   | ** ** | **Accrued**  | ** ** | **Patients**  | ** ** | **Response**              | ** ** | **Partial Response** | ** ** | **Disease**             | ** ** | **Progressive Disease** | ** ** |
| BT-07        |       | 40           |       | 35            |       | 2                         |       |                      | 8.3        | %                       | 1          |                         |       | 4.2 | % | 2 |   |   | 8.3 | % | 19 |   |   | 79.2 | % |
| BT-09        |       | 32           |       | 23            |       | 4                         |       |                      | 17.4       | %                       | 6          |                         |       | 26.1 | % | 9 |   |   | 39.1 | % | 4 |   |   | 17.4 | % |
| BT-11        |       | 40           |       | 27            |       | 5                         |       |                      | 18.5       | %                       | 4          |                         |       | 14.8 | % | 11 |   |   | 40.7 | % | 7 |   |   | 25.9 | % |
| 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        |       | 25           |       | 18            |       | 3                         |       |                      | 16.7       | %                       | 2          |                         |       | 11.1 | % | 7 |   |   | 38.9 | % | 6 |   |   | 33.3 | % |
| BT-18        |       | 20           |       | 12            |       | 3                         |       |                      | 25.0       | %                       | 1          |                         |       | 8.3 | % | 3 |   |   | 25.0 | % | 5 |   |   | 41.7 | % |
| 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-1included 35 evaluable brain tumor patients. Complete and partial responses wereobtained in patients diagnosed with glioblastoma multiforme, astrocytoma,oligodendroglioma, mixed glioma, medulloblastoma, and malignant meningioma. Thetreatment with Antineoplastons A10 and AS2-1 resulted in 48.6% cases ofobjective responses and 34.4% cases of stable disease. The largest group ofevaluable patients involved in the study had glioblastoma multiforme. Six ofthe cases were classified as complete and partial responses, four obtainedstabilization and four developed progression of the disease. One of theglioblastoma patients is now alive and completely free from tumor for overtwelve years after her pathology diagnosis.

Notwithstanding the response results of the trialsthat have reached a Milestone, management believes it is likely that the FDAmay require additional clinical trials based upon such protocols to beconducted by an institution not affiliated with the Company or Dr. Burzynskibefore advising that an NDA filing is warranted. In addition, the FDA hasindicated it will not accept the efficacy data, but will accept toxicity datagenerated by the Phase II study according to Protocol CAN-1 because the trialwas partially retrospective. At this time, the Company cannot predict if and/orwhen it will submit an NDA to the FDA, nor can the Company estimate the numberor type of additional trials the FDA may require. Further, there can be noassurance that an NDA for Antineoplastons, as a treatment for cancer, will everbe approved by the FDA.

No assurance can be given that any new IND forclinical tests on humans will be approved by the FDA for human clinical trialson cancer or other diseases, that the results of such human clinical trialswill prove that Antineoplastons are safe or effective in the treatment ofcancer or other diseases, or that the FDA would approve the sale ofAntineoplastons in the United States.

**Active Phase II Clinical Trials**

The following table sets forth the title of eachactive Protocol, the subject of the Protocol with dates submitted to the FDAand approved by the IRB and the number of persons currently enrolled in eachstudy. All of the following trials are Phase II studies and, except asotherwise indicated, are of Antineoplastons A10 and AS2-1 in patients with theconditions listed. For purposes of this table, active means that the study isstill under open enrollment. In addition, all of the studies listed have amaximum of 40 patients who may ultimately participate in the study, except forprotocols BT-34 and BT-35, which have a maximum of 20 patients who mayultimately participate in the study. The information in this table is updatedas of May 23, 2007.

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| **Title of** | ** ** | ** **                                                                                                                                                                                                           | ** ** | **Number of**        |
|--------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|
| **Protocol** | ** ** | **Subject of Protocol**                                                                                                                                                                                              | ** ** | **Persons Enrolled** |
| AD-02        |       | Carcinoma of the Adrenal Gland                                                                                                                                                                                       |       | 6                    |
| BL-02        |       | Carcinoma of the Bladder                                                                                                                                                                                             |       | 4                    |
| BT-06        |       | Children with High Grade Glioma                                                                                                                                                                                      |       | 9                    |
| BT-08        |       | Anaplastic Astrocytoma                                                                                                                                                                                               |       | 18                   |
| BT-09        |       | Brain Tumors                                                                                                                                                                                                         |       | 32                   |
| BT-10        |       | Children with Brain Tumors                                                                                                                                                                                           |       | 18                   |
| 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                                                                                                                                                                           |       | 25                   |
| BT-17        |       | Adult Patients with Oligodendroglioma                                                                                                                                                                                |       | 12                   |
| 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 |       | 1                    |
| ES-02        |       | Adenocarcinoma of the Esophagus                                                                                                                                                                                      |       | 8                    |
| LA-04        |       | Large Cell, Undifferentiated Carcinoma of the Lung                                                                                                                                                                   |       | 9                    |
| LY-03        |       | Non-Hodgkin’s Lymphoma                                                                                                                                                                                          |       | 5                    |
| LY-06        |       | Non-Hodgkin’s Lymphoma, Low Grade                                                                                                                                                                               |       | 31                   |
| MA-02        |       | Mesothelioma                                                                                                                                                                                                         |       | 8                    |
| ME-02        |       | Malignant Melanoma                                                                                                                                                                                                   |       | 13                   |
| MM-02        |       | Multiple Myeloma                                                                                                                                                                                                     |       | 5                    |
| PA-02        |       | Carcinoma of the Pancreas                                                                                                                                                                                            |       | 15                   |
| UP-02        |       | Carcinoma of an Unknown Primary                                                                                                                                                                                      |       | 8                    |

 

**Government Regulation**

The FDA imposes substantial requirements upon, andconditions precedent to, the introduction of therapeutic drug products throughlengthy and detailed laboratory and clinical testing procedures, samplingactivities and other costly and time consuming procedures. To obtain FDAapproval for Antineoplastons, we must submit extensive preclinical and clinicaldata and supporting information to the FDA to establish the safety and efficacyof Antineoplastons. The approval process takes many years, requires theexpenditure of substantial resources and may involve ongoing requirements forpost-marketing studies. Additional government regulation may be establishedthat could prevent or delay regulatory approval of Antineoplastons. Moreover,there can be no assurance that the Company can satisfy FDA requirements to gainapproval for Antineoplastons in the United States or that FDA approval for thesale of Antineoplastons in the United States will be obtained. If regulatoryapproval is granted, the approval may include significant limitations on theindicated uses for which Antineoplastons may be marketed.

The effect of the FDA drug approval process for Antineoplastonsmay impose costly procedures upon the Company’s activities which may furnish acompetitive advantage to the other companies that compete with the Company inthe field of cancer treatment drugs. The extent of potentially adversegovernment regulations which might arise from future legislation oradministrative action cannot be predicted.

The Investigational New Drug Application Process inthe United States is governed by regulations established by the FDA whichstrictly control the use and distribution of investigational drugs in theUnited States. The guidelines require that an IND, filed by a sponsor, containsufficient information to justify administering the drug to humans, that theapplication include relevant information on the chemistry, pharmacology andtoxicology of the drug derived from chemical, laboratory and animal or in vitrotesting, and that a protocol be provided for the initial study of the new drugto be conducted on humans.

In order to conduct a clinical trial of a new drug inhumans, a sponsor must prepare and submit to the FDA a comprehensive IND. Suchapplication must contain an investigator’s brochure, a description of thecomposition, manufacture and control of the drug substance and the drugproduct, sufficient information to assure the proper

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identification, quality, purity and strength of theinvestigational drug, a description of the drug substance, including itsphysical, chemical, and biological characteristics, the general method ofpreparation of the drug substance, a list of all components includinginteractive ingredients, adequate information about pharmacological andtoxicological studies of the drug involving laboratory animals or in vitrotests on the basis of which the sponsor has concluded that it is reasonablysafe to conduct the proposed clinical investigation and a summary of anyprevious human experience with the drug. Where there has been widespread use ofthe drug outside of the United States or otherwise, it is possible in somelimited circumstances to use well-documented clinical experience in place ofsome other pre-clinical work.

The focal point of the IND is on the generalinvestigational plan and the protocols for specific human studies. The plan iscarried out in three phases:  Phase I includes the initial introduction ofan investigational new drug into humans and may be conducted in patients ornormal volunteer subjects. The studies are closely monitored to determine themetabolism and pharmacologic actions of the drug in humans, the potential sideeffects and, if possible, to gain early evidence on effectiveness. During PhaseI testing, sufficient information about the drug is gathered to designwell-controlled, scientifically valid Phase II studies. Phase II includescontrolled clinical studies conducted to evaluate the effectiveness of the drugfor a particular indication in patients with the disease or condition understudy and to determine the common short-term side effects and risks associatedwith the drug. Phase II studies are controlled, closely monitored and conductedin a relatively small number of patients, usually involving no more thanseveral hundred subjects. Phase III includes expanded controlled anduncontrolled trials and are intended to gather the additional information abouteffectiveness and safety that is needed to evaluate the overall benefit-riskrelationship of the drug and to provide an adequate basis for physicianlabeling. Phase III studies usually include anywhere from several hundred toseveral thousand subjects.

An IND will automatically become effective 30 daysafter receipt by the FDA, unless before that time the FDA raises concerns aboutissues such as the conduct of the trials as outlined in the IND. After the INDbecomes effective, the investigation is permitted to proceed, during which thesponsor 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 beresponsible for informing FDA and clinical investigators immediately of unforeseenserious side effects or injuries. There can be no assurance that Phase I, PhaseII or Phase III testing will be completed successfully by the Company withinany specified period of time, if at all. Furthermore, the Company or the FDAmay suspend clinical trials at any time on various grounds, including a findingthat the subjects or patients are being exposed to an unacceptable health risk.

Assuming successful completion of the clinicalstudies, the results of the studies, together with other detailed information,including, among other information, details concerning the manufacture andcomposition of the drug, proposed labeling, environmental impact and thescientific rationale for the drug, its intended use and the potential benefitsof the drug product, are submitted to the FDA in the form of an NDA requestingapproval to market the drug. If the FDA finds the NDA submission and themanufacturing 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 besufficient, it will issue a “not approvable letter” describing the deficienciesin the NDA and allowing the NDA applicant to either amend the NDA, withdraw theNDA or request a hearing. Even if the NDA is amended or a hearing is held, theFDA ultimately may decide that the NDA does not satisfy the regulatory criteriafor approval. In addition, as a result of the Company’s use of Milestones topredict the benefits of Antineoplastons, the FDA may subject any such approvalto the requirement that the Company study the drug further, to verify anddescribe its clinical benefit (Phase IV testing). Further, the FDA may alsoimpose post-marketing restrictions on Antineoplastons. The FDA may withdrawapproval of any drug if the Phase IV trials fail to verify clinical benefit,use of the drugs demonstrates that post-marketing restrictions are inadequateto assure safe use of the drug, the Company fails to adhere to thepost-marketing restrictions agreed upon, the promotional materials are false ormisleading or other evidence demonstrates that the drug is not shown to be safeor effective under its conditions of use.

The testing and approval process requires substantialtime, effort and financial resources, and there can be no assurance that anyapproval will be granted for any product or that approval will be grantedaccording to any schedule. Moreover, if regulatory approval of a drug isgranted, the approval will be limited to specific indications. There can be noassurance that any of the Company’s product candidates will receive regulatoryapprovals for commercialization.

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The FDA has implemented an accelerated review processfor pharmaceutical agents that treat serious or life-threatening disease andconditions, subject to payment of user fees. Approval may be conditioned on arequirement that, following product launch, a company continue to study thedrug to verify and describe its clinical benefit. Under “fast track”procedures, the FDA may withdraw approval on an expedited basis if the companyfails to show due diligence in conducting post-marketing clinical trials or ifthe post-approval clinical trials fail to demonstrate that the product is safeor effective. When appropriate, the Company intends to pursue opportunities foraccelerated review of its products. The Company cannot predict the ultimateeffect of this review process on the timing or likelihood of FDA review of anyof its products.

Please see “—Orphan Drug Designation” for adescription of the FDA’s orphan drug designation under the Orphan Drug Act of1983 as it applies to the Company’s Antineoplastons.

Even if the regulatory approvals for the Company’sproducts are obtained, its products and its manufacturing facility are subjectto continuous review and periodic inspection. The FDA will requirepost-marketing reporting to monitor the safety of the Company’s products. TheCompany’s drug manufacturing facility must be inspected and approved by the FDAand must comply with the FDA’s current good manufacturing practice regulations,which are strictly enforced. Full technical compliance requires manufacturersto 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 tocomply with applicable FDA or other applicable regulatory requirements mayresult in restrictions on a product, manufacturer, or holder of an approvedNDA, including restrictions on the product, manufacturer or facility, includingwarning letters, suspension of regulatory approvals, operating restrictions,delays in obtaining new product approvals, withdrawal of the product from themarket, product recalls, fines, injunctions and criminal prosecution. Newgovernment requirements may be established that could delay or preventregulatory approval of the Company’s products under development.

The Company’s research and development involves thecontrolled use of hazardous materials, chemicals and various radioactivecompounds. Although the Company believes its procedures for handling anddisposing of those materials comply with state and federal regulations, therisk of accidental contamination or injury from these materials cannot beeliminated. If an accident of this type occurs, the Company could be held liablefor resulting damages, which could be material to its financial condition andbusiness. The Company is also subject to numerous environmental, health andworkplace safety laws and regulations, including those governing laboratoryprocedures and the handling of biohazardous materials. Additional federal,state and local laws and regulations affecting the Company may be adopted inthe future. Any violation of these laws and regulations, and the cost ofcompliance, could materially and adversely affect the Company. The Companyspends approximately $100,000****per year onenvironmental compliance matters and expects to spend approximately $65,000 forrepairs and upgrades during the fiscal year ending February 28, 2008.

**Research And Development**

The Company’s principal research and developmentefforts currently focus on Antineoplastons. The anticancer activity of thesecompounds has been documented in preclinical studies employing the methods ofcell culture, pharmacology, cell biology, molecular biology, experimentaltherapeutics and animal models of cancer. At the level of Phase II clinicalstudies, the Company believes the anticancer activity of Antineoplastons issupported by preliminary results from ongoing, FDA-authorized, Phase IIclinical trials.

The cellular mechanism underlying the anticancereffects of Antineoplastons continues to be investigated in both the Company’sown basic preclinical research program and in independent laboratories aroundthe world. A review of this work suggests several mechanisms that may underliethe antineoplastic activity of Antineoplastons. For example, it has been found,in cell culture experiments, that Antineoplastons induce pathologicallyundifferentiated cancer cells to assume a more normal state of differentiation.Cell culture experiments have also shown that Antineoplaston components cankill some cancer cells by activating the cell’s intrinsic “suicide” program. Itmust be noted that data collected in cell culture experiments may or may notindicate the mechanism of action of Antineoplastons in humans.

At a more molecular or sub-cellular level, cellculture experiments have shown that Antineoplastons can block biochemicalpathways involving oncogenes required to produce abnormal cell growth. Inaddition, cell culture experiments have shown that Antineoplastons can increasethe expression of anticancer tumor suppressor genes.

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Although these experiments were conducted using humancancer cells, they may or may not indicate the mechanism of Antineoplastonaction in humans.

In addition to the original family of Antineoplastoncompounds (the “Parental Generation”), the Company continues its development ofa second generation of Antineoplastons. In cell culture experiments, the secondgeneration Antineoplastons, which were developed by the Company, have beenshown to be significantly more potent than the Parental Generation.

The Company is also developing a third generation ofstructurally altered Antineoplastons that the Company believes will exhibitmarkedly improved anticancer activity in human cancer cell lines that have beenresistant to the Parental Generation. However, increases of antineoplasticactivity in cell culture experiments may or may not translate into increasedefficacy in humans.

The Company is also involved in ongoing studiesexamining the pharmacokinetics (absorption, distribution, metabolism, andexcretion) and pharmacodynamics (dose-response) of Antineoplastons in patientswith neoplastic disease.

The Company uses various scientific reagents fromseveral different suppliers to conduct its research activities.

Total research and development costs for the fiscalyears ended February 28, 2007 and 2006 were approximately **$**4,133,000****and $4,435,000, respectively.

**Intellectual Property**

Since 1984, eight patents involving the formulation,preparation, manufacture, production, use, dosage and treatment of cancer withAntineoplastons (the “Patents”) have been issued to Dr. Burzynski by the UnitedStates Patent Office and the Patent Offices of 34 other countries. The Patentsfor cancer treatment and diagnosis in the United States and Canada are licensedto the Company pursuant to a License Agreement dated June 29, 1983, assuperseded by an Amended License Agreement dated April 24, 1989 and a SecondAmended License Agreement dated March 1, 1990 (collectively, the “LicenseAgreement”). Pursuant to the License Agreement, the Company holds an exclusiveright in the United States, Canada, and Mexico (the “Territory”) to use,manufacture, develop, sell, distribute, sub-license and otherwise exploit allof Dr. Burzynski’s rights, title, and interests, including patent rights, inAntineoplastons 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 asAntineoplastons are approved, of which there can be no assurance, by the FDAfor sale in the United States. The License Agreement is to continue in effectuntil the expiration of the last Patent that was licensed under the agreementor termination pursuant to certain other provisions. The Company and Dr.Burzynski also entered into a Royalty Agreement, dated March 25, 1997, and aFirst Amended Royalty Agreement, dated September 29, 1997 (collectively, the “RoyaltyAgreement”), pursuant to which Dr. Burzynski will receive a royalty interestfrom all future sales, distribution, and manufacture of Antineoplastons by theCompany. The Company owns, pursuant to the License Agreement, exclusive rightsto eight issued United States Patents, three issued Canadian Patents and oneissued Mexican Patent. The Company has one patent application pending inCanada.

The five initial United States Patents (the “InitialPatents”) relate to: (i) Determination of Antineoplastons in body tissue orfluids as a testing procedure to aid in the diagnosis of cancer; (ii) Processesfor the preparation of purified fractions of Antineoplastons from human urine;(iii) Processes for the synthetic production of Antineoplastons and methods oftreating neoplastic disease (cancer); (iv) Administration of Antineoplastons tohumans; and (v) Methods of synthesizing A-10. The Initial Patents expire fromSeptember 11, 2001 to January 11, 2009, however the Company does not believethe expiration of any of the Initial Patents will have a material adverseeffect on the Company.

The sixth United States Patent (the “2000 U.S. Patent”)covers Liposomal Antineoplaston therapies with markedly improved anti-canceractivity. The 2000 U.S. Patent expires on May 14, 2017.

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The seventh United States Patent (the “2001 U.S.Patent”) is for a treatment regimen for the administration ofphenylacetylglutamine, phenylacetylisoglutamine, and/or phenylacetate. The 2001U.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.

The three Canadian Patents (the “Canadian Patents”)relate to: (i) Processes for the preparation of purified fractions ofAntineoplastons from human urine, (ii) Processes for the synthetic productionof Antineoplastons and methods of treating neoplastic disease (cancer) and(iii) Liposomal Formulation of Antineoplastons. The Canadian Patents expired orwill expire on November 14, 2006, June 4, 2002 and May 14, 2017, respectively;however, the Company does not believe the expiration of the Canadian Patentswill have a material adverse effect on the Company.

The Mexican Patent relates to a treatment regimen forthe administration of phenylacetylglutamine. This patent will expire in theyear 2019.

The pending patent application in Canada relates to atreatment regimen for the administration of phenylacetylglutamine. Should thispatent be granted, of which there can be no assurance, it would expire in theyear 2019.

The Company also depends upon unpatented proprietarytechnology, and may determine in appropriate circumstances that its interestwould be better served by reliance upon trade secrets or confidentiality agreementsrather than patents.

The Company’s success will depend in part on itsability to enforce patent protection for its products, preserve its tradesecrets, and operate without infringing on the proprietary rights of thirdparties in the United States, Canada, and Mexico. Because of the substantiallength of time and expense associated with bringing new products throughdevelopment and regulatory approval to the marketplace, the pharmaceutical andbiotechnology industries place considerable importance on obtaining andmaintaining patent and trade secret protection for new technologies, productsand processes. There can be no assurance that the Company will developadditional products and methods that are patentable or that present or futurepatents will provide sufficient protection to the Company’s present or futuretechnologies, products and processes. In addition, there can be no assurancethat others will not independently develop substantially equivalent proprietaryinformation, design around the Company’s patents or obtain access to theCompany’s know-how or that others will not successfully challenge the validityof the Company’s patents or be issued patents which may prevent the sale of oneor more of the Company’s product candidates, or require licensing and thepayment of significant fees or royalties by the Company to third parties inorder to enable the Company to conduct its business. Legal standards relatingto the scope of claims and the validity of patents in the fields in which theCompany is pursuing research and development are still evolving, are highlyuncertain and involve complex legal and factual issues. No assurance can begiven as to the degree of protection or competitive advantage any patentsissued to the Company will afford, the validity of any such patents or theCompany’s ability to avoid violating or infringing any patents issued toothers. Further, there can be no guarantee that any patents issued to orlicensed by the Company will not be infringed by the products of others.Litigation and other proceedings involving the defense and prosecution ofpatent claims can be expensive and time-consuming, even in those instances inwhich the outcome is favorable to the Company, and can result in the diversionof resources from the Company’s other activities. An adverse outcome couldsubject the Company to significant liabilities to third parties, require theCompany to obtain licenses from third parties or require the Company to ceaseany related research and development activities or sales.

The Company depends upon the knowledge, experience andskills (which are not patentable) of its key scientific and technicalpersonnel. To protect its rights to its proprietary information, the Companyrequires all employees, consultants, advisors and collaborators to enter intoconfidentiality agreements which prohibit the disclosure of confidentialinformation to anyone outside the Company and require disclosure and assignmentto the Company of their ideas, developments, discoveries and inventions. Therecan be no assurance that these agreements will effectively prevent theunauthorized use or disclosure of the Company’s confidential information.

Antineoplaston agents is a trademark registered withthe U.S. Patent and Trademark Office.

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**Competition**

There are many companies, universities, research teamsand scientists, both private and government-sponsored, that are engaged inresearch to produce cancer treatment agents and that have greater financialresources and larger research staffs and facilities than the Company. Inaddition, there are other companies and entities, both private andgovernment-sponsored, that are engaged in research aimed at compounds similaror related to the Company’s Antineoplastons. To the extent that the UnitedStates Government also conducts research or supports other companies orindividuals in their research, such companies or individuals may have acompetitive advantage over the Company.

**Employees**

As of May 10, 2007, the Company had three employees,all of whom were full-time employees. None of the Company’s employees is aparty to a collective bargaining agreement. The Company considers the relationswith its employees to be good.

## **ITEM2.****          DESCRIPTION OFPROPERTY**

The Company does not own or invest in real estate,interests in real estate, real estate mortgages or securities of or interestsin persons primarily engaged in real estate activities.

The Company conducts its business in premises owned byDr. Burzynski and his wife, Dr. Barbara Burzynski (the “Burzynskis”). Pursuantto arrangements with the Burzynskis (see “*CertainRelationships and Related Transactions—Research 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 squarefeet at 9432 Old Katy Road, Suite 200 for its executive offices. Management ofthe Company believes that each of these properties is adequately covered byinsurance.

## **ITEM3.****          LEGAL PROCEEDINGS**

The Company’s activities are subject to regulation byvarious governmental agencies, including the FDA, which regularly monitor theCompany’s operations and often impose requirements on the conduct of itsclinical trials and other aspects of the Company’s business operations. TheCompany’s policy is to comply with all such regulatory requirements. From timeto time, the Company is also subject to potential claims by patients and otherpotential claimants commonly arising out of the operation of a medicalpractice. The Company seeks to minimize its exposure to claims of this typewherever possible.

Currently, the Company is not a party to any materialpending legal proceedings. Moreover, the Company is not aware of any such legalproceedings that are contemplated by governmental authorities with respect tothe Company or any of its properties.

## **ITEM4.****          SUBMISSION OFMATTERS TO A VOTE OF SECURITY HOLDERS**

No matter was submitted to a vote of security holdersduring the fourth quarter of the fiscal year ended February 28, 2007.

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# **PART II**

## **ITEM5.          MARKET FOR COMMON EQUITY,RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITYSECURITIES**

Since October 15, 2001, the Company’s Common Stock hasremained in good standing for trading on the OTCBB. Nevertheless, a publictrading market having the characteristics of depth, liquidity and orderlinessdepends upon the existence of market makers as well as the presence of willingbuyers and sellers, which are circumstances over which the Company does nothave control. There can be no assurance that the market will providesignificant liquidity for the Company’s Common Stock. As a result, aninvestment in the Company’s Common Stock may be highly illiquid. Investors maynot be able to sell their shares readily or at all when the investor needs ordesires to sell.

The following table sets forth closing high and lowbid prices of the shares of Common Stock of the Company for the periodsindicated (as reported by Pink Sheets LLC).
|                | ** ** | **Price Range**                                                                                                 | ** ** |
|----------------|------------|----------------------------------------------------------------------------------------------------------------------|------------|
| ** **     | ** ** | **         High         ** | ** ** | **Low** | ** ** |
| 2005           |       |                                                                                                                 |       |   |   |
| First Quarter  |       | $                                                                                                                    | 0.37       |   | $ | 0.25 |   |
| Second Quarter |       | 0.35                                                                                                                 |       | 0.25 |   |
| Third Quarter  |       | 0.29                                                                                                                 |       | 0.13 |   |
| Fourth Quarter |       | 0.20                                                                                                                 |       | 0.10 |   |
|           |       |                                                                                                                 |       |   |   |
| 2006           |       |                                                                                                                 |       |   |   |
| First Quarter  |       | $                                                                                                                    | 0.25       |   | $ | 0.10 |   |
| Second Quarter |       | 0.13                                                                                                                 |       | 0.07 |   |
| Third Quarter  |       | 0.20                                                                                                                 |       | 0.08 |   |
| Fourth Quarter |       | 0.18                                                                                                                 |       | 0.10 |   |

 

The quotations set forth above reflect inter-dealerprices, without retail mark-up, mark-down or commission, and may not representactual transactions.

As of May 10, 2007, there were approximately 2,036holders of record of the Company’s Common Stock, as shown on the records of theTransfer Agent and Registrar of the Common Stock. Since many shares may be heldby investors in nominee names, such as the name of their broker or their broker’snominee, the number of record holders often bears little relationship to thenumber of beneficial owners of the Common Stock.

The Company has never paid cash dividends on itsCommon 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 itsoperations, or that such expansion will prove profitable. Future dividendpolicy will depend upon the Company’s earnings, capital requirements, financialcondition and other factors considered relevant by the Company’s Board ofDirectors.

## **ITEM6.****          MANAGEMENT’SDISCUSSION AND ANALYSIS OR PLAN OF OPERATION**

The following is a discussion of the financialcondition of the Company as of February 28, 2007 and 2006 and the results ofoperations for the fiscal years ended February 28, 2007 and 2006. It should beread in conjunction with the financial statements and the notes theretoincluded elsewhere in this report. The following discussion contains forward-lookingstatements.

**Introduction**

The Company has generated no significant revenue sinceits inception, and does not expect to generate any operating revenues untilsuch time, if any, as Antineoplastons are approved for use and sale by the FDA.The Company’s sole source of funding is Dr. Burzynski, who funds the Company’soperations 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 additionalpaid-in capital to the Company.

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The Company is primarily engaged as a research anddevelopment facility of Antineoplaston drugs currently being tested for use inthe treatment of cancer, and provides consulting services. The Company iscurrently conducting 27 FDA-approved clinical trials. The Company holds theexclusive right in the United States, Canada and Mexico to use, manufacture,develop, sell, distribute, sublicense and otherwise exploit all the rights, titlesand interest in Antineoplaston drugs used in the treatment of cancer, once thedrugs are approved for sale by the FDA*. See*“*Certain Relationships and Related Transactions.*”

**Results Of Operations**

# *Fiscal Year Ended February 28,2007 Compared to Fiscal Year Ended February 28, 2006*

Research anddevelopment costs were approximately $4,133,000 and $4,435,000 for the fiscalyears ended February 28, 2007 and 2006, respectively.  The decrease of $302,000 or 7% was due to adecrease in personnel cost of $119,000, decreases in material costs of$205,000,  offset by an increase infacility and equipment costs of  $3,000,an increase in consulting and quality control costs of $9,000, and an increasein other research and development costs of $10,000.

General and administrativeexpenses were approximately $169,000 and $216,000 for the fiscal years endedFebruary 28, 2007 and 2006, respectively. The decrease of $47,000 or 22% was due to a decrease in legal andprofessional fees of $46,000, and a decrease in other general andadministrative expenses of $1,000.

The Company hadnet losses of approximately $4,303,000 and $4,601,000 for the fiscal yearsended February 28, 2007 and 2006, respectively. The decrease in the net loss from 2006 to 2007 was primarily due to an overalldecrease in research and development cost and general and administrativeexpenses of the Company described above. As of February 28, 2007, the Company had total stockholders’ deficit of$(53,176).

**Liquidity and Capital Resources**

The Company’s operations have been funded entirely byDr. Burzynski with funds generated from Dr. Burzynski’s medical practice.Effective March 1, 1997, the Company entered into a Research Funding Agreementwith Dr. Burzynski (the “Research Funding Agreement”), pursuant to which theCompany agreed to undertake all scientific research in connection with thedevelopment of new or improved Antineoplastons for the treatment of cancer andDr. Burzynski agreed to fund the Company’s Antineoplaston research for thatpurpose. Under the Research Funding Agreement, the Company hires such personnelas is required to conduct Antineoplaston research, and Dr. Burzynski funds theCompany’s research expenses, including expenses to conduct the clinical trials.Dr. Burzynski also provides the Company laboratory and research space as neededto conduct the Company’s research activities. The Research Funding Agreementalso provides that Dr. Burzynski may fulfill his funding obligations in part byproviding the Company such administrative support as is necessary for theCompany to manage its business. Dr. Burzynski pays the full amount of theCompany’s monthly and annual budget of expenses for the operation of theCompany, together with other unanticipated but necessary expenses which theCompany incurs. In the event the research results in the approval of anyadditional patents for the treatment of cancer, Dr. Burzynski shall own allsuch patents, but shall license to the Company the patents based on the sameterms, conditions and limitations as are in the current license between Dr.Burzynski and the Company. Dr. Burzynski has unlimited and free access to allequipment which the Company owns, so long as such use does not conflict withthe Company’s use of such equipment, including without limitation, allequipment used in the manufacturing of Antineoplastons used in the clinicaltrials. The amounts which Dr. Burzynski is obligated to pay under theagreement shall be reduced dollar for dollar by the following: (1) any incomewhich the Company receives for services provided to other companies forresearch and/or development of other products, less such identifiable marginalor additional expenses necessary to produce such income, or (2) the netproceeds of any stock offering or private placement which the Company receivesduring the term of the agreement up to a maximum of $1,000,000 in a givenCompany fiscal year.

The Company entered into a third amendment to theResearch Funding Agreement, effective March 1, 2007, whereby the Company andDr. Burzynski extended the term thereof until February 28, 2008, with anautomatic renewal for additional one-year terms, unless one party notifies theother party at least thirty days prior to the expiration of the then current termof the agreement of its intention not to renew the agreement.

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The Research Funding Agreement automaticallyterminates in the event that Dr. Burzynski owns less than fifty percent of theoutstanding shares of the Company, or is removed as President and/or Chairmanof the Board of the Company, unless Dr. Burzynski notifies the Company inwriting of his intention to continue the agreement notwithstanding thisautomatic termination provision.

The Company estimates that it will spend approximately$4.5 million in the fiscal year ending February 28, 2008. The Company estimatesthat ninety-five percent (95%) of this amount will be spent on research anddevelopment and the continuance of FDA-approved clinical trials. While theCompany anticipates that Dr. Burzynski will continue to fund the Company’sresearch and FDA-related costs, there is no assurance that Dr. Burzynski willbe able to continue to fund the Company’s operations pursuant to the ResearchFunding Agreement or otherwise. However, because the net assets available toDr. Burzynski from his personal assets and the assets of his medical practicecurrently exceed the Company’s projected twelve-month funding requirements, theCompany believes Dr. Burzynski will be financially able to fund the Company’soperations at least through the fiscal year ending February 28, 2008. Inaddition, Dr. Burzynski’s medical practice has successfully funded the Company’sresearch activities over the last 22 years and, in 1997, his medical practicewas expanded to include traditional cancer treatment options such aschemotherapy, immunotherapy and hormonal therapy in response to FDArequirements that cancer patients utilize more traditional cancer treatmentoptions in order to be eligible to participate in the Company’s Antineoplastonclinical trials. As a result of the expansion of Dr. Burzynski’s medicalpractice, the financial condition of the medical practice has improved Dr.Burzynski’s ability to fund the Company’s operations.

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

## **ITEM7.****          FINANCIALSTATEMENTS**

The Company’s Annual Financial Statements, Notes toFinancial Statements and the report of Fitts, Roberts & Co., P.C.,independent registered public accounting firm, with respect thereto, referredto in the Table of Contents to the Financial Statements, appear elsewhere inthis report beginning on Page F-1.

## **ITEM8.****          CHANGES IN ANDDISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

None.

## **ITEM8A.****       CONTROLSAND PROCEDURES**

Within the 90 days prior to the date of this report,the Company carried out an evaluation, under the supervision and with theparticipation of the Company’s management, including the Company’s principalexecutive officer and principal financial officer, of the effectiveness of theCompany’s disclosure controls and procedures pursuant to Rule 13a-14 under theSecurities Exchange Act of 1934, as amended. Based upon that evaluation, theCompany’s principal executive officer and principal financial officer concludedthat the Company’s disclosure controls and procedures are effective in timelyalerting them to material information required to be included in periodicSecurities and Exchange Commission filings.

There were no significant changes in the Company’sinternal controls or in other factors that could significantly affect internalcontrols subsequent to the date of the evaluation above.

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## **ITEM8B.****       OTHERINFORMATION**

None.

# **PART III**

## **ITEM9.          DIRECTORS, EXECUTIVE OFFICERS,PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGEACT**

Set forth below are the names, ages and positions ofthe Company’s directors and executive officers:
| Name                                 | ** ** | **Age** | ** ** | **Office**                                    |
|--------------------------------------|------------|---------|------------|-----------------------------------------------|
| Stanislaw R.  Burzynski, M.D., Ph.D. |       | 63      |       | Director, President, Secretary, and Treasurer |
| Barbara  Burzynski, M.D.             |       | 66      |       | Director                                      |
| Michael H.  Driscoll, J.D.           |       | 60      |       | Director                                      |
| Carlton  Hazlewood, Ph.D.            |       | 70      |       | Director                                      |

 

STANISLAW R. BURZYNSKI, M.D., PH.D., has been thePresident and Chairman of the Board of Directors of the Company since itsinception in 1984. He also serves as the Company’s Secretary and Treasurer. Dr.Burzynski is a physician in private practice in Houston, Texas specializing inthe treatment of cancer. Dr. Burzynski is the husband of Barbara Burzynski,M.D., who is a director of the Company.

Currently listed in Who’s Who In The World and amember in good standing with both the American and World Medical Associations,Dr. Burzynski is an internationally recognized physician and scientist who haspioneered the development and use of biologically active peptides in diagnosing,preventing, and treating cancer since 1967. In 1967, Dr. Burzynski graduatedwith distinction with an M.D. degree from the Medical Academy in Lublin,Poland, finishing first in his class of 250, and he subsequently earned hisPh.D. in Biochemistry.

From 1970 to 1977, he was a researcher and AssistantProfessor at Baylor College of Medicine in Houston. At Baylor, Dr. Burzynski’sresearch was sponsored and partially funded by the National Cancer Institute.Also at Baylor, he authored and co-authored sixteen publications, includingfive concerning his research on peptides and their effect on human cancer. Fourof these publications were also co-authored by other doctors associated withM.D. Anderson Hospital and Tumor Institute and Baylor College of Medicine. InMay 1977, Dr. Burzynski received a Certificate of Appreciation from BaylorCollege of Medicine and in that same year founded the Company.

Dr. Burzynski is a member of the American MedicalAssociation, American Association for Cancer Research, Harris County MedicalSociety, New York Academy of Sciences, Society for Neuroscience, Texas MedicalAssociation, the Society of Sigma Xi, and the Society of Neuro-oncology. He isthe author of 215 scientific publications, presenter of scientific papers at majorinternational conventions, and has been awarded 196 patents covering 42countries for his Antineoplaston treatment and other inventions. Other groupsare working in conjunction with him, including researchers at the University ofKurume Medical School in Japan.

BARBARA BURZYNSKI, M.D., a Director since 1984 and thewife of Dr. Burzynski, has been the Chairman of the Department of Pharmacy ofthe Burzynski Clinic since 1977. From January 1976 to July 1977, she was aResearch Assistant in the Department of Pediatrics at Baylor College ofMedicine. She was a physician at the Medical Academy, Lublin, Poland, from 1970to 1975. Dr. Barbara Burzynski graduated with an M.D. in 1966 from the MedicalAcademy, Lublin, Poland, and has published six publications on studies withAntineoplastons.

MICHAEL H. DRISCOLL, J.D. has been a Director of theCompany since 1984. Mr. Driscoll was formerly a judge and served as the CountyAttorney of Harris County, Texas from 1981 until he retired in 1997.

CARLTON HAZLEWOOD, PH.D. has been a Director of theCompany since 1997. He also serves as Chairman of the IRB, an independentreview board for the Company’s clinical trials designated according to federalregulations. Dr. Hazlewood currently operates his own consulting company, ResearchConsultant’s International, and is president of Petroclean, L.L.C. In addition,Dr. Hazlewood was employed in various capacities by the Baylor College ofMedicine from 1965 until December 31, 1997, where he was a professor ofMolecular Biology and Biophysics. Dr. Hazlewood received his Ph.D. inMedical Physiology from the University of Tennessee.

16

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Dr. Hazlewood is a prolific writer on medical topicsand has been recognized for his research with numerous awards, honors andresearch 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 “auditcommittee financial expert” as defined by the rules and regulations of theSecurities and Exchange Commission.

**Section 16(a) Beneficial OwnershipReporting Compliance**

Based solely upon a review of Forms 3 and 4 andamendments thereto furnished to the Company under Rule 16a-3(e) during thefiscal year ended February 28, 2007 and Form 5 and amendments thereto furnishedto the Company with respect to such period, the Company is not aware of anydirector, officer, or beneficial owner of more than 10% of any class of equitysecurities of the Company registered pursuant to Section 12 of the SecuritiesExchange Act of 1934 (the “Exchange Act”) that has failed to file on a timelybasis, as disclosed in the above forms, reports required by Section 16(a) ofthe Exchange Act during the Company’s most recent fiscal year.

**Code of Ethics**

The Company has adopted a code of ethics that appliesto our chief executive officer, chief financial officer, chief accountingofficer and all persons performing similar functions. The Company herebyundertakes to provide a copy of this code of ethics to any person, withoutcharge upon request made in writing to: Investor Relations, 9432 Old Katy Road,Suite 200, Houston, Texas 77055.

## **ITEM10.****       EXECUTIVECOMPENSATION**

**SUMMARY COMPENSATION TABLE**
|                                        | ** ** | **Annual Compensation** | ** ** | **Long-Term Compensation** | ** ** |
|----------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                             | ** ** | **Fiscal**                   | ** ** | ** **                      | ** ** | ** ** | ** ** | **Other Annual** | ** ** | **Restricted** | ** ** | **Securities** | ** ** | **LTIP** | ** ** | **All Other** | ** ** |
| **Name and Principle ** | ** ** | **Year**                     | ** ** | ** **                      | ** ** | **Bonus** | ** ** | **Compensation** | ** ** | **Stock** | ** ** | **Underlying** | ** ** | **Payout** | ** ** | **Compensation** | ** ** |
| **Position**                           | ** ** | **Ending**                   | ** ** | **Salary($)**                   | ** ** | **($)** | ** ** | **($)** | ** ** | **Awards($)** | ** ** | **Options/SARs($)** | ** ** | **($)** | ** ** | **($)** | ** ** |
| Stanislaw R. Burzynski,                |       | 2005                         |       | -0-                             |       | -0- |   | -0- |   | -0- |   | -0- |   | -0- |   | -0- |   |
| M.D., Ph.D., President,                |       | 2006                         |       | -0-                             |       | -0- |   | -0- |   | -0- |   | -0- |   | -0- |   | -0- |   |
| Secretary and Treasurer(1)             |       | 2007                         |       | -0-                             |       | -0- |   | -0- |   | -0- |   | -0- |   | -0- |   | -0- |   |

 

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(1)           In May of 2000, Dr. Burzynski began drawing his entiresalary through his medical practice and is not currently compensated by theCompany for his services.

Directors do not receive any compensation for servingas directors; however, directors are reimbursed for all ordinary and necessaryexpenses incurred in attending meetings of the Board of Directors or otherwiseincurred in their capacity as directors. In addition, any director also servingas a director of the IRB, the independent review board for the Company’sclinical trials designated according to federal regulations, is compensated bythe IRB approximately $1,600****annuallyfor serving as a director of the IRB.

## **ITEM11.****       SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS**

The following table sets forth, as of May 10, 2007,the number of outstanding shares of Common Stock (the Company’s only class ofvoting securities) owned by (i) each person known by the Company tobeneficially own more than 5% of its outstanding Common Stock, (ii) eachdirector, (iii) each named executive officer, and (iv) all officers anddirectors as a group. The address for all of the beneficial owners listed belowis the Company’s address.

17

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| Name of                                                              | ** ** | **Amount and nature of** | ** ** | ** **                              | ** ** |
|---------------------------------------------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|
| **beneficial owner**                                                 | ** ** | **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 (5 persons) |       | 107,994,190                             |       | 81.45                                   | %          |

 

----

*              Less than one percent.

(1)           Percentages shown are based upon 131,388,444 shares ofCommon Stock outstanding as of May 10, 2007. Certain shares are deemedbeneficially owned by more than one person listed in the table.

(2)           All of the shares listed above for Dr. BarbaraBurzynski are included in the total number of shares for Dr. Burzynski, herhusband.

## **ITEM12.****       CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS**

Dr. Burzynski is the President, Secretary, Treasurerand Chairman of the Board of the Company, as well as the beneficial owner of81.0% of the Company’s outstanding Common Stock. Since 1983, Dr. Burzynski haspersonally funded and supported the Company’s operations out of funds generatedfrom his medical practice pursuant to various agreements with the Company.

**License Agreement**

The Company entered into the License Agreement withDr. 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 ofcancer, including but not limited to any patent rights which may be granted inthese countries. The License Agreement will terminate upon the earlier of theexpiration 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 theCompany without his consent, if the Company files for bankruptcy or is the subjectof any proceeding under applicable bankruptcy laws where such proceeding is notdismissed within 90 days from the date a petition is filed, or if anyshareholder or group of shareholders acting in concert becomes the beneficialowner of the Company’s securities having voting power equal to or greater thanthe voting power of the securities Dr. Burzynski holds. Amendments to theLicense Agreement on April 24, 1984 and on March 1, 1990 granted Dr. Burzynskithe limited right to manufacture, use, and exploit Antineoplastons in theCompany’s exclusive territory solely for the purpose of enabling Dr. Burzynskito treat patients in his medical practice until such date that the FDA mayapprove the sale of Antineoplastons for the treatment of cancer in the UnitedStates.

**Research Funding Arrangements**

Effective March 1, 1997, the Company entered into theResearch Funding Agreement with Dr. Burzynski and terminated all of the priorfunding agreements between the Company and Dr. Burzynski. Pursuant to theResearch Funding Agreement:

·              The Company agreed to undertake allscientific research in connection with the development of new or improvedAntineoplastons for the treatment of cancer and other diseases. The Companywill hire such personnel as is required to fulfill its obligations under theagreement;

·              Dr. Burzynski agreed to fund in itsentirety all basic research which the Company undertakes in connection with thedevelopment of other Antineoplastons or refinements to existing Antineoplastonsfor the treatment of cancer and other diseases;

18

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·              Dr. Burzynski agreed to pay the expensesto conduct the clinical trials for the Company;

·              Dr. Burzynski agreed to provide theCompany such laboratory, research space and office space as the Company needsat no charge to the Company;

·              The parties agreed that Dr. Burzynski mayfulfill his obligations in part by providing such administrative staff as isnecessary for the Company to manage its business, at no cost to the Company;

·              Dr. Burzynski agreed to pay the fullamount of the monthly and annual budget of expenses for the operation of theCompany, together with such other unanticipated but necessary expenses whichthe Company incurs. Payments from Dr. Burzynski to the Company of the monthlybudget shall be made in two equal installments on the first and fifteenth ofeach month;

·              In the event the research described inthe agreement results in the approval of any additional patents, Dr. Burzynskishall own all such patents, but shall license to the Company the patents basedon the same terms, conditions and limitations as provided by the LicenseAgreement;

·              Dr. Burzynski shall have unlimited andfree access to all equipment which the Company owns, so long as such use is notin conflict with the Company’s use of such equipment, including withoutlimitation to all equipment used in manufacturing of Antineoplastons used inthe clinical trials;

·              The amounts which Dr. Burzynski isobligated to pay under the agreement shall be reduced dollar for dollar by thefollowing:

·              Any income which the Company receives forservices provided to other companies for research and/or development of otherproducts, less such identifiable marginal or additional expenses necessary toproduce such income (such as the purchase of chemicals, products or equipmentsolely necessary to engage in such other research and development activity);and

·              The net proceeds of any stock offering orprivate placement which the Company receives during the term of the agreementup to a maximum of $1,000,000 in a given Company fiscal year.

Effective March 1, 2007, the Company entered into athird amendment to the Research Funding Agreement, whereby the Company and Dr.Burzynski extended the term thereof until February 28, 2008, with an automaticrenewal for additional one-year terms, unless one party notifies the otherparty at least thirty days prior to the expiration of the then current term ofthe agreement of its intention not to renew the agreement.  In addition to the foregoing terminationprovisions, the agreement automatically terminates in the event that Dr.Burzynski owns less than fifty percent of the outstanding shares of theCompany, or is removed as President and/or Chairman of the Board of theCompany, unless Dr. Burzynski notifies the Company in writing of his intentionto continue the agreement notwithstanding this automatic termination provision.Subject to the foregoing, the term of the Research Funding Agreement iscurrently extended until February 28, 2008.

**Royalty Agreement**

The Company and Dr. Burzynski entered into the RoyaltyAgreement, pursuant to which Dr. Burzynski agreed to act as the principalclinical investigator of the clinical trials necessary for obtaining FDAapproval for interstate marketing of Antineoplastons. The Company and Dr. Burzynskiagreed that in the event the Company receives FDA approval for interstatemarketing and distribution, of which there can be no assurance, the Companyshall pay Dr. Burzynski a royalty of 10% (ten percent) of the Company’s grossincome, which royalty shall be paid on all gross receipts from all futuresales, distributions and manufacture of Antineoplastons.

19

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Pursuant to the Royalty Agreement, Dr. Burzynskiretains the right to either (i) produce Antineoplaston products for use in hismedical practice to treat up to 1,000 patients, at any one time, without payingany fees to the Company or (ii) purchase from the Company Antineoplastonproducts to treat up to 1,000 patients, at any one time, at a price equal tocost plus 10% (ten percent). Dr. Burzynski has the right to lease orpurchase all the manufacturing equipment located at 12707 Trinity Drive,Stafford, Texas at a fair market price. The Royalty Agreement further providesthat the Company will have the right, when and if Antineoplastons are approvedfor use and sale by the FDA, (i) to produce all Antineoplaston products to besold or distributed in the United States, Canada and Mexico for the treatmentof cancer and (ii) to lease from Dr. Burzynski the entire premises located at12707 Trinity Drive, Stafford, Texas at terms and rates competitive with thoseavailable in the real estate market at that time, provided that Dr. Burzynskidoes not need the facility for his use.

**Other Transactions**

Since Tadeusz Burzynski’s death on June 13, 1998, theCompany has paid his widow, Zofia Burzynski, $1,000 per month as death benefitpayments. Tadeusz Burzynski was formerly an officer and a director of theCompany and the brother of Dr. Burzynski.

## **ITEM13.****       EXHIBITS**

| 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)).                                                                                       |
|        |       |                                                                                                                                                                                                                                                                               |
| 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                                                                                         |

 

20

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|        |   | 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 (filed herewith).                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                      |
| 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

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## **ITEM 14.       PRINCIPALACCOUNTANT FEES AND SERVICES**

The following table sets forth the aggregate feesbilled to the Company by its principal accounting firm, Fitts, Roberts &Co., P.C., for fiscal years ended February 28, 2007 and 2006, respectively:
|                       | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------------|------------|----------|------------|----------|------------|
|                  |       |     |       |     |       |
| *Audit  Fees (1)*     |       | *$*      | *31,800*   | * * | *$*        | *32,650* |   |
| * *              |       | * * | * *   | * * |       |
| *Audit-Related  Fees* |       | *$*      | *0*        | * * | *$*        | *0* |   |
| * *              |       | * * | * *   | * * |       |
| *Tax  Fees*           |       | *$*      | *0*        | * * | *$*        | *0* |   |
| * *              |       | * * | * *   | * * |       |
| *All  Other Fees*     |       | *$*      | *0*        | * * | *$*        | *0* |   |
| * *              |       | * * | * *   | * * |       |
| *Total*               |       | *$*      | *31,800*   | * * | *$*        | *32,650* |   |

 

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(1)           The2007 amount includes estimated fees of $9,800 to complete the audit.

**Audit Fees** were for professionalservices rendered for the audit of BRI’s consolidated financial statements andreview of the interim consolidated financial statements included in quarterlyreports and services that are normally provided by Fitts, Roberts & Co., P.C. in connection with statutory andregulatory filings or engagements.

**Audit-Related Fees** are forassurance and related services that are reasonably related to the performanceof the audit or review of BRI’s consolidated financial statements and are notreported under “Audit Fees.”  There wereno Audit-Related Fees incurred in fiscal years 2007 or 2006.

**Tax Fees** were for professionalservices for federal and state tax compliance, tax advice and taxplanning.  There were no Tax Feesincurred in fiscal years 2007 or 2006.

**All Other Fees** were for servicesother than the services reported above. There were no Other Fees incurred in fiscal years 2007 or 2006.

**Audit Committee’s Pre-Approval Policies andProcedures**.  Asdisclosed above in Item 9, the Company does not have an Audit Committee.  The Board of Directors has not adopted anypre-approval policies or procedures.

22

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### **SIGNATURES**

In accordance with Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant caused this report to be signed on its behalf by theundersigned, 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 29, 2007 |       |                                    |   |

 

23

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Each person whose signature appears below constitutes and appoints Dr.Stanislaw R. Burzynski his/her true and lawful attorney-in-fact and agent, withfull power of substitution and resubstitution, severally, for him/her inhis/her name, place and stead, in any and all capacities, to sign any and allamendments to this report, and to file the same, with all exhibits thereto andother documents in connection therewith, with the Securities and ExchangeCommission, granting unto said attorney-in-fact and agent full power andauthority to do and perform each and every act and thing requisite andnecessary to be done in and about the premises, as fully to all intents andpurposes as he/she might or could do in person, hereby ratifying and confirmingall that said attorney-in-fact and agent may lawfully do or cause to be done byvirtue hereof.

Pursuant to the requirements of the Securities Act of 1934, this reporthas been signed below by the following persons in the capacities and on thedates indicated.
| /s/ Stanislaw R. Burzynski           |   |   |               |
|--------------------------------------|--------|--------|--------------------|
| Stanislaw R. Burzynski               |   |   | Date: May 29, 2007 |
| President, Secretary,  Treasurer and |   |   |               |
| Chairman of the Board of  Directors  |   |   |               |
|                                 |   |   |               |
|                                 |   |   |               |
| /s/ Barbara Burzynski                |   |   |               |
| Barbara Burzynski                    |   |   | Date: May 29, 2007 |
| Director                             |   |   |               |
|                                 |   |   |               |
|                                 |   |   |               |
| /s/ Michael H. Driscoll              |   |   |               |
| Michael H. Driscoll                  |   |   | Date: May 29, 2007 |
| Director                             |   |   |               |
|                                 |   |   |               |
|                                 |   |   |               |
| /s/ Carlton Hazlewood                |   |   |               |
| Carlton Hazlewood                    |   |   | Date: May 29, 2007 |
| Director                             |   |   |               |

 

24

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**Burzynski Research Institute, Inc.**

**Financial Statements**

**For the years ended****February 28, 2007 and 2006**

----

| CONTENTS                                                 |       |       |
|----------------------------------------------------------|------------|------------|
|                                                     |       |       |
| ** **                                               | ** ** | ** ** |
| Report of  Independent Registered Public Accounting Firm |       |       |
|                                                     |       |       |
| Balance  Sheets                                          |       |       |
|                                                     |       |       |
| Statements of Operations                                 |       |       |
|                                                     |       |       |
| Statement of  Stockholders’ Deficit                 |       |       |
|                                                     |       |       |
| Statements  of Cash Flows                                |       |       |
|                                                     |       |       |
| Notes to Financial  Statements                           |       |       |

 

F-2

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REPORT OF REGISTERED PUBLICACCOUNTING FIRM

Tothe Board of Directors and StockholdersofBurzynski Research Institute, Inc.

We have audited the accompanying balance sheets of Burzynski ResearchInstitute, Inc. as of February 28, 2007 and 2006, and the related statements ofoperations, stockholders’ deficit, and cash flows for the years thenended.  These financial statements arethe responsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based on our audits.

We conducted our audits in accordance with the standards of the PublicCompany Accounting Oversight Board (United States).  Those standards require that we plan andperform the audits to obtain reasonable assurance about whether the financialstatements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, anaudit of its internal control over financial reporting.  Our audit included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting.  Accordingly, we express nosuch opinion.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements.  An auditincludes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

Inour opinion, the financial statements referred to above present fairly, in allmaterial respects, the financial position of Burzynski Research Institute, Inc.as of February 28, 2007 and 2006 and the results of their operations and theircash flows for the years then ended, in conformity with U.S. generally acceptedaccounting principles.
| /s/ Fitts, Roberts & Co., P.C. |   |
|------------------------------------|--------|
|                               |   |
| May 29, 2007                       |
| Houston, Texas                     |

 

F-3

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**BURZYNSKI RESEARCH INSTITUTE,INC.**

**BALANCESHEETS**

**February28, 2007 and 2006**
| ** **                                                                                                | ** ** | **2007**    | ** ** | **2006**    | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|-------------|------------|-------------|------------|
| ASSETS                                                                                                    |       |        |       |        |       |
|                                                                                                      |       |        |       |        |       |
| Current assets                                                                                            |       |        |       |        |       |
|                                                                                                      |       |        |       |        |       |
| Cash and cash  equivalents (Note 1)                                                                       |       | $           | 10,650     |        | $          | 17,797 |   |
|                                                                                                      |       |        |       |        |       |
| Total current  assets                                                                                     |       | 10,650      |       | 17,797      |       |
|                                                                                                      |       |        |       |        |       |
| Property and equipment,  net of accumulated depreciation and amortization (Notes 1,3 and 5)               |       | 2,276       |       | 3,620       |       |
|                                                                                                      |       |        |       |        |       |
| Total assets                                                                                              |       | $           | 12,926     |        | $          | 21,417 |   |
|                                                                                                      |       |        |       |        |       |
| LIABILITIES AND  STOCKHOLDERS’ DEFICIT                                                               |       |        |       |        |       |
|                                                                                                      |       |        |       |        |       |
| Current liabilities                                                                                       |       |        |       |        |       |
|                                                                                                      |       |        |       |        |       |
| Accounts payable                                                                                          |       | $           | 44,224     |        | $          | 14,046 |   |
| Accrued  liabilities                                                                                      |       | 21,878      |       | 35,650      |       |
|                                                                                                      |       |        |       |        |       |
| Total current  liabilities                                                                                |       | 66,102      |       | 49,696      |       |
|                                                                                                      |       |        |       |        |       |
| Total  liabilities                                                                                        |       | 66,102      |       | 49,696      |       |
|                                                                                                      |       |        |       |        |       |
| 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                                                                               |       | 74,747,268  |       | 70,469,459  |       |
| Discount on common  stock                                                                                 |       | (100        | )          | (100        | )          |
| Retained deficit                                                                                          |       | (74,931,733 | )          | (70,629,027 | )          |
|                                                                                                      |       |        |       |        |       |
| Total  stockholders’ deficit                                                                         |       | (53,176     | )          | (28,279     | )          |
|                                                                                                      |       |        |       |        |       |
| Total liabilities and  stockholders’ deficit                                                         |       | $           | 12,926     |        | $          | 21,417 |   |

 

The accompanying notes are an integral part of these financialstatements.

F-4

----

**BURZYNSKI RESEARCH INSTITUTE,INC.**

**STATEMENTSOF OPERATIONS**

**For theYears Ended February 28, 2007 and  2006**
| ** **                                | ** ** | **          2007          ** | ** ** | **2006**   | ** ** |
|-------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|
|                                      |       |                                                                                                                             |       |       |       |
| Revenue                                   |       |                                                                                                                             |       |       |       |
| Gain on sale of assets                    |       | $                                                                                                                                | —     |       | $          | 53,640 |   |
|                                      |       |                                                                                                                             |       |       |       |
| Operating  expenses                       |       |                                                                                                                             |       |       |       |
| Research and development (Notes 1 and 2)  |       | 4,132,689                                                                                                                        |       | 4,434,538  |       |
| General and administrative                |       | 168,673                                                                                                                          |       | 215,949    |       |
| Depreciation (Notes 1 and 3)              |       | 1,344                                                                                                                            |       | 3,890      |       |
|                                      |       |                                                                                                                             |       |       |       |
| Total operating expenses                  |       | 4,302,706                                                                                                                        |       | 4,654,377  |       |
|                                      |       |                                                                                                                             |       |       |       |
| Net loss before provision for taxes       |       | (4,302,706                                                                                                                       | )          | (4,600,737 | )          |
|                                      |       |                                                                                                                             |       |       |       |
| Provision for  income tax (Notes 1 and 6) |       | —                                                                                                                           |       | —     |       |
|                                      |       |                                                                                                                             |       |       |       |
| Net loss                                  |       | $                                                                                                                                | (4,302,706 | )          | $          | (4,600,737 | ) |
|                                      |       |                                                                                                                             |       |       |       |
| Earnings per  share information:          |       |                                                                                                                             |       |       |       |
| Basic and  diluted                        |       |                                                                                                                             |       |       |       |
| Loss per common share                     |       | $                                                                                                                                | (0.03      | )          | $          | (0.04 | ) |

 

The accompanyingnotes are an integral part of these financial statements.

F-5

----

**BURZYNSKI RESEARCH INSTITUTE,INC.**

**STATEMENTOF STOCKHOLDERS’ DEFICIT**

**For theYears Ended February 28, 2007 and  2006**
| ** **                                                                | ** ** | ** ** | ** ** | **Additional** | ** ** | **Discount on** | ** ** | ** **   | ** ** |
|---------------------------------------------------------------------------|------------|------------|------------|----------------|------------|----------------------|------------|--------------|------------|
| ** **                                                                | ** ** | **Common** | ** ** | **Paid-in**    | ** ** | **Common**           | ** ** | **Retained** | ** ** |
| ** **                                                                | ** ** | **Stock**  | ** ** | **Capital**    | ** ** | **Stock**            | ** ** | **Deficit**  | ** ** |
|                                                                      |       |       |       |           |       |                 |       |         |       |
| Balance February  28, 2005                                                |       | $          | 131,389    |           | $          | 65,876,210           |       | $            | (100       | ) | $ | (66,028,290 | ) |
|                                                                      |       |       |       |           |       |                 |       |         |       |
| Cash contributed by S.R. Burzynski M.D., Ph.D.                            |       | —     |       | 590,000        |       | —               |       | —       |       |
|                                                                      |       |       |       |           |       |                 |       |         |       |
| FDA clinical trial expenses paid directly by S.R.  Burzynski M.D., Ph. D. |       | —     |       | 4,003,249      |       | —               |       | —       |       |
|                                                                      |       |       |       |           |       |                 |       |         |       |
| Net loss                                                                  |       | —     |       | —         |       | —               |       | (4,600,737   | )          |
|                                                                      |       |       |       |           |       |                 |       |         |       |
| 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 | ) |

 

The accompanyingnotes are an integral part of these financial statements.

F-6

----

**BURZYNSKI RESEARCH INSTITUTE,INC.**

**STATEMENTSOF CASH FLOWS**

**For theYears Ended February 28, 2007 and  2006**
| ** **                                                                     | ** ** | **2007**  | ** ** | **2006**  | ** ** |
|--------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|
|                                                                           |       |      |       |      |       |
| CASH FLOWS FROM  OPERATING ACTIVITIES                                          |       |      |       |      |       |
| Net loss                                                                       |       | $         | (4,302,706 | )         | $          | (4,600,737 | ) |
| Adjustments to reconcile net loss to net cash (used)  in operating activities: |       |      |       |      |       |
| Depreciation                                                                   |       | 1,344     |       | 3,890     |       |
| FDA clinical trial expenses paid directly by S.R.  Burzynski M.D., Ph. D.      |       | 3,680,809 |       | 4,003,249 |       |
| Gain on sale of assets                                                         |       | —    |       | (53,640   | )          |
| Increase (decrease) in:                                                        |       |      |       |      |       |
| Accounts payable                                                               |       | 30,178    |       | (33,203   | )          |
| Accrued liabilities                                                            |       | (13,772   | )          | (3,746    | )          |
|                                                                           |       |      |       |      |       |
|  NET CASH  (USED) IN OPERATING ACTIVITIES                                 |       | (604,147  | )          | (684,187  | )          |
|                                                                           |       |      |       |      |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES                                          |       |      |       |      |       |
| Proceeds from sale of property and equipment                                   |       | —    |       | 95,000    |       |
|                                                                           |       |      |       |      |       |
|  NET CASH  PROVIDED BY INVESTING ACTIVITIES                               |       | —    |       | 95,000    |       |
|                                                                           |       |      |       |      |       |
| CASH FLOWS FROM  FINANCING ACTIVITIES                                          |       |      |       |      |       |
| Additional paid-in capital                                                     |       | 597,000   |       | 590,000   |       |
|                                                                           |       |      |       |      |       |
|  NET CASH  PROVIDED BY FINANCING ACTIVITIES                               |       | 597,000   |       | 590,000   |       |
|                                                                           |       |      |       |      |       |
|  NET  (DECREASE) INCREASE IN CASH                                         |       | (7,147    | )          | 813       |       |
|                                                                           |       |      |       |      |       |
| CASH AT  BEGINNING OF YEAR                                                     |       | 17,797    |       | 16,984    |       |
|                                                                           |       |      |       |      |       |
|  CASH AT  END OF YEAR                                                     |       | $         | 10,650     |      | $          | 17,797 |   |
|                                                                           |       |      |       |      |       |
| SUPPLEMENTAL  CASH FLOW DISCLOSURES:                                           |       |      |       |      |       |
| Cash Paid During the Year For:                                                 |       |      |       |      |       |
| Interest                                                                       |       | $         | 85,984     |      | $          | 73,857 |   |

 

The accompanyingnotes are an integral part of these financial statements.

F-7

----

BURZYNSKI RESEARCH INSTITUTE, INC.

NOTES TO FINANCIALSTATEMENTSS

**1.****            ****Background, Basis of Presentation, Economic Dependency and SignificantAccounting Policies:**

# Backgroundand Basis of Presentation

The financial statements ofBurzynski Research Institute, Inc. (BRI or the Company), a Delawarecorporation, include expenses incurred related to clinical trials, which weresanctioned by the U.S. Food and Drug Administration (FDA) in 1993, forantineoplaston 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 anddevelopment costs and as additional paid-in capital.  Other funds received from Dr. Burzynskihave also been reported as additional paid-in capital.  Expenses related to Dr. Burzynski’s medicalpractice (unrelated to the clinical trials) have not been included in thesefinancial statements.  Dr. Burzynski isthe President, Chairman of the Board and owner of over 80% of the outstandingstock of Burzynski Research Institute, Inc., and also is the inventor andoriginal 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 andMexico to use, manufacture, develop, sell, distribute, sublicense and otherwiseexploit all the rights, titles and interest in antineoplaston drugs used in thetreatment of cancer, once the drug is approved for sale by the FDA.

BRI’s administrative officesare located in Houston, Texas; its research and production facilities are inStafford, Texas. The Company operates primarily as a research and developmentfacility of antineoplaston drugs currently being tested for the use in thetreatment of cancer, and provides consulting services.  Segment information is not presented sinceall of the Company’s operations are attributed to a single reportablesegment.  The Company has had nosignificant revenue from external sources. BRI is currently conducting clinical trials on various antineoplastonsin accordance with FDA regulations, however, at this time none of theantineoplaston drugs have received FDA approval; further, there can be noassurance FDA approval will be granted.

Economic Dependency

BRI has generated no significant revenuessince its inception.  As of February 28,2007, the Company had a working capital deficit of approximately $55,000 andaccumulated deficit of approximately $75,000,000.  For the years ended February 28, 2007 and2006 the Company incurred losses of approximately $4,303,000 and $4,601,000,respectively.

F-8

----

Dr. Burzynski has funded thecapital and operational needs of the Company since its inception from revenuesgenerated through his medical practice pursuant to various agreements asdescribed in Note 2.

BRIis economically dependent on its funding from Dr. Burzynski through his medicalpractice.  Management estimates thatapproximately one-tenth of Dr. Burzynski’s patients are admitted and treated aspart of the clinical trial programs which the FDA regulates.  The FDA imposes numerous regulations andrequirements regarding these patients and the Company is subject to inspectionat any time by the FDA.  Theseregulations are complex and subject to interpretation and though it ismanagement’s intention to comply fully with all such regulations, there is therisk that the Company is not in compliance and is thus subject to sanctionsimposed by the FDA.

Inaddition, as with any medical practice, Dr. Burzynski is subject to potentialclaims by patients and other potential claimants commonly arising out of theoperation of a medical practice.  Therisks associated with Dr. Burzynski’s medical practice directly affect hisability to fund the operations of BRI.

Itis the intention of the directors and management to seek additional capitalthrough the sale of securities.  Theproceeds from such sales will be used to fund BRI’s operating deficit until itachieves positive operating cash flow. However, there can be no assurance that the Company will be able toraise such additional capital.

Significant Accounting Policies

## ***Cash andCash Equivalents***

The Company considers allhighly liquid investments purchased with an original maturity of three monthsor less to be cash equivalents.

## ***Propertyand Equipment***

Property and equipment arerecorded at cost and depreciated using the straight-line method over theestimated useful lives of the assets, which range from 5 to 31.5 years.  Expenditures for major renewals andbetterments that extend the useful lives of property and equipment arecapitalized; maintenance and repairs are charged against earnings as incurred.  Upon disposal of assets, the related cost andaccumulated depreciation are removed from the accounts and any resulting gainor loss is recognized currently.

F-9

----

***Income Taxes***

The Company uses theliability method of accounting for income taxes, under which deferred incometaxes are recognized for the tax consequences of temporary differences byapplying the enacted statutory tax rate applicable to future years todifferences between financial statement carrying amounts and the tax basis ofexisting assets and liabilities. Valuation allowances are established when necessary to reduce deferredtax assets to the amount expected to be realized.  Income tax expense is the tax payable orrefundable for the period plus or minus the change during the period indeferred tax assets and liabilities.  Thecosts incurred related to the conduct of FDA approved clinical trials incurreddirectly by Dr. Burzynski within his medical practice are taxed directly to Dr.Burzynski and are not included in the Company’s tax provision.  The portion of the Texas franchise tax thatis based on income is treated as income taxes and included in the income taxprovision.

***Loss Per Common Share***

Basicand diluted loss per common share information for all periods is presentedunder the requirements of FASB Statement No. 128, “Earnings per share”.  Basic loss per common share has been computedusing the weighted average number of common shares outstanding during theperiod.  Potentially dilutive securitieshave been excluded from the computation of diluted loss per common share, astheir inclusion would be antidilutive.

### ***Management Estimates***

Thepreparation of financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptionsthat affect reported amounts of assets and liabilities at the dates of thefinancial statements and the reported amounts of revenues and expenses duringthe reported periods.  The significantestimates are the allocation of payroll and other expenses between the clinicaltrial expenses reported with Burzynski Research Institute, Inc. expenses andDr. Burzynski’s medical practice expenses. Department managers review at least quarterly the duties of eachemployee in their department and estimate the percentage of time each employeespends between clinical trials and the medical practice.  Payroll costs are allocated between clinicaltrials and the medical practice based on these percentages.  Other expenses are allocated based on thepercentage of payroll allocated to either clinical trials or the medicalpractice.  Management believes that theestimates and allocations are reasonable. Actual results could differ from these estimates.

F-10

----

***Stock Options***

EffectiveMarch 1, 2006, the company adopted the fair value recognition provisions ofFASB Statement No. 123(R), *Share-Based Payment,*using the modified-prospective-transition method.  Under that transition method, compensationcost recognized after March 1, 2006 includes: (a) compensation cost for allshare-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 originalprovisions of Statement 123, and (b) compensation cost for all share-basedpayments granted subsequent to March 1, 2006, based on the grant-date fairvalue estimated in accordance with the provisions of Statement 123(R).  Results for prior periods have not beenrestated.

Priorto March 1, 2006, the company accounted for the plan under the recognition andmeasurement provisions of APB Opinion No. 25, *Accountingfor Stock Issued to Employees,* and related Interpretations, aspermitted by FASB Statement No. 123, *Accounting for Stock-BasedCompensation.*  No stock-basedemployee compensation cost was recognized in the Statement of Operations forthe year ended February 28, 2006, as all options granted under the plan had anexercise price equal to the market value of the underlying common stock on thedate of grant.

Asa result of adopting Statement 123(R) on March 1, 2006, the company’s incomebefore income taxes and net income for the year ended February 28, 2006, isunchanged from the results if it had continued to account for share-basedcompensation under Opinion 25. Basic and diluted earnings per share for theyear ended February 28, 2006 is unchanged, irrespective, if the company had notadopted Statement 123(R).

Priorto the adoption of Statement 123(R), the company presented all tax benefits ofdeductions resulting from the exercise of stock options as operating cash flowsin the Statement of Cash Flows. Statement 123(R) requires the cash flows resulting from the tax benefitsresulting from tax deductions in excess of the compensation cost recognized forthose options (excess tax benefits) to be classified as financing cashflows.  There were no excess tax benefitsto classify for the year ended February 28, 2006.

Thecompany did not grant any options and no options previously granted vested inany of the periods presented in these financial statements.  Due to this fact there was no effect on netincome and earnings per share if the company had applied the fair valuerecognition provisions of Statement 123 (R) to options granted under thecompany’s stock option plan in all periods presented.

F-11

----

***Researchand Development***

Research and development cost are charged tooperations in the period incurred. Equipment used in research and development activities, which havealternative uses, are capitalized.

***Fair Value of Financial Instruments***

The carrying value of cash,receivables and accounts payable approximates fair value due to the shortmaturity of these instruments.  None ofthe financial instruments are held for trading purposes.

**2.****           ****Agreements With, and OtherRelated Party Transactions:**

The Company has agreementswith its majority shareholder and President Dr. Burzynski as further describedbelow:

License Agreement

Dr. Burzynski is the owner of patents involving the formulation,preparation, manufacture, production, use, dosage and treatment withantineoplastons.  The United StatesPatent Office and Patent Offices and Patent Officers of twenty-eight othercountries have issued the patents.  ThePatents for cancer treatment and diagnosis in the United States and Canada arelicensed to the Company pursuant to a License Agreement.

The License Agreement grants to the Company the exclusive right, in theUnited States, Canada, and Mexico, to use, manufacture, develop, sell,distribute, sub-license and otherwise exploit all of Dr. Burzynski’s rights,title, and interests, including patent rights, in antineoplaston drugs in thetreatment and diagnosis of cancer.  TheCompany will not be able to exploit such rights until such time asantineoplastons are approved, of which there can be no assurance, by the FDAfor sale in the United States and the appropriate authority in Canada andMexico.

The Agreement gives Dr. Burzynski the right to distribute, use andotherwise exploit antineoplastons in connection with treatment of patients inhis medical practice until such time as the FDA approves them for sale.

F-12

----

The License Agreement willterminate upon the earlier of the expiration of the last patent licensed to theCompany, or termination by Dr. Burzynski, at his option, if he is removed as adirector or officer of the Company without his consent, if the Company filesfor bankruptcy or if any shareholder or group of shareholders acting in concertbecomes the beneficial owner of the Company’s securities having voting powerequal to or greater than the voting power of the securities Dr. Burzynskiholds.

Under the License Agreement, the Company currently owns exclusive rightsto eight (8) issued United States Patents, three (3) issued Canadian Patentsand one (1) issued Mexican Patent.  TheCompany has one patent application pending in the United States and one patentapplication pending in Canada.

The five initial United States Patents (the “Initial Patents”) relateto: (i) Determination of Antineoplastons in body tissue or fluids as a testingprocedure to aid in the diagnosis of cancer; (ii) Processes for the preparationof purified fractions of Antineoplastons from humanurine; (iii)Processes for the synthetic production of Antineoplastons and methods oftreating neoplastic disease (cancer); (iv) Administration of Antineoplastons tohumans; and (v) Methods of synthesizing A-10. All but one of these Initial Patents have expired as of February 28,2007, the one remaining expires January 11, 2009. The Company does not believethe expiration of any of the Initial Patents will have a material adverseeffect on the Company.

The sixth United States Patent (the “2000 U.S. Patent”) coversLiposomal Antineoplaston therapies with markedly improved anti-canceractivity.  The 2000 U.S. Patent expiresMay 14, 2017.

The seventh United States Patent (the “2001 U.S. Patent”) is for atreatment regimen for the administration of phenylacetylglutamine,phenylacetylisoglutamine, and/or phenylacetate. The 2001 U.S. Patent expires on July 23, 2018.

The eight United States Patent (the “2005 U.S. Patent”) relates to adivisional application to the 2001 U.S. Patent. The 2005 U.S. Patent issued in September 2005 and will expire July 2018.

F-13

----

The three Canadian Patents (the “Canadian Patents”)relate to: (i) Processes for the preparation of purified fractions ofAntineoplastons from human urine, (ii) Processes for the synthetic productionof Antineoplastons and methods of treating neoplastic disease (cancer) and(iii) Liposomal Formulation of Antineoplastons. The Canadian Patents expire on November 14, 2006, June 4, 2002 and May14, 2017, respectively; however, the Company does not believe the CanadianPatents that expired in 2002 or in 2006 will have a material adverse effect onthe Company.

The Mexican Patent relates to a treatment regimen for theadministration of phenylacetylglutamine. This patent will expire January 14, 2019.

The pending patent application in Canada relates to atreatment regimen for the administration of phenylacetylglutamine.  Should this patent be granted, of which therecan be no assurance, it would expire in the year 2019.

Research Funding Agreement

Effective March 1, 1997, Dr. Burzynski restructured his fundingarrangement with the Company and entered into a Research FundingAgreement.  Under this agreement the twoparties agreed to the following:

1.             BRI agrees to undertake all scientificresearch in connection with the development of new or improved antineoplastonsfor the treatment of cancer.  BRI willhire such personnel as is required to fulfill its obligations under theagreement.

2.             Dr. Burzynski agrees to fund in its entiretyall basic research, which BRI undertakes in connection with the development ofother antineoplastons or refinements to existing antineoplastons for thetreatment of cancer.

3.             As FDA approval of antineoplastons willbenefit both parties, Dr. Burzynski agrees to pay the expenses to conduct theclinical trials for BRI.

4.             Dr. Burzynski agrees to provide BRI suchlaboratory and research space as BRI needs at the Trinity Drive facility inStafford, Texas, and such office space as is necessary at Trinity Drive and athis medical facility.

F-14

----

5.             In the event the research described in theagreement results in the approval of any additional patents for the treatmentof cancer, Dr. Burzynski shall own all such patents, but shall license to BRIthe patents based on the same terms, conditions and limitations as is in thecurrent license between the parties.

6.             Dr. Burzynski shall have unlimited and freeaccess to all equipment which BRI owns, so long as such use is not in conflictwith BRI’s use of such equipment, including without limitation to all equipmentused in manufacturing of antineoplastons used in the clinical trials.

7.             The amounts, which Dr. Burzynski is obligatedto pay under the agreement, shall be reduced dollar for dollar by thefollowing:

a.             Any income which BRI receives for servicesprovided to other companies for research and/or development of other products,less such identifiable marginal or additional expenses necessary to producesuch income (such as the purchase of chemicals, products or equipment solelynecessary to engage in such other research and development activity.

b.             The net proceeds of any stock offering orprivate placement, which BRI receives during the term of the engagement up to amaximum of $1,000,000 in a given BRI fiscal year.

8.     Effective February 29, 2004, the term of the ResearchFunding Agreement was extended to February 28, 2005, and was automaticallyrenewed for two additional one-year terms thereafter, unless one party notifiedthe other party at least thirty days prior to the expiration of the term of theagreement of its intention not to renew the agreement.  In addition to the foregoing terminationprovisions, the agreement automatically terminates in the event that Dr.Burzynski owns less than fifty percent of the outstanding shares of theCompany, or is removed as President and/or Chairman of the Board of theCompany, unless Dr. Burzynski notifies the Company in writing of his intentionto continue the agreement notwithstanding this automatic termination provision. The Company entered into an amendment tothe Research Funding Agreement, effective March 1, 2007, whereby theCompany and Dr. Burzynski extended the term thereof untilFebruary 28, 2008, with an automatic renewal for additional one-yearterms, unless our party notifies the other party at least thirty days prior tothe expiration of the then current term of the agreement of its intention notto renew the agreement.

F-15

----

Royalty Agreement

The Company entered into aroyalty agreement with Dr. Burzynski whereby upon receiving FDA approval forinterstate marketing and distribution, the Company agrees to pay Dr. Burzynskia royalty interest equivalent to 10% of the Company’s gross income, which royaltyinterest shall include gross receipts from all future sales, distributions andmanufacture of antineoplastons.  Dr.Burzynski will have the right to either produce antineoplaston products for usein his medical practice to treat up to 1,000 patients without paying any feesto the Company, or purchase from the Company antineoplaston products for use inhis medical practice to treat up to 1,000 patients at a price of the Company’scost to produce the antineoplaston products plus 10%.  Dr. Burzynski will also have the rightto either lease or purchase all the manufacturing equipment located at 12707Trinity Drive, Stafford, Texas at a fair market price.  The Company will also have the right to leasefrom Dr. Burzynski the entire premise located at 12707 Trinity Drive, Stafford,Texas at arms-length terms at rates competitive with those available in themarket at that time, provided that Dr. Burzynski does not need the facility forhis use.

The term of this agreement is indefinite and will continue until suchtime as both parties agree it is not in their mutual interest to continue.

Other Related Party Transactions

Since Tadeusz Burzynski’s death on June 13, 1998, the Company has paidhis widow $1,000 per month as death benefit payments.  Tadeusz Burzynski was formerly an officer anda director of the Company and the brother of Dr. Burzynski.

Dr. Burzynski owns the production facility located at TrinityDrive.  There is no formal leaseagreement between Dr. Burzynski and BRI; however, the Research Funding Agreementdescribed above provides that Dr. Burzynski will allow the Company the use ofthe building.  In addition, the RoyaltyAgreement states that after FDA approval is granted (though approval is notassured) 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 thefinancial statements as set forth in note 5. In addition, Dr. Burzynski’s medical clinic performs certainadministrative functions such as accounting, and allows BRI the use of someoffice space at no charge to the Company. Since May of 2000, Dr. Burzynski’s entire salary is paid through hismedical practice and he is not compensated by BRI for his services.

On November 26, 2005 the Company sold to Dr. Burzynski productionequipment and leasehold improvements appraised by an independent appraiser for$95,000.

F-16

----

The Company has received allsignificant funding from Dr. Burzynski through either cash contributed to BRIor the payment of the cost to conduct FDA approved clinical trials through hismedical practice, as disclosed in Note 1. Following is a summary of the capital contributed and clinical trialcosts paid by Dr. Burzynski.
|                                   | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|
|                              |       |     |       |     |       |
| Capital  contributed              |       | $        | 597,000    |     | $          | 590,000 |   |
| Clinical trial costs  paid direct |       | $        | 3,680,809  |     | $          | 4,003,249 |   |

 

**3.****            ****Property and Equipment:**

Property and equipment consists of thefollowing as of February 28th:
|                                            | ** ** | **Estimated**         | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|-----------------------|------------|------------|------------|------------|------------|
| ** **                                 | ** ** | **Useful Lives** | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|                                       |       |                  |       |       |       |       |       |
| Furniture and  equipment                   |       | 5 -  10 years         |       | $          | 15,577     |       | $          | 15,577 |   |
|                                       |       |                  |       |       |       |       |       |
| Total property  and equipment              |       |                  |       | 15,577     |       | 15,577     |       |
|                                       |       |                  |       |       |       |       |       |
| Accumulated  depreciation and amortization |       |                  |       | (13,301    | )          | (11,957    | )          |
|                                       |       |                  |       |       |       |       |       |
|                                       |       |                  |       | $          | 2,276      |       | $          | 3,620 |   |

Depreciation and amortizationexpense for the years ended February 28, 2007, and 2006 was $1,344 and $3,890,respectively.

**4.****            ****Employee Benefits:**

The Company has a self-funded employeebenefit plan providing health care benefits for all its employees. It alsoprovides for them group dental insurance, short-term and long-term disabilityinsurance, and life insurance.  Employeespay pre-tax premiums from $40 to $400 per month depending upon the insurancecoverage selected by the employee. Employees can select from two coverage plans, which have a $200 or $300deductible, varying out-of-pocket maximums, and a maximum lifetime benefit of$1,000,000 per covered participant.

F-17

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Due to stop-loss insurance,benefits payable by the Company are limited to $25,000 per person during thepolicy year.  The Company charged tooperations a provision of $221,294 for 2007 and $341,918 for 2006, whichrepresents the sum of actual claims paid and an estimate of liabilitiesrelating to claims, both asserted and unasserted, resulting from incidents thatoccurred during the year.  These amountsinclude costs related to employees of the medical clinic that have beenallocated to the Company.

The Company has a qualified401(k) plan which covers substantially all employees meeting certaineligibility requirements.  Participantsmay contribute a portion of their compensation to the plan, up to the maximumamount permitted under Section 401(k) of the Internal Revenue Code.  At the Company’s discretion, it can match aportion of the participants’ contributions. The Company’s matching contribution was $560 and $262 for the yearsended February 28, 2007 and 2006, respectively.

**5.****            ****Lease commitments:**

Dr.Burzynski leases certain equipment used in the clinical trials under leasesmaturing in two to three years.  Rent expenseincurred under these leases was approximately $71,354 and $69,425 for the yearsended February 28, 2007, and 2006, respectively.  Future minimum lease payments are as follows:
| 2008   |   | 33,911 |   |
|--------|--------|--------|--------|
| 2009   |   | 1,256  |   |
|   |   |   |   |
|   |   | $      | 35,167 |   |
|        |        |        |        |  |

In addition, as explained in Note 2, Dr. Burzynski owns the facilityused by the Company to perform research and produce its drug products.  There is currently no lease agreement;however, the facility’s costs are included in the accompanying financial statements.  Those costs include not only utilities andexpenses normally incurred by a tenant but also mortgage interest, insurance,property taxes and building depreciation. Interest, insurance, property taxes and building depreciation totaled$194,452 and $181,055 for 2007 and 2006, respectively.

F-18

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**6.****           ****Income Taxes:**

The costs incurred related to the conduct ofFDA approved clinical trials incurred directly by Dr. Burzynski within hismedical practice are deducted by Dr. Burzynski and are not included in the Company’stax provision.

The actual income tax benefit attributable to the Company’s losses forthe years ended February 28, 2007 and 2006 differ from the amounts computed byapplying the U.S. federal income tax rate of 34% to the pretax loss as a resultof the following:
|                                       | ** ** | **2007**  | ** ** | **2006**  | ** ** |
|---------------------------------------|------------|-----------|------------|-----------|------------|
|                                  |       |      |       |      |       |
| Expected benefit                      |       | $         | (1,462,920 | )         | $          | (1,564,251 | ) |
| Taxed directly  to Dr. Burzynski      |       | 1,462,920 |       | 1,564,251 |       |
| Other  adjustments                    |       | 8,465     |       | 2,545     |       |
| Change in  valuation allowance        |       | (8,465    | )          | (2,545    | )          |
| Texas franchise tax,  based on income |       | —    |       | —    |       |
|                                  |       |      |       |      |       |
| Income tax expense                    |       | $         | —     |      | $          | — |   |

The components of theCompany’s deferred income tax assets as of February 28, 2007 and 2006 are asfollows:
|                                               | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------------------------------------|------------|----------|------------|----------|------------|
| Deferred tax  assets:                         |       |     |       |     |       |
|                                          |       |     |       |     |       |
| Net operating  loss carryforwards             |       | $        | 407,368    |     | $          | 396,754 |   |
| Excess book  (tax) depreciation               |       | (638     | )          | (920     | )          |
| Accrued expenses                              |       | 3,253    |       | 5,684    |       |
| Alternative  minimum tax credit carryforwards |       | 42,603   |       | 42,603   |       |
|                                          |       |     |       |     |       |
| Total deferred  tax assets                    |       | 452,586  |       | 444,121  |       |
| Less valuation  allowance                     |       | (452,586 | )          | (447,121 | )          |
|                                          |       |     |       |     |       |
| Net deferred tax assets                       |       | $        | —     |     | $          | — |   |

 

F-19

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TheCompany’s ability to utilize net operating loss carryforwards and alternativeminimum tax credit carryforwards will depend on its ability to generateadequate future taxable income.  TheCompany has no historical earnings on which to base an expectation of futuretaxable income.  Accordingly, a valuationallowance for the total deferred tax assets has been provided.

The Company has net operating loss carryforwardsavailable to offset future income in the amount of $1,198,142 as of February28, 2007.  The net operating losscarryforwards 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     |   |

In addition, the Company hasalternative minimum tax credit carryforwards of $42,603.

**7.****           ****Stock Options:**

On September 14, 1996 theCompany granted 600,000 stock options, with an exercise price of $.35 pershare, 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

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Theoptions are valid in perpetuity.  Inaddition, for a period of 10 years from the grant date, they increase in thesame percentage of any new shares of stock issued; however, no additionalshares have been issued since September 14, 1996.  None of the options have been exercised as ofFebruary 28, 2007.

**8.****            ****Commitmentsand Contingencies and Supply Source:**

As described in Note 2, theCompany entered a Royalty Agreement with Dr. Burzynski.  Under that agreement, upon FDA approval, theCompany is obligated to provide Dr. Burzynski the right to produceantineoplaston products to treat up to 1,000 patients without paying any feesto the Company or the right to purchase antineoplaston products to treat up to1,000 patients at cost plus 10%.

The Company produced antineoplaston products to treat approximately 85to 100 patients during the years ended February 28, 2007 and 2006.  Management estimates the current productionfacilities have the capacity to produce product to treat approximately 1,500patients.  There is space available atthe current site to expand the facility for increased capacity if necessary.

The Company received approximately twentyfour percent and nineteen percent of the chemicals used in producingantineoplastons from two individual suppliers during the year ended February2007 and twenty nine percent and fifteen percent during the year ended February2006.  The Company has establishedadditional vendors to supply these chemicals.

F-21

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